Figures of the week: The nexus of manufacturing and services sectors in Ethiopia

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Last week, the World Bank released its latest Ethiopia Economic Update entitled, The inescapable manufacturing services nexus: Exploring the potential of distribution services. This report provides an overview of recent economic developments in Ethiopia, assesses the sustainability of the country’s growth model, and highlights opportunities for distribution services—defined primarily as “commission agents’ services, wholesale trade services, retailing services, and franchising” for the purposes of the report—to promote structural transformation and accelerate growth in Ethiopia.

In terms of Ethiopia’s recent economic growth trends, the report notes that gross domestic product (GDP) growth increased to 10.9 percent in fiscal year 2017, following a year of more subdued growth (8 percent in FY2016)—due to drought and a decline in agricultural production. Still, the country’s average annual growth rate was 10.3 percent over the period 2005/2006-2015/2016—much higher than the regional average of 5.4 percent. Looking ahead, Ethiopia’s growth projections in the medium term are expected to average around 8 percent annually under the country’s current investment-focused and export-led growth model. To advance the government’s export development agenda and accelerate growth, however, the report argues that the government should support policies to strengthen the linkages between goods and services markets since they are both part of “an interconnected chain of value addition from production to final consumption.” In particular, distribution services could play a transformative role in increasing export competitiveness and enhancing both the services and manufacturing sectors in Ethiopia if certain challenges to the sub-sector, identified below, are addressed.

Currently, distribution services contribute nearly 15 percent of Ethiopia’s GDP, and the sub-sector employed over 42 percent of the country’s active population (including informal, unskilled, female, and part-time workers) in 2013. The formal distribution sector is considered the second-leading sector in terms of formal employment in Ethiopia. Distributors have played a crucial role in linking producers and suppliers, especially in recent years …

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