Political Stability is Key for Ethiopia’s Draft Trade Policy

The Government of Ethiopia recently released its Draft Trade Policy. The 46-page document serves as a guideline for the government when negotiating and implementing bilateral, regional, and multilateral trade agreements and when taking domestic measures to facilitate and regulate trade.

For years, Ethiopia has needed a single comprehensive trade policy document. Instead, it had a raft of general economic plans and policies to fill the gap, notably the previous Growth and Transformation Plan I and II and the current Ten Years Development Plan. These documents focused on increasing Ethiopia’s market access, trade competitiveness, and strengthening its economic relations with other countries.

What makes the Draft Policy different from the other policy documents is its focus on outlining Ethiopia’s trade strategy. Such a document should have been adopted before Ethiopia applied to join the World Trade Organization (WTO) in 2003 and before joining the African Continental Free Trade Area (AfCFTA) in 2019. But, as the saying goes, it’s better late than never.

What is in the Draft Policy?

The Draft Policy outlines the government’s objectives, priorities, and challenges regarding trade. It recognises the macroeconomic and climatic vulnerabilities associated with the economy’s excessive dependence on exporting agricultural commodities and emphasises the importance of diversifying exports and increasing market access for Ethiopian products. The latter objective is to be achieved by expediting Ethiopia’s accession to the WTO, implementing the AfCFTA Agreement, and entering into other trade arrangements.

The Draft Policy has the goal of building a competitive, fair, and efficient business environment in Ethiopia, which is conducive to traders and investors and robustly protects consumers. Reducing Ethiopia’s high trade costs and improving its customs system are priority areas. These challenges are caused by the country’s land-locked status, underdeveloped logistics and internal transport systems, and an inefficient customs system. Another objective of the Draft Policy is to help generate foreign currency through the economy’s integration into other economies, supplementing the macroeconomic policy.

The Draft Policy recognises the ever-expanding scope of trade policy and identifies specific issues and stakeholders in trade. It urges that issues of gender, climate change, jobs (workers’ interests), persons with disabilities, and micro-, small and medium-sized enterprises be mainstreamed into trade policy development and implementation. Moreover, the Draft Policy states that although the Ministry of Trade and Regional Integration leads the development and implementation of trade policy, several other government agencies need to participate. It also envisages the role of development partners in implementing trade policy reforms, including supporting doing-business reforms and export promotion. Finally, it includes a system for monitoring and evaluating its implementation and impact.

Some Critical Points

Since the Council of Ministers is yet to approve the Draft Policy, some parts of it might need further consideration before its adoption.

The Draft Policy must be regarded as part of Ethiopia’s development policy. It is also essential to adopt the approach of the UN Conference on Trade and Development’s (UNCTAD) Trade Policy Frameworks for Developing Countries that put “trade policy as a branch of development policy, relating this topic to the Sustainable Development Goals”. It demands a holistic approach to align the Policy with other policies that are related to trade, including Industrial Policy, Environmental Policy, and Education Policy. Thus, the role and implications of the Draft Policy in addressing Ethiopia’s major economic problems, including addressing issues of poverty, unemployment and inflation, must be analysed and incorporated into the Policy.

Besides, the Draft Policy needs revision concerning protecting intellectual property rights (IPRs). It states that IPR protection encourages innovation, enhances domestic and foreign investments, and improves competitiveness. However, it needs to emphasise another aspect of IPRs, which is granting access to the public to the products, works and methods protected by the rights. This is particularly relevant, for example, given the recent controversies regarding patent protection and vaccine access in response to the COVID -19 pandemic.

Other areas of the Draft Policy need further consideration. It is essential to list all relevant government agencies in the Policy and their areas of interest, such as the Ministry of Finance and the Customs Commission on fiscal aspects of trade and the Ethiopian Standards Institute on product standards. This can help instil a sense of ownership and commitment on the part of the agencies, which must be followed by massive campaigns to train their relevant staff on how the Draft Policy should be implemented. Likewise, further engagements with the private sector to solicit input for the Draft Policy and address the sector’s needs and concerns are essential.

The Council also needs to examine and adopt the Draft Policy as soon as possible because Ethiopia’s WTO accession process has recently resumed. The government has also newly established a National AfCFTA Implementation Committee and is preparing to develop a National AfCFTA Implementation Strategy. Finalising the Draft Policy would help guide all stakeholders in these critical measures.

The Elephant in the Room: Political Stability

It is worth noting that the Draft Policy’s ability to achieve its desired objective requires addressing severe domestic problems. The UNCTAD, as mentioned in the above publication, states that local constraints can be more significant challenges for exporters than tariff and non-tariff barriers in foreign markets. In Ethiopia, these challenges include political instability, a problematic bureaucracy, and a challenging business environment in many other aspects. Addressing these problems would greatly help the Ethiopian economy benefit from trade and investment.

Above all, restoring political stability by engaging all stakeholders should be given priority. Without losing sight of the shocks that the economy recently experienced due to other factors (COVID-19, the Russia-Ukraine war and droughts, as the IMF stated), the different conflicts in Ethiopia have caused (and are still driving) colossal human and economic costs.

A study by the Overseas Development Institute found that the two-year war in northern Ethiopia resulted in reduced agricultural production, exports, trade and investment, not to mention Ethiopia’s suspension from the preferential trading benefits of the US African Growth and Opportunity Act (AGOA).

As reported in May this year, the government estimated the cost of rehabilitating northern Ethiopia at USD 20 billion for the next five years. [While the conflict in Tigray has been over with devastating effects, another conflict has been going on for months in the state of Amhara and several other parts of Oromia, which makes the country less attractive to foreign investment. It also makes doing business very risky and costly for domestic investors.] These situations will pose a critical challenge to the success of the trade policy.

Surprisingly, however, the Draft Policy does not mention the impact of the war and on-going conflicts on the country’s trade and investment. It would be practically impossible to successfully implement trade and other reforms and attract the investment that the Draft Policy envisages without stability. Yet, if coupled with severe measures to reinstate peace, the Draft Policy can serve as part of Ethiopia’s economic rehabilitation plans.

While it is helpful to have the Draft Policy, whatever desired objectives contained in it can be realised for the benefit of the Ethiopian people only under a stable political system supported by an enabling trade and investment environment.

12th Year • Nov 16 – December 15 2023 • No. 123

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