We heavily depend on merchandise coming from abroad. Here is a closer look at why we are not so prideful to import and buy imports extensively.
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There was a foreigner who once bashed Ethiopia on social media for priding itself over winning against colonization, while it can’t even produce toothpaste but imports it. The remark was a reflection of the disparity between our superpatriotic attitudes and our commitment towards a strong national economy. Owing to Unilever, we now, at least, make toothpaste. Nevertheless, we heavily depend on merchandise coming from abroad. Here is a closer look at why we are not so prideful to import and buy imports extensively.
Ethiopia has a long history of trade deficit; its imports exceed exports by a substantial amount. In the second quarter of 2024, the trade deficit ran $3.8 billion and is projected to continue in 2025, despite stabilizing trends. Apparently, this is a prevalent phenomenon across Africa. In 2024, for the $116.79 billion of exports to China, Africa imported a staggering $178.76 billion worth of goods from it. Ethiopia was ranked the 6th African country in negative trade balance as of 2024.
Why is trade imbalance so bad, or is it?
Not necessarily. The US has been running on trade deficits for decades, which turned out to be favorable as consumption significantly surpassed production. For them, it is an indicator of economic performance boost and enhanced living standards. Replacing production with economic imports improved overall efficiency, besides facilitating the availability of product varieties. Moreover, being a major importer has given them a stronger bargaining power with the source countries.
Context matters when trade deficits are brought up as an issue. Ethiopia’s case is troublesome as it resulted in economic dysfunction. A chronic shortage of foreign exchange, inflation, and underdeveloped local production are the fundamental ailments. Since the imbalance was induced by structural weaknesses, imports are high-value goods, while exports are dominated by primary commodities.
Ethiopia has major potential in agricultural production and light manufacturing. However, sugar, wheat, and rice are major imports on the rise, even with abundant resources available for cultivation. On the other hand, edible oil, processed food, pharmaceuticals, and textiles are also on the import list despite the local availability of production inputs. In addition to the hurdles of security, infrastructural challenges, technology gap, and lack of supply chain linkage, there are underlying forces that drive the import mania.
The instant profit trap
People are in business for returns, but pivoting on those could be detrimental to the economy. That’s, unfortunately, an issue clouding the import-export dynamics in Ethiopia. The appeal of sourcing finished commodities from abroad has lured many from the toil of production. There are fewer hurdles in importing than in setting up a facility and building a value chain from the inside out. Even many of those engaged in exports reinvest their earnings to import finished goods, undermining the development of domestic processing.
The consumer bias
Another justification for the extensive import is pinned on the undervaluation of domestic products by the Ethiopian consumer. From quality to presentation and marketing, there is a competitive edge locals have yet to outdo. Particularly, the urban purchasing behaviour is influenced by globalization and the digital age. Perceptions of foreign products as being of higher quality, reliability, and prestige make it hard to find a local market big enough for businesses to produce for.
Convicted and incentivized
Businesses should look beyond quick profits while the government tackles structural constraints. This needs to come with risk-sharing and incentivizing those who curb their gains for the hustle. In essence, national pride in action, coupled with a commitment to advance the local value chain, cultivates an efficient economy. Collective efforts in exploiting comparative advantages ultimately foster a better ecosystem for all.
