Sources and Uses of Export
Support Services in
Berhanu Nega (Ph. D)
Director, EEPRI
Kibre Moges
Senior Researcher, Trade & Industry Division
And
Worku Gebeyehu
Assistant Researcher, Trade & Industry Division
May 2002
EEA/Ethiopian Economic
Policy Research Institute
Working Paper No
2/2002
CONTENTS
1. Introduction
2. Factors Affecting Export Success
3. Trade and Investment Liberalization in
4. Export Performance
5. Sample Exporting Firms and Export Support Services
5.1 Characteristics of sample exporting firms
5.2 Export profile and experience of firms
5.3 Sources and uses of specific export services
6. Domestic Suppliers of Export Support Services
7. Conclusion and Recommendations
Appendix I: Summary Table
Appendix II: Survey
Bibliography
LIST OF TABLES
Table 1. Volume of export: five years average 1981-2000
Table2. Value of major exports: five years average 1980-2000
Table 3. Export Structure: share in percent
Table 4. Direction of exports: share in percent
Table 5. Number of enterprises by export commodity group
Table 6. Some basic characteristics of exporting firms
Table 7. Export profile
Table 8. Information on foreign markets
Table 9. Contact making
Table 10. Pre-export support services
Table 11. Export finance
Table 12. Technical assistance
Table 13. Government facilitation
1. Introduction[1]
Trade liberalization has long been acknowledged as having major influence on the process of industrialization. There is no disagreement on the positive empirical association between trade openness and economic growth, though there has been little consensus as to the form of trade strategy best suited for encouraging industrial development, as this largely depends on the specific structure and feature of an economy.
The role of trade strategy as a determinant of industrial performance, hence economic growth, is based on the key role of incentives [Kirkpatrick, 1994], and the superiority of outward-orientation is related to the level and neutrality of government intervention in the incentive structure. It is argued that the combination of lower protection and neutrality of incentives between import-substituting and export promoting activities, will produce both static and dynamic benefits.
The static benefits are of two types. A lowering of protection levels confronts domestic producers with increased actual or potential competition from imports. This has the effect of stimulating the domestic manufacturers to lower their costs and prices and/or improve quality. A second type of static benefits can occur through allocative efficiency gains. This is the standard comparative advantage gain – from trade analysis. The removal of protective barriers introduces a set of relative prices for traded goods that corresponds to international opportunity costs. This allows for the reallocation of resources between and within sectors in accordance with comparative advantage. [Waciziarg, 1988]
The second area of economic gain from a more open trade regime is dynamic efficiency gain, or productivity growth. It is predicted that higher growth would be obtained from outward-looking policies. Exports are viewed as the key stimulus to greater capacity utilization, greater horizontal specialization, increased familiarity with and absorption of new technologies, greater learning by doing as a result of expanded output levels and stimulation effect of having to achieve international price and quality levels [Ibid, 1994)]
However, high export performance would not be achieved by liberalization alone. Many developing countries, which liberalized their economy in the hope of boosting and diversifying exports, and thereby generating appreciable growth, achieved only limited success. [Kirkpatrick, 1994] A host of factors determine export performance, which is the focus of the next section.
Similar to many developing
countries,
In many developing countries,
particularly
However, the public sector has had little experience in the provision of export promotion services. With respect to private enterprises, in addition to the lack of experience due to the previous “socialist” policy, which kept them at bay for long, the small size of the Ethiopian export market has not been conducive to generate expertise in this area.
In a developing economy such as
Although, it is now known that
there is some degree of awareness on the need for export promotion services,
there has not been any detail study made on the supply of such services in
Understanding the state of export
services requires studying both the supply and demand aspects of the service.
In poor countries such as
The second section briefly provides a theoretical synthesis on the determinants of export performance. The following two sections summarize liberalization measures undertaken since the early 1990s and the resulting export performance of the country. Sections five and six analyze the survey. Section five investigates in detail exporters’ response on the kind and extent of services they use, who the suppliers are and the level of satisfaction on the services provided. Section six attempts to identify domestic suppliers of export support services and which services they value most important. Finally we conclude by providing some recommendations.
2. Factors
Affecting Export Success
Export success is a cumulative
end product of a host of interrelated and reinforcing measures. (
These factors can be broadly classified into domestic and external factors.[2] External factors involve international/regional and individual country’s trade and related policies. The rules established by international organizations such as the World Trade Organization (WTO) may in the long run promote external trade. In the short run, however, the degree to which globalization pressurizes developing economies to open-up without allowing enough time to prepare for the challenges, could have a serious repercussion on their export performance. [Shafeaddin, 2000a] Similarly, the tendency of some regional organizations to protect their markets from external competition could deny access to export markets for developing countries. [Ibid, 2000a] Protective policies of countries (through tariff and non-tariff barriers), such as, for instance, the agriculture policies of some European countries, under pressure from internal industries, constrain exports of developing countries.
Domestic factors could be classified into two categories: factors that are internal and external to the firm. Those that are internal to the firm primarily affect total productivities, which is the fundamental determinant of competitiveness. Such factors include labor skill/education, personnel and engineering management, level of technology employed, planning, accounting, and other professional services, etc. Irrespective of what condition exists outside a firm, attaining a comparable level of productivity is a necessary condition, though not sufficient, for competitiveness.
Domestic factors that are external to the firm include, inter alia, government policies and incentives, the overall level of development/industrialization, and export support services. Government macroeconomic and sectoral policies, such as the exchange rate regime, fiscal and monetary policies, trade and investment, and industrial policies all have direct impact, not only on transaction costs but also on the productivity levels of enterprises. [McKean, et al. 1994 & Bonaglia, et al. 2001] But for such policies to help encourage exports they need to be tailored to the specific feature and structure of the economy (particularly, the industrialization level of the country) at issue. [Amsden, 1989] In hostile macroeconomic policy environments, where the private sector is not supported for its active involvement in international trade, export success cannot be expected. Also, the legal and regulatory framework (anti-corruption, custom administration, the bureaucracy, etc.) has a direct bearing on transaction costs. [Ibid, 1994]
1. External trade policies 2. Government policies and incentives 3. Level of industrialization/stage of
development ·
Infrastructure ·
Institutional framework ·
Educational level of the labor force ·
Degree of linkages between industries 4. Export support services ·
External market information ·
Contact making ·
Pre-export services (including export
finance) ·
Technical assistance ·
Government facilities 5. Firm-internal factors ·
Personnel and engineering management ·
Labor skill/education ·
Level of technology employed ·
Professional services
For firms in developing economies where competition against technologically well-established corresponding firms from developed countries has always been swimming upstream, government incentive structure specifically tailored to promote exports is important, at least in the initial stage. Incentives that are achievement oriented, time bound and with limited scope could be effective promotional instruments. [Shafaeddin, 2000b] Particularly, at the early stage of industrialization where export experience has not yet developed, subsidized services to exporters can have appreciable payoffs by speeding up export growth and creating a bandwagon effect.
