The World Bank’s Ethiopia Economic Update report noted that initially the rising exports had contributed to the country’s double digit economic growth over the past decade.
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“The country is vulnerable to price swings because its exports are dominated by unprocessed and undifferentiated agricultural products,” said the World Bank.
According to the report, the recent drop in prices of key commodities has led to the worst export performance in a decade even though the economy has benefited from upward price trends since 2003.
Guang Zhe Chen, World Bank’s country director for Ethiopia is positive about the future prospects however noting more branding could be needed.
“There is scope for improving the quality of existing commodity exports, through basic value addition, such as coffee wet processing or machine flaying of animal skins,” said Chen.
“Even in products with a revealed comparative advantage, little upgrading or branding has occurred to earn higher value per unit over time."
Chen added that by starting to compete on the quality of existing commodity exports, Ethiopia could reduce sensitivity to volatile international prices thereby supporting the gradual shift of production and exports into agro-processing and light manufacturing.
(READ MORE: Ethiopia's economic growth rate remains relatively at high level)
Lars Moller, World Bank lead economist and one of the lead authors of the report says several challenges need to be addressed in order to expand the country’s export sector so as to contribute to structural change vital for sustaining economic growth and development.
“Ethiopia’s export sector is currently too small to contribute to structural transformation, unlike in East Asia, where booming exports helped shift economic activity and workers away from low productivity agriculture into higher-productivity manufacturing and sustain high rates of economic growth for decades,” said Moller.
Although it is the second most populous country in sub-Saharan Africa, Ethiopia has the lowest ratio of merchandise exports to GDP in the world.