Page 76 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.78, # 2, 2021, pp. 74-88

Many economists argued that the expansion of the manufacturing sector is an engine
of the growth and development process. It plays a key role in the socio-economic
transformation of the economy of a given country (Eshetie, 2018). The importance
of the manufacturing sector for economic growth has been ascribed to higher income
elasticity of demand for manufactured goods and higher potential of productivity
catch-up (Rodrik, 2011 and Haraguchi, 2015). Again, when the productivity in the
manufacturing sector increases, surplus labor will shift from non-manufacturing
activities where there are diminishing returns (Olamade & Oni,2016).

Recognizing this role, Ethiopia has given more emphasis to the development of
labor-intensive manufacturing industries which have a strong backward linkage to
agriculture (Ansu et al., 2016). Despite the policy prescriptions, the manufacturing
sector is still in its infant stage, dominantly focusing on semi-processing sub-sectors.
This implies that the industrialization policy prescriptions could not radically change
the industry and the manufacturing sector in general.

The performances of the manufacturing industries have generally been far from the
target set on the GTP (UNDP, 2017). During the first Growth and Transformation
Plan implementation period (2010/11-2014/15), it fell short of the planned target in
growth performance and structural change (GTP-II, 2016). During this period, the
share of the manufacturing sector in total GDP remained below 5 %, it has registered
an annual average growth rate of 14.6 %. The contribution of the manufacturing
sector to overall GDP has not only been below the planned target but also remained
low relative to the mean performance of the Sub-Saharan Africa (SSA) countries. In
the second growth and transformation plan (GTP-II), the manufacturing industry is
expected to grow by an average annual growth rate of 21.9%.

Its share in the overall GDP was anticipated to increase from less than 5% in
2014/15 to 8% by 2019/2020. Still, the overall GDP share of the sector in 2018 was
poor accounting for about 6 % (NBE, 2018). This figure is still lower than the sub-
Saharan Africa average of nearly 10% (Signe, 2018). Further, the share of
manufactured exports in total exports remained less than 13% (Arkebe, 2018). This
is unexpected due to the emphasis placed by the Ethiopian government to achieve
structural transformation through industrial policy.

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