The stage of development or level
of industrialization is also an important determinant of external
competitiveness and export performance through externalities. The level of
development of infrastructure, the overall institutional framework for economic
management, level of education of the workforce, the efficiency of
transportation and communication system in the country, the availability and
degree of domestic supply of inputs to exporting firms, the nature of home
demand for export commodities, etc., influence the performance of a country’s
exports. A recent study on the productivity and competitiveness of the leather
sector in
Figure 1. Expected causal links between export determinants
While most of the factors stated above, influence export performance largely indirectly, export support services have direct impact on export success. Such services range from information on foreign markets, such as price and quality standards, to highly specialized services, as production-related technical services. For this study export support services broadly involve export market information services, contact making services, pre-export support services including export-finance provision, technical assistance and government support services. [McKean, et al. 1994]
Government incentives and trade policies for promoting exports largely rely on uniform across-the-board incentives, like export subsidy or investment incentives. Trade policy may as well provide export services, such as marketing, shipping, freight forwarding, or customs clearance. However, such trade policy approach is meant for increasing exports without addressing supply side constraints existing in exporting countries. In contrast, export support services explicitly target supply-side constraints, which are typically formidable in developing countries. Avoiding supply-side constraints could stimulate a dynamic and sustainable export drive.
Export success requires undertaking all pertinent measures noted above. One of these, which is more of a prerequisite, is to create an enabling macroeconomic environment. The next section briefly explains major and relevant liberalization measures effected in the country since the early 90s.
3. Trade and Investment Liberalization in
Since 1992/93
One of the central elements of the new policy regime is to increasingly open the economy to foreign competition with a view of benefiting the economy from expanded markets and increasing its efficiency. Enhancing international competitiveness and export promotion require a host of interrelated and reinforcing measures, which have the added objective of inducing structural changes in the economy. Isolated policy actions focusing on just export related aspects alone may not lead to successful export performance. In fact sustainable international competitiveness is a derivative of successful industrialization. Broad economic reform measures, which are also relevant for promoting exports, have been undertaken over the last decade. Most important of these reforms include external sector liberalization, monetary and exchange rate policies, financial sector reform, investment policy, and public enterprise reform.
3.1 External sector policy: Substantial liberalization of the exchange and trading system has been undertaken. Import tariffs have been progressively reduced; the maximum rate today stands at 40 percent while the average is about 19.5 percent. The tariff band, excluding the zero-duty band, has been reduced down to six. Non-tariff barriers are generally lifted except in areas meant to enforce national security, environment, health, and safety regulations. [IMF, 2001]
Some specific measures to encourage exports are also effected. A duty drawback system is made operational on a differed payment basis-allowing exporters to import inputs at world prices up-front, though its implementation is still not efficient enough. The need for further improving and simplifying the operation of the duty drawback system and exemption schemes are also believed necessary. Export duty, except on coffee, is long lifted. The government seems to recognize the task of fostering private sector development through regular consultation between policy makers and the private sector. Also, the need for particular measures for improving exporters’ access to finance and land seem to be appreciated by the government.
In the exchange system, foreign exchange surrender requirement is eliminated and replaced with a conversion requirement, permitting the use of foreign exchange proceeds for current account transactions within four weeks. Exporters are now able to sell their foreign exchange receipts (90 percent of total proceeds) to any bank or Forex bureau at freely negotiated rates over the conversion period, holding the 10 percent indefinitely. An inter-bank market for foreign exchange, and hence the partial market determination of the exchange rate, is already made operational replacing the auction system. Foreign investors in the export sectors are now allowed to buy foreign exchange for remittances.
3.2 Monetary policy: Monetary policy will remain geared toward containing inflation and achieving the international reserve targets, while leaving scope for adequate growth in domestic credit to the private sector. Commercial Bank lending rates were deregulated, except the minimum deposit rate. The latter has to remain positive in real terms. Inter-bank money market is also made operational.
3.3 Financial sector reform: To promote financial intermediation and improve resource allocation through the Banking system, the minimum amount of treasury bills offered is made to be reasonably low, and a long-term bond market for private and public sector investments is planned to be operational. Also, to increase the level of competitiveness and scope of services in the financial system, foreign exchange bureaus are allowed to engage in all approved external current account transactions. There are now eight private banks and over eight insurance companies.
3.4 Investment policy: The investment regime has also been liberalized through a series of revised investment codes. Accordingly, wide economic sectors, including telecommunications and power, are now open for the participation of foreign investors. [UNCTAD, 2000] To ease administrative hurdles, the Ethiopian Investment Authority, is established to serve as a one-stop-shop for the promotion of foreign investment. Though further measures on this line is still required, many regulatory and policy constraints have already been removed. Privatization or liquidation of public enterprises, albeit slow, is proceeding. Already over 175 enterprises are privatized over the years.
As noted above, export success is a cumulative outcome of many factors, of which government liberalization policy is just one of them. Liberalization policies alone might result in a limited short-term increase in exports. However, neither this can be sustainable nor can there be diversification in the short-run. The next section shows this fact.
