ETHIOPIAN CHAMBER OF COMMERCE AND

SECTORAL ASSOCIATIONS

EXPORTERS’
GUIDE
(Final Report)

Submitted by: ITAB CONSULT PLC

April 2010
 EXPORTERS’ GUIDE

TABLE OF CONTENTS

1.1 Background........................................................................................................................1

1.2 Ethiopia’s Export Trade............................................................................................................2

1.3 Scope of the Guide.............................................................................................................4

1.4 Objectives of the Guide.....................................................................................................4

1.5 Target Audience.................................................................................................................5

1.6 Approach and Methodology..............................................................................................6

2.1 Registration of Businesses.................................................................................................7

2.1.2 Commercial Partnership........................................................................................8

2.1.3 Corporation/ Share Company...............................................................................9

2.2 Export Licensing Procedure.............................................................................................13

3.1 Internal Company Assessment.........................................................................................15

3.2 Foreign Market Assessment.............................................................................................15

3.3 Product and Market Selection..........................................................................................21

3.4 Establishing and Maintaining Contacts with Foreign Markets.........................................22

3.5 Sources of Market Information........................................................................................23

3.5.1 Chamber of Commerce and Sectoral Associations..............................................23

3.5.2 World Chambers Network (WCN)...........................................................................24

3.5.3 Business Development Services (BDS).................................................................24

3.5.4 Export Promotion Department of Ministry of Trade and Industry........................25

IV. EXPORT PROCEDURES AND DOCUMENTATION...............................................................28

4.1. Export Procedures and Documents Required.........................................................................28

Step 2. Document preparations....................................................................................................29

4.2.1 Negotiation..................................................................................................................30

Step 3: Preparing cargo for export....................................................................................33

4.3.1 Bank permit................................................................................................................33

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4.3.2 Getting export authorization and quality certificates for shipment......................34

4.3.3 Custom clearance......................................................................................................34

4.3.4 Preparation of bank documents / Shipping Documents.......................................35

4.3.5 Request for Payment of the sales value.................................................................35

V. EXPORT COSTING AND PRICING..........................................................................................37

5.1 Importance of Costing and Pricing..................................................................................37

5.1.1 Problems to be Addressed.......................................................................................38

5.1.2 Role of Costing and Pricing Techniques................................................................39

5.2 Definitions of Costs.........................................................................................................39

5.3 Types of Export Costs......................................................................................................41

5.3.1 Production Costs........................................................................................................41

5.3.2 Selling and Delivery Costs........................................................................................41

5.4 Export Pricing..................................................................................................................45

5.5 Pricing Policy..................................................................................................................50

5.6 Export Pricing Structure..................................................................................................55

6.1 Packing and Packaging....................................................................................................57

6.2 Markings and Labelling...................................................................................................63

VII. SHIPPING....................................................................................................................................66

7.1 Steps in Arranging Shipment...........................................................................................66

7.2 Choice of Mode of Transport...........................................................................................67

7.3 Importance of Transport Documents................................................................................76

8.1 TERMS OF SALE...........................................................................................................79

8.2 METHODS OF PAYMENT............................................................................................81

IX. EXPORT FINANCE AND INSURANCE...................................................................................96

IX. EXPORT FINANCE AND INSURANCE...................................................................................96

9.1 EXPORT FINANCE........................................................................................................96

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9.2 EXPORT INSURANCE................................................................................................102

X. ETHIOPIA’S EXCHANGE CONTROL REGULATIONS........................................................109

10.1 General Foreign Exchange Regulations.........................................................................109

10.2 Application and Registration of Exports........................................................................110

10.3 Payment of Exports.............................................................................................................111

10.4 Application of Foreign Exchange..................................................................................114

10.5 Foreign Currency Retention...........................................................................................116

10.6 Repatriation of Export Proceeds.........................................................................................117

