Illegal Trade Threatens Export, Tobacco, Pharma Industries (original) (raw)
Illegal Trade Threatens Export, Tobacco, Pharma Industries
Ethiopia’s key industries are battling the contraband trade. Leaders from tobacco, coffee, livestock, and pharmaceutical sectors have called for urgent government intervention to combat the threat.
The economic toll of contraband trade was highlighted during an anti-illicit trade summit organised by the Ethiopian Chamber of Commerce & Sectoral Associations (ECCSA) two weeks ago.
Among the hardest-hit sectors is the National Tobacco Enterprise (NTE), the country's tobacco monopoly.
Contraband tobacco products now claim 53pc of the market, eroding the position of the Enterprise. According to Yayehyirad Abate, the Enterprise’s corporate affairs director, smuggled tobacco, mainly from the UAE and Yemen, dominates eastern parts of the country like the Somali Regional State and Dire Dewa. The illicit trade costs the country over 4.8 billion Br annually in revenue, according to Yayehyirad.
Yayehyirad told Fortune that contraband tobacco is distorting the market, stifling domestic industries, and discouraging legitimate business operations.
The foreign exchange rate float has doubled raw material costs, forcing the Enterprise to raise cigarette prices by 100pc to 120 Br per pack. Meanwhile, unregulated contraband products continue to undercut the market.
The Enterprise, operational since 1941, has seen a 65pc decline in sales within four months, reducing operations to one of its five production lines. NTE produces three cigarette brands, Nyala, Winston, and LD, with an annual output of three billion sticks, mostly sold in Addis Abeba.
"The Enterprise is struggling," Yayehyirad said, citing inflated costs, taxes, and contraband competition as the primary reasons.
According to the United Nations Development Programme (UNDP), the manufacturing industry’s share of GDP has been declining recently, only contributing 4.6pc in 2023, decreasing from 5.9pc in 2022.
Agriculture, a cornerstone of the country's economy, is facing serious problems. Coffee which accounts for one-third of Ethiopia’s foreign exchange earnings is under siege.
Cheru Koru, market intelligence head at the Ethiopian Coffee & Tea Authority (CTA) stated that export-grade coffee is being illegally sold locally due to rising domestic demand and poor production control.
"As local demand surges, so does the illegal coffee trade," Cheru said.
Ethiopia produces 800,000tn of coffee annually but exports only 391,000tn. Last year, 775tn of export-grade coffee worth 103 million Br was seized in the domestic market.
Coffee exports have remained around one billion dollars annually for years, but last year it hit a record 1.43 billion dollars from 391,000tn.
However, problems persist, including a low yield of 7.5qtl per hectare and export diversions causing disputes as buyers receive less than contracted amounts. Cheru attributed these issues to rising local demand, stagnant production, and insufficient control at checkpoints from production areas to export points.
Gizat Worku, general manager of the Ethiopian Coffee Association (ECA), stated that export-grade coffee, classified as grades one to five, is being illegally sold locally. He said that while 27pc of irrigable land in Ethiopia is suitable for coffee cultivation, underutilisation has resulted in inadequate production to meet growing domestic demand.
Illicit pharmaceutical trade is jeopardising public health, raising costs, and undermining legitimate businesses. According to Worku Bedada, vice president of the Ethiopia Pharmaceutical Association (EPA), this illegal activity contributes to drug-resistant strains, reduces the effectiveness of legitimate medicines, and tarnishes the reputation of healthcare facilities.
In Gambela Regional State, 75pc of malaria medications were unregistered, with drugs intended for public hospitals being diverted and sold illegally. The Ethiopian Food & Drug Authority (EFDA) seized illegal medicines worth 29.17 million dollars last year.
Globally, the counterfeit pharmaceutical trade is estimated at 200 billion dollars, causing half a million deaths annually in sub-Saharan Africa alone. In Africa, approximately 23pc of pharmaceutical imports are considered substandard or illicit.
Dereje Duguma, state minister for health, recently voiced concerns about the rise of counterfeit and substandard medicines, posing a serious threat to public health.
Ethiopia relies heavily on imports to meet its pharmaceutical needs, with over 85pc of its market supplied from abroad. India (22pc), the Netherlands (20pc), and Belgium (13pc) are the largest source countries.
The livestock sector remains heavily impacted by contraband trade. Industry leaders point to the absence of technology-backed control mechanisms near borders and the poor quality of animal feed as major problems.
Despite having Africa’s largest livestock population, with 66 million cattle, 38 million sheep, and 46 million goats, the sector underperforms. Alebachew Nigusse (PhD) of Ethiopian Enterprise Development attributed this to illegal exports, poor value chains, weak regulation, a lack of quarantine centers, and limited transport infrastructure.
"There is no sustainable supply of livestock," he said.
Nearly 120 million Br worth of live animals were seized last year. Pastoralists, lacking market access, sell livestock at low prices, fueling contraband trade, according to Alebachew.
However, Kassahun Gofe (PhD), Minister of Trade & Regional Integration (MoTRI), expresses optimism, pointing to a surge in export earnings from livestock over the past five months, which reached 20 million dollars, exceeding the previous fiscal year's total. Key livestock export destinations include Djibouti, Oman, Yemen, and Saudi Arabia.
Kassahun stated that a new trade policy expected to be ratified this fiscal year is under review to incentivise legal traders and strengthen enforcement.
Kassahun stated that contraband traders, emboldened by high profits, have deeply infiltrated the economy, evading regulations and law enforcement.
Contraband trade accounts for 18pc of Ethiopia’s GDP, with 17 billion Br worth of goods seized last year, up by seven billion Br from the previous year. Over the past five months, the Ministry cracked down on nearly 108,000 illicit traders, suspending their licenses.
“It’s continuously growing and bleeding the country,” Kassahun said.
Kelifa Hussien, general manager of the Meat Processors & Exporters Association (MPEA), voiced frustrations with the growing livestock contraband. He said that the government should set floor prices aligned with international standards to support livestock exporters.
Jemal Ali (PhD), a trade researcher at Jigjiga University, identified Meiso, an eastern town, as a major hub for contraband trade. He stressed the need for community involvement and public awareness to combat illegal trade. He warned that counterfeit goods discourage economic innovation and erode trust in formal markets.
Jemal recommends bilateral and multilateral cooperations to address cross-border smuggling.
PUBLISHED ON Jan 12,2025 [ VOL 25 , NO 1289]
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