“Taking a leap of faith: Liberalizing of shielded domestic favoured sectors challenges and prospects”

To control foreign investors' involvement in restricted export, import, wholesale, and retail trade investments, the Ethiopian Investment Board has issued a directive. In addition to strengthening private sector development and curbing long-standing illicit market practices that lower market competition, the directive aims to correct market failure and establish price stability. The directive also stated that protecting these sectors does not result in the desired effect, which is detrimental to the final consumer. Some argue that this is one area that needs reform to remove the current barrier to entry for foreign players, in light of the recent discussions with the IMF.

This move is the gradual opening of sectors to foreign investment, allowing foreign companies to participate in retail trade. This, in general, can involve establishing wholly-owned operations, acquiring existing businesses, or forming joint ventures with local partners. The goal is to attract foreign investment, stimulate economic growth, and provide benefits like increased consumer choice, technological advancements, job creation, and market development. However, the implementation of these policies can be controversial due to concerns about potential negative impacts on local businesses, employment, and cultural aspects of domestic retail markets. Many people, in particular small business players, worry about the impact of such rules, which are clearing away and impacting their businesses or jobs. Therefore, the goal of this brief article is not to cover every controversy surrounding the topic but rather to highlight the key points pertaining to consumer protection and competition law, the nation's efforts to join regional economic communities (RECS) and multilateral agreements, and lessons from other economies that should be remembered as we implement the law. It's crucial to remember that there is a complicated relationship between the opening up of the aforementioned sectors, the exchange rate regime, and foreign currency reserves. This relationship can be influenced by a number of other factors, including trade policies, macroeconomic conditions, capital flows, and the nation's overall economic development. Every nation has distinct conditions and a different approach to policy, and the interactions and specific results of these elements can differ. Therefore, these variables are not taken into account in this article.

Consumer protection and competition law

Tesfaye Neway, a law practitioner, asserts that the competition and consumer protection authority does not oversee certain of the declarations that are within its jurisdiction. Two instances that are under the ambit of the Proclamation on Trade Competition and Consumer Protection 813/2006 are communication services and privatization. In contrast, he considers contract law when discussing consumer protection and outlines instances in which government intervention is warranted based on statistics, research, and other analyses. The government should also assist participants in the areas of industry selfregulation and conflict resolution. Accordingly, the current action has had the benefit of allowing foreigners to increase their competitiveness in the home market. This may result in more affordable costs, higher-quality products, and more options for consumers. Although there might be more pressure on domestic merchants to innovate, boost productivity, and offer better services in order to stay competitive. Allowing foreign investment into the retail sector has the potential to increase capital inflows, foster market expansion, and boost economic growth. International retailers could boost the economy as a whole by opening new locations, investing in infrastructure, and generating employment. Advanced technologies, supply chain management techniques, and best practices are frequently— though not always—brought to the domestic market by foreign businesses. Knowledge transfer and technological pullovers may result from this, helping domestic players and boosting their competitiveness in a relatively limited number of domains.

It's important to keep in mind that opening up particular areas may have complex and situation-specific repercussions. The actual outcomes rely on several factors, including the specific market conditions, regulatory environments, the amount and nature of foreign investment, and the ability of local companies to adapt to shifting market dynamics. Thus, taking into account the influence of foreign entities on domestic retailers, the introduction of foreign entities may result in conflicting outcomes for domestic traders. According to a research, smaller, less aggressive domestic merchants could have to deal with issues including heightened competitiveness and even market withdrawal. Larger domestic retailers, on the other hand, might be in a better position to work with or even profit from future alliances or partnerships with international retailers. Attorney Daniel Fikadu asserts that pertinent government agencies have to rigorously check the due diligence of these players and list out raw coffee, khat, oilseeds, pulses, hides and skins, forest products, poultry, and livestock as items that are allowed to trade. In the same vein, he cites the capital cap and requirements for each of these things, from cattle, which is exempt from such financial constraints, to coffee traders, who must have a track record of 10 million turnovers. This highlights the problem area, particularly for the export sector, which seeks to address the on-going issues with foreign currency reserves. However, given the financial and other needs, these players must, among other things, make a reasonable judgment based on the current supply chain, market productivity, infrastructure, and political stability in terms of peace and security. They also need to think about the hazards and difficulties that might occur in the future. The establishment of a framework by the government to monitor these entities is necessary in order to enhance the value of the nation's exports. These items are already on the market, but they need to offer value if they want to make more money considering their track record and stability. Furthermore, as domestic players are unable to compete with these individuals and cannot unfairly take advantage of them, the regulation should also address their monopolistic and cartel tendencies. In addition, the regulation ought to guarantee equitable competition within the market.

