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In this context, the economic reform program aims to correct macroeconomic imbalances and ensure macro-financial stability through stepping up ongoing efforts to improve public sector finances, easing forex controls and correcting the exchange rate misalignment, modernizing the monetary policy framework, strengthening the financial system, and developing capital markets. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Successful macro-economic reform requires coordination and synchronization among forex, monetary, fiscal, financial, and capital market reforms.
To balance the urgent need for addressing macroeconomic imbalances with the need to minimize potential economic costs of rapid (‘shock therapy’ type) reforms, the home-grown economic reform program will be rolled over in the course of the next three years with careful calibration of the pacing, sequencing, and timing of specific reform measures as discussed below. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
16 4.2.1.
Strengthening public sector finances and SOE reforms Rationale.
Public investment on infrastructure and human capital will continue to address remaining gaps towards reaching a middle-income economy level.
The financing model for public investments will pursue a sustainable means to ensure debt sustainability, and avoid inflationary pressures and the crowding out of the private sector’s access to critical financial resources such as credit and forex. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Controlling the budget deficit and streamlining public sector capital spending will be among the key reform measures.
Strengthening public sector finances entails measures to maintain the general government deficit as well as enhance the finances of SOEs.
To maintain macroeconomic stability, important efforts would be needed to raise government revenue through tax policy and tax administration reforms, review of subsidies, further prioritization of public projects, and strengthening SOE governance. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
These measures will build on the earlier strides in managing the budget deficit, SOE reforms and privatization, and maintaining and consolidating the achievements made so far.
Fiscal policy will focus on supporting high quality growth and ensuring debt sustainability through revenue mobilization and improving efficiency of public spending.
More specifically the following reform measures are envisioned: Maintain the current general government fiscal policy stance. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
With a fiscal deficit of about 3 percent of GDP, the general government budget stance is considered as adequate and no further consolidation is considered necessary at this stage.
Financing of the budget will depend on enhanced domestic resource mobilization, concessionary external loans, and gradually on raising funds from local markets as capital markets develop and deepen (see below). | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Domestic resource mobilization measures will be enhanced through reforms in tax policy and administration as well as improvements in the efficiency of public investment.
Measures will be taken to reverse the declining tax to GDP ratio and utilize the country’s potential tax capacity of up to 20 percent of GDP.
Existing VAT and excise laws will be overhauled, and tax expenditure and exemptions will be rationalized. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Tax administration reforms including enhancing information technology capabilities, moving to e-filing and e-payment systems, and strengthening tax audit and tax education will be top priorities.
The revenue raised from these measures will be used to increase public investment on infrastructure and human capital without changing the fiscal policy stance.
Measures will also be taken to enhance the efficiency of public expenditure and investment. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Explicit and implicit subsidies will be reviewed and rationalized.
A monitoring system for public expenditure to ensure that the budget is utilized as intended and contributes to the achievement of priority objectives will be put in place.
Project approval procedures will follow strict feasibility and value for money assessments.
Institutional capacity for the preparation, selection and execution and monitoring of public investment projects will be enhanced. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Public investment financing modalities will be expanded to reduce the burden on the government.
Innovative modalities to crowd-in private sector 17 involvement in public investment projects such as Public Private Partnerships (PPPs) will be implemented.
SOE reforms to enhance efficiency of public investments.
In line with efforts to enhance the efficiency of public investments, the SOE reform agenda will be accelerated and deepened. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
SOE reform measures will include ownership restructuring including partial and full privatization, strengthening of legal and institutional frameworks to enhance SOE governance and management, and completion of ongoing SOE projects to harvest the return from prior investments.
The SOE portfolio will be assessed and optimized for value creation. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
SOE reforms to improve operational efficiency, enhance transparency, and strengthen their finances will continue; SOE oversight and regulatory institutions such as the Public Enterprise Holding and Administration Agency will be strengthened, and the Ministry of Finance will enhance its fiscal oversight role.
