The Role of ICTs in Facilitating Trade and Economic Growth in  Ethiopia

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The Role of ICTs in Facilitating Trade and Economic Growth in Ethiopia

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1. The Role of ICTs in Facilitating Trade and Economic Growth in Ethiopia Assefa Admassie and Woubalem Taye

2. Presentation Outline Introduction Trade and ICT Landscape Policy Assessments Legal and Regulatory Framework Private Sector Readiness for E-Business. Conclusions and Recommendations.

3. Introduction….Cont’d Advances in ICTs have dramatically changed the World economy over the last few decades: Advances in the Information Technology (Computers usage for Storage, Processing & Retrieval) Advances in the Communication Technologies (Telecom & Computer Networks, Broadcasting, & the Internet) Access to information and knowledge via ICT: Makes business more competitive and Productive Empower people with knowledge Speed up and reduce the costs of production and transactions Open new opportunities, perspective, but also new challenges.

4. 1. Introduction….Cont’d ICT use could also facilitate: effective decentralization, more transparent and accountable governance, delivery of public services, and Improved quality and reach of health, education and other basic services. ICTS enables other sectors to develop new functions and services. It is now taking a central stage with e-government, e-commerce, e-learning and other internet-enabled activities.

5. 1. Introduction…cont’d Knowledge has replaced traditional inputs for growth Demand for ICT products and services generate new job opportunities (tele centers) In general, Significant spillover effects on economic growth: 1% ? stock of infrastructure?1% ? GDP (WB 1994) Poverty also ? (the case of Grameen Bank village phone system) Those who can best receive, process, adopt and innovate information are the winners!

6. 1. Introduction…cont’d ICT offers many promises and opportunities in trade transactions: Trade transaction is a complex process Involves Many documents and Many players A trade transaction involves different actors. Raw material and component supplier Manufacturer/assembler Customs agents/brokers Customs authorities Government authorities- export promotion/approval Local transport and warehousing companies Container handlers Port and harbor authorities Shippers (sea, air, road, rail, …) Bank and insurance companies

7. 1. Introduction…cont’d Each has own set of paper forms and interactions with other organizations. Trade occurs in physical space and moving goods requires time. Time is, thus, an important Trade Barrier Trade logistics costs are as important as tariffs Each day saved is equivalent to 0.5% tariff 7% of the value of world trade is cost of administration of trade logistics (UNCTAD)

8. 1. Introduction…cont’d ICT is an important tool for facilitating trade transactions: Trade facilitation imply: Facilitating market access By lowering technical barriers Lowering transaction costs through Improved trade logistics Enhanced information flows. Reduced transport costs Transparent and harmonized regulations Improved ports facilities and procedures Efficient and transparent customs procedures Simplified trade document processing and clearance processes

9. 1. Introduction…cont’d ICT should be viewed as a cost-effective tool to enable all sectors to realize their objectives better than through traditional means. Given the profound promises and impacts of ICT on national economies countries need to embed ICT into their overall development strategies. Hence, the awareness of policy makers is critical for ICT to enable development. However, very little is known about the extent of ICT applications in trade and other sectors in Ethiopia.

10. 1.1. Motivation and Objective Objectives of the study The main aim of this study has been to assess the use of ICTs in facilitating trade and the private sector’s readiness to use ICTs. Methodology (several methods): Systematic analysis and review of policy documents Review ICT and trade statistics Primary survey data Case studies.

11. 2.1. General Overview of the Ethiopian Economy Ethiopia: Is Among the poorest countries on Earth (PCI of $160) Is Land-locked Is primarily rain-fed low productive Agrarian economy >15% children cannot celebrate their 5th birth day 47% of children are malnourished 871 per 100,000 MMR 48 million people do not have access to clean water Only 17% have access to electricity Average Ethiopian lives only 43 (F) yrs or 42 (M) yrs Etc…

12. 2.1. General Overview of the Ethiopian Economy

13. 2.1. General Overview of the Ethiopian Economy

14. 2.2. Trade Landscape: Several reforms and promotions in the trade sector Contribution of export trade has been growing at about 7.4% - 1995/96 to 2005/06. 2009 is the target accession date to WTO Ethiopia is also a member of COMESA 23 African countries (300 million pop.) Member of NEPAD Beneficiary of: AGOA Economic Partnership Arrangement (EPA) EBA, etc.

15. 2.3. The Structure of Export (in million of USD)

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18. 2.6. Overview of the ICT Landscape

19. 2.6. Overview of the ICT Landscape

20. 2.6. Overview of the ICT Landscape

21. 2.6. Overview of the ICT Landscape

22. -3- Assessment of the Policy Domain

23. 3.1. Policy Assessment Gov’t plays a vital role in the creation of enabling environment in the use of ICT for trade Policy can enable or enhance adoption of ICT or act as a barrier and suppress the e-Economy. Hence, the contribution of e-Commerce and e-Biz to growth ultimately depends on policy environment

24. 3.1. Policy Assessment …. Cont Main Strategies and Policies reviewed: ADLI SDPRP PASDEP Rural and Agricultural Dev’t Policy Trade Industrial Policy Customs Procedures & Regulations Foreign Exchange Directives Standardization & Quality Control Draft ICT Policy.

