The Ethiopian Investment Commission (EIC) said the government is making efforts, in having close deliberations with the US government, on the resumption of the AGOA duty-free market opportunity.
“These endeavors lifted up our hope that the US will review its decision and allow Ethiopia to rejoin the AGOA market,” said Lelise Neme, Commissioner of EIC.
The commissioner stated that EIC is also lobbying investors to promote investment chances and advantages in the country, in addition to convincing US-based buyers about certain circumstances of the country.
The delegation led by the Minister of Finance Ahmed Shide, which recently visited the US, is believed to have held meetings prioritizing the case of rejoining the duty-free market, Lelise added.
Ministry of Finance announced on May 25 that the Ethiopian delegation led by the Minister of Finance Ahmed Shide conducted extensive deliberation with key US Government agencies including the US Treasury, State Department, USAID, the special envoy for Horn of Africa & others on the historical, strategic and vitally important bilateral relations.
Ethiopia’s garment manufacturing sector is the largest AGOA beneficiary in the country. Between 2000 and 2020, Ethiopia exported $722 million worth of garments to the US duty-free under AGOA, with three-quarters of that from 2017 to 2020 years alone.
The African Growth and Opportunity Act (AGOA) is a United States Trade Act, enacted on 18 May 2000. It significantly enhances duty-free market access to the US for qualifying Sub-Saharan African (SSA) countries.
Ethiopia was an AGOA beneficiary effective 1 January 2022 and it was suspended from the opportunity in Jan 2022 allegedly with humanitarian issues in the ongoing war in Tigray.
The termination of AGOA is one of the challenges identified by the Ethiopian investment commission (EIC) to pull back the country’s investment attraction.
“Most investors at industrial parks are US market-based. The AGOA ban resulted in an increase in the cost of products, the cancellation of orders made during the duty-free market, and lower demand,” said Lelise.
“Ethiopia’s exclusion as an AGOA’s beneficiary resulted in a black hole in the country’s investment attraction and export markets.”
Since AGOA’s duty-free market access denial in January until now no manufacturer left Ethiopia because of losing benefits from AGOA, as most of the manufacturers have product orders which last until May, according to Daniel Teressa Deputy Commissioner for Industry Park Division.
“82% of manufacturers working in industrial park shades were using AGOA privileges,” he said.
EIC revealed in its third-quarter report of the fiscal year that 156.7 million USD had been generated from investors’ export markets, 30% below the goal. And 2.43 billion USD has been obtained in the last nine months from foreign direct investment, 1.2 billion USD short of the set revenue goal.
Limited alternative markets following AGOA’s cancellation, shortage of foreign currency, expensive costs of logistics, and the recent conflict between Russia and Ukraine are indicated by the commission as the main factors for the lower performance.
Deputy commissioner Daniel Teressa said that after the month of May, the effect of losing AGOA might be reflected and identified. Exploring other duty-free market access in Europe and Africa and maintaining AGOA are expected to be the basic solutions.
In the past nine months,118 new investors were licensed of which 68 of them are foreign investors, 31 others through partnerships between local and foreign inventors and the remaining 19 are local investors.
Temesgen Tilahun, Deputy Commissioner for Foreign Direct Investment Sector explained that, based on recent follow-ups, the EIC identified the shortage of foreign currency, land provision barriers, productivity declination, inadequate electric power supply, and peace destabilization are the main conditions attributed to the unsatisfactory investment production and attraction.
“During the nine months, the commission received around 160 complaints from investors. Now more than 112 or about 70% of them are solved by the commission. The rest are beyond the commission’s capacity and mandates, which are mainly hard currency and peace-related issues.”
Regarding electric power challenges, the shortage of transformers is claimed to be the main drawback. There are only three transformer manufacturers in Ethiopia, which are not producing at full capacity.
The commission said it is supporting investors to produce based on demands, allowing them to get dedicated power based on their product and export size. Employing alternative power sources such as solar, geothermal, and wind power for manufacturers and new investors are also being promoted as a sustainable solution.
According to The World Bank, Ethiopia’s foreign direct investment inflow declined significantly from 2016’s 4.14 billion USD to 2.52 billion USD in 2019.