Manufacturing Growth Inhibition: From Linkage and Input Supply Perspective in Addis Ababa, Ethiopia

Abstract

Manufacturing industries are among the sectors given precedence by the Government of Ethiopia (GoE) owing to their multifaceted primacy. Yet, the performance and share of Ethiopia’s manufacturing sector from the national economy is at its infancy regardless of ongoing resolute endeavors to improve its status. This paper examines manufacturing linkages and input sourcing as a factor for influencing firm performance in Ethiopia.Through information availed from both primary and secondary sources, this paper uses empirical evidence to examine how linkages between/among manufacturing and other sectors affect a nation's growth. Input sourcing has also been discussed as a variable to see sourcing related challenges. To this end, first-hand information was gathered using in-depth interviews, focus group discussions, and a sample survey. The information gathered was then analyzed using relevant analysis techniques and tools.Thusly, the paper shows that manufacturing industries in the country generate their inputs both from local and foreign sources depending on the nature of the manufacturing sub-sector. Input supply linkage in the nation is highly dominated by backward linkage compared to the forward one. It has been observed that limited input capacity utilization among manufacturers; use of inputs quality attribute for supplier selection by the dominant majority; reaching multiple sources for input generation; local sourcing of inputs featured with access from close geographic proximity (Addis Ababa and its surrounding); shortage and unavailability of inputs leading firms to look for sourcing from foreign origins; the dominance of backward linkage than forward; as well as trust, good transport and time/speed elapsed for delivery being used as decision criteria for selecting input suppliers. Incontestably, input supply linkage can be gauged with manufacturing industries and across different sectors (service, agriculture, mining, etc.). The general observation made in this regard is the presence of weak linkage both between manufacturing industries and across different sectors.This article argues that lack of strong forward and backward linkages between/among industries and inadequate input supply and poor quality of inputs are unsound for economy-wide growth that leads to inefficiencies, and is a root cause of insolvency, which is in itself growth-inhibiting. Conversely, strong linkages, and adequate input supply enhance growth because they facilitate the flow of inputs to where they have the largest net economic benefits. Hence, linkages and input sourcing need more policy attention.

Keywords: Manufacturing, Backward Linkages, Forward linkages, Input sourcing, Input supply, Industrialization

DOI: 10.7176/DCS/11-4-01

Publication date: April 30^th 2021