Zero or no zero tariff, the manufacturing industry in Ethiopia is already feeling the pinch from the free market policy. The non-protectionist trade policy or rather liberal style that was different from what Ethiopia used to follow during the Marxist era requires that the country open up its borders to foreign goods.
As a result of the liberal trade policy, recently privatized manufacturers and private producers as well as long protected state plants are increasingly finding it difficult to compete with cheap goods from Asia. Here I cite the case of textile (including tailored clothes, mainly second hand too) and soap.
[And most of the goods produced by our neighbours is identical with what we produce anyway, so what we already have is that our manufacturers are already facing an unfair competition from Asia.] The argument put forward by the World Bank and the IMF in this regard is that Ethiopian goods from Ethiopia should also be welcomed abroad. This argument for a free trade among countries or economies of other countries is good on its own.
Theoretically, the argument for trade as an engine of growth is very sound. But the situation on the actual ground has to be looked at and studied carefully.
In the 70’s the US policy makers propagated excessively protectionist policies. It was only after their economy gained a comparative advantage at trading with the outside world, that they decided to push for a freer international trade.
The protectionist policies of the US economy that was practiced and enforced then, soon became outdated because the giant US was prepared for international competition-or rather international domination. This shift in policy is clearly described in one series of the World Development Report of the World Bank that was issued way back in the 70’s.
(If my memory is still serving me right around 1976, I think it was). The US trade policy was best suited for US national interest.
Since the United States was the muscle behind the World Bank and the IMF, and still is so-it got away with it. As it is now getting away with forcing the doors of nations wide open and sticking its feet inside.
After having explored the trade possibilities with East Europe- remember how the US multinationals jumped at the first opportunity of the collapse of the eastern block- the US now wants to compete with Asian countries over Africa. Surely Africa presents a huge market for the US, but African purchasing powers have to be raised in order for that to happen.
In order for Africans to eat McDonald’s or consume Coke, they have to be able to afford it. What the West wants of the Third World is that it becomes safe enough to operate a business in, and that the people or the nation just monied enough to consume the products produced in the West or to assume a politically correct stance to buy the goods that are assembled by the West in the host countries.
Ask these multinational companies to teach you how to produce the good at home by yourself-you will be regarded as a nationalistic food. What the Third World needs to do, of course is to produce its own basic iteMs. Who says comparative advantage cannot be attained? The Third World has to be able to gain comparative advantage in products other than agricultural.
Therefore, we have to invest in capital goods, in machinery and technologies that enable us to produce a substantial mount and variety of basic items that we need. Then and only then can we be abe to compete internationally.
But if we are vulnerable and unable to feed our own people, how can we call the shots? We need medicine and petroleum to survive-both items that we heavily depend on imports. The west argues that unless we open up, we will never develop.
But they never practiced what they are preaching. In fact it was just the opposite.
The truth of the matter is free trade can only work for both parties only if there is an even playing field. If it is a buyer’s market, then, you cannot benefit much from trade as a seller.
When the manufacturing industries of Third World countries are unable
to compete with those of the West, it means they are still at that
stage of infancy. The infant industry argument
, as it is known
in Economics, says that the manufacturing industry has to be protected
until it reaches the stage where it can safely compete with foreign
producers.
The problem we are facing is this: our manufacturing industries have for decades been unable to pass that stage of infancy. Perpetual infancy cannot be condoned forever.
The Ethiopian government’s attitude towards the zero tariff
proposals by COMESA is commendable. But I think, a conscious effort
has to be exerted to promote and nudge our infant industries
to
become mature.
They have to grow up to become competitive. They have to be able to join the international trade arena, and compete successfully.
The benefits of international trade are immense. The industry that competes with the outside world is kept on its toes because it cannot afford to be backward, therefore, it becomes well developed and serves also as an agent for development at home because it demands better services from other manufacturers that have forward or backward linkages with it.
To elucidate, let us take the example of a mineral water producer. In order to be price and quality competitive, the bottler will have to produce a product that tastes good, looks good, and is cheap.
A glass bottle is simply not feasible in the west when they have plastic ones. The packaging and cork has to be competitive.
Therefore, the mineral water producer will depend on the plastic bottle manufacturers for the success of its product. Because the Ambo Water was not aggressively exported, it has not seen any development in its packaging until recently-even that, it still has a long way to go.
Look at the progress Highland Spring Water has had over a short period of time. But the Highland manufacturer cannot give a competitive price abroad if it is importing its corks from South Africa or Europe and already spending US dollars for the production of a totally local resource.
When we say our industries are not competitive what do we mean? Here are some of the ways: First the technology used is backward as that used by the West. This means the resources (including labor) required to produce a certain amount of good is costly as compared to that used in the West.
Although labor is cheaper here, the raw material cost, the cost of transporting it, the technology itself is rather costly for us. At the end of the day, the unit price of our commodity will be higher than that produced in Malaysia for instance. Therefore, our product will not be price competitive. But that is not all.
Quality is another prohibitive tool the West uses against us. And sometimes justifiably so.
If our product is of poorer quality than the one produced in the west, who will buy a poor quality item at a high cost? It doesn’t make any economic sense. Therefore, our products have to be of better quality, and our technology has to be improved.
Although the technology used in the West may not necessarily be the best for us, there are other suitable technologies available in countries like India or China. Labor intensive technology, that enables us to absorb our labor force while at the same time produce better quality products is recommended.
I believe that it is the responsibility of our government and the commercial section of our embassies abroad to continually seek cheaper and useful technologies that can be used by our manufacturers. The government should increasingly play the role of advocator for change and improvement in areas such as technology transfer, better management skills for the benefit of the local producer-both government and private.
To go back to our example of Highland Spring Water, the government should for instance, advocate for the production of good quality plastic bottles locally. That is how the Japanese developed.
The active participation and involvement of the government is required. The government has to play a supportive role.
Saying no to Zero tariff is one step ahead, but it should not stop there. The government should also play a supportive role in being one big buyer of local products.
For instance, why doesn’t Ethiopian Airlines buy Highland Spring Water for its inflight usage? I hate to sound like I am advertising or advocating for one single company, but isn’t our local product good enough? Why don’t we also promote Ambo Water on Ethiopian Airlines? It is by supporting the local industry in such a move that we can promote them to become competitive internationally. The bottom line: let us go beyond prohibiting unjust competition, but let us grow up to become competitive.
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