Measures will be taken to reprofile SOE debts and enhance the debt service repayment capacity of SOEs. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Ongoing SOE projects will be finalized through already committed loans, privatization proceeds, and borrowing from the domestic market to the extent possible.
A prudent SOE investment plan and an SOE specific debt management strategy will be prepared and implemented.
Ensure debt sustainability.
Limits on non-concessional loans will be maintained as per the last two years.
Non-concessional loans will be limited to previously contracted loans. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
To complement the prudent external borrowing policy, debt reprofiling will be undertaken to the extent possible to lessen near-term debt service obligations and forex strains.
This would allow to improve the risk of the country’s external debt distress from ‘high’ to ‘moderate’ level by the end of the reform period.
The Ministry of Finance will develop a medium-term debt management strategy to guide the government’s annual borrowing including marketable debt financing. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Efforts will be undertaken to enhance transparency in the total government debt including SOEs.
Envisioned export performance improvements will also contribute the improvement of debt sustainability.
4.2.2.
Addressing the foreign exchange imbalances Rationale.
A sustainable solution to the forex imbalances requires removing policy distortions in the forex market and allowing the exchange rate to be determined on the basis of economic fundamentals. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
This will be complemented with streamlining the activities of SOEs to ease forex demand.
The government will take gradual measures towards a market-based exchange rate regime.
Efforts will be undertaken to institute a mechanism where there are no controls on current account transactions (e.g.
imports) and the value of the exchange rate reflects market fundamentals.
This does not mean a free-floating exchange rate regime. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
It only means that the NBE will achieve its exchange rate policy objectives through intervening (buying and selling forex) in the interbank market, and not through determining the exchange rate by itself regardless of market conditions.
The transition into such market-based or flexible exchange rate policy will follow a gradual path in conjunction with 18 accompanying measures to mitigate potential adverse consequences.
The transition process will involve the following measures. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
• Mobilizing less-costly forex resources to meet immediate forex needs and build the level of international buffers • Correcting the prevailing exchange rate overvaluation • Gradually easing FX controls and availability of FX to the private sector • Promoting exports, tourism, and FDI through macroeconomic and structural reforms • Improving the FX management and functioning of the interbank market 4.2.3.
Strengthening the monetary policy framework and financial regulations Rationale. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Monetary policy will be strengthened to address inflation and support the transition to a private sector led growth.
Given the potentially inflationary impacts of the exchange rate depreciation, the transition to a flexible FX market will be accompanied by a strong commitment by the NBE to tighten monetary policy as needed.
Monetary policy under the home-grown reform aims to address elevated domestic inflation while complementing efforts to address forex shortages and reduce real overvaluation. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The key reform measures include the following. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
• Gradually reduce direct advance to the budget and contain the growth of reserve money • Introduce market-based monetary policy and liquidity management instruments, such as term deposits (non-tradable) and certificates of deposits (tradable) • Strengthen the NBE’s capacity so that it can effectively carry out its mandate of ensuring price and financial stability • Make transition to interest rate based monetary policy as the effectiveness of quantitative monetary targeting will inevitably decline with increasing monetization 4.2.4. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Reforming public financial institutions and dealing with vulnerabilities at public banks Rationale.
A series of institutional reforms will be undertaken to strengthen public financial institutions.
These will include asset quality review and implementation of international finance and governance standards such as IFRS, and measures will be taken to enhance their capacity to conduct financial viability analysis before extending loans. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The operations of CBE and DBE will be modernized to the level of industry best practices.
While conducting further analysis to determine the resources and modalities through which legacy problems at the CBE and DBE will be resolved, it is important to safeguard the balance sheets of these banks from further deterioration.
Key reform measures are outlined below.
19 Unravel the CBE-SOE debt nexus to improve the financial viability of CBE. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
SOEs account for a significant share of CBE’s total credit extension, exposing CBE’s balance sheet.
Measures will be taken to expedite the servicing of SOEs debt to CBE.