4. Export Performance
4.1 Volume of export: Over the last two decades, the volume of export has not shown a clearly discernible and sustainable positive trend, except a sharp rise in the second half of the 90s. Considering the five major export commodity groups, namely coffee, pulses and oilseeds, hides and skins, fruits and vegetables, and Chat, which today accounts for over 85 percent of total export earning, the volume of export of each commodity category, except fruits and vegetables, have been fluctuating. (Table 1) Only in the second half of the 90s, exports of most commodities showed a sort of leapfrog. One presumes that the shift in policies introduced in the early 90s, as explained above, might have contributed to the rise in exports, however, whether this would be sustainable is yet to be seen.
Table 1. Volume of export: five years average
1981-2000 (000 m. tons)
|
Period |
Coffee |
Pulses & Oilseeds |
Hides & Skins |
Fruits & Vegetables |
Chat |
|
1981-85 |
84.2 |
45.0 |
9.3 |
7.2 |
2.4 |
|
1986-90 |
80.5 |
20.7 |
9.8 |
10.2 |
1.9 |
|
1991-95 |
61.8 |
15.0 |
5.2 |
12.3 |
2.1 |
|
1996-2000 |
109.7 |
65.3 |
7.7 |
19.6 |
8.0 |
|
Avr. Annual Growth - % |
3.3 |
15.8 |
-0.5 |
8.1 |
18.0 |
Source: NBE, Quarterly Bulletin (various issues) & IMF, Financial Statistics,
March 2000.
Table 1 shows five years period average of exports in the last two decades. As shown in this table in two of the major export commodities, coffee and hides and skins, no appreciable growth was recorded over the decades. The volume of export in hides and skins actually declined in absolute terms, while coffee, after a steep decline until the mid 90s, recovered significantly thereafter. However, even during this recovery period, there has been a great deal of fluctuations. After a substantial increase (26 percent) in 1996/97 over the previous year, the volume of export declined consecutively in the next two years by 2.5 and 8.2 percent respectively. [NBE, Vol.16, No.3] In 1998/99 there was another recovery.
What can be inferred from this table is that while the trend in the last two decades had been dismal, the resurgence in the second half of the last decade is impressive. However, given no structural change in the economy (still weather dependent agricultural export) and the short time period of the recovery in the second half of the 90s as well as the annual fluctuation in this period, there is little ground to expect that the high export growth recorded in recent years could be sustained in the future.
4.2 Export earnings: The picture remains the same in value terms too. Table 2 shows exports in millions of dollars. Given the decline and tremendous fluctuation of international commodity prices, little positive change is expected in the value of exports than what is observed in the pattern of volume of export. In fact for some commodities, such as pulses & oilseeds and Chat, average growth in value terms are lower, though marginally, than the corresponding rates in physical terms. However, for other commodities, such as hides & skins and fruits & vegetables, there are indications that there have been marginal unit price increases over the same period.
But the general picture is that over the two decades, unlike manufactured exports whose prices continuously rise, there has been no noticeable change in the international prices for primary commodities.
Table 2.
Value of major exports: five years average 1981-2000 (M.USD)
|
Period |
Coffee |
Pulses & Oilseeds |
Hides & Skins |
Fruits & Vegetables |
Chat |
Total Export |
Total export (% of GDP) |
|
1981-85 |
247.07 |
21.98 |
44.21 |
2.20 |
12.14 |
397.43 |
7.3 |
|
1986-90 |
255.99 |
14.34 |
59.74 |
4.22 |
8.44 |
399.25 |
5.7 |
|
1991-95 |
168.96 |
9.97 |
44.69 |
2.83 |
17.15 |
275.16 |
3.4 |
|
1996-2000 |
317.98 |
39.05 |
44.83 |
5.15 |
45.60 |
499.93 |
7.9 |
|
Avr. annual growth -% |
3.86 |
15.09 |
0.68 |
9.39 |
15.29 |
3.37 |
---- |
Source: NBE, Quarterly Bulletin (various issues); IMF, Financial Statistics, March 2000; EEA, Annual Report on the Ethiopian Economy, Vol. 1, 1999/2000.
So stagnant is
4.3 Export structure: A
country’s export structure is nevertheless a mirror image of its production
structure. This is no less true for
As shown in table 3, having a share of more than 50 percent, coffee still remains the dominant export crop. What is more concerning is that the share of hides and skins, the major manufactured export commodity, is showing a declining trend. Equally worrying, at least in he longer term, is the sharp rise in the share of Chat, which is now becoming the second major export earning commodity of the country. Not only that its future prospect is not promising, as is expected for tobacco, but also it is competing coffee for land resource. It is said that some farmers are sub-planting coffee to grow Chat.
These four commodities alone, which have been accounting for about 80 percent of total export way back in the early 80s, have now increased their share to over 85 percent. This is typical of increasing concentration rather than diversification, a testimony of the lack of improvement in international competitiveness.
Table 3. Export structure: share in
percent
|
Year |
Coffee |
Pulses & Oilseeds |
Hides & Skins |
Chat |
Total |
|
1981 |
61.6 |
5.1 |
10.8 |
2.6 |
81.1 |
|
1985 |
62.6 |
4.4 |
12.8 |
2.1 |
81.9 |
|
1990 |
55.0 |
5.0 |
18.2 |
2.8 |
82.0 |
|
1995 |
65.8 |
5.6 |
13.7 |
5.3 |
91.4 |
|
2000 |
54.0 |
8.5 |
7.2 |
15.6 |
85.3 |
Source: NBE, Quarterly Bulletin, Vol. 16, No. 3.
Another structural rigidity is shown in the destination of
export commodities. For decades
Outside
|
Year |
|
|
|
|
|
|
1980 |
13.2 |
51.0 |
18.1 |
17.2 |
0.5 |
|
1990 |
12.6 |
45.2 |
13.6 |
27.4 |
1.2 |
|
1995 |
12.4 |
50.8 |
5.8 |
29.7 |
0.3 |
|
2000 |
18.0 |
40.9 |
5.6 |
35.2 |
0.3 |
Table 4. Direction of exports: share in percent
Source: NBE, Quarterly Bulletin, Vol. 16, No. 3.
The most important export market
in
The lack of diversification, both
in the type of commodity export and direction of external trade, for nearly
half a century is evidence of the absence of structural change in production,
where still traditional mode of production in agriculture remains predominant.
