Inception report to undertake Brief Study and

Examination of Policy Proposal on Increasing Trade

Prepared by: Pan African Consulting PLC

Submitted to: Addis Ababa Chamber of Commerce

and Sectoral associations

Addis Ababa
September 2019
Assignment Brief
This inception report is in response to the consultancy award from Addis Ababa Chamber of
Commerce and Sectoral associations (AACCSA) to Pan African Consulting PLC to undertake
Brief Study and Examination of Policy Proposal on Increasing Trade. The inception report
contains introduction, purpose &objectives of the study, methodology (approaches, data
collection techniques, methods of analysis), work schedule and responsible leads and
tools/instruments of data gathering.

Introduction
The Ethiopian economy is dominated by three main sectors: Agriculture, Services, and
manufacturing (as iterated in the terms of reference). The agricultural sector is a significant
player in the economy, and employs most of the country’s population – a majority of whom are
poor.
Trade policy is one of the instruments that can be used to generate and distribute incomes, and
therefore can significantly contribute to poverty reduction, and trade performance is one of the
many factors that determine trends in poverty levels. A vibrant trade sector impacts positively on
the economy by placing and distributing incomes into all the production units in a country,
thereby raising the purchasing power. Further, trade policy allows people to exploit their
productive potential, assists economic growth, curtails arbitrary policy interventions and helps to
optimally allocate productive resources as well as insulate economies against shocks.
The current Trade Policy instruments are contained in various policy documents and legislations
and are administered by various institutions. In the process of implementation, these trade policy
instruments have faced problems of effective coordination and harmonious decision-making
leading to conflicting rules, regulations and practices affecting trade. This justifies the need to
develop a coherent trade policy, with a view to creating a policy environment that facilitates the
development of private sector
To do this, identification and exploitation of trade policy synergies and complementarities is an
integral component of the intended trade policy with the major focus on the forward and
backward linkages between domestic trade, international trade, production policies and
infrastructure/transport policies. The envisaged trade policy helps to develop and nurture private
sector competitiveness, and to support the productive sectors of the economy to trade at both
domestic and international levels which further creates wealth, employment, and social welfare.
With well-articulated trade policy the country enhances its export through value addition and
diversification strategies. Experiences from many developing particularly those of the East Asia/
Asian tigers and developed countries evidenced that a vibrant and effective trade policy is one of
the tools to transform the national economy from a poor peasant society into a modern and
prosperous society.
Purpose and Objectives
Purpose: The purpose of this study is to develop a comprehensive trade policy
proposal assessing the trade performance of Ethiopia and identifying all possible
challenges and opportunities.

Objectives:
The objectives of this trade policy proposal are: to show the trend of trade
performance in the context of Ethiopia