These will entail the government assuming the distressed portion of SOEs’ debt, enhancing the SOE governance and operational efficiency, and expediting completion and operationalization of ongoing projects to allow them to service their debts in a timely manner.
Enhance the capacity and sustainability of DBE. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Enhance the capacity and sustainability of DBE.
Complete the ongoing study with the reform options for DBE and design a sustainable financing mechanism for DBE’s lending operation.
In light of plans to gradually repeal the NBE bill, DBE’s reliance on NBE financing will be unsustainable.
Hence, alternative and sustainable financing models for DBE will be identified and implemented. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
DBE’s capacity to conduct financial viability analysis before extending loans, and track and collect mature loans in a timely manner will be enhanced.
The Bank’s overall business model and credit policy will be revised.
While waiting for the ongoing study to come up with reform options for the future of DBE, it is important to ensure that DBE honors its prior commitments or already approved projects.
4.2.5.
Enhancing financial sector development and developing capital markets Rationale. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Improving financial intermediation and releasing the potential of the financial sector to support economic growth will require easing repressive financial sector policies and facilitating market-based determination of interest rates and allocation of funds.
A modern financial system is important to support the rebalancing of the role of the public and private sector. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The development of bond and stock markets will also provide investment opportunities for pension funds and other financial investors, as well as an alternative source of funding for long-term investment projects.
On the other hand, interbank money markets would allow banks to lend to each other to bridge short- term liquidity needs.
Interest rates from money markets can serve as anchors to monetary policy thereby facilitating the transition into interest-rate based monetary policy framework. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The following measures are aimed to contribute to the development of a well-capitalized, profitable, and liquid banking system.
Key reform measures are outlined below.
Repeal the NBE bill.
The requirement for banks to invest 27 percent of their portfolio on the NBE bills, which has a return well below the minimum deposit rate, will be repealed.
The reserve requirement on banks was used to finance the budget without causing monetary expansion. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The liquidity released from this reform is expected to allow banks to improve the provision of credits to the market.
Following the government’s establishment of competitive government securities (T-bills), private banks can also invest on treasury bills which is expected to gradually replace direct advances as a source of budget financing.
Operationalize a competitive T-bills market.
A competitive T-bills market will be initiated starting from the current fiscal year. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The number of issuances in the first three years will be determined based 20 on three considerations: (i) the financing need; (ii) the fiscal cost of higher interest rates; and (iii) availability of liquidity in the financial system.
Facilitate the development of inter-bank money markets.
The interbank money market plays a key role in the execution of monetary policy. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
In addition to balancing daily liquidity fluctuations and mitigation of liquidity risk, it facilitates a transparent price setting mechanism.
A developed, active, and efficient interbank market enhances the efficiency of the NBE’s monetary policy and its links to the economy.
The interbank market will be developed in conjunction with the development of the T- bills market, improved liquidity management by the NBE, and modernization of the payments and settlement system. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Establish a stock exchange and secondary bond market.
A stock exchange will be launched in collaboration with the private sector.
This will be followed by establishment of a secondary T-bills and T-bond market.
Build analytical capability at NBE’s Credit Reference Bureau.
Credit bureau coverage in Ethiopia is less than 5 percent of the adult population. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The NBE has issued directives for the establishment and operations of a credit reference bureau to enhance access to finance and to provide credit rating to financing instruments and capital seekers.
Although the NBE has made progress in setting up a credit reference bureau, the bureau’s ability to facilitate extension of credit to underserved segments, such as individuals and small and medium enterprises (SMEs), remains constrained. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Measures will be taken to enhance the NBE credit bureau’s capacity and expand the credit registry to MFIs and leasing companies.
Furthermore, the government will explore options for allowing private credit analysts and rating companies to support capital market developments.
Promote financial inclusion.
The government aims to enhance financial inclusion.
In this regard, earlier measures for financial inclusion will be deepened and measures to promote mobile technology will be accelerated. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The current restriction against mobile payment technology service providers and the requirement for financial institutions to own the technological platform will be re-evaluated to allow closer partnership between financial institutions and technological companies, thereby accelerating market penetration of digital payment systems.
