High Hopes and Limited Successes: Experimenting with Industrial Polices in the Leather Industry in Ethiopia

In the presence of standardized production technology and the possibility of potentially unlimited market rendered by international trade, there is clear comparative advantages to be realized in experimenting with industrial polices in the leather industry in Ethiopia. This paper reviews wide arrays of policy interventions in the industry and, more modestly, attempts to link these interventions with the performance observed in the industry. We find that industrial policies in the leather sector have been largely effective driving strong growth. This growth, however, has not been in par with its potentials. Market problems along the supply-chain, liquidity constraint, limited processing and marketing capacity, inefficient regulations and enforcement capacity and coordination problem have culminated into below-potential levels of production and, hence, export earnings. We believe that, impressive results to date notwithstanding, important improvements still need to be made in terms of policy responsiveness and in ensuring growth is broad-based across relevant value chains. While building market institutions to bring down transactions costs will improve the effectiveness of industrial polices in the sector, policy makers should ensure that existing regulations are transparent, enforceable and do not impose undue burden on investments in the industry. Continuous channels of communication and information exchanges between the private sector and the regulatory organ would accelerate the understanding of constraints and their apt solutions.