Even today,
5. Sample Exporting Firms and Export Support Services
For this study, 19 well-established exporting firms were selected. Most of the firms are engaged in exporting major commodities in the country including coffee, hides and skins and pulses and oilseeds. Also, most of these firms are well experienced in the business and very few are new comers. Their ownership structure include both Ethiopian and foreign.[3]
Questionnaire is designed to assess the sources and uses of export support services. The analysis in this section is based on the response of these firms. Also, a separate questionnaire was prepared and issued to different organizations, thought to be potential suppliers of export support services. Their response is assessed in section 6.
5.1 Characteristics of sample exporting firms
As noted above, the selected firms are relatively well established. Compared to the total number of exporting firms in the country, sample firms are small. However, in terms of foreign exchange earning capacity, they account for a significant proportion of total exports. Based on the responses of firms interviewed, these exporting firms account for nearly 40 percent of total export earnings of the country. About 12 of the firms are engaged in exporting only, while the rest are at the same time importers.
With the exception of three public enterprises, which were established by government initiative using bank loans, the rest were established by private individuals (with some work experience in related businesses as employees or as agents of foreign companies) and largely, with their own small capital. 50 percent of these private firms were established in the last decade. The rest are at least two decades old.
Table 5. Number of enterprises by export commodity group
|
Commodity category |
No of firms |
Primary commodities |
Manufactured goods |
|
Coffee |
7 |
7 |
---- |
|
Leather & L. products |
4 |
----- |
4 |
|
Pulses & Oilseeds |
5 |
5 |
---- |
|
Spices |
1 |
----- |
1 |
|
Meat |
1 |
----- |
1 |
|
Fruits & Vegetables |
1 |
----- |
1 |
|
Total |
19 |
12 |
7 |
Source: Survey result
Of these 19 firms, 7 are dealing with coffee, 4 with leather and leather products, 5 with pulses and oil seeds, and the remaining 3 with spices, meat and fruits & vegetables. (Table 5) Exporters of primary commodities account for over 60 percent of the sample.
Some basic characteristics of these sample firms are given in table 6. With respect to the primary activities of these firms, most (63 percent) are engaged in service provision, that is, direct export with no processing. About one-third of the firms, however, are primarily engaged in manufacturing, or in some form of processing.
Table 6. Some basic characteristics of exporting firms
|
Broad description |
Detail category |
Sample firms |
|
|
No of firms |
Share (%) |
||
|
Sectoral classification of |
Primary sector |
0 |
0.0 |
|
Manufacturing |
7 |
35.8 |
|
|
Services |
12 |
63.2 |
|
|
Legal status |
Public (>50 % share) |
3 |
15.8 |
|
Private |
16 |
84.2 |
|
|
-Private sole proprietor |
2 |
12.5 |
|
|
- Private partnership |
2 |
12.5 |
|
|
- PLC |
12 |
75.0 |
|
|
Ownership structure |
Ethiopian |
16 |
84.2 |
|
Foreign |
0 |
0.0 |
|
|
Ethiopian & foreign |
3 |
15.8 |
|
|
Management status |
Owner manager |
9 |
47.4 |
|
Employed manager |
7 |
35.8 |
|
|
Owner & employed |
3 |
15.8 |
|
Source: Survey results
With respect to their legal status, three of the firms are public and the remaining private. These public enterprises are relatively large in size. Though it is the intention of the government to make these enterprises share companies, still they are predominantly public. Of the total private firms 75 percent are limited liability companies. The other 25 percent have either sole proprietorship or partnership status.
The ownership structure is
predominantly Ethiopian. Only 3 firms are jointly owned.[4] As
noted above, most private firms are small and as such are managed by owners.
Nearly half of these firms are managed directly by owners, and another 16
percent, jointly by owners and employed professionals. Lastly, all firms are
located in
5.2 Export profile and experiences of firms
As a result of largely the outward looking policy and export drive of the government, over 40 percent of these sample firms started exporting only in the last decade. About 20 percent of the firms have experiences of not more than 5 years. [Table 7] Most of the remaining firms were established before the mid 70s, when the policy framework was much more conducive.
Table 7. Export profile
|
Broad description |
No of firms |
Share (%) |
|
Years of experience 1 – 10 11 - 20 20+ |
8 |
42.1 |
|
3 |
15.8 |
|
|
8 |
42.1 |
|
|
Export share in total
production-% 100 90-99 80-89 Less than 50 |
7 |
35.8 |
|
5 |
25.3 |
|
|
3 |
15.7 |
|
|
2 |
10.2 |
|
|
Sales market channel Public trading agency Private trading agency Other channels |
13 |
68.5 |
|
0 |
0 |
|
|
6 |
31.5 |
|
|
0 |
0 |
|
|
Export destination |
1 |
5.2 |
|
10 |
52.6 |
|
|
8 |
42.1 |
|
|
6 |
31.5 |
|
|
5 |
25.3 |
Source: Survey result
As explained above most firms are engaged in direct export activity. As a result, over 40 percent of the respondents confirmed that they export 100 percent of their production/ purchase; another 30 percent export over 90 percent of their produce. Only two young firms, which started exporting very recently (1997), handle about 30 percent or less of their produce for export.
The lack of private trading
agencies specializing on the provision of export support services is typical of
the undeveloped nature of export trade in
Most firms are reluctant to
reveal their export volume and destinations. But based on information of those
who responded,
Over 50 percent of these sample firms are not utilizing modern information technology. Only 37 percent of the firms have their own Internet site and regularly use whatever information technology can be accessed via the Internet regarding their business activity. Some of these firms are also using Internet services supplied by other institutions such as the Addis Ababa Chambers of Commerce and the Ethiopian Coffee Exporters Association.
5.3 Sources and uses of specific export services
Based on the survey result, the extent to which exporters utilize specific trade services and the sources of such services are analyzed in this section. Whether the provision of each specific service is satisfactory or not is also assessed. Six broad categories of services are identified: general information on foreign markets, contact making with importers, pre-export services, export finance, technical assistance and government facilitation.