Other targeted measures will be undertaken to develop other segments of the financial sector such as leasing and insurance. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Requisite regulations to use moveable assets and expand the range of eligible collateral will be developed.
A financial education strategy will be launched to bring the under-served part of the population to the banking system.
4.3.
Structural reforms Rationale. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
4.3.
Structural reforms Rationale.
While macro-financial stability is necessary for restoring confidence and building a solid foundation for economic growth, success in rebalancing and sustaining productivity growth and job creation will depend on creating an enabling environment for businesses and sufficient incentives for investment. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
21 Cumbersome bureaucratic and regulatory procedures, corruption, barriers to international trade, poor logistics, and limited access to reliable electricity, in addition to forex shortages and limited access to finance, are often cited as the key bottlenecks to doing business in Ethiopia.
On the other hand, monopolistic and hoarding practices in some domestic markets have complicated efforts to stabilize prices. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Poor and inefficient logistics and transport services are key constraint’s to economic competitiveness and export enhancement.
Ethiopia ranks low in starting a business (176th out of 189 economies) and in trading across borders (166th) in the Doing business ranking. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The government has recognized the weaknesses in the key enabling sectors in energy, logistics, transport and communications, and is developing strategies to increase competition and enhance efficiency through market reforms and greater private sector participation.
Recent reforms on the regulatory process have led to a significant reduction of business licenses (by 30 percent) and the requirements of competence certificate (by 50 percent). | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
These improvements on the bureaucratic process and the provision of key services are expected to lead to a multitude of gains in the investment climate, firm productivity, and overall economic growth.
The structural reforms outline measures to improve business regulations and policy, address market failures, and enhance the efficiency of key enabling sectors to fully unleash the potential of the private sector.
4.3.1. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
4.3.1.
Speedup ongoing reforms to ease constraints to doing business Ongoing structural reforms aimed at streamlining bureaucratic and regulatory procedures and improving governance in public institutions will ease business constraints and promote private sector- led growth. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The excessive requirements of licensing obligations, unnecessary competency certifications, uncertain policies subject to different interpretations by different institutions, and lengthy tax administration and customs procedures are some of the key hurdles in the business environment.
The administrative burden for firms to exit in the case of failure are equally challenges for the private sector. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
In this line, streamlining the business licensing requirements, simplifying procedures, clarifying mandates of different agencies, and improving inter-agency coordination are identified as key reform measures.
This would include undertaking a review of regulatory requirements to enter and exit a market and cut regulations that don’t have a clear and justified purpose. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Regulations will be overhauled to promote transparency and efficiency, and clearly define the division of responsibilities among different supervisory, regulatory and enforcement authorities.
22 4.3.2.
Ease tariff and non-tariff barriers to international trade Easing tariff and non-tariff barriers would help improve external competitiveness and enable the export sector to reap the benefits of the broader macro-economic, structural, and sectoral reforms. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
On average, Ethiopia continues to levy high tariffs, increasing the cost of intermediate inputs as well as consumer goods.
High tariffs on intermediate inputs creates a bias against exports.4 According to a World Bank (2014) study, Ethiopia has more trade restrictions in place than peers (ranking 109th out of 125 economies on tariff trade restrictions).
Trade, and especially exports, is also constrained by a range of non-tariff measures. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
A 2018 survey by the ITC found that 96 percent of trading companies in Ethiopia report facing burdensome situations related to the application and implementation of trade-related rules and regulations.
Exporters appear to be more affected than importers, with 90 percent of exporting companies reporting facing burdensome non-tariff measures and 56 percent of importing companies reporting such problems. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Furthermore, Ethiopia is characterized by lower rates of firm entry into exporting due to high fixed costs that constrain entry into exporting and learning by exporting.