10.7 Exchange Control Regulations of the Importing Country...................................................118

XI. ACCOUNTS AND TAXATION................................................................................................119

11.1 Role of Accounting in Export Business.........................................................................119

11.2 The Need for Auditing...................................................................................................122

11.3 Company Taxation.........................................................................................................123

12.1 Export Trade Duty Incentives........................................................................................131

B/ Duty Draw-Back Rate...................................................................................................132

1. When the export of raw material or commodity on which duty to be drawn-

back is ascertained;...........................................................................................................132

C/ Conditions for Being Beneficiary of Duty Draw-Back Scheme...............................133

a) Name and address of the claimant;.................................................................133

12.3 Exporters Prize Awards......................................................................................................142

12.4 Export Financing Incentive Schemes..................................................................................144

XIII. INTERNATIONAL TERMS......................................................................................................146

13.1 INCOTERMS: Facilitating the export process...............................................................146

13.2 Definitions of Incoterms™ 2000....................................................................................147

13.3 Presentation on Incoterms..............................................................................................154

14.1 Ethiopia’s Bilateral Trade Agreements..........................................................................156

14.2 Multilateral Trade Agreements......................................................................................157

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14.3 Generalised System of Preferences Extended to Ethiopia..............................................161

14.4 Rules of Origin..............................................................................................................162

15.1 Introduction...................................................................................................................170

15.2 Quality System Concepts and Standards........................................................................170

15.3 Benefits of ISO 9000.....................................................................................................174

15.4 Quality Infrastructure and Its Elements..........................................................................174

15.5 Quality and Standards Authority of Ethiopia.................................................................176

15.6 Misconception about Quality.........................................................................................178

XVI. TRADE RESTRICTIONS..........................................................................................................182

16.1 Types of Export Restrictions...............................................................................................182

16.2 Impact of Export Trade Restrictions...................................................................................186

16.3 Conclusion..........................................................................................................................187

XVII. EXPORT MARKET DEVELOPMENT STRATEGY...............................................................188

17.1.2 Product Development Strategy........................................................................................189

17.2 Management of Export Sales.........................................................................................197

17.3 Export Market Promotion Strategy................................................................................198

Appendix 4 – A: Summary of Export Procedures and Documentation......................................206

Appendix 6 – A : Materials Used for Packing.........................................................................................207

Appendix 11 –A......................................................................................................................................212

Appendix 14 – B......................................................................................................................................215

Appendix 14 – C......................................................................................................................................215

Appendix 14 – D.....................................................................................................................................215

Appendix 14 – E......................................................................................................................................216

Appendix 15- A.......................................................................................................................................217

