Taking over the U.S and China markets, European countries have become the major importers of Ethiopian commodities during the budget year of Ethiopia concluded July 7, 2020.
A new analysis by Cepheus Investment Advisory, a private equity firm shows that EU markets, rather than the US or China, are driving Ethiopia’s export growth. “The Netherlands became the biggest buyer of Ethiopian exports in FY 2019-20, absorbing US$308M or 10 percent of total exports. Together with Switzerland and Germany, these three European nations increased their purchases of Ethiopian goods by over US$300M last year, equivalent to the entire export increase (from US$2.66B to US$2.99B) in the same period,” said the paper, entitled, ‘Ethiopia’s Recent Trade Performance: A Data Pack and some observations’.
“By contrast, demand from the US and China fell sharply in 2019-20, by more than 25 percent in each case, though both had been the no. 1 buyer of Ethiopian exports in recent years,” it said. Meanwhile, the paper stated that China remains to be the leading origin for Ethiopia’s imports—as has been the case for the last 18 years. “Around a quarter of Ethiopia’s total imports, or US$3.6B, are sourced from China, and the share is even larger if looking at just non-oil imports. Other leading sources of imports are India, Kuwait, United States (all roughly US$1.1B each) and Turkey (US$612M),” it said.
Below are key findings of the analysis:
“Export mix: The shift in Ethiopia’s top export markets reflects a gradually changing product mix, especially the sharp rise in gold exports (now 7 percent of total exports, all purchased by Switzerland) as well as in flower exports (14 percent of total and mostly going to the Netherlands).
The exceptional rise in gold exports was helped by policy reforms at the central bank, while the jump in rose exports, besides revealing large expansions at several companies, is also a very positive reflection of the well-established air cargo services that—thanks to Ethiopian Airlines—allow for the delivery of roughly 5mn rose stems to the Dutch cut-flower auctions on a daily basis.
The modest performance of manufactured goods (textiles, leather) explains the fall in exports to the US, the primary buyer in this category, while reduced exports of oilseeds (sesame) this past year explain drops in exports to China. ‘Non-traditional’ exports, such as electricity exports (US$66M) as well as electronics exports (US$38M—mostly assembled mobile phones), account for rising exports to some African countries.
Exports vs other foreign exchange inflows: Total foreign exchange inflows into Ethiopia were US$20B last year, by our estimates, illustrating the still low (15%) contribution of goods exports to overall foreign exchange inflows. Other significant foreign exchange sources include services (~US$4.7B in 2019- 20), remittances (~US$4.7B), grants (~US$1.5B), loans (~US$2.7B), and FDI (US$2.4B).
Export outlook: We project exports of US$3.4B for this year, or 14 percent growth, on expectations of large volume increases for gold (alongside favourable global prices), another good year anticipated for coffee shipments (per industry sources), and continued strong performance in the roses/horticulture sector (which is benefiting from large new investment into greenhouse expansions). Export figures so far in the fiscal year are encouraging (e.g. for gold and coffee) and suggest that a 14 percent growth forecast may turn out to be too conservative; the Government forecasts US$3.9B in exports for the fiscal year, or growth of more than 25 percent.
Machinery and Petroleum are dominant imports: Machinery & Aircraft (~US$2.1B) were the largest import category, followed by petroleum products (US$2B), and metal and metal manufacturing items (US$1.5B). Petroleum imports are down from a peak of near 6 percent of GDP a decade ago (when oil prices were as high US$94 per barrel) to just 2 percent of GDP last year. Other large imports include cereal grains (US$843M, mostly wheat), medicines (US$680M), and fertilizers (US$598M).
Imports of Capital Goods and Consumer Goods now nearly the same: Based on an end-use classification of imports, imports of capital goods and consumer goods were each near US$4B last year—and together accounted for 60 percent of total imports. Though both have shrunk relative to GDP, capital goods imports have shown a relatively sharper fall over the years—from 11 percent of GDP five years ago (when overall investment was 39 percent of GDP) to just 4 percent of GDP last year (when the ratio was close to 34 percent of GDP).
Continued compression in imports: Overall imports have fallen in dollar terms for the past four consecutive years—and for close to a decade if seen relative to GDP. Imports to GDP fell to just 12.8 percent of GDP last year, down from around 30 percent of GDP a decade ago. This decline relative to GDP continues to support country’s external adjustment, most notably by helping reduce the current account deficit, at 4 percent of GDP in 2019-20, to its lowest level in eight years.
Import outlook: With respect to import trends, we believe the steady decline seen over the past several years will be reversed this fiscal year, and expect some moderate growth in USD terms. A significantly larger government budget (including stepped-up allocations for capital expenditure and mega projects), strong private sector construction sector demand, and still-high exceptional import requirements in areas such as wheat and other foodstuffs will lead to positive growth in imports, in our view. We project import growth of 7 percent for the year, somewhat above the Government’s expectations of 4.5 percent.”
Source: New Business Ethiopia