Key reform measures in this line include revisions of tariffs to remove disincentives to exporters, and improvements in the implementation of regulations to reduce the time to import and export, including the application of standards and conformity assessments. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Ratifying CFTA and WTO accession will also improve access to foreign markets and support exports.
WTO accession will also enhance the transparency and predictability that membership brings, which in turn provides confidence to investors and trading firms over a range of trade and trade-related policies.
4.3.3. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
4.3.3.
Improving governance and capacity of public institutions The inclusive structural change agenda requires capacity and coordination in government institutions, improved transparency and accountability, and a sustained consultation and understanding between the public and private sectors.
The reform of public institutions, will be undertaken while viewing all institutions (public, private, political, social, civic, the media) as an integrated whole. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Measures will be taken to address capacity weaknesses and coordination failures between different ministries and agencies of government, and between federal, regional and local governments.
Public institutions efficiency and transparency and accountability will be enhanced through the adoption of ICT tools and measures. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Furthermore, the past system of mutual skepticism between the public and 4 The duty draw back scheme that reimburses firms for duties on imported inputs offsets the impact of high tariffs on intermediate goods.
However, such schemes remain cumbersome and costly to implement.
Exemptions or reduction in tariff would simplify procedures for exporters.
23 private sector must be overcome. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
23 private sector must be overcome.
Moving forward, it is important to develop a shared vision of the national development strategy between the government and the private sector.
4.3.4.
Ensure efficient logistics services Coordinated and efficient logistics and transport services are critical to address the current bottlenecks to domestic and international competitiveness of the economy. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
While Ethiopia has invested heavily in transport and logistics infrastructure, the country ranks 126 out of 160 countries on the Logistics Performance Index (LPI) in 2016.
The cost of shipping is much higher than in comparator countries. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The challenges faced by businesses, exporters, and manufacturers include a heavy bureaucratic customs process and inadequate logistics services, under-developed transport systems, inadequate terminal facilities, limited utilization of ICT systems, and an inefficient regulatory framework.
Logistics services necessary to serve modern manufacturing and agricultural supply chains, are missing or inadequate. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Improvements are aimed to reduce transit time for import and export items, enhance competitiveness of agricultural and manufactured exports, and address inflation and distribution challenges in the domestic market.
Logistics is both a sector in its own right and also an input to most other activities; thus, logistics sector reform has substantial sector and economy-wide impacts.
Key reform measures are outlined below.
Enhance logistics sector competitiveness and efficiency. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Improving the competitiveness of the logistics sector requires enhancing the existing services in the sector and expanding the range of value- added services as well as improved coordination among actors.
This will require both modernizing the corporate governance and improving operational efficiency of logistics enterprises and attracting a range of investors into the sector. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The operational efficiency of the Ethiopian Shipping and Logistics Services Enterprise (ESLSE) needs significant improvements in the different areas of operations including shipping, freight-forwarding and terminal and port operations, to engender performance improvement and lower costs.
The government has announced measures to liberalize the sector and is assessing options to restructure the ownership of the ESLSE including options for private sector participation in the enterprise. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
There is also a need for clear separation between the state’s ownership and regulatory functions, and hence the need for reforms at the Ethiopian Maritime Affairs Authority (EMAA).
The liberalization of the sector would allow to increase the capacity, efficiency, and quality of existing services, which are focused on transportation and customs clearance. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
It’s also important to expand value added services and bring in private providers in a range of logistics services to serve modern manufacturing supply chains, including distribution, packaging, warehousing services, transport management services, supply chain consulting services, consolidation and deconsolidation and inventory management.
24 Enhance coordination across the logistics sector actors. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Logistics is a network industry where efficiency is impacted by multiple regulations and requirements defined by a range of regulatory bodies (maritime transport, road transport, rail, ports, customs, finance, etc.
), all with different objectives.
Hence, regulatory coordination is essential in supporting efficiency in the sector and preventing fragmentation of supply chains.
Establishing a robust logistics sector coordination structure will be among the key reform measures. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Digitalize logistics and related services.
Under-utilization of ICT constrains the logistics sector.
