Ethiopia’s Ministry of Industry embarks on an ambitious endeavour to revamp the nation’s incentive strategy through an extensive factory-to-factory survey, with a focus on assessing the impact of incentives on manufacturing industries.
Delegated to the Central Statistics Service (CSS), the survey is anticipated to be completed within the forthcoming eight months, concluding by May 2024.
Tilahun Abay, advisor to the Minister of Industry, expounded on the matter, stating, “A study is presently underway to revise the existing incentive strategy. However, prior to this revision, a survey is being conducted to assess the state of industries within the country. The Ministry of Industry has entered into an agreement with the CSS, which is already preparing to undertake the survey encompassing all manufacturing industries, both small and medium-sized enterprises, as well as large-scale industries.”
The advisor says the CSS was “selected due to its experience.”
The survey will cover between 26,000 to 31,000 manufacturing industries, employing a factory-to-factory approach rather than sampling techniques.
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Out of this total, 4,000 enterprises are classified as large-scale industries, with the remainder consisting of small and medium-sized establishments, as per officials.
Studies suggest that Ethiopia forfeits up to six percent of its GDP through incentives such as duty-free imports, tax holidays, and other packages, which unfortunately are often exploited.
The advisor highlighted, “The entire industry framework is based on incentives, which has proven futile. Most investments attracted to Ethiopia are solely motivated by the allure of incentive packages.”
“Once these incentives expire, operations cease. What we truly require are genuine and effective industries. The government has suffered substantial losses in terms of taxable resources due to the abuse of incentives. Despite the significant incentives provided for manufacturing, import substitution showed no tangible progress,” he said.
The current plan entails the implementation of a new incentive strategy and policy that is solely based on performance, according to Tilahun.
The new strategy aims to address the bottleneck of decentralized incentive provision and implementation systems.
Tilahun added, “Another issue lies in the decentralized nature of the current incentive system. Various entities, such as the Ethiopian Investment Commission, MoI, Ministry of Finance, customs office, regional states, and other offices, independently offer incentives without coordination, leading to rampant abuse.
No evaluation, Tilahun says, has been conducted to assess the impact of incentives on manufacturing, which has severely affected the economy.
Consequently, the establishment of a separate institution to monitor incentive usage and the implementation of periodic monitoring and impact evaluation mechanisms are being contemplated.
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