Globalization – its promises and perils To the Ethiopian Economy

Course ID
Ethiopian Economics Association (EEA)
Amdetsion Gebremichael

According to the World Bank, among the Sub-Saharan countries, Ethiopia has liberalized its economic policies the most. Non-tariff barriers have been eliminated and tariffs have been progressively reduced on a wide range of commodities. The maximum tariff rate has been reduced from 230 percent to a maximum rate of 35 percent in January 2003. The simple average tariff rate has also been reduced from 79.1 percent to 20 percent, and the weighted average tariff rate form 41.6 percent to 17.5 percent (MFED).

The country also enhanced the role of the private sector through lifting investment restrictions (such as licensing, investment capital ceiling). Other policy reforms included the abolition of market control mechanisms such as pan-territorial fixed prices and compulsory quota delivery by farmers to public trading enterprises; privatisation of small, and medium-size state-run enterprises; opening up the financial sector (banks and insurance) for private participation; and relaxing of exchange rate controls.

In spite of the liberalization policies, Ethiopia is still among the marginalized low-income developing countries in the ongoing liberalization process. The country has not benefited from international trade or from attracting significant flows Foreign Direct Investment (FDI). The country’s exports remain basically primary commodities, with coffee alone accounting not less than 50 percent of total foreign exchange earnings. With the declining trend of primary commodities, especially coffee, in the international markets, the country’s terms of trade has been declining and the gap between export earnings and import expenditures on goods and services widened from US$ 621 million in 1992 to US$ 1.09 billion in 2002.

FDI flows to the country remain at a depressingly low level. Annual average FDI flows to the country amounted to only US$ 218.5 million for the period 1997-2001. According to UNCTAD’s FDI performance index which ranks countries by their performance in attracting inward direct investment and their potential thereof, Ethiopia ranks among under-performing countries.

Drawing upon available empirical studies and based on Ethiopia’s experience, this paper attempts to show that liberalization per se is not a sufficient condition for a developing country to benefit from globalization. This paper argues that Ethiopia has to accelerate its economic development and to diversify its exports to enable itself to be an active participant in the globalization process and to benefit from it. To achieve an accelerated development requires concerted efforts to enhance the productivity of small farmers, and to promote private sector investment, both domestic and foreign. The role of the private sector in accelerating development is critical, and the constraints which rendered the sector’s performance to be lacklustre so far, need to be addressed.

The paper reviews, first, the new aspects and the main features of the current globalization process. Second, it discusses the conditions under which “openness” or liberalization makes developing countries “winners or losers” in the process of globalization. Third, after assessing the performance of Ethiopia in the globalization process, the paper considers the promises and the perils of globalization to the Ethiopian economy

Corporate Author: Alemayehu Seyoum … [et al.] (editor)
Publisher: Ethiopian Economic Association (EEA)
Primary Descriptors: Globalization

Secondary Descriptor: Poverty reduction

Geographic Descriptors: Ethiopia
Cataloge Date: 02/27/2013
Broad Subject heading: Economic policy
Call Number: 330.963 PRO 2005
Serial Key Title: Proceedings of the Second International Conference on the Ethiopian Economy
Publication catagory: International Conference
Content type: EEA Publication
Volume: II
Publication date: 2013-05-27 23:05:00
Forum or Discussion date: 2013-02-27 15:01:56
Place of publication: Addis Ababa, Ethiopia
Type of material: Book
Current frequency: Annualy
Author: Amdetsion Gebremichael