 To promote development of trade, including intra-trade and inter-trade

 To develop and promote agriculture, manufactured and services exports

 To support deregulation and liberalization of trade

 To promote Ethiopia’s bilateral and multilateral trade interests

 To process sound key performance indicators (KPIs) by 2025

Methodology
The consultant adopts quantitative and qualitative data collection approaches to execute this
assignment. To this end, three consecutive but interrelated phases follow.
Phase I: During this phase, the consultant conducts assessment of existing international trade
performance based upon system level key performance (KPI) indicators like: trade flows interms
of the commodity, the receiving country and the supplying country, merchandise exports and
imports , import and export propensity, trade balances of goods and services, commodity
dependence index, Food dependence index, revealed comparative advantage, per capita export,
measure of market concentration (spread), export diversification (both market and product) index
(Hirschmann-Herfindahl index) by product, export performance and export competitiveness,
export growth, trade growth, export share, import share, trade share, import penetration, relative
dependence on exports to developed markets, relative dependence on imports from developed
markets, relative dependence on trade with developed markets, trade balance as a share of GDP,
sectoral composition of imports, sectoral composition of exports, foreign direct investment
inflows and FDI outflows, time for completing trade procedures, cost of completing trade
procedures, import-export facilitation bias, revealed trade barriers, and the like. The consultant
focused to these system level indicators and less focused to custom level indicators due to the
fact that consistent and policy level recommendations are more suit than suggesting solutions in a
piecemeal way to specific problems.
The consultant also explores factors that contribute to the furtherance or adverse performance of
the international trade like exchange rate, GDP, inflation, indirect taxes like VAT, foreign market
access, domestic infrastructure, and institutional quality (which encompasses macroeconomic
stability and openness to trade, as well as the enabling environment for markets consisting
notably of the legal and judiciary system, the financial system, taxation, labor relations,
investment procedures and customs administration).
The required information will be collected from the document review (secondary sources) and
in-depth interviews are used to access primary data and validate results. The consultant employs
desk review, in-depth interviews, and Delphi survey to gather the required information.
1. Desk review: the consultant will gather quantitative (possibly qualitative) information
available at National Bank of Ethiopia (NBE), Ethiopian Revenue and Custom Authority
(ERCA) and International Institution like World Economic Outlook Report (WEO), and
UNCTAD.
Specifically:
Laws and regulations pertinent to trade policy can be accessed from the Addis Ababa Chamber of
Commerce and Sectoral Associations (AACCSA), Ministry of Trade, Ethiopian and Customs
Authority (ERCA).
GDP and national Income Accounts can be obtained from the Ministry of Finance and Economic
Development.
Balance of Payments (BoP), current account and capital account, trade flows and analysis, deficit
and surplus values will be available from National Bank of Ethiopia (NBE).
National trend of international trade will be obtained from Ministry of Trade.
The country’s annual bilateral trade data will be available from IMF Direction of Trade Statistics
Database.
GDP and per capita GDP data will be accessed from World Development Indicators Database of
the World Bank.
Trade data can be obtained from the ITC Trade Map and the United Nations Commodity Trade
Database (COMTRADE).
2. Key Informant Interviews (KIIs): The consultant will make in-depth interviews with
representatives/subject matter specialists at 10 related government organizations like Leather
industry, apparel industry, horticulture/fruits &vegetables, coffee, cereals, and the like. The
interviewer consultant will first make clear introduction and familiarization of the issue and
intended significance of the study, desired expectations, and probes the respondent both in
Amharic and English languages so as to capture chunks of information that assists to disentangle
or unveil the ambiguities concerning the trade policy.
The consultant also undertakes 15 similar interviews with representatives at private
traders/trading companies focusing on gaps and challenges they experience from the start to end
on international trade.
The KIIs are one-on-one, structured and semi-structured in a protocol/guide that the interviewer
consultant asks and takes notes supported with photography, audio, and streaming videos.
The information obtained from the KIIs is mainly utilized to validate the mass data already
secured from official resources, and sharpen the logical deduction generated from it.
The consultant also conducts KII with experts and subject matter professionals at AACCSA.
3. Delphi Questionnaire
The consultant has prepared some subject matter and system level questions that requires high
exposure, research experience and discipline capability. These questions will be distributed to
selected five to seven policy think thanks at government institutions, international organizations,
individual policy figures, and private policy based consulting organizations. It will take five days
for these respondents to complete and return back these questionnaires. The aim of this Delphi
survey is to cross validate the results obtained from the desk review, and in-depth interviews. The
Delphi survey is through e-mail exchange supported with telephone contacts for further briefing
of the responses.
Method of Analysis
The consultant will collect time series data from secondary sources and make in-depth analysis
of the KPIs using descriptive procedures like percentages, charts, tabular and cross-tabular
orchestrations, percentages, and simple arithmetic values including averages/mean, median,
skewness, variance, etc. Further analysis could be further continued to obtain time series tests
like unit-root test, peron test, and co-integration test, if found necessary.
Factors contributing changes to trade performance (exchange rate, GDP, access to markets, etc.)
will be analyzed using regression models that examine the directional and magnitude effects of
these variables on the trade performance, meaning international trade as a dependent variable,
and the factors as independent variables. The regression model is expected to pass all
specifications like heteroskedasticity, Ramsey’s omitted variable tests, serial correlations,
auto-correlation, and multi-collinearity. The descriptive and regression analysis will be handled
in STATA software.
Upon finalizing the assessment of international trade performance, the consultant identifies the
gaps and challenges based upon the evidence from the analysis, and diagnose policy options.
This is the second phase of the work which involves ex-ante analysis using standard simulation
model known as Computable General Equilibrium (CGE) model. It is a rigorous and effective
tool for testing the implications of alternative policy specifications, and is ideal for analyzing the
effects of multi-lateral trade liberalization or regional integration since multiple countries and
markets are involved. CGE will be applied in order to account for all the linkages the sectors of
the national economy (this assignment is highly multi-sectoral as stipulated in the terms of
reference) explained by the inter-linkages between industries (both forward &backward
linkages), between household expenditures and incomes. The model captures the fact that
markets are linked and that events that take place in one market have effects on other markets
that need to be taken in to account, since they can feed back in to the original market. It imposes
income/expenditure and resource constraints thus ensuring that households are keeping to their
budget lines and that the total amount of primary factors employed in production does not exceed
a country’s factor endowments.
In this way, the model determines the effects of a change in trade policy on the endogenous
variables: prices, production, consumption, exports, imports, and welfare. The difference in the
values of the endogenous variables in the baseline and the simulation represents the effect of the
policy change. The first step in operationalizing a CGE model is to organize the data on the
structure of the entire economy in a way that takes in to account the fundamental relationships
between all agents in the economy across all sectors. Social Accounting Matrix (SAM) is a tool
that helps take in to account all of these interactions in a systematic way and with-out error (if a
SAM is not available for Ethiopia, the first step is to build this structure). The SAM builds on the
circular flow conception of the economic system, where each expense must be matched by a
corresponding receipt or income. The relationships between sectors are represented in the form of
a table containing rows and columns. The rows correspond to the income or receipts while the
columns correspond to the outlay or expenditures of a sector. Each sector of the economy will
appear as rows (recipient of income) and column as a source of expenditures.
SAM will be constructed using several basic sources of the Ethiopian economic information: The
economy’s input-output table, the national accounts, government budgetary accounts, and
balance of payments and trade statistics.
The input-output table provides information on the production sector of the economy showing a
detailed inter-industry linkages and the contribution made by primary factors of production to
each sector.
The macroeconomic accounts provide a breakdown of aggregate demand according to
consumption, investment, government spending, and the international sector (export &import).
The trade account usually contains data on the destination and product composition of exports
and imports which has to be reconciled with the national accounts as well as with the
input-output table.
The government fiscal accounts provide information on public expenditures and revenues.
Using this model, the consultant provides additional values that give thought insights like
Armington elasticity, CET (Constant Elasticity of Transformation) and CES (Constant Elasticity
of Substitution), etc.
For this computation, the consultant uses GAMS (General Algebraic Modeling System) or
GEMPACK software.