5.3.1 General information on foreign markets: At least 4 specific services are included in this category. [Table 8] Of these, market information (i.e., market prices, quality of goods/standards, supply competitors, etc.) is the most useful and regularly sought information. Nearly 75 percent of interviewed firms conformed that they seek market information regularly and another 16 percent less regularly/sometimes. Major providers (in 42 percent of the cases) of such information are foreign buyers or business partners. In 22 percent of the cases such information is internally served. Most users (63 percent) are satisfied with the provision of this service.
Table 8. Information on foreign markets
|
Type
of
information |
Number of users ( %) |
Service provider (%) |
Satisfaction (%) |
||||||||
|
Regularly |
Sometimes |
Rarely |
Never |
Internal* |
Gov’t |
Buyer /BP*** |
Private** |
Private free |
Satisfied |
Not satisfied |
|
|
Country specific |
26 |
32 |
21 |
21 |
11 |
31 |
42 |
15 |
---- |
42 |
58 |
|
Sector specific |
44 |
37 |
5 |
13 |
24 |
21 |
34 |
14 |
7 |
47 |
53 |
|
Market info. |
74 |
16 |
5 |
5 |
22 |
14 |
42 |
17 |
5 |
63 |
37 |
|
Overseas representation |
0 |
10 |
16 |
74 |
--- |
--- |
16 |
16 |
--- |
---- |
--- |
Source: Survey result
* Own/in-house service provision
** On payment
*** Business partner (BP)
The second regularly used information is sector specific one. Nearly 45 percent of the respondents use sector specific information. Another 37 percent seek this information less regularly. Again, similar to market information, major suppliers of this service are foreign buyers. However, most respondents are not satisfied with the provision of the service.
On country specific information, nearly one-fourth are regular users. Foreign business partners still remain the major suppliers of this service. The least demanded specific service, in this category, is overseas representation.
What is probably a sign of the undeveloped nature of the information service on foreign markets is the insignificant role of private professional service providers on payment basis. Provision of such services is not yet considered as a profitable business. On average, private (for pay) providers account for only 15 percent of the total suppliers. (Table 8) Also, the proportions of exporters seeking country and sector specific information are relatively small, 26 and 44 percent, respectively. The relatively less demand for such specific information is an indicator of the lack of international competitiveness of exporting firms. It is very likely that international competitiveness will require greater use of (demand for) country and sector specific information.
5.3.2 Contact making: In external trade, initial contact making (i.e., searching for markets) is perhaps the most challenging task for exporters in developing countries. Ethiopian exporters are no different from this. Contact making includes use of directories, trade fairs and missions, deal making, buyer contacts, sample preparation, etc.
In this category of services buyer contact is the most frequently used service. 84 percent of the respondents use it regularly while the remaining 16 percent, less regularly. (Table 9) The service is, largely (over 50 percent) provided in-house and to some extent (37 percent) by business partners/foreign buyers. Most firms (nearly 80 percent) are satisfied with the provision of this service.
Table 9. Contact making
|
Type of service |
Number of users (%) |
Service provider ( %) |
Satisfaction (%) |
||||||||
|
Regularly |
Sometimes |
Rarely |
Never |
Internal |
Govt |
Buyer /BP |
Private |
Private-free |
Satisfied |
Not satisfied |
|
|
Directories |
31 |
26 |
5 |
38 |
10 |
21 |
42 |
17 |
10 |
31 |
69 |
|
Deal making |
63 |
5 |
5 |
27 |
53 |
0 |
37 |
10 |
0 |
58 |
42 |
|
Trade fairs |
37 |
10 |
26 |
27 |
16 |
24 |
28 |
28 |
4 |
21 |
79 |
|
Trade missions |
5 |
47 |
16 |
32 |
13 |
63 |
24 |
0 |
0 |
26 |
74 |
|
Buyer contact |
84 |
16 |
0 |
0 |
52 |
7 |
31 |
7 |
3 |
79 |
31 |
|
Sample preparation |
63 |
16 |
5 |
16 |
75 |
13 |
12 |
0 |
0 |
68 |
32 |
Source: Survey result
The other two regularly used services by most firms are sample preparation and deal making. In both cases over 60 percent of the firms use it regularly. Again the major suppliers are internal sources and business partners. For sample preparation, 75 percent of the service is internally generated, while in the case of deal making internal sources account for 53 percent, with business partners having a supply share of 37 percent. It seems that wherever a service is regularly used and largely supplied from internal sources, the degree of satisfaction is high (over 60 percent) for both services.
Many exporters do not use trade fairs and directories regularly. Only about one-third of them utilize the services regularly. And most are dissatisfied with the supply of these services. Trade mission, largely provided by government (63 percent) is the least regularly used service and also one of the most dissatisfying.
5.3.3 Pre-Export support services: A great deal of service support is required at pre-export stage, which include export financing (this is treated separately), firm specific and general research, legal, accounting and credit services, feasibility studies, etc. Such services largely indicate the degree of maturity of export trade in a country and the long-term market security and competitiveness of firms.
Table 10. Pre-export support services
|
Type of
service |
Number of users (%) |
Service provider (%) |
Satisfaction (%) |
||||||||
|
Regularly |
Sometimes |
Rarely |
Never |
Internal |
Gov’t |
Buyer/BP |
Private |
Private free |
Satisfied |
Not satisfied |
|
|
Firm specific research |
10 |
26 |
16 |
48 |
67 |
17 |
0 |
8 |
8 |
26 |
74 |
|
Financing for R&D |
5 |
0 |
21 |
74 |
100 |
0 |
0 |
0 |
0 |
10 |
90 |
|
Proposal Development |
21 |
5 |
21 |
53 |
61 |
0 |
23 |
8 |
8 |
16 |
74 |
|
Feasibility studies |
5 |
16 |
37 |
42 |
80 |
0 |
20 |
0 |
0 |
21 |
79 |
|
Legal and accounting |
47 |
10 |
5 |
38 |
31 |
38 |
8 |
23 |
0 |
26 |
74 |
Source: Survey result
With the exception of legal and accounting services, all other specific services in this category are the least demanded. (Table 10) Moreover, the supply of the services comes mainly from internal source. In all cases, only one-third of the respondents said that they are satisfied. In the case of legal and accounting service demand, however, 47 percent of firms use it regularly and another 10 percent less regularly. The two major suppliers of this service are government and internal sources.