The IT software and systems that track cargo and report on customs processes are not fully operational or integrated.
The use of ICT will be enhanced to include automated customs clearance system at the customs authority and the integration of these services in checkpoints along trade routes, where traders and service providers can access the web-based portal.
4.3.5. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
4.3.5.
Improve power reliability and access The electricity sector is a key priority for the country’s socio-economic growth.
Electricity demand has grown continuously in Ethiopia for the past 20 years, and installed generation capacity has increased from less than 2 GW in 2007 to 4.5 GW in 2018.
However, per-capita consumption of electricity remains low at 70kWh (2014), which is far below the average level of per-capita consumption across African countries of 500kWh. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The power sector reforms include measures to improve the reliability of services, expand access and generation capacity, and achieve efficiencies in investment and operation.
Key reform measures are outlined below.
Strengthen institutional and regulatory framework of power sector entities.
The basis for improved power sector reform is a credible and effective institutional framework, which promotes efficiency, transparency, and accountability. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Currently, the Ethiopian Electric Power (EEP) and Ethiopian Electric Utility (EEU) suffer from a lack of efficiency and capacity, which leads to below optimum standard operations and a technical loss in the transmission and distribution lines.
In this line efforts will be undertaken to modernize the corporate governance and improve the operational efficiency of power sector institutions including through ownership, organizational, and management restructuring of the above mentioned enterprises. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
A comprehensive improvement to enhance operational efficiency of EEU and EEP to improve their service delivery and reduce technical and commercial losses will be implemented.
Regulatory framework strengthening of the Ethiopian Energy Authority (EEA) will be undertaken to develop a transparent and effective rules and standards to promote performance and investment in the sector. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
With the envisioned increase in private sector engagement, the regulatory body will be strengthened to ensure a conducive and competitive business environment.
Implement a sustainable financing model for the power sector.
The traditional model of public financing of new investments in the power sector combined with non-cost reflective tariffs has 25 compromised the financial health of the energy sector enterprises, with effects on service delivery. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Current energy sector tariffs are below cost recovery levels, where electricity tariffs remained nominally constant for nearly a decade.
Restoring cost recovery through tariff reforms such as by implementing differentiated tariff rates between households and commercial/industrial users will be essential to allow the sector shift from its debt-based financing model. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Improved management efficiency and increased participation of the private sector in energy sector will help enhance the sector’s financial sustainability and there by enhance the reliability and expansion of access to power.
Expansion of power exports to neighboring countries such as Kenya would also help improve revenue to the sector.
Encourage independent power producers (IPPs) and public-private partnerships (PPPs). | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
In line with the National Electrification Program’s goal to achieve universal access to electricity by 2025, efforts will be taken to expand electricity access to 65 percent of the population through grid connection and 35 percent through off-grid solutions with private sector participation.
The sector is now starting to see strong interest in off-grid projects from private companies. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The development of the off-grid connections will include revisions of regulations which hamper investments and measures to enhance the value chain and the availability of off-grid infrastructure components.
Efforts will be undertaken to enhance and incentivize up-take of off-grid connection by consumers.
Regulatory framework reviews will aim to ensure a conducive environment for private sector engagement and ensure a level playing field in the power sector.
4.3.6. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
4.3.6.
Implement the telecom sector reform Telecom services are an area where the country lags behind its peers.
Limited telecom service coverage, costly access, poor quality, and lack of local content and services in the telecom sector are becoming a binding constraint to private sector development and firm growth.
Improved telecom services are expected to facilitate efficiency gains and market linkages across economic sectors. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The ongoing telecom sector reforms aim to modernize telecom services and enhance the efficiency, reliability and affordability of services.
Access to information and communication is at the core the inclusive economic development agenda, where it promotes improved global connectivity, better service efficiency, and enhance innovation and technology adaption.
Telecom services are also essential to exploit Ethiopia’s digital economy aspirations. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The reform measures will include liberalization of the telecom sector to promote private sector participation and competition and the development and strengthening of sector regulatory institutions.