25. 3.1. Policy Assessment …. Cont Development Strategies: ADLI Has not made any concrete reference to the use of ICTs either in the production or distribution of goods and services. SDPRP recognizes ICT as one of the capacity building programs. PASDEP acknowledges that ICT is central to growth and poverty reduction.

26. 3.1. Policy Assessment …. Cont Sectoral Policies: The Agric. and Rural Dev’t policy: Recognizes the need for expanding telecom services up to kebele level. The policy, however, makes no systematic reference as to how the development and application of ICT in the sector could be achieved. The Trade Policy: The Ethiopian Trade Point was established with objectives of: Receiving, collecting, compiling and disseminating trade information, Sending, receiving and distributing electronic trading opportunities, Promoting domestic products at int’l market, Etc.

27. 3.1. Policy Assessment …. Cont Nevertheless, an up-to-date and interactive web-based database and information dissemination system does not still exist. The Industrial Dev’t Policy: articulates the importance of rigorous effort on the dev’t of ICT It underscores the role of ICT for: Proper income , expenditure and property registration for the tax system, etc.

28. 3.1. Policy Assessment …. Cont The Investment policy Ethiopia has poor record in attracting FDI Many licensed projects have not been implemented One reason could be the underdeveloped ICT infrastructure Requirements for an investment permit: Signed application In person or photocopy of his power of attorney Photocopy of memorandum and Article of Association Photocopy of identity cards All are paper-based

29. 3.1. Policy Assessment …. Cont No provision of ICT in processing investment licensing using Electronic forms Interactive websites Advanced e-processing. The Foreign Exchange Regime: A number of financial liberalization measures have been undertaken since 1991. payments for imports and export, can be made by: Letter of Credit (LC) Cash Against Documents (CAD) Advance Payment (AP) All are paper based documents!

30. 3.1. Policy Assessment …. Cont The Forex directives have no room for: Electronic payment system for cross-border transactions Electronic processing of imports and exports Electronic application forms and Electronic signatures. Banking is still done in the conventional way; “explicit consent” Transaction security (e-transactions and e-payment) Privacy and safety are not yet in place.

31. 3.1. Policy Assessment …. Cont The Customs Procedures: ECuA has made significant progress! Customs automation (Automated System for Customs Data – ASYCUDA++) Several branch offices have been networked. Simplified declaration process using Direct Trade Input (DTI) About 32 agents are remotely connected.

32. 3.1. Policy Assessment …. Cont The National ICT Development Policy: A national ICT Policy was drafted. EICTDA was established in 2003; ICT Capacity Building program was launched in 2003. The policy Acknowledges: That ICT is an important tool for Ethiopia to enhance its development. The need to develop of ICT as a sector or industry physical and telecommunications infrastructure is underdeveloped.

33. 3.1. Policy Assessment …. Cont The Strategic Focus of the ICT policy: Physical and ICT infrastructure; Human resource development; ICT industry and private sector development and e-commerce The legal and regulatory environment;

34. 3.1. Policy Assessment …. Cont Policy strength: The ICT policy has excellent intentions; The intention to develop globally competitive private sector; The introduction of tax incentives to create an attractive environment for ICT enterprise development; Recognizing ICT infrastructure development as a critical factor for social and economic development; Outlining the Goals and the strategic focus areas. Etc.

35. 3.1. Policy Assessment …. Cont Policy Gaps: Fails to initially recognize the existence of a very weak private sector (including ICTs), Too Many strategic focus areas: Emphasis should be given to the most important issues. Piecemeal approach in initiating infrastructure & public service projects (SCHOOL NET, WEREDA NET & TELECOM SERVICES EXPANSION); Prolonged time taken to officially approve the ICT policy

36. -4. THE LEGAL AND REGULATORY FRAMEWORK

37. 4.1. THE LEGAL AND REGULATORY FRAMEWORK Introduction: The rapid development in the ICTs sector has brought about new challenges. Regulators and policy makers are looking at creating responsive and dynamic legal and regulatory framework. Generally there is a need for: a Legal & regulatory framework which is aimed at facilitating instead of Strictly regulating e-commerce activities.

38. 4.1.THE LEGAL AND REGULATORY FRAMEWORK Some relevant Regulatory institutions have been established. These include: Ethiopian ICTs Development Agency (EICTDA); Ethiopian Broadcasting Agency (EBA); Ethiopian Telecommunication Agency; Ethiopian Science & Technology Commission; The National Bank of Ethiopia, etc.

39. 4.1. THE LEGAL AND REGULATORY FRAMEWORK Common challenges: Limited institutional, managerial and technical capacity; Fragmented effort to regulate ICT sector; Low protection capacity of consumers in a digital environment such as the Internet. There should be an institutional arrangement that ensures the development & maintenance of various legislation & institutions that could serve well in an electronic environment.