5.3.4 Export finance: An important aspect of pre-export service support is export finance (availability of export credit and insurance). It is also one of the major constraints that particularly new comers into the trade often face. It involves assistance for preparation of letters of credit, documentary collection, foreign currency and efficient remittance services, availability of offshore finance, international guarantees, etc.
Except two of the specific services, namely letters of credit preparation and documentary collection, most exporters do not use the rest of the services regularly. 68 and 53 percent are regular users of letters of credit and documentary collection, respectively. (Table 11) Importers abroad do letters of credits preparation. Ethiopian exporters have little problem in this regard and are satisfied with this service. Documentary collection is largely internally supplied with some degree (47 percent) of satisfaction. Most exporters are not quite satisfied in the provision of this service.
Table 11. Export finance
|
Type of
service |
Number of users (%) |
Service provider (%) |
Satisfaction (%)
|
||||||||
|
Regularly |
Sometimes |
Rarely |
Never |
Internal |
Gov’t |
Buyer/BP |
Private |
Private free |
Satisfied |
Not satisfied |
|
|
Letter of credit Preparation |
68 |
10 |
0 |
22 |
13 |
7 |
73 |
7 |
0 |
68 |
22 |
|
Documentary Collection |
53 |
5 |
5 |
33 |
54 |
15 |
23 |
8 |
0 |
47 |
53 |
|
Remittance services |
21 |
21 |
0 |
58 |
11 |
11 |
67 |
11 |
0 |
32 |
68 |
|
Offshore finance |
16 |
10 |
0 |
74 |
0 |
50 |
25 |
25 |
0 |
16 |
84 |
|
International Guarantees |
21 |
0 |
5 |
74 |
20 |
40 |
0 |
20 |
20 |
10 |
90 |
|
Foreign currency Service |
26 |
0 |
10 |
64 |
0 |
83 |
0 |
13 |
0 |
16 |
84 |
Source: Survey result
In all other specific services, not only that most exporters don’t use them regularly, but also they are not satisfied with the provision.
5.3.5 Technical assistance: Technical assistance is particularly useful for exporters, who are at the same time engaged in some form of processing. Technical assistance may be provided for production and/or processing, management, training, marketing and the like.
This is another area where little demand for the service exists on a regular basis. Only in production/processing do some 37 percent of the respondents use technical service regularly. (Table 12) Over 55 percent do not either use or use rarely this specific service. A very large proportion of the service users are not satisfied with the provision of technical assistance. What is perhaps new in this regard is that private free providers, like Ethiopian and Addis Chambers as well as specialized associations, are stated as important technical service providers, particularly with regard to training.
Table 12. Technical assistance
|
Type of service |
Number of users (%) |
Service provider (%) |
Satisfaction (%) |
||||||||
|
Regularly |
Sometimes |
Rarely |
Never |
Internal |
Govt |
Buyer /BP |
Private |
Private-free |
Satisfied |
Not satisfied |
|
|
Production/ processing |
37 |
5 |
16 |
42 |
38 |
38 |
8 |
16 |
0 |
31 |
69 |
|
Marketing |
16 |
10 |
16 |
58 |
67 |
11 |
22 |
0 |
0 |
5 |
95 |
|
Management |
10 |
16 |
16 |
58 |
55 |
22 |
0 |
0 |
22 |
10 |
90 |
|
Training |
10 |
26 |
26 |
38 |
40 |
27 |
0 |
13 |
20 |
16 |
84 |
Source: Survey result
5.3.6 Government facilitation: Government facilitation is crucial in the supply of general export services. Matters as customs assistance, one-stop shop service, approval of paper work, etc., come under this category.
Table 13. Government facilitation
|
Type of service |
Number of users (%) |
Service provider (%) |
Satisfaction (%)
|
||||||||
|
Regularly |
Sometimes |
Rarely |
Never |
Internal |
Gov’t |
Buyer /BP |
Private |
Private-free |
Satisfied |
Not satisfied |
|
|
One-stop shop |
26 |
0 |
10 |
64 |
0 |
100 |
0 |
0 |
0 |
21 |
79 |
|
Approvals/ paper work |
58 |
0 |
5 |
37 |
50 |
50 |
0 |
0 |
0 |
26 |
74 |
|
Gov’t contacts |
16 |
26 |
10 |
48 |
64 |
27 |
0 |
0 |
9 |
31 |
69 |
|
Customs assistance |
53 |
21 |
5 |
21 |
7 |
64 |
7 |
22 |
0 |
53 |
47 |
|
Lobbying for policy reform |
16 |
42 |
10 |
32 |
17 |
12 |
12 |
0 |
59 |
26 |
74 |
Source: Survey result
As shown in Table 13, a very small proportion of the respondents, about 26 percent use one-stop shop facility (referring to Ethiopian Export Promotion Agency) regularly. All the rest, nevertheless, don’t use it at all. Moreover, nearly 80 percent of the exporters are unsatisfied with the service they get.
Customs assistance and approval of paper works are regularly used by more than 50 percent of the exporters. The service suppliers are largely government and internal sources. In the case of customs assistance since no export tax is levied, except on coffee, nearly half of the users are satisfied. But in the case of paperwork approvals three quarter of the users are dissatisfied with the service.
Most exporters do not use government contacts and lobby for policy reform regularly. It is the role of Chambers and related professional associations to lobby government for policy reform, improvement in regulations, procedures and related matters.
6. Domestic Suppliers of Export Support Services
In countries where the role of
the private sector in the supply of trade related services has not yet
developed, it is natural that other parties such as government and
non-government organizations would be involved in one form or another. The
limited role of the private sector arises due largely to the low level of
expansion of external trade, and also as a result of policy constraints.
6.1 The public sector: A number of line Ministries, Agencies, Authorities and Offices, including Ministry of Trade and Industry (Foreign Trade Department), Ministry of Foreign Affairs, Customs administration, Investment Authority, Coffee and Tea Authority, etc., are potential providers of some sort of external trade services, directly or indirectly. The only public body established for the specific purpose of promoting export, however, is the Ethiopian Export Promotion Agency (EEPA).
