CHALLENGES AND OPPORTUNITIES OF IMPORT SUBSTITUTION INDUSTIALIZATION IN ETHIOPIA

Abstract

Import substitution industrialization (ISI) is a theory of economics typically adhered to by developing countries or emerging-market nations that seek to decrease their dependence on developed countries. The overall goal of this research is to evaluate the challenges and opportunities of import substitution in Ethiopia. To conduct this study, the researcher used descriptive study believing that descriptive research describes phenomena as they exist, and it is used to identify and obtain information on the characteristics of a particular problem or issue. To acquire the intended study outcomes, the researcher used both qualitative and quantitative research methods. The study's target population were manufacturing industries engaged in IS. in and around Addis Ababa. List of potential respondents were acquired from Ethiopian Chamber of commerce and Sectoral association. Accordingly, the researcher identified respondents by using non-probability sampling approach, specifically convenient sampling technique by targeting those available in a certain time and place. The study discovered that bureaucratic inefficiency, unstable or insecure political or social conditions, heavy dependency on imported raw material, High customs duties on imported capital goods and intermediary goods, undeveloped economic and legal systems, and arbitrary application of the legal system, difficulty of obtaining well-trained management and engineering personnel, shortage of foreign currency as major challenges of ISI in Ethiopia. On the other hand, Ethiopia being one of the most populous nations, there is a huge unsatisfied domestic demand, clear industrial policy and existence of attractive fiscal and non-fiscal incentives, construction of industrial parks, and availability of electricity and telecommunications network are found to be the major opportunities of import substitution industrialization in Ethiopia. The study recommends that GoE should put in place systematic accountability measures and service level agreements to improve the country’s ease of doing business practice especially the bureaucratic procedures to get license, construction permits, land, customs clearance, paying tax and getting basic infrastructures such as electricity. Put in place mechanism to evaluate competitiveness and cost benefit of each sector before providing huge incentives to investors. Encourage private companies and other stakeholders to invest in local raw materials supply chain to produce more such as agricultural products or improving efficiency of sourcing and by modernizing supply chain for the manufacturing sector. Allow foreign banks to operate in Ethiopia or by encouraging private financial institutions to operate in the desired level of competitiveness. Government and private learning institutions should consult with industries to identify key skilled manpower gaps for subsector and design strategy accordingly.