The Federal Democratic Republic of Ethiopia

This study by the Pakistan Business Council (PBC) titled “The Federal Democratic Republic of Ethiopia” is part of the PBC’s Market Access Series 2020 — 21. The Continent of Africa is a non-traditional market for Pakistani exporters. As part of its support for the Government of Pakistan’s efforts to increase exports, the Pakistan Business Council (PBC) has initiated a series of studies to better understand the potential for increasing exports to the African continent. Due to its large population and rapid economic growth, Ethiopia has the potential to be one of Africa’s biggest economies.

This study on the Federal Democratic Republic of Ethiopia follows an earlier study on The Republic of South Africa

Major Recommendations for Increasing Exports to Ethiopia

Credit lines for merchandise exports are required
Export credit insurance is required for covering commercial, political, and extraordinary risks involved in exporting to Ethiopia. The insufficient level of forex reserves in Ethiopia among other things exposes exporters to credit risk.

Online visa policy needs to be activated
Currently, Pakistani exporters are unable to avail online visa application facility. Moreover, there is no Ethiopian embassy in Pakistan. To strengthen bilateral ties, it is important to engage with the Ethiopian authorities to ensure online visas for Pakistani businessmen.

Large-scale and reliable importers need to be identified
Ethiopian importers require explicit permission for foreign exchange from the central bank before they can import. Large-sized and reputable importers are in a better position to seek approvals. Pakistani exporters, as well as commercial counsellors, could help identify large-scale importers.

Partial subsidies for surgical & pharmaceutical products registration
Surgical and pharmaceutical products are in demand in Ethiopia. Government authorities procure around 80 percent of surgical and pharmaceutical products in Ethiopia. However, none of the Pakistani exporters of these products have got their products registered in Ethiopia citing costs as a major impediment. It is recommended that the government of Pakistan assist Pakistani firms by partially covering registration costs incurred by them.

Preferential market access
Ethiopia is currently not a full member of the WTO and is also not a signatory of common external tariffs under COMESA. Unlike other African countries, there is a scope for bilateral trade negotiations. Pakistani authorities should initiate negotiations with their Ethiopian counterparts to ensure better market access.

Ethiopian market is largely ignored by Pakistani exporters
There exists potential for exporting to Ethiopia products in Pakistan’s export basket. Ethiopia is among the least developed countries, however, robust economic growth coupled in the last decade with trade liberalization has attracted investors as well as exporters.

The Government of Pakistan devised a ‘Look Africa Plan’ in 2017 for promoting exports to Africa, the Plan needs to be implemented and exporters encouraged to avail of the opportunities available in Ethiopia.

Ethiopian buyers located in the Ethiopian SEZs should be targeted
Industries in the Ethiopian SEZs enjoy zero duty on imports along with other incentives for producing exportable products. Eastern Industrial Zone and Hawassa Industrial Park have been identified as major contributors to driving the Ethiopian manufacturing sector.

Pakistani exporters need to focus on Ethiopian buyers located in SEZs to expedite export opportunities by meeting the demand of these industrial importers.

Equity investments in the Ethiopian SEZs should be considered
The Economic Coordination Committee (ECC) of Pakistan has recently amended the foreign equity investment rules to promote foreign investments. Ethiopia has one of the world’s most conducive investment laws and has attracted the attention of international investors in the last few years. Tax incentives, land-lease terms, customs duty concessions, and utility rates are far more attractive in Ethiopian SEZs as compared to those of other LDCs including Bangladesh, Myanmar, and Cambodia.

Pakistani investors should consider investing in these SEZs and use Ethiopia as an export hub for the rest of the African continent.

Cement exports to Ethiopia
To protect the local industry, Ethiopia banned cement imports in 2012. However, due to shortages and inflationary pressures the government has lifted the ban and allowed imports through the ‘Franco Valuta’ channel in the last quarter of 2020. Pakistan has a competitive advantage to export cement to African countries and was the only exporter to Ethiopia with exports worth $15.46 million in 2012.

Following the lifting of the ban, Pakistani cement exporters need support to recapture their market share in the Ethiopian market.

Pakistan's Exports of Cement to Ethiopia

Major Findings of the Study

  • Surgical instruments, semi-finished leather, textiles, and medicaments are currently the top exports of Pakistan to Ethiopia. Domestic textiles and leather industries are highly protected in Ethiopia with tariffs of up to 35 percent. Out of the 15 top Pakistani export products, 7 belong to the textile sector at the HS-06-digit level.
  • The largest increase of 330.2 percent in 2019 over 2018 was witnessed in Pakistan’s exports of ‘Instruments and appliances (HS-901890)’ to Ethiopia. Around 80 percent of surgical and medical instruments are being procured by government agencies. These products also face a relatively lower tariff of 5 percent in Ethiopia.
  • A new commercial section in the Pakistan Embassy in Ethiopia has been set up since early 2020 to promote bilateral trade, Pakistan has lifted restrictions on imports of red kidney beans from Ethiopia. It is being reported by various sources that Ethiopia is also interested in promoting bilateral trade and is keen to establish its embassy in Pakistan. A direct air link between the two countries is also being finalized.
  • Paper & paper products (HS-481910, HS-482110 & HS-490199), and Tractors (HS-870120 & HS-870899), provide both product and market diversification opportunities for Pakistan’s export basket.
  • Pakistan’s exports to Ethiopia are highly correlated with consumer price inflation and the current account balance of Ethiopia whereas they are negatively correlated with the exchange rate.
  • Under the current trade scenario, there exists an export potential of at least $200 million to Ethiopia mainly driven by sectors that include textiles, leather, surgical & pharmaceuticals, cement, agricultural, and engineering products.
  • The average tariff applied by Pakistan on products originated from Ethiopia ranges between 3 to 59 percent with an average rate of 13.5 percent. However, the tariff faced by Pakistani products in Ethiopia ranges between Zero & 35 percent, with an average tariff of 18.5 percent.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 85) of Pakistan’s largest
businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and
global competitiveness. More information about PBC, its members, objectives and activities can be found on its