“At Policy Level, The Private Sector is Said to be the engine of the Economy; But this Engine Lacks the Necessary Accessories to Operate”

Ethiopian Chamber of Commerce and Sectoral Associations (ECCSA) was re-established in 2003 to safeguard the overall rights and benefits of its members, and serve as a bridge between the business community and the government. ECCSA is an apex organization of chambers and sectoral associations that represent close to 520,000 business enterprises across the country.
The Chamber unifies the voice of the private sector and promotes the sector’s leading role in the economy through advocacy, trade and investment promotion and capacity building. EBR sat down with Endalkachew Sime, the young and dynamic secretary general of the national chamber to learn about its core activities and challenges and the interventions needed to make the private sector the true engine of Ethiopia’s economy.

EBR: What are the major activities of the Chamber?
Endalkachew: The chamber’s activity is divided in to three: trade and investment promotion; research and advocacy; and capacity building. We provide need based training and relevant information to the private sector; technical and business development consultancy to augment the sector’s growth. We represent the interest of around 520,000 businesses in the country.

How do you measure the success of these programmes?
We have private public partnership dialogue forum where ECCSA identifies issues affecting the business environment in the country. We do that in consultation with the government. The chamber identifies and prioritizes major challenges the private sector face and conduct research to set agendas for the dialogue we regularly held with public officials. In the last seven years, 130 agendas were presented to the government and 46Pct of them have been accepted and partly addressed.

Can you mention some of the issues that are identified in this way?
Access to finance, tax, land, and logistic problems were the major identified problems and presented to the government.

Access to finance has always been a problem. The credit commercial banks provide for the private sector is not enough. Even though viable projects are presented to banks by companies engaged in priority sectors such as textile, leather and agro processing, there is still limited credit available to the private sector. Of course, the performance of the Development Bank of Ethiopia is better in this regard. But, that too is not enough. The issue of collateral has also been deterring a large number of businesses from accessing finance.

You regularly hold talks with key government officials; can you briefly outline the results of the discussions?
For instance, there was a 5Pct service charge while opening letters of credit; that has now been reduced to 0.5Pct. The business registration and licensing has now got computerized. The Ethiopia Revenue and Customs Authority (ERCA) and Ethiopian Investment Commission now provide one window services based on our recommendations.

Recently, ERCA conducted daily sales assessment throughout the country. But a big controversy sprouted immediately because the assessment had gross inaccuracies and were indeed exaggerated. What are you doing about this burning issue?
The fact that tax payers under ‘Category-C’ that keep financial records including sales were included in the assessment was strange for us. I think this is one of the reasons for the controversy. The other is the way complaints were handled by the authority. The complaint that was made against the authority was investigated by the Authority itself and alone. The process should have involved representatives of the private sector.

Hasn’t the chamber been involved?
We did, but that was after the sales assessment was already done. We did two things. We started to conduct a study on the issue, which will be given to the respective government authorities upon completion. But, because the problem required immediate response from the government, we met with senior government officials and discussed on how to handle the case. It is following these conversations which we initiated that ERCA started to revise the daily sales estimates of the 40Pct businesses whose initial assessment was found to be erroneous.

One of the main objectives of the daily sales assessment was to broaden the tax base. However, official statistics reveal that only 8,000 businesses joined the tax system after the assessment. Given this fact, do you think that ERCA achieved its goal?
Boosting revenues from tax collection is one of the basic duties of a government. This is necessary to provide basic infrastructure and other services for the people. So, there is no confusion about the need for increasing tax revenue.

However, the tax revenue of a given country should correspond to the size of its economy. In Ethiopia, the tax collection as percentage of the gross domestic product (GDP) remains low even compared with Sub Saharan average. So, matching this imbalance is the right thing to do.

So, you think the tax to GDP ratio in Ethiopia can reach the level neighbouring countries attained?
The problem comes while analysing the source of the economic growth the country has been registering in the last decade. In Ethiopia, the economic growth is mostly driven by public sector investment. The source of the growth and the structure of the economy should be assessed before comparing Ethiopia’s tax to GDP ratio with neighbouring countries. Comparing this figure with other sub Saharan African countries is not enough. The private sector’s contribution (to the growth of the economy) should also be considered.