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 ACRONYMS

ACP Africa, Caribbean and Pacific Countries

ADLI Agriculture Development Led Industralization

AGOA African Growth Opportunity Act

AWB Airway Bill

BDS Business Development Services

CAD Cash Against Documents

CCGs Country Commercial Guides

CFR Cost and Freight

CIF Cost Freight and Insurance

CIP Carriage and Insurance Paid

CPA Cotonou Partnership Agreement

CPT Carriage Paid To

COD Cash on Delivery

COMESA Common Market for Eastern and Southern Africa

DAF Delivered at Frontier

DDP Delivered Duty Paid

DDU Delivered Duty Unpaid

DEQ Delivered Ex - Quay

DES Delivered Ex - Ship

EBA Everything But Arms

ECCSA Ethiopian Chamber of Commerce and Sectoral Associations

EMS Express Mail Service

EPAs Economic Partnership Agreements

ESA Eastern and Southern Africa

EU European Union

EXW Ex - Works
FAS Free Alongside Ship

FCA Free Carrier

FOB Free on Board

FTA Free Trade Area

GSP Generalized System of Preferences

ICC International Chamber of Commerce

ICP International Company Profile

IGAD Inter Governmental Authority for Development

INCOTERMS International Commercial Terms

ISAs Industry Sector Analysis

ISO International Standardization Organization

ITC International Trade Centre

L/C Letter of Credit

MFN Most Favoured Nation

MoU Memorandum of Understanding

MoFED Ministry of Finance and Economic Development

MoTI Ministry of Trade and Industry

MTS Multilateral Trading System

NBE National Bank of Ethiopia

PTA Preferential Trade Area for Eastern and Southern Africa

PASDEP Program for Accelerated and Sustainable Development to End Poverty

SMEs Small and Medium-Sized Enterprises

WCN World Chambers Network

VAT Value Added Tax

I. INTRODUCTION

1.1 Background
The major economic development strategy in Ethiopia is Agricultural- Development –
Led Industrialization (ADLI). The ultimate goal, in this strategy, is to gain middle-income
status in the medium term. In the short run it aims at increased agricultural productivity
to address food security and poverty, increase foreign earnings and reduce food
imports. The promotion of high value commodities, export-oriented, agro-processing
activities is embraced within the framework of the trade and industrial development
strategy of the country, and as stipulated in Program for Accelerated and Sustainable
Development to End Poverty (PASDEP), a practical, commercially oriented, agro-
industrial policy strategy that has a strong private sector role is required to support the
growth of the agricultural sector. The development of strategic commodities through the
establishment of viable agro-economic zones/Economic Growth Corridors is seen as
crucial to this strategy.

Traditionally and de facto, agriculture remains the mainstay of the Ethiopian economy. It
accounts for 46 percent of GDP, followed by the services sector, which generated 41
percent of GDP in 2006/07 (CAS). The other sectors are relatively underdeveloped with
the industrial sector, (including; mining, construction, electricity and water and
manufacturing sub-sectors accounting for around 13 percent; manufacturing sub-sector,
including agro-processing industries, contributing 5.2 percent to GDP (in 2005/06). Food
agro-processing industries contribute the major share in agro-processing and
contributed 4.4 percent in the same year. The Gross domestic product for 2007 was
US$12,600M (ETB112, 134M). Furthermore, during the past 10-year period, GDP (at
constant market price) has shown an increasing trend starting from US$6,950M
(ETB61, 888M) in 1996/97 to US$12,600 (ETB112, 134M) in 2006/07. According to
MOFED (2007) the GDP generated by the industry and services sub- sectors has been
resilient, and has shown increasing trends, albeit small, over the period.

The momentum of economic development in Ethiopia in all aspects is encouraging.

Infrastructure such as road construction, airline service, and marine services offered by
Ethiopia are improving from year to year. Telecom service is also improving for
international communication and information flow. Such improvements are very vital for
international trade performances. The consecutive export earning development from
year to year is the reflection of this development.

Positive prospects also exist for improved productivity and increased export
performance, because of the following factors:
 Rich raw material base;
 Fast growing communication facilities and infrastructure;
 An advantageous geographical location;
 Abundant and inexpensive workforce covering many skills;
 Globalization and opening up of world economies.

1.2 Ethiopia’s Export Trade

Export from Ethiopia is growing and the government also encourages the export sector.
Coffee has always been credited to be the Ethiopia's highest foreign currency earner. In
terms of weight, however, the most exported goods out of Ethiopia in the last three
years are pulses, oil seeds and spices. Using data obtained from Ethiopian Revenue
and Customs Authority and Ministry of Trade and Industry, we have presented the most
exported goods out of Ethiopia, their quantity in thousand tons, revenue earned in
thousand USD (see appendix 1 – A for details).