Study Structure
The final study document is expected to contain the following sections (can be refined by
AACCSA).
 Introduction
 Situational Scan
 Trade Performance 2015-2019
 Desk review
 Methodology Grid
 Analysis and presentation
 Simulation and Trade forecast 2025
  Conclusion
 Recommendations
 The way forward
Work schedule and responsible leads

Please attach you action plan for data collection in the following table
Activity Responsible person Date (from---to--)
Desk review
Key-Informant Interview
Delphi Survey
Data analysis
(descriptive, regression,
CGE, SAM)
Report write-up

Tools/Instruments for Primary Data Collection

Basics: Demographic Information

Full name of the Respondent-----------------------------

Sex male female

Age---------------------------

Number of years of experience------------------

Position/post---------------

Mobile phone----------------

E-mail: -----------------

Organization/Institution-------------------------------------

Office/landline telephone--------------
Tool I: Key Informant Interviews-Private organizations, exporters, importers
1. When did you start your trading business? Less than 3 years, 3-6 years, 6-10 years, 10-15
years, 15-20 years, more than 20 years
1. In what type of trading activities are you involved? agriculture, manufacture , services

2. What are the procedures and processes that you follow to engage in your export or import
business?

3. How do you evaluate procedures, logistical and distribution arrangements, and government
restrictions within the sector? Do you think that it is easy to do business in Ethiopia?

4. How do you evaluate the competitiveness of your sector of engagement both at domestic and
international level, and the sector’s prospect of future potential? If not competitive explain
why?

5. What are the opportunities and potentials available at stake now for engaging in your sector
of engagement:

6. What are the barriers, and gaps constraining to trade in this specific sector?

7. What recommendations/possible solutions do you suggest?

Tool II: Key Informant Interviews Questions-government ministries authorities, and

1. Does Ethiopia have a comprehensive trade policy?

2. What are goals, objectives, vision, and missions enshrined in the policy?

3. Who are the key national and international players in the country’s trade, and what are
their roles?
 4. What are the key indicators measuring the Ethiopia’s trade performance, and discuss
them in detail?

5. As per the indicators, how was the trend in Ethiopia’s trade performance from
2015-2019?

6. What are the enablers and facilitators currently available at stake for international trade

7. What are the barriers both domestically and globally counteracting the efficiency and
effectiveness of country’s international trade?
8. What recommendations do you suggest for improvement?

Tool III: Delphi Survey Questions: Research and Academic Institutions like: International
Food Policy Research Institute (IFRI), Ethiopian Agricultural Research Institute, Addis Ababa
University International Trade and Commerce department, Addis Ababa University Law
Department, WTO &ITC Ethiopia Country offices, COMESA, EAC, ECA, IGAD Ethiopia
Country offices, etc.

1. Does Ethiopia have a comprehensive trade policy? If yes explain the tenets, and its extent
of on-ground level implementation.

2. Discuss international laws, agreements, preferential trade terms, and regional agreements
currently in place and affecting the Ethiopian international trade.

3. What are the national laws and regulations governing international trade in Ethiopia, and
explain the flaws/drawbacks hindering the effectiveness of the trade.

4. How do you evaluate the sector of the country’s international trade in terms of:

 Market access

 Trade Facilitation

 Institutional capacity and coordination mechanisms

 Supply capacity
  Information flow

5. What are the opportunities existing but untapped by Ethiopia categorized at:

 International level

 Regional level

 National (domestic) level