Liberalization measures will include the issuance of additional telecom service licenses to operators and the partial privatization of the state-owned Ethio-telecom. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The participation of private sector will foster competition to lead to increased investment in infrastructure and services, increased choice and innovation for consumers, and better, more affordable service.
The development of the telecoms sector is critical to meet the country’s inclusive development aspirations.
26 4.4. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
26 4.4.
Sectoral reforms Sectoral reforms will complement macro-financial and structural reforms to address sector-specific market failures to exploit opportunities in a range of traditional and non-traditional sectors, such as tourism, mining, ICT and creative arts.
Sector specific policies and regulations, access to improved inputs, finance, and market systems, and skills and technology are needed to drive diversification of both products and markets across sectors. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Efforts will be geared towards facilitating and enhancing private sector engagement and exploring new sources of productivity and jobs.
4.4.1.
Agriculture Rationale.
Although Ethiopia is diversifying its economic base, agriculture accounts for more than three quarters of employment, 36 percent of output, and more than a third of total exports.
The predominance of agriculture in the economy indicates that agricultural growth will remain an important driver of economic growth and poverty reduction. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Agricultural productivity has grown rapidly in the past decade due to intensification of modern seeds, fertilizer use, and farm management techniques.
Productivity improvements in the past few years were limited on key crops, with limited investments and productivity improvements in a range of sub sectors. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Furthermore, yield growth remains insufficient to meet domestic food security and industrial needs, and underdeveloped markets continue to prevent farmers from realizing returns on their investments on inputs.
Some of the major constraints in the agriculture sector revolve around land use and administration system, access to high-quality inputs and finance, efficient market systems, and research and extension services. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The agricultural sector reform focuses on addressing specific issues prioritized under each of the major constraints.
Increasing market-driven agricultural production and productivity and enhancing agricultural value addition and access to domestic and international markets will be required for agriculture to contribute to the structural transformation of the economy.
To support this, the government will closely work with smallholder farmers, cooperatives and private actors. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Key reform measures include the following.
Develop legal frameworks to enhance land use and administration and allow farmers to lease land use rights.
There are a number of policy and regulatory challenges that have contributed for unsustainable land administration and use in the country.
Land resources are being used inefficiently without considering their potential and sustainability.
Land fragmentation is a challenge that hinders smallholder farmers from graduating into medium and large farms. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
27 Legal frameworks that protect farmer’s land use rights (rights of current farmers to farm and pass on farms to children, and grazing rights for pastoralists), facilitate land lease and exchange (e.g., leasing and other mechanisms which would promote consolidation/ aggregation of farms into larger units), and promote voluntary based land consolidation will be developed and implemented. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
These measures will encourage farmers to implement modern farm management techniques, adopt modern technologies, inputs, and machineries, which in turn increase production and productivity, improve the quality of produce and reduce post-harvest losses.
Land consolidation will also encourage the formation of medium and large farms A national land use policy and integrated land use planning will be developed to transform the agriculture sector. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
This measure would be coupled with the establishment and strengthening of both urban and rural land administration.
Enhance productivity of small-holder farmers and pastoralists through provision of modern inputs and services.
Small holder farmers account for close to 95 percent of total crop production and more than 64 percent of them produce their crops on less than one hectare of land. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Enhancing the productivity of smallholder farmers plays a crucial role to transform the agriculture sector and improve the living standards of the rural population.
Capacity building of smallholder farmers through enhancing farmer training centers through the provision of the necessary equipment and modernizing and expanding agricultural extension services including through the use of ICT will be key measures to improve the productivity of smallholder farmers. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Developing mechanisms to integrate smallholder farmers with commercial nucleus farms, through the development of farmer out-grower schemes, and broader measures to support aggregation and distribution of agricultural outputs to industries will also be facilitated.
Modernize livestock production through improving veterinary infrastructure and establishing linkages with other industries.