Export from Ethiopia is dominated by traditional agricultural products. In 2008/09, non-

processed agricultural products exported to foreign markets covered 81% of the total
export of the country. In recent years, the exports of manufactured/ industrially
processed or semi-processed products are being increasing and reached 19%
contribution to the total export value in 2008/09. This shows structural shift towards
processed products, whose export proportion before ten years was only 12%. However,
more effort must be done to broaden and diversify exportable products particularly
paying attention to value addition/ processed products in the future.
Exports from Ethiopia are destined to more than 120 countries (MOTI, 2009). The top
10 countries to which Ethiopian products were exported to were China, Germany,
Netherlands, Saudi Arabia, Switzerland, Somalia, Sudan, USA, Italy, and United
Kingdom. Exports to these courtiers accounted for 70% of the total export value in
2008/09. It can be seen that few neighboring countries (Somalia and Sudan) are among
the ten top countries to which Ethiopian products were exported. Djibouti and Yemen
are also important regional and neighboring countries to which Ethiopian products
exported are substantial in export value. However, since the bulk of these exports are
primary commodities, they are subject to the vagaries of weather and volatile
international commodity markets. Therefore, for Ethiopia to attain the desired levels of
export earnings there is a need to develop and promote processed export products, as
these tend to have more stable prices. Growth in manufacturing sector would also mean
increased employment and positive economic growth.

The Government of Ethiopia has committed to bring changes in the export sector and
the general economy at large. To this end, government has designed and implemented
export and investment incentive packages under PASDEP, which creates an enabling
environment and competence for investors and manufacturer exporters. The duty-
drawback, voucher system, bonded manufacturing warehouse system, the export credit
guarantee scheme, and foreign credit scheme are some of the incentives given for
manufacturer exporters. In addition, government has introduced fast, transparent and
responsible service delivery system to those needing support services.

Because membership to WTO is to be part the rules – based multilateral trading system
(MTS), Ethiopia is in the process of accession to the WTO and this is believed to serve
as one of the instruments to create confidence for investors and attract foreign direct
investment. While Ethiopia reaffirms its commitment to be part of the MTS, it remains
confident that the development partners and international institutions would continue to
provide the necessary technical assistance and capacity building support to bolster the
country’s efforts, especially to the private sector.
The trading community at large and exporters in particular should be encouraged to
understand all these commitments, regulations, policies, strategies and program, export
procedures so as to better achieve competitive and substantial market share in
domestic and international markets. The Ethiopian Chamber of Commerce and Sectoral
Associations is the single largest all-encompassing trade promotion and private sector
development institution that promotes Ethiopia’s to the world, develops international
trade and promotes in Ethiopia. Provision of all necessary support and information to
the business exporter companies and new potential exporters is among the mandates
of the ECCSA. To service this purpose, the ECCSA has taken initiative to update the
previews Exporters’ Guide by hiring a professional consultant.

1.3 Scope of the Guide

Reference in this Exporters’ Guide is made to all exportable products from Ethiopia, with
special emphasis on manufactured/ processed export products. It provides comments
on the various stages between the company’s decision to export, production and the
actual export process, and their impact on the quality of the end-product and export
value.

1.4 Objectives of the Guide

1.4.1 General Objectives
The Exporters’ Guide intends to provide a comprehensive and practical review of
matters related to the export regulations and procedures. The guide has the
prime objective of helping the exporter to simplify the work related to exporting.

I.4.2 Specific Objectives

The specific Objectives are to:

 Deal with the need for compliance with Ethiopian regulations regarding trade
documentation, customs clearance and procedures required to access the export
incentives and other domestic facilities available;

 Extensively cover the transport logistics-shipping, export finance, methods of

payment and insurance;
  Be used as a reference text, for it contains a great deal of information on the
Ethiopian trade regulations, export incentives, export tariff preferential schemes,
export logistics and export financing. And will enable new and potential exporters
to understand the many areas of export trading.

Furthermore, the Exporters’ Guide particularly aims to:

 Provide information on how to start export business;

 Provide exporters with information on the current trading practices;

 Inform exporters on how they can take advantage of the export incentives to
improve the competitiveness of their products;

 Enable exporters to take advantage of the preferential tariff schemes available

under different preferential trade agreements and from WTO membership in the
future;

 Emphasize the need for producers/ exporters to improve their processing, quality
and presentation of their products;

 Provide other related information.

