Cottage industry is a segment of the economy whose importance is usually sidelined in Ethiopia. Though accounting for an insignificant share of the economy, it is still believed to be a source of income for many relying on the production of handicrafts and small industry items. Requiring a very small amount of capital, cottage industries employ below 10 individuals and are known for very quality products that are hand-made and preferred by environment-sensitive consumers. Now, this traditional manufacturing system is facing extinction as the government prioritizes medium and large enterprises as well as industrial parks. EBR’s Ashenafi Endale investigates
Ashenafi Garo, 32, works 10 to 14 hours on his traditional weaving tool inside his workplace around Shiro Meda, in northern Addis Ababa. It takes him a full day to finalize a single ‘netela,’ a handmade garment larger than a scarf and up to four days for an ‘Habesha kemis,’ a handmade traditional dress made with pure cotton and artful finishing. Handed down from his family and generations prior, he has worked in weaving for seven years, though his productivity remains the same. What is more angering for Ashenafi, however, is the absence of government support to cottage industries like his.
“Despite the rise in demand for our products, there is no mechanism to improve our productivity as we are constrained in terms of technology and finance,” says Ashenafi.
For him, this is why many cottage industries go bankrupt or shift to other lines of business. “It is retailers and wholesalers that are benefiting from the products of cottage industries like ours. This is not fair,” he tells EBR.
Ashenafi sells a netela for ETB600 and an Habesha kemis for ETB2,000, with the latter sold for up to ETB15,000 in bridal shops in the Bole and Hayahulet areas. When made with sophisticated designs, an Habesha kemis is even sold up to ETB25,000, and usually sold to celebrities. Yet, hundreds of families around Shiro Meda who are dependent upon cottage industries struggle with this old fashion industry.
Such problems are not only observed in the capital, but also in regional states and towns throughout Ethiopia. A case in point is the experience of Neway Abera. The 34 year-old businessman uses traditional tools to tan, cut, sew and produce handmade shoes and sandals in a container shade in Sebeta, located in the special zone of the state of Oromia and just eight kilometers from Addis Ababa. “There is growing demand from people who want pure handmade products and unique design orders. Traders even ask me to export; if only I could produce with more speed. But that is not possible because I cannot access quality raw material supplies and land to increase my productivity,” explains Neway.
Such businesses, referred to as cottage industries, are home-based units of production dependent on human- or animal-propelled skills and technology. Cottage industry, also known as household industry, usually produce at residential localities, require very small capital, and employ less than ten people. Examples of such businesses include carpenting, jewelry making, shoes and clothes production, among others.
Weaving, leather working, and blacksmithing are the oldest forms of cottage industry in Ethiopia, making agricultural, household and construction equipment. Even though they require very low amounts of investment, they have significant contributions to Ethiopia’s economy.
Handcraft producers are the most common type of cottage industries, as they are currently preferred by a significant segment of consumers both in the domestic and international market. Cottage industries produce original products that are still in touch with culture and tradition and with genuine quality, as opposed to mass-industrial products. A growing number of consumers is also preferring them as environmental pollution consciousness gains momentum, both in developed and developing countries.
Developing countries have an advantage of producing cheaper products using cottage industries in comparison to developed countries. This is because they are labor intensive and require less capital. It is no different in Ethiopia where cottage industries were the backbone of the economy before the introduction of contemporary industrial policies and practices. Although their natural role is rural industrialization, no part of rural Ethiopia has capitalized on using such industries. The failure of linking them with the rural economy is becoming the main reason for the growing rural-to-urban labor migration in Ethiopia. Out of the traditional industries, only few mostly located in urban areas have survived to date, while the wider consumer base totally shifted to dumped cheap imported items.
The last time the Central Statistical Agency (CSA) conducted a cottage and handcraft industry survey was in 2001/02 and it serves as an indicator for the low-level attention given to cottage industries by the government. At the time, the industry comprised a total of 974,676 establishments, generating employment opportunities for 1.3 million people. In contrast, there were only 31,863 micro and small as well as 909 medium and large establishments, employing 196,787 people combined. The cottage industry used to account for 97Pct and 87Pct of the total number of manufacturing enterprises and employment opportunities created, respectively. However, its contribution in terms of value addition was 21.5Pct, according to the CSA. This is much better than the value added by medium and large industries.