The first three government organs are not directly involved with export promotion. The Ministry of Foreign Affairs through its commercial attaches abroad might be involved in introducing Ethiopian export commodities by issuing leaflets, gathering information about trade fairs abroad, facilitating trade missions, etc. Ministry of Trade and Industry and Customs authority are only involved in their routine activities but not specifically involved in export promotion of any sort.
The Ethiopian Investment Authority serves as a one-stop-shop for all kind of investors to avoid cumbersome administrative procedures. However, it has no any special treatment for investors in the export sector, nor does it provide any specific export promotion service.
The Ethiopian Coffee and Tea Authority has a prime objective of controlling the quality of coffee. But it also has additional objectives such as encouraging the production and processing of coffee as well as promoting coffee and tea trade. To meet these objectives it claims to carry out activities including quality control and grading of coffee, training of farmers and development agents, market research, liaison with international organizations, collect and disseminate information, and promote Ethiopian coffee abroad.
The Authority receives daily information on international coffee prices and disseminates them on request. So basically it is not the prime role of the Authority to provide export support services, except that related to one specific export crop, namely coffee.
As noted above the Ethiopian
Export Promotion Agency is the only public body established for the
specific purpose of promoting export. The Agency was established at the end of
1998. It is not affiliated to any other international or regional body. The
EEPA has no extension office in the country other than the head office at
The Agency is mandated to provide a wide range of services including product development, market research, trade information, training, export facilitation, advisory services, facilitating trade fairs, exhibition, and trade missions, match-making, enquiry reply services, trade library services and internet and awareness creation and assistance.
At this moment it claims to focus mainly on foreign market information, contact making and government service facilitation. Currently it is publishing a bi-monthly newsletter ‘Trade Point’, which lists few addresses of importers and exporters and product specifications. Despite its claim, however, exporters response and our own personal interview, confirm that until now very few exporters benefit from EEPA’s service. Moreover, the Ethiopian Export Promotion Agency admits that its service is not effective because of financial constraints, lack of skilled and experienced personnel and inadequate facilities. The agency remarked that the establishment of an “Export Development Fund” will greatly enhance its service in the future. It is intending to run a sort of cost-sharing program for the services it intends to provide.
6.2 The private sector: Private licensed suppliers of export support services on payment are
literally not known in Ethiopia
The Ethiopian Chamber of Commerce (ECC) is an umbrella organization for 12 city-chambers located through out the country, including Addis Chamber. Established in 1947, ECC is one of the oldest business organizations, and is also a member of the International Chamber of Commerce (ICC). Among its many objectives, those related to export services include the following:
- to find foreign markets for exportable commodities
- exchanging information with sisterly chambers in other countries
- organizing exhibitions and seminars
- conducting studies on matters pertaining to the improvement of export products
- preparing commercial journals, directories, and reports concerning trade
Currently, the Ethiopian and Addis chambers seem to give more weight for foreign market information and contact making services. Ethiopian Chamber provides a range of market information services including on commodity prices, overseas representation, country and sector specific services. Addis Chamber on the other hand focuses on price and quality information. With respect to contact making, both prepare directories, organize trade fairs and trade missions. Moreover, both chambers provide legal support, training and lobbying activities. In addition, Addis Chamber provides buyer contact services and feasibility study support.
Both chambers stated that their service is limited due to financial problems and lack of policy. There is a need on the part of the government to acknowledge chambers as development partners. Addis Chamber is also constrained with lack of office space and trade fair center.
The Ethiopian Coffee Exporters Association (ECEA) is perhaps the only private association established for the specific purpose of promoting export. The association, which is over 30 years old, represents almost all coffee exporters (accounting for 98 percent of the country’s total coffee export). It is also a member of foreign coffee associations, namely, Specialty Coffee Association of America, Specialty Coffee Association of Europe, East African Fine Coffee Association, and Private Sector Consultative Group of the International Coffee Organization (ICO). ECEA receives assistance from these sisterly associations in the form of market information and training. Occasionally, it also receives support from the Export Promotion Agency, particularly, in trade fairs. Among the objectives of the ECEA, the major ones include:
· Improving the quantity and quality of coffee production and export
· Standardizing and streamlining coffee trading among and between members and the various categories of coffee traders
· Establishing a just, fair and honest commercial code of conduct and ensure that the same is pursued by members
· Advocating the views and opinions of the association to the government and other concerned agencies with regard to measures to be adapted pertaining to production, quality and trading of coffee.
Ethiopian Coffee Exporters Association provides to its members
specific export oriented services in the area of market information. It
receives from Reuters London and
The Ethiopian Coffee Exporters Association has a severe financial constraint, which effectively limited its service to members. For this same constraint, the association has only a handful of employees.
7. Conclusion and Recommendations
Looking at the survey result, it
is clear that export service provision and use in
What is also observed is that in the two most regularly used service types (i.e., information on foreign markets and contact making), in most of the cases, the services are provided by business partners/buyers and the firms themselves respectively. In this respect, some degree of passiveness is reflected on the part of Ethiopian exporters.
The next regularly used service categories are export finance and government facilitation. Each category of service is regularly used by about one-third of the exporters. In the former the major providers are government and business partners/buyers, while in the latter government alone is the major player for about 50 percent of the cases. However, in both cases over two-third of the exporters are not satisfied with the provision of the services.
Of the specific export services that are widely used internationally, most Ethiopian exporters regularly use only few of them. These include buyer contact, market information, deal making, letters of credit and sample preparation. (see Tables 8 –13)
In almost all services, except one, the number of dissatisfied exporters heavily outweighs the satisfied ones. With respect to information on foreign markets, about 40 percent of the firms responded why they are not satisfied with the services. Many of these firms stated that there is no organized market information provider on a regular basis. Even when it is available, the information may not be accurate, specific, and reliable, hence of little practical use. Moreover, it is also expensive to acquire.
Different views are provided about the weakness of the service related to contact making. Few mentioned that it is expensive to participate in trade fairs and missions. Moreover, in most cases trade fairs and trade missions are not well-organized and targeted to specific export sector, hence difficult to attract relevant customers. Others stated that such services are not satisfactory, not frequent and timely.
Again, about half of the firms interviewed responded why they are not satisfied with pre-export service provision. Most believe that as firms are small in size there is little need for research. Others stated that no organized and satisfactory service provider is available.