1.5 Target Audience

This Exporters’ Guide is targeted primarily at individuals at various levels of
responsibility who are involved in exporting of products from Ethiopia. It is perceived
that improved comprehension along the entire process will have a direct impact on
competitiveness and export earnings. In a wider context, this Guide is expected to
benefit the following target audience:

 Exporters – Traditional and Non – traditional;

 Trade Associations and Sector Associations of Exporting Companies;

 Support Institutions – Chambers of Commerce and Sectoral Associations, Export

Promotion Offices, etc.
  New and Potential Exporters.

1.6 Approach and Methodology

The previous existing guide have been critically reviewed and core contents identified,
with the objective of determining its coverage, depth, and extent of compatibility with
current and emerging export business procedures and practices. Then, the contents
and structure of the updated guide have been outlined by the Consultants team and
discussed with relevant authorities of Ethiopian Chamber of Commerce and Sectoral
Associations, finally agreeing on the outline after incorporating the points given from the
client.

The approach adapted during the updating of this guide was information gap
identification in a participatory way. To this end, the previous existing Exporters’ Guide
have been critically reviewed in view of new developments in export regulations,
policies, procedures, including the developments in the international business
environment as well as business relations established with other countries for trade. On
the other hand, the needs of exporters with respect to knowledge of the policies and
procedures of export business have been identified through opinion survey from
targeted beneficiary.

New developments in export regulations, trade agreements with multi-national and

bilateral organizations, and incentive schemes introduced in the past two to ten years
have been assessed by contacting relevant institutions. The objective was to determine
the points that are essential for inclusion to the guide and to know the new
proclamations, regulations, directives and trade agreements recently adapted regarding
export trade. These information have been collected by contacting Ministry of Trade and
Industry, the Ministry of Agriculture and Rural Development, the Ministry of Finance and
Economic Development, Ethiopian Revenues and Customs Authority, and National
Bank of Ethiopia.
II. COMPANY FORMATION
Registration is a compulsory requirement in opening a business in Ethiopia. No person
shall engage in any commercial activity unless registered in a Commercial register.
Principal registration takes place only once even though one may undertake different
commercial activities. The commercial registration and business licensing provisions are
spelt out in proclamation No.67/19971 and the Council of Ministers Regulation
No.14/19972.

The relevant authority where commercial registration can take place is the Trade and
Industry Bureau of the regions where the head office is located, unless in the case of
specific commercial activity such as export trade business which requires registration
and licensing by the Federal Ministry of Trade and Industry. The main types/ forms of
business organizations as listed below can carry out trade:

 Sole Trade/ Sole Proprietorship;

 Partnership;
 Share Company;
 Private Limited Company;
 Public Enterprise;
 Cooperative Societies.

2.1 Registration of Businesses

Every firm in Ethiopia trades under a name other than the true name(s) of the partners.
This also applies to sole traders and registered companies. In general, no additions of
proper names should be employed for business purposes. Registration must be made
before the use of the name. Although a trade name is one of the entries of a principal
registration as provided for under Article 105 of the Commercial Code, principal
registration shall be made without waiting for the registration of a trade name under
Proclamation No. 67/1997. If there is no name registered, the business is referred by
name of the owner in Sole Proprietorship Business form or the name of the Private
Limited Company or the Share Company.

2.1.1 Sole proprietorship

1
Federal Proclamation No. 67/1997 on Commercial Registration and Business Licensing,
2
Council of Ministers Regulation No. 14/1997 on commercial registration and business licensing.
Sole proprietorship is the oldest type of business unit, the one-man business. Formation
of this type of business is very easy as it involves the decision of one person, who is the
owner and manager of the organization. However, the owner carries business at his
own risk and his own exclusive account. To register the business, the individual owner
should submit a written application to the Bureau of Trade, Industry and Transport for
the registration of the business, stating the name and location of the business and the
nature of the business. The application should be accompanied by a set of recent
passport sized photographs and a prior business license (if any).

