Ethiopia’s Trade Deficit: The $14.3B USD Saga

If you live in Ethiopia, you know that it wouldn’t be an exaggeration to say that we import everything with the exception of coffee, fruits and vegetables and crops/grains.

A cargo dock at the Port of Djibouti transiting containers headed for Ethiopians

One might say that there is no problem with this, as long as we can afford it and the direct effects are manageable. Well, we CANT afford it and the indirect effects are slowly but surely crushing us. This brings us to the Ethiopian Trade Deficit.

So to start, what is a trade deficit? This economic buzzword thrown around by suits on the news, is actually a pretty simple concept. It’s when a nation imports more stuff than it exports (in terms of money), hence the “deficit”.

As of 2021, Ethiopia’s balance sheets boast a massive $14.3B USD trade deficit. That means Ethiopia is spending 14 billion dollars more than it’s earning, and this is seriously alarming in the long run, becoming harder and harder to pay off.

Even if we ignore the immense economic risk, its a sign of the greater Neo-colonial forces behind the scenes. Neocolonialism is the use of economic, political and cultural pressures to control/influence other countries, especially former colonies and dependencies. In Ethiopia’s case, we can simply look at the numbers. The biggest holders of Ethiopian debt are China, India and U.S.A with $4.6B, $1B and $984MM USD respectively. If you live in Ethiopia, this shouldn’t come as a surprise to you, when you can clearly see who is responsible for most construction and infrastructure projects (China)

Commercial Bank of Ethiopia’s new headquarters being built by China State Construction Engineering Corporation (CSCEC) for $5.3B ETB

For comparison, Ethiopia exported only $288MM to China, $227MM to the US and less than $50MM to India. This 10:1 trade relationship is not sustainable for the near future, without Ethiopia sacrificing her valuable resources or massively discounting them for the holders of this debt. After all, that is the end-game of these neocolonial countries, facilitated by organizations like World Bank and IMF.

To avoid this, the number one solution in my personal opinion would be import substitution. Simply making everything we import, here in Ethiopia. Hypothetically, most goods we import with our scarce foreign reserves can be produced in Ethiopia. Most don’t consider this though, largely due to the Derg regime who left the manufacturing sector underdeveloped, along with a brainwashed mindset that “The white man’s goods are better”

Substituting basic things like sunflower oil, general pharmaceuticals and dairy an have an immense impact on the country’s economy. Import substitution solves an array of problems. It decreases the amount of foreign reserves spent, which is a massive issue for us at the moment. It offers goods at a lower price to the consumer without taking profits from the consumer, given the forsaken logistics and international trade costs. It also reshapes our mindsets, giving us pride in our own country’s products; Hopefully motivating them to do the same.

Incentivizing the private sector with tax benefits is one way the government can lead the front. A major example of this would be the Ethiopian automotive market, in which the government charges unto 300% of the car’s MSRP when it is imported into the country. Cars manufactured/assembled inside the country pay a fraction of that. However, the aforementioned inferiority mentality poses a major threat to this. Companies like Mesfin Industrial Engineering (MIE) tried to produce homegrown automobiles like the Saba and Geely models, but failed to gain much market share. They devised a smart solution to this by signing deals with foreign car brands to assemble the parts here. When MIE did that with Peugot recently, their sales rose significantly. Marathon Motors’ deal with Hyundai and Yangfan Motors’ deal with Lifan Motors (Beijing) are notable examples.

Peugeot 301 car assembled and sold here in Ethiopia under Mesfin Industrial Engineering (MIE)

In conclusion, its safe to say that as long as we don’t fix our mindsets and attitudes towards our trading practices, we will fall hostage to our Neo-colonial trading partners.

The Culture | Ethiopia | Finance