The order ought to include comparable enforcement measures as well as institutional capacity to prevent foreign players from bringing inferior goods into Ethiopian markets. Dumping and countervailing measures are essential for maintaining fair competition in the larger market that Ethiopia hopes to enter through regional and multinational agreements. Accession to RECS and Multilateralism The Africa Continental Free Trade Area (AFCFTA), which is intended to be one player in the market, has been in effect since January 1, 2021, despite its difficulties. One of the ratifying nations is Ethiopia. The country has been a part of the Common Market for East Southern Africa (COMESA) for over forty years, yet membership in this economic bloc does not benefit the country. Additionally, there is a move to become a member of the East African Community (EAC), and some foundational work is being done. Ethiopia has been actively pursuing multilateral membership in the World Trade Organization (WTO) since 2003. This is a demanding process that requires Ethiopia to have an operational and transparent trade regime. This includes having clear and consistent trade-related laws, regulations, and policies that are applied in a non-discriminatory manner.

Ethiopia must also disclose details about its market access policies, such as tariffs, nontariff trade barriers, and any other trade-related policies that influence imports and exports. It must exhibit its dedication to progressively lowering trade obstacles and opening up its market. In addition, we need to negotiate a wide range of trade-related problems with current WTO members, such as investment, intellectual property rights, market access for goods and services, agriculture, and other particular areas of concern. To bring its domestic laws and regulations into compliance with WTO norms, the nation may need to enact new legislation. This could entail, among other things, passing new legislation or changing already-existing laws to guarantee compliance with WTO agreements. Occasionally, nations can also need to create new government organizations or bolster current ones.

In light of these demands and RECS that Ethiopia hopes to obtain, I believe that this action is a little premature. The rationale is that, in order to reap the benefits of these arrangements, Ethiopia must have a robust private sector that engages in negotiations with other parties to get favourable terms, whether at the regional or multilateral level. The private sector and multinational corporations are the main players in the major WTO agreements, such as the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS), and the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS), where the government's role is limited to government procurement. Consequently, there was a prior opening in the telecom sector, and currently, these sectors have dire repercussions for the country’s future negotiations as there will be no sector to offer for the system that works in reciprocity in the future.

Experience from other economies

A department store chain is one of the sectors that are seen to be growing in the wholesale and retail markets. Tesfaye Neway claims that the authority lacks the proactive institutional ability needed to implement competition law, which is necessary for a better result. This is because a study shows that farmers and processors have a large pool of prospective customers among supermarket chains during the early phases of supermarket expansion, when the industry is still somewhat fragmented (weakly concentrated). But as the industry matures, it becomes more consolidated. For instance, this study indicated that in Latin America, four to five chains usually own 75% of the industry, which in turn owns 55% of the retail food market. This business is a “two-edged sword.” On the one hand, it can lower food prices for consumers, create opportunities for farmers and processors to gain access to qualitydifferentiated food markets, and raise incomes. On the other hand, it can create challenges for small retailers, farmers, and processors who are not equipped to meet the new competition and requirements from supermarkets. Another study by KJ Cseres' evaluates current regulatory approaches to correct market failures and distribute the benefits of liberalization in recently liberalized network industries. The study finds that the liberalization process has not resulted in expected competitiveness or consumer benefits. Many consumer-related failures were little anticipated, and legislation to protect and assist consumers was either late coming or inadequate. Furthermore, it is indicated that the intersection between general consumer protection and specific consumer issues of sector regulation, incorporating theoretical insights from neoclassical and behavioural economics.

In contrast to what the general public in Indonesia had assumed, this phenomenon has really demonstrated improved economic and lifestyle conditions, leading people to appreciate the hygienic and recreational spaces of department shops, supermarkets, and malls. Nevertheless, it causes fear and mistrust among businesspeople who believe that the existence of old markets would be threatened by those contemporary marketplaces. But, anyhow, it evokes anxiety and distrust among the business people who think those modern marketplaces will become a threat to traditional market existence.