The Sole Proprietorship form of business can have the following advantages:

(i) Self-interest is a powerful motive making success of the one-man, which makes
business as efficient as possible;
(ii) All transactions and operations are performed in the most economical manner
and waste of all kinds is eliminated;
(iii) It is possible to pay personal attention to all customers and give them
entire satisfaction at minimum cost;
(iv)This form of business is also the easiest to start and the easiest to wind up.

However, there are limitations from which the individual entrepreneur suffers:

(i) Capital at the command of the sole proprietor is generally meagre and hinder
expansion;
(ii) One man feels very much handicapped in looking after the many sides of his
business;
(iii) Since he bears all the risks, he is personally liable for all of the debts and
obligations of the firm;
(iv)It can not enjoy economies of large-scale production.

2.1.2 Commercial Partnership

A partnership is the voluntary unincorporated association of two or more persons who
contribute money and other resources for the purpose of engaging in business as
principals and a common undertaking for the common profit.

This form of organizations may have advantages and disadvantages. The advantages
a partnership form of organization will have over the one-man sole proprietorship are:

(i) It commands large resources;

(ii) It is possible to establish wider personal contacts;
(iii) Business can be run on large-scale enjoying economies of scale;
(iv) Responds promptly to changes in business conditions;
(v) Existence of unlimited liability curbs speculative tendencies of partners and
prevents launching of rash and risky enterprises.

On the other hand, partnership may have the following disadvantages:

(i) Partners may behave in a selfish manner, doing the minimum and trying to get the
maximum out of the business;
(ii) Partnership must be dissolved in the event a partner’s retirement, death,
bankruptcy or lunacy, so that there is no continuity of existence;
(iii) The unlimited liability makes a the policy of the firm timid and un-enterprising;
(iv) The partnership resources are too limited to enable the concern to do a big
business.

On the whole, this form of organization cannot meet the requirements of modern trade
and industry.

In order to establish a partnership, contract may be written or verbal. Written

agreements of a partnership are known as Articles of a Partnership. The contents of the
articles include:

 The name of the firm;

 The nature of the business;
 The duration of the arrangement and position of dissolution;
 The way in which capital is to be provided;
 Rules and powers of conduct of the partners;
 The way profit and loss would be divided;;
 That proper accounts are to be kept;
 An arbitration clause.

2.1.3 Corporation/ Share Company

To incorporate a business is to organise it as a corporation by permission of the
government. A corporation/company is a group of persons authorised by law to act as
one individual in legal matters and to run business under its own name. Thus a
company is a legal entity; it can own property, borrow funds, make contracts and can
sue or be sued in courts as an individual. Two or more persons who desire to go into
business as an incorporated firm may usually do so by applying to the state. The
objectives of the business and the framework within which the company operates must
be set out in the documents, which are prepared, when the company is formed.

In this form of organization, the liability of the shareholder is limited to the fully paid up
value of the shares he holds, so that if the company should find itself in difficulties and
unable to meet the demands of its creditors the shareholder can lose no more than the
amount he invested, the rest of his property being free from any claims by the
company’s creditors.

This form of organization can have both merits and demerits. The merits which can be
claimed for this form of organization are the following:

(i) Generally a large-scale business and enjoys all the economies of large-scale;
(ii) Large capital can be raised since share are of small denomination that suit pockets
of all;
(iii) The limited liability principle encouraged prospective investor to invest freely;
(iv) A shareholder can sell or transfer his shares and can leave whenever he wishes;
(v) The company is a legal person apart from the shareholders or directors;
(vi) Management is democratic, efficient and economical. The directors are elected by
shareholders.

This form of organization has also demerits which include:

(i) Some of the directors may be unscrupulous and exploit the unwary investor;
(ii) Fraudulent publicity deceives the public;
(iii) Business is de-personalized and may utterly neglect the welfare of the employees;
(iv) The organization is too ponderous and unwieldy, it cannot take quick decisions.