Livestock accounted for about nine percent of the GDP in 2017/18. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Ethiopia holds key advantages in the livestock sector, including a large livestock and consumer market, low cost of production, and investment incentives.
However, the livestock value chain suffers from structural challenges. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Building the capacity of national veterinary institutions to produce sufficient quality and quantity of vaccines for priority diseases and promoting private sector investments in veterinary infrastructure development and production of vaccines are primary steps towards improving the health of the livestock population in the country.
Enhancing animal health inspection and certification will also be undertaken to promote export of livestock products. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The livestock sector is also a key source of raw materials for the agro-processing industry as well as the leather industries.
In addition to challenges with animal health, poor production and management systems hinder the production and processing of livestock products for industrial inputs.
Measures will be taken to improve the hide and skin raw material supply, which is currently inhibited by low quality stemming from the improper handling practices. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Capacity building of livestock producers, 28 abattoirs, and collectors will be undertaken in a comprehensive manner.
Meat processing and poultry value chains will be enhanced to strengthen linkage to the emerging agro-processing industry.
Establish effective linkage between agriculture producers and commodity markets as well as the commercial value chain. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Despite the significant growth in farmers’ production and productivity over the past few years, the volume of produce that is sold as marketable surplus has increased at a slower pace.
The lack of effective market infrastructure, price instability, and limited amount of market linkages between farmers and potential buyers such as cooperative unions and agro-processors, are identified as challenges in the market system. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
There is also a limited processing capability and promotion of products to penetrate the local and international market.
This requires interventions that ensure that farmers become better informed about market demand and pricing to make more informed decisions and to strengthen their negotiating position. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Measure will be undertaken to develop and implement efficient output market system addressing quality and traceability of produces and build the institutional capacity of market actors to facilitate market linkages between producers and buyers including promotion and branding of agricultural commodities.
Specific measures will be taken to build technology-based trading system (including e-payment) to link aggregators and off takers. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
The grading, certification and traceability system for agricultural produce will be strengthened.
Accelerated growth in agricultural production with a focus on strategic crops for import substitution and exports.
In 2017, Ethiopia imported over $700 million of food and animal products, including wheat and other staple grains, fruit juices, vegetable oils, and raw sugar— goods for which the country has sufficient domestic production capacity. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Efforts will be made to achieve a varying degree of import substitution of wheat, cotton, rice, and oilseeds (i.e.
for agro-industries), and sufficient and high-quality production of lowland pulse commodities as well as sesame for the export market.
Irrigation based small-scale commercial production of select commodities will be supported. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
All actors in the value chain, particularly investors, pastoralists, semi-pastoralists, and youth groups involved in lowland irrigated crop production will be mobilized.
A lowland irrigation crop development strategy will be developed.
Measures will be undertaken to improve export competitiveness on coffee, horticulture, livestock and livestock products, oilseed, and pulses.
Export commodity diversification will be supported to promote high value commodities. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Research and extension services and innovative input supply system will be strengthened to enhance the quality, productivity & sustainable supply of strategic commodities.
Significant improvements on product safety and regulatory framework will be undertaken to increase consumer confidence on the produce.
Develop a legal framework for agriculture focused financial services. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Agriculture accounted for 10 percent of the outstanding credit in the past three years, with the bulk reaching the more developed export sub-sector.
The under provisioning of credit to agriculture could be a factor behind the low productivity of the sector.
The sector is also exposed to diverse risk factors including rainfall 29 variability, droughts, floods, pests and disease outbreaks, which necessitate provision of insurance to farmers. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |
Improving access to agricultural finance includes both the availability of agriculture suitable products in the formal banking sector as well as formalizing and strengthening the rural savings and credit cooperatives sector.
Initial efforts will include formalizing the cooperatives sector, developing liquidity linkages with commercial banks and microfinance institutions, and building a modern management capability & financial control system to appropriately serve the rural population. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/rr/1726050226258.pdf | https://faolex.fao.org/docs/pdf/eth211967.pdf |