An experience with 500 Nigerian manufacturing SMES in Lagos State reveals that despite liberalizing trade policies aimed at promoting competition and improving resource efficiency, most struggle to compete due to improper planning and a lack of a favourable investment climate.

Another finding from India reveals that despite controversy surrounding India's distribution sector, political will support reforms. It quantifies the economic impact of removing foreign investment barriers, finding that it benefits the economy, consumers, and foreign producers while hurting the distribution sector. The experiences of countries post-liberation vary significantly, depending on factors such as market conditions, regulatory frameworks, and strategies implemented by different players. Domestic retailers often face intensified competition from foreign retailers, which can impact their market share, pricing strategies, and profitability. To remain competitive, they may need to adapt their business models, improve operational efficiency, and innovate in areas such as product offerings, customer service, and marketing strategies. Some domestic retailers may explore collaboration or partnerships with foreign retailers to enhance their competitiveness.

For foreign retailers, liberalization provides opportunities to enter new markets, expand their customer base, and capitalize on the growth potential of the domestic economy. They may need to tailor their strategies, product offerings, and marketing approaches to suit local market preferences, cultural norms, and regulatory requirements. Foreigners can also form partnerships with local companies to navigate local market dynamics and build relationships with suppliers and customers.

On the other hand, legal landscapes can lead to a wider range of products and brand availability, increased competition, lower prices, improved affordability, improved product quality, increased innovation, and access to new technologies and services introduced by foreigners. From a market perspective, the expansion of retail operations can generate employment opportunities, but foreign investors may also lead to changes in the labour market, potentially causing job displacement or transitions for domestic players or workers.

Conclusion

In conclusion, there are too many facets and complexities to cover in this little article regarding the Ethiopian Investment Board's recent decision to liberalize the import, export, retail, and wholesale sectors to overseas markets. The directive is prepared for execution, but for the best result, various shortand long-term strategic actions are anticipated. In the short term, it is best for all parties involved to replicate the entry requirements for foreigners in terms of minimum capital investment requirements considering local players, local requirements, red tape, and bureaucratic procedures. A paradigm of partial liberalization can be used in place of full liberalization in order to rectify unanticipated practices as they arise and learn from them pragmatically. In a similar vein, industries that are accessible to investors shouldn't abuse conventional retailers with monopoly, cartel and price fixing.

Instead of treating these small businesses and hawkers with a laissez-faire attitude, a protraditional or pro-small retail policy should be established to support local players in the market. Trade and economic liberalization policies have an adverse effect on small and medium-sized manufacturing businesses in countries like Ethiopia because of their access to finance and knowledge. Treating these parties preferentially is therefore necessary because protectionism goes against the planned policy framework. In addition to the regulatory frameworks and enforcement mechanisms that go along with sector liberalization policies, the efficacy of these policies also hinges on the government's ability to level the playing field for all parties involved. Additionally, different regulatory layers must coordinate and act in concert to address consumer concerns and foster competitive markets. Improving the involvement of the private sector will have a significant effect in the medium and long run. Improved traditional retail competition mitigates the unfavourable effects of this legislative change. There are some excellent instances of initiatives to modernize traditional retail. Those in East and Southeast Asia, including China, Hong Kong, the Philippines, Singapore, and Taiwan, are especially captivating. Programs to help this sector are essential because they play a significant role in tackling macroeconomic concerns and gender factors. SMES are the engines of economic growth, and they should be supported with a special focus on addressing the twin challenges of poverty reduction and unemployment. The responsibilities and expectations placed on SMES necessitate a robust and dynamic SME sector. The adoption of trade liberalization policies raises concerns about SMES' capacity to survive the intense rivalry between well-established multinational firms and low-cost imports, necessitating government intervention. To prevent adverse outcomes when accession is completed, opening sectors should also consider regional, continental, and international engagements. Factors influencing retail, wholesale, import, and export liberalization include infrastructure development, institutional capacity, regulatory frameworks, and overcoming obstacles to seize opportunities. As a result, in order to get the best results, the government and other relevant parties must maintain their focus. The capacity to change and advance in reaction to shifting market circumstances must be continuously nurtured and developed. This will ensure continued success and growth in the long run.

The writer can be reached via birhaneg@ shabellebank.com