In order to form such organization, application should be prepared which would include
the objective of the company. This would be embodied in the Memorandum of
Association and rules and regulations governing the operation of the firm (Articles of
Association). These should be legally binding.
Memorandum of Association defines the company’s objectives and intentions; the
company cannot go outside the limits of the memorandum. The documents must
contain:

 The name of the company with the words “private limited” at the end;
 Where the registered office will be situated – Address;
 The objective of the company;
 A declaration that the liability of the members will be limited;
 The amount of capital and how it will be divided;
 That no subscriber shall take less than one share;
 That the number of shares of each subscriber will be indicated against his name.

Corporate forms of businesses/ companies are of two types, private limited company
and public limited companies.

A/ Private Limited Company

Private limited company has three important features: the number of shareholders may
be as few as two and the maximum must not exceed fifty; a shareholder cannot transfer
his shares without the consent of the company nor can any invitation be made to the
general public to subscribe for shares. The close company is one under the control of
five or fewer persons (or families). Most private companies are of this type. A man and
his wife, for example, could form a private (close) company to run a retail business.

Articles of Association are the rules and regulations which govern the internal affairs
of the company and play a subsidiary role to the memorandum – which contains the
most fundamental conditions. The contents of the articles of association should be
consistent with the memorandum of association. They constitute:

 The code of regulations for the management;

 The keeping of records of all assets and liabilities;
 Records of receipts and payments and purchases and sales;
 That an annual balance sheet shall be prepared, etc.

B/ Public Limited Company

In this type of company, there must be at least five shareholders, but no maximum
number is fixed. Five person or more wishing to form such a company draw up a
Memorandum of Association giving particulars of the type of business to be
undertaken, the amount of its nominal or authorized capital and the kinds of shares to
be issued. A second document, known as the Articles of Association, has then to be
compiled, giving particulars of the internal working of the proposed company, including
such things as voting rights of shareholders, powers and duties of directors, etc. the
next step is the registration of the company with the Registrar of Companies, after which
a Prospectus can be issued and an appeal be made to the general public to subscribe
for its shares.

The public limited company is thus able to raise very huge amounts of capital from small
investors, and gigantic undertakings, with capital running into many millions, become
possible. The construction of railways, establishment of commercial banks and
insurances, production and marketing businesses, etc are outstanding examples of the
kind enterprise which the public limited company made possible. The raising of large
amounts of capital is further assisted by the easy transferability of shares. Limited
companies are also an advantage to the large investor, who is enabled to spread his
investments over many companies, and not have all his eggs in one basket. In order to
protect people from unscrupulous company promoters, the annual balance sheet of
such companies has to be made public as safeguard against fraud.

In general, the companies’ documents specified above should be signed by the

persons who subscribe to the declaration to form the corporate/companies. In the case
of Private Limited Company a minimum of two signatures is required and for a Public
Limited Company a minimum of five signatures is required. The Ministry of Trade and
Industry effects the registration of a new export company. If everything is in order, the
stamp duties and the fees paid, the Certificate of Incorporation is issued. From the
moment the company has a legal existence with perpetual succession and a common
seal, it may from that date commence business operations.

Procedure

The required documentation and application forms should be submitted to the Ministry
of Trade and Industry for verification and approval. When this is done the documents
are sent to the Ministry of Justice for certification and then to the Press Agency for
public announcement of the business formation in the national newspapers. The
process can take about four weeks because of shortage of space in the papers. When
this is completed the Ministry of Trade and Industry will issue the Principal Registration
Certificate.

The Principal Registration Certificate must be kept in a conspicuous position at the

principal place of the business. The business letterheads, trade catalogues and
business cards should bear the name of the registered firm. Any changes to the name
must be notified to the Ministry of Trade and Industry within a reasonable time.