In Ethiopia, there are around 1.2 million registered businesses. This is too small compared with several sub Saharan African countries. We should, at least, double the size of the private sector to broaden the tax base and increase tax revenue. Let’s not forget, expanding the tax base also requires modern tax management system.

Some of the business community complain that the chamber is not protecting the private sector’s interest. What is your take on this?
In terms of representing and protecting the interests of the private sector, the perception that the chamber is doing little might be a valid assertion. However, this could be due to the lack of information about what the Chamber does.

When we see the reality on the ground, the proclamation for the reestablishment of ECCSA was promulgated 14 years ago. But, the proclamation has many problems and loopholes. As a result, the chamber failed to organize the privet sector effectively and rally it for the national development. That’s why strongly call for its amendment
As it stands, because of the loopholes of the proclamation, we see duplication of efforts. The loopholes encourage free riders since membership is a voluntary option. It is common to see activities that should be done at regional level being carried out by ECCSA and vice versa. The proclamation also limits the chamber’s ability to strength itself in finance and human resource.

Despite these limiting factors, ECCSA has done so much in promoting business and investment in the country through multispectral interventions.

What is the chamber doing to convince the government to amend the proclamation?
We conducted a research employing local and foreign experts about that issue and gave the study to the appropriate government authorities. The issue is under the watchful eyes of the Ministry of Trade.

What are the other obstacles the chamber faces while representing the private sector?
The lack of well thought strategy that can guide the private sector and enable it to contribute more for the national economy is the major challenge. Although it is common to see such strategy in many countries even in developing countries, there is no such strategy to guide the growth of the sector in Ethiopia.

Under these circumstances, do you think the sector can be the engine of growth, as outlined in the first and second phases of the Growth and Transformation Plan?
Indeed, at policy level, the private sector is said to be the engine of the economy; but this engine lacks the necessary accessories to operate.

Developmental state growth model considers the private sector as an important tool for growth. This is the common in other developmental states. But in Ethiopia, this is not the case. We need to learn from the experience of other developmental states.

In what way could the developmental state growth model pave the way for better private sector participation in the economy?
The major role of the government should be to lay the foundations so that the private sector becomes the true engines of development. There is no doubt that the already built infrastructure by the government contributed for the country’s progress. But to sustain this momentum, the role of the private sector should be enhanced. This is because sustaining the growth that started from scratch needs enterprise oriented growth. Infrastructure oriented growth alone will not sustain the development.

Infrastructure oriented growth model initialize the development endeavours. But, an enterprise driven economic model is needed to sustain the growth. At the centre of enterprise driven economy growth model is the manufacturing sector that should be strengthened. Simply putting, the government is not expected to engage in the production of goods and services at this moment. Instead, its role should be limited to constructing roads that leads to factories and leave the production role for the private sector.

Considering the structure of the economy, do you think the country is on the right path?
For many years the contribution of the agricultural sector was higher than the remaining sectors. However, the service sector has been at the forefront in recent years. But we need to increase the contribution of the industry sector in general and manufacturing in particular to the overall economy.

When the service sector grows bigger than the other sectors, it leads a country to spend a lot of foreign currency for the import of consumer goods. This means the economy becomes import dependent, which creates foreign currency shortage that forces a nation to compromise on its priority of engagement in projects that helps to alleviate poverty, expand employment opportunities and increase productivity and production.

At the moment, the economy is growing; but the driver of the wheel is not the right one. Although the service sector is accelerating the growth momentum, the manufacturing sector should be at the front position. That’s necessary to build a broad based economy that benefits more Ethiopians.

The private sector also avoids manufacturing because they make easy money in the service sector. That has contributed for the underdevelopment of manufacturing in Ethiopia.
Well, the main problem is weak backward linkage of the sector with agriculture. Textile, leather and agro processing companies, among others, are not receiving enough raw materials from the agriculture sector. This is despite the fact that the country has vast potential in these areas.

The other is the lake of skilled human resource and availability of finance. Building a factory does not guarantee increased production and productivity. Logistics also play critical role in the development of manufacturing capacity.

Currently, there is a tendency of relaying on foreign investors to develop the manufacturing sector. What is your take on this?
Making the manufacturing sector the driver of the economic growth is essential to avoid the economic distress that might occur in the future. Building strong local private sector is essential for that. EBR

5th Year • September 2017 • No. 54