Geographically, Addis Ababa constitutes over 40Pct of the close to 2,500 manufacturing enterprises in the country, and over 46Pct of the close to 200,000 jobs in the sector. In fact, value added by small and medium manufacturing enterprises that hire less than ten employees stood at 12Pct, while enterprises that hire over 50 employees add 42.6Pct value, according to a research conducted by Mulu Gebeyehu, senior researcher at Ethiopian Development Research Institute (EDRI).
In the 1970s and 1980s, cottage industries like weaving, pottery, blacksmithing, leather working, and jewelry making, along with other small-scale industries, constituted 5.4Pct of the gross domestic product (GDP), while manufacturing stood at close to 5Pct, according to the World Bank. However, the significance of cottage industry has diminished especially since the 1990s, while the share of manufacturing to GDP currently stood at 4.8Pct, according to data obtained from the National Planning Commission.
Contribution of small and cottage industries to GDP as of 2014/15 was 1.1Pct, down from 1.4Pct in 2009/10, while medium and large scale industries contribution rose from 2.5Pct to 3.7Pct in the same period, according to the 2018 baseline survey report by EDRI. As per the definition of CSA, small and cottage industries are not similar with micro and small enterprises, which are nationally defined as enterprises that employ up to 30 people while cottage and small establishments hire less than ten people.
Although a fraction of cottage industries are included in the micro and small enterprises strategy launched in 2005, most of Ethiopia’s industrialization policies initiated by the government over the past two decades have ignored cottage industries and import substitution. “Ethiopian small and medium industry strategy emphasizes on urban areas, which is not cottage industry. Cottage industry and rural employment opportunity is overlooked,” says Girum Abebe, former researcher at the Ethiopian Policy Research Institute (EPRI).
What’s more, increasing number of factories located in Addis Ababa and within industrial parks are replacing their old manual production mechanisms with computerized systems, paving the way for the emergence of the fourth industrial revolution. This creates division between experts who are concerned by ‘the fate of the domestic industry system’ and those who push for ‘late comers’ advantage’. Given the fewer capital requirements and high labor absorption, some experts argue developing countries like Ethiopia should start from industry 1.0, while others point to bridging shortcuts to industry 4.0 for bulk production.
Amin Abdela, (PhD), Director of the Trade and Industry Department at the Ethiopian Economics Association, is among the experts who lie in between. “China developed by producing bulk, but cottage industries cannot produce in bulk, due to their inefficiency. Unless specialized and upgraded with technology, the old manufacturing mechanisms cannot work in this era. It is medium level industries that are critically needed for developing economies like Ethiopia.”
Amin says only the USA and Russia achieved growth via large industry. “The Asian tigers and Japan succeeded by capitalizing on medium-level industries. At the same time, they upgraded their traditional cottage industries using technology.”
Historically, cottage industry was the launching pad into the first industrial revolution in England, leaving behind primitive industry. It is small scale, decentralized manufacturing that does not use power, machinery, and employs less than ten people. It usually operates besides agriculture where it can directly access raw material input and its outputs, in turn, serves the rural economy itself. Particularly over the last two decades, proto-industrialization has come close to extinction as the developed economies have endorsed the fourth industrial revolution.
Nonetheless, debate is raging whether developing countries should do the same or stick with cottage industry until their economies are structurally transformed. Many argue that small-scale industries would be appropriate to exploit economies of scale in developing countries because the size of their domestic market is limited due to their small geographical size and the low purchasing power of the population. In most cases, cottage industries would be sufficient to meet the marginal needs of rural areas, argues Solomon Wole, in his research titled ‘The State of Small-Scale Industries in Ethiopia: Problems and Policy Issues’.