With respect to export finance, some complained that high collateral requirement prevents them benefiting from credit facilities. Others noted that, such pre-export finance is not efficiently provided by Banks. Also, no clear and effective credit policy (be it in the form of credit priority or low interest rate) exists in practice for promoting export. International finance is not accessible as its modalities are cumbersome and time taking. Additional and specific export finance service is required.
A majority of the ten firms that are not satisfied with technical assistance stated that well organized and capable technical service providers do not exist in the country. Firms have no financial capacity to provide it in-house. Firms insist that government and/or non-governmental organizations should provide such services.
Many exporters that are not regular users of government facilitation claimed that public sector services are weak, bureaucratic, time consuming and actually bottlenecks for promoting export, hence they need to be removed. In light of the dynamism of international export market, government policy adjustment is painfully slow, with many loopholes for creating inefficiency and corruption.
What emerged outstanding from the survey is that because of the undeveloped nature of export trade in the country (as a result of lack of favorable policy orientation for a long period of time), supply of export support services in an organized way does not exist. Nearly all exporters confirmed that they are not using most services simply because they don’t exist. Even when they exist, the provision is not often satisfactory. As a result firms attempt to provide some of the services in-house with some support from foreign customers. The only providers of few of the services are trade associations, namely Ethiopian Chamber of Commerce, Addis Ababa Chamber of Commerce and Ethiopian Coffee Exporters Association. Ethiopian Export Promotion Agency is also attempting to fill the gap. But these suppliers of export support services have many constraints to provide effective services.
Moreover, as noted earlier, the small size of the market may not encourage private entrepreneurs to specialize in the provision of export services. As division of labor is limited by the extent of the market, specialization in export service provision may not expand fast in a short period of time. This will inevitably take time until export picks up.
Therefore, it would be more effective and less costly to support existing associations so that they could expand their services and also strengthen whatever service they are now providing. Such support will not only promote services, but also strengthen the associations in the long run.
As for the Ethiopian Export Promotion Agency, its beginning is commendable. However, rather than attempting to be involved in many type of services and providing only to selected firms, such as state or party owned firms, it would payoff from national point of view to concentrate on few most important services and making them available to all needy firms indiscriminately and effectively.
APPENDIX
I.
Table A. Summary table[5]
|
Type of service |
Number of users (%) |
Service provider (%) |
Satisfaction (%)
|
||||||||
|
Regularly |
Sometimes |
Rarely |
Never |
Internal |
Gov’t |
Buyer /BP |
Private |
Private-free |
Satisfied |
Not satisfied |
|
|
Information on foreign markets |
48 |
28 |
10 |
13 |
19 |
22 |
39 |
15 |
5 |
51 |
49 |
|
Contact making |
47 |
20 |
10 |
23 |
37 |
21 |
29 |
10 |
3 |
46 |
54 |
|
Pre-export Services |
18 |
11 |
20 |
51 |
68 |
11 |
10 |
8 |
3 |
20 |
80 |
|
Export finance |
35 |
8 |
3 |
54 |
16 |
34 |
32 |
14 |
4 |
33 |
67 |
|
Technical assistance |
18 |
14 |
18 |
50 |
50 |
25 |
8 |
7 |
10 |
15 |
85 |
|
Government facilitation |
34 |
18 |
8 |
40 |
27 |
50 |
4 |
5 |
14 |
31 |
69 |
Source: Tables 8-13.
APPENDIX II
Survey Mission
Report[6]
Some reflections on the views of exporters with respect to export trade in Ethiopia
Exporters raised a number of problems related to export
trade in
1. Firms try to acquire market information mainly through buyer contacts and Internet facilities. At times the credibility of such information is questionable. Currently, the private sector is holding the lion’s share of the total exports of the country in commodities such as coffee. However, public sector service providers, such as the Ethiopian Export Promotion Agency, serve only public enterprises, largely discriminating the private sector. This hardly promotes export trade in general. Also, some kind of mechanism for experience sharing among the different institutions involved in promotional activities should be established for mutual benefits of all parties in the country.
2. Ethiopian coffee is the least advertised abroad, and this is no the business of only exporters. Government through its established institutions, like trade attaches, has to play a leading role. Currently government is passive in this respect. It requires government-private concerted effort to achieve a reasonable success in a relatively short period of time.
3. Ethiopian exports are concentrating on few commodities, and this is partly due to the inability of businessmen to search for unexploited opportunities. Investing on research for identifying unexploited resources is an expensive venture for an individual entrepreneur to engage in. This should be the task of government, which is better organized and has adequate resources - financial and manpower. Moreover, research is more of a public good that should be addressed by government.
4. There is an acute shortage of trained and experienced manpower in the export business. Private firms may not have adequate incentive to train their workers as the movement of labor, irrespective of where it is trained, is governed by the market. Trainees might leave immediately after the training. Again training (generally in industrial skill) is more of a public good, which government should address.
5. Chambers of Commerce and other similar associations try to lobby government officials to create conducive policy environment. However, government does not take such associations as development partners. Government has to change this attitude, if better export performance is to be attained in this country.
6. Neither firms are aware of the need for R&D, nor government provides such services. This calls for appropriate government bodies, at least initially, to organize a forum for creating awareness and help establish such institutions.
7. According to some businessmen, if foreign bilateral and multilateral organizations are willing and committed to help boost Ethiopian export, then an effective start is to buy a fraction of the airtime of recognized medias abroad to advertise Ethiopian products. This will bring about a very tangible result. In most of the cases, buyers and business partners of Ethiopian firms are very small enterprises and our consumers abroad are not even aware of the origin of our products including coffee. Business firms also encounter brokers who transit products, from one country to another. In this regard, organizing a discussion forum between Ethiopian firms and relatively large foreign business enterprises could help create agreements for large and sustainable export markets.
8. The problem of acquiring land is a severe constraint for exporters. Some don’t have adequate premise for building storages and loading-unloading terminals. Some have already made the required payment for land but could not get it.
9. Exporters are facing major obstacles from party-owned enterprises, which are using government muscle to keep private exporters and traders out of the market.
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