Evaluating Ethiopian Commodity Export Diversification: A Comprehensive Overview

Abstract

This study examines the level of diversification in various sectors of Ethiopian exports and explores the expansion of Ethiopian exports into new geographical markets. The analysis utilizes data from the Ethiopian Customs Commission and the World Integrated Trade Solution database. To measure export diversification, the study applies the Herfindahl-Hirschman Index (HHI) for major export items and destinations. Additionally, interviews and focus group discussions were conducted with officials and export associations to support the quantitative findings. The findings suggest that the diversification of Ethiopian exports has yielded mixed results. On the one hand, there has been an increase in the number of exportable items, resulting in a moderately diversified export portfolio and a well-diversified presence in global markets. However, when examining specific export sectors in terms of destination diversification, the results differ. The coffee and pulse sectors demonstrate a wide range of destinations, indicating a successful diversification strategy. Similarly, the food and beverage as well as the leather and leather product sectors show moderate diversification across destinations. In contrast, certain sectors such as oilseed, live animals, fruit and vegetables, textiles and garments, meat and meat products, khat, and flowers are highly concentrated in specific destinations. Overall, the study concludes that Ethiopia has experienced inconsistent and uneven diversification in terms of destination, with limited improvement in its export portfolio over the years. Efforts to move away from relatively inefficient sectors like live animals and leather and leather products have been made but more progress is needed.