40. -5- Private Sector Readiness in Using ICTs in Trade (SMMEs)

41. 5.1. Introduction SMMEs: Foster competition Ensure efficient utilization of resources Instant to respond to new opportunities Create employment opportunities Reduce poverty Breeding ground for entrepreneurs in LDCs Market driven Expand the tax base. Etc.

42. 5.1. Introduction ICTs can benefit SMMEs in many ways: Increase productivity Increase efficiency of internal biz operation – inventory management, accounting and budget Cheap communications Expand client base – e-Marketing Facilitate capacity building – e-Learning/Training Facilitate government services – business registration and filing of taxes. BUT SMMEs need to have affordable access to: Physical Infrastructure, and Information & Communication facilities

43. 5.2. Background to the SMMEs Study With the aim of understanding the level and usage of ICTs by SMMEs in Ethiopia a small survey was organized. Coverage of the survey: Addis Ababa Sampling frame: list of registered and currently operational SMMEs A two-stage stratified sampling - according to their area of operation and level of paid-up capital Four areas of operation: Customs and clearance Export Export and import Foreign trade auxiliary (import only is excluded)

44. 5.2.Background to the SMMEs Study

45. 5.2.Background to the SMMEs Study 40 SMMEs were selected for the study. Problems: Missing contact address Mismatch between registered and actual address Non-response

46. 5.3.Year of establishment and Location

47. 5.4.Enterprise and Owners profile Majority of the firm managers are male(93%) 80% have either college diploma or degree 48% are sole proprietorship, 43% partnership The majority (65%) are engaged in retail and whole sale trade More than 50% employ on the average less than five workers.

48. 5.5.ICT Penetration and Utilization What type of ICTs do they use? Fixed line, mobile, fax, PBX, PCs, LANs, Website, internet.

49. 5.5.ICT Penetration …cont’d

50. 5.5.ICT Penetration …cont’d E-mail services are the most important use of internet. About 45% stated that they have received sales orders via the internet. About 45% of the firms have made orders via the internet to purchase goods and services. Main reasons for using the internet for trade transactions:

51. 5.6. Availability of Online Gov’t Information and Electronic Forms Less than 40 percent indicated the availability of some Government Information online. More than one-third indicated that some gov’t information and some electronic forms are available on the internet. BUT, Most firms indicated that there is no legal and regulatory provision that authorizes the establishment of online cross border business!

52. 5.7. Constraints on the Use of ICTs by SMMEs Some of the factors constraining SMMEs’ participation in E-trade: Absence of legal framework for electronic commerce Inefficient utilization of ICTs within SMMEs; Paper based export and exchange regulations; Absence of a critical mass of robust ICT private sector to develop & Support ICTs in SMMEs Inadequate ICT skilled workforce; Insufficient information network & security safeguards; Lack of sufficient support for trade facilitation & information provision; Customers not ready to use Internet purchases.

53. 6. Conclusions and Recommendations

54. 6.1. Conclusions Evidence shows that developing a national ICT strategy is vital to a country’s economic development. The main goal of this project has been to assess the use of ICTs in facilitating trade and thereby identify the gaps in policy and regulatory frameworks to promote e-trade. The result shows that: Like many other countries, Ethiopia has not been able to fully benefit from developing the ICTs industry as a sector and using ICTs as an enabler.

55. 6.1.Conclusions Some positive Developments: ICT is considered as a cross-cutting edge in the strategy documents (SDPRP, PASDEP). Concrete efforts are observed on the expansion of ICTs infrastructure Although, still more efforts are needed, Custom’s reform and modernization are encouraging. The draft ICT policy has clear guiding principles for the implementation process. The result of the SMMEs survey shows that: some firms have started to be engaged in online trading great interest to use ICTs in trade practices

56. 6.1. Conclusions Policy Gaps: Sectoral policies did not clearly articulate the role gov’t can play to facilitate the use of ICTs. Very little attention has been given to the role of the private sector’s participation in ICTs development The current Foreign exchange directives have serious bottlenecks for the development of e-commerce The absence of an appropriate legal and regulatory framework is one of the main constraints for the expansion of online trade. Major Problems facing SMMEs: absence of legal and regulatory framework poor ICT related infrastructure high cost of the technology

57. 6.2. Recommendations Efforts to create enabling policies, institutions, infrastructures, and skills, and to devise national strategies that promote adoption of ICTs must be scaled up. Mainstream ICTs in all sectors of the economy. Ensure ICT friendly legal and regulatory environment: The use of electronic document Legal recognition of electronic signature Electronic document transaction recognition; (signature, payment) E-trade compatible Export and Exchange regulations; Liberalization of the telecom sector is long overdue.

58. 6.2. Recommendations Providing incentives for ICT development : tax, private sector capacity building programs, trade facilitation centers substantial investment in human capital development Encouraging SMMEs to use ICTs by: Improving the business processes Simplifying registration and other legal processes Providing business & ICT skills education at all levels Improving the costs to access ICT infrastructure, the internet, Personal computers, etc.

59. Thank you

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