How the Private Sector in Ethiopia Can Benefit from the AfCFTA?

The Project at A Glance

Africa has traditionally been an economically fragmented region, with low intra-regional trade. With the aim of increasing the levels of trade between African countries, the African Union (AU) Member States launched negotiations for the African Continental Free Trade Agreement (AfCFTA). The key objectives of the AfCFTA are to accelerate the pace of economic regional integration in Africa by eliminating tariff and non-tariff barriers on all trade in goods and services and by liberalising the movement of people and investments across the continent.

While Ethiopia is one of the fastest-growing economies in the world, its integration into the African market remains restricted. The Ethiopian trade landscape is characterised by high tariffs. However, the Government intends to leverage its ratification of the AfCFTA to improve the country’s trade profile.

In this context, International Economics Consulting Ltd. (IEC), with funding from the GIZ, conducted an assessment for the Ethiopian Chamber of Commerce and Sectoral Association (ECCSA) on how the private sector in Ethiopia can benefit from the AfCFTA. Special emphasis was given to SMEs and Women Business Owners. The company produced a study and policy brief outlining how the benefits of joining the AfCFTA can be maximized for the private sector.

What We Found

The AfCFTA has the potential of transforming the Ethiopian trade landscape. It has been estimated that the full implementation of the Agreement will increase trade in East Africa by approximately 13% by 2030. This corresponds to approximately USD 737 million worth of trade. Ethiopia can expect a 10% rise over the same period, representing around USD 10.7 million. However, given that several non-tariff barriers exist between Ethiopia and other African countries, it will be equally important to mitigate these barriers in order for Ethiopia to increase its volume of intra-African exports.
Based on our quantitative analysis and the study’s scope, Ethiopia’s market opportunities arising from the AfCFTA are in the following sectors: vegetables, coffee, oilseeds, textiles and garments and machinery. In the horticultural commodities sector, Ethiopia enjoys a comparative advantage owing to its favourable climate, size of the domestic market and connections with the European market. It is one of the fastest-growing sectors in the country. Between 2010 and 2020, the exports of vegetables increased from USD 140 million in 2010 to USD 553 million. This sector holds the largest potential for Ethiopia under the AfCFTA. Untapped potential in the sector amounts to approximately USD 185 million.

Our Strategy and Impact

In order for the Ethiopian private sector to leverage the AfCFTA, we have structured our recommendations along three key strategic objectives. These objectives are aligned with the Ethiopian Government’s Ten Years Perspective Development Plan.

Strategic Objective 1: Provide trade intelligence to access the AfCFTA. Based on our consultations with stakeholders it was found that businesses have poor access to information on regional markets. It was therefore advised that the Government and private sector associations design programmes that provide targeted support to businesses in better accessing market information.

Strategic Objective 2: Enhancing human and institutional capacity of private firms to access the AfCFTA Market. It is imperative for the Government and the private sector to invest in developing human capital in the country. This will be instrumental in allowing the population to integrate regional value chains. Moreover, to facilitate trade, exporters must be given training on the different standards and requirements they need to meet in order to export to different African countries.

Strategic Objective 3: Strengthen trade promotion activities related to AfCFTA markets. The Government should undertake activities aimed at strengthening trade promotion. This will improve the connections between businesses and investors, paving the way for new markets and opportunities.

Our Core Solutions

At International Economics Consulting, we build tailor-made strategies for both import and export-oriented businesses. We help investors assess the opportunities in different markets, determine the feasibility and viability of projects, and benchmark the wider ecosystem to support business growth. We assess regulatory and policy barriers and incentives and connect with local businesses and policymakers. We equally analyse supply chains and carry out trade-off analyses by identifying and structuring our client’s global production networks.