“Since capital required per job created in small industries is relatively small, they can assist in the growing unemployment problem. The low capital requirement in small-scale industries makes it easier to set up many industries in many regions with relatively smaller investment,” he argues. Small-scale industries could be seeding grounds for the growth of entrepreneurship in developing countries, a fact that is yet to be considered by policymakers.
Birhanu Gizaw (PhD), Associate Professor of Industrial Engineering at Addis Ababa University (AAU) with three decades of teaching experience in Germany and Ethiopia, argues many African states have totally overlooked cottage industries, overwhelmed by contemporary western industrialization recipes. “Particularly, Ethiopia ignored the domestic industry since the government is fascinated with industrial parks. Cottage or handcraft industries could not scale up and harness technology, because Ethiopia’s contemporary industrialization policy shifted towards imported means of manufacturing, which could not serve better.”
Berhanu says most of the industrial parks have become wastage because they are not built based on feasibility studies but rather on addressing equity among regional states. “One of the country’s industrial parks, for instance, is not operating because it was built without water availability. Industrialization policy in Ethiopia focuses on manufacturing western products, not indigenous products. There is no local designing and manufacturing. Local factors and needs are not included in Ethiopia’s industrialization policy because the policy is copied from other countries,” he says.
Former Chief Economist of the National Bank of Ethiopia and current Director of EDRI, Yohannes Ayalew (PhD), is also amongst those who believes in the benefits of cottage industries, though pertinent to a small section of society. “Cottage industries are ideal for rural employment. However, industries must be around cities or rural towns if they want to grow. Otherwise, they must be part-time farmers.”
Yohannes argues that if cottage industries do not sell more products, it cannot go with economics of scale. “Even though cottage industries give huge employment opportunities, it has demand limitations.”
Girum also has doubts on the benefits cottage industries can bring in terms of employment opportunities. For him, industrialization in developing economies is more about employment structure. “Developing countries must have employment structures that leads people into the middle-income segment frequently,” he stresses. “With that in mind, it is better to have large industries that employ a huge workforce, than a huge self-employed workforce in numerous cottage industries.”
Girum argues that if 40Pct of the workforce in a developing country is self-employed, the economy cannot transform. “Over two-thirds of employment in developed countries are paying jobs. Middle-income status is achieved via paid employment, not by self-employment. In rural Ethiopia, paid employment is 13Pct, while it is 45Pct in urban areas.”
Arkebe Equbay, Senior Advisor to the Prime Minister, states that the government studied a lot of economically successful countries to craft the latest policies, particularly focusing on industrial parks. “Keeping that in mind, there were abundant industrialized economies to emulate, but all of them with their own flavors. We emulated Singapore, South Korea, and China, in terms of industrial parks, just like we benchmarked USA for the aviation industry,” said Arkebe in his book dubbed ‘Made in Africa’ published by Oxford University.
Currently, nine industrial parks are operational and 20 others are under development. The nine have exported products worth USD140 million in 2018/19, undershooting government’s over-ambitious targets. The parks are also unsatisfying in terms of large labor intake and are criticized for underpaying employees, leading to a high staff turnover. But for Arkebe, Ethiopia is still doing well in building industrial capability by investing in infrastructure and human capital. “Ethiopia’s progress in industrialization is at an early stage but there are good signs and it is on the right path for the future. Ethiopia’s industrialization policies were introduced with surpluses witnessed in agricultural yields,” he said during a recent interview with the Policy Center for the New South.
Yet, he overlooked the facts that almost all industrial inputs in Ethiopia are currently imported and that agriculture has not modernized and has thus failed to transform Ethiopian industry as envisaged.
Girum, on the other hand, suggests linking cottage industries with the agro-industry sub-sector. “If agriculture is modernized, the flourishing of small agro-industries like primary processing, value addition, packaging, cattle rearing and poultry is very likely. Hopefully, the current homegrown economic reform is aware of such potential not scratched so far.”
Amin underlies there is still room to revive and modernize cottage industries and to contribute to the whole process. “The question is to serve who? Any policy related to cottage industries should go hand-in-hand with rural modernization, which Ethiopia has forgotten.”
8th Year • Nov.16 – Dec.15 2019 • No. 80