2.2 Export Licensing Procedure

After registration, an application to export should be submitted to the Ministry of Trade
and Industry who in turn issue the export license. The documents required for the
issuance of an export license are detailed below. The license is issued at a minimum
fee of 25 Birr. The license covers duration of twelve months after which it has to be
renewed not later than two months into the next fiscal year, in accordance with
Ethiopian Law. Should an exporter fail to renew the license within the time period,
renewal at a later date would entail a penalty of 20% per month up to the third month.
Failure to renew within three months would result in a one-year suspension of the
license. To renew after the period of suspension the exporter would be required to pay
double the fee.

The export license should be displayed at all times, in a conspicuous place on the
business premises.

Even though there is no quantitative restriction in business activities, the exporter

should note that most export licenses are restrictive. The areas of export operation are
limited to what is indicated in the license, he should make a formal request for the
inclusion of the additional products under the existing license.

Requirements to Obtain Export License:

 Application in two copies;

 Principal registration certificate;
 Passport size photograph;
 An investment permit and residence permit if there is foreign partnership;
 Memorandum and articles of association or contract of partnership.
III. GETTING ORGANIZED FOR EXPORT
Export trade encompasses both national and international rules and regulations. This
makes it a difficult and complicated venture to handle. This is because of the distance
involved and the divergent socio-economic conditions and rules that prevail in the
different countries.

The decision to enter an export market should be taken after a careful assessment of
the advantages and disadvantages involved. To be an effective exporter, one should
endeavour not to play the in- and –out role, as this would damage the reputation of the
new exported and that of the country as a reliable international trader.

3.1 Internal Company Assessment

STEP ONE
The decision to export or not should rest on an assessment of the company’s readiness
to export and the product’s readiness for the targeted export destination. Below is a list
of factors to be considered to achieve this assessment.

 Top management commitment;

 Adequate managerial and qualified staff resources;
 It is a prerequisite to have skilled and experienced personnel to handle the various
aspects of export marketing;
 Sufficient production capacity. this includes factory space, warehousing, machinery,
and accessibility of raw materials to meet the export orders;
 Adequate financial resources to purchase capital equipment and spare parts, raw
materials as well as working capital;
 Ability to produce and adapt products with real export potential using cost –
effective methods;
 Ability to provide after-sales services in the importing country, if required.

3.2 Foreign Market Assessment

STEP TWO
After internal assessment, the company may decide to export. The potential exporter,
however, has to embark on a market research prior to taking any steps to export. To
successfully export your product, you should examine foreign markets through
research. The purpose is to identify marketing opportunities and constraints abroad, as
well as to identify prospective buyers and customers. Market research can be defined
as the gathering and analysing of market information on a foreign market or markets in
a systematic manner so as to better determine the potential for a particular product or
service in that market. Market research encompasses all methods that a company can
use to determine which foreign markets have the best potential for its products. Results
of this research inform the firm of: the largest markets for its product, the fastest growing
markets, market trends and outlook, market conditions and practices, and competitive
firms and products.

Market research generally consists of two elements: desk Research and field Research

Desk Research:- is the initial step and it involves collecting and analysing data
available from local sources within Ethiopia. Some of the information sources include
Chambers of Commerce and Sectoral Associations, National Bank of Ethiopia and
Ministry of Trade and Industry. The information can be used to eliminate less suitable
markets at an early stage as well as much information on the target market before
making the field trip to be undertaken to ascertain whether a foreign market is promising
enough to justify the costs of the field research.

Field Research:- is used to test your desk research findings and to meet with key
potential customers, agents and distributors.

Your company may find the following approach useful. It involves screening potential
markets, assessing the targeted markets, and drawing conclusions.

A. Screen Potential Markets

 Step 1. Obtain export statistics that indicate product exports to various countries.
Published export statistics provide a reliable indicator of where Ethiopian exports
are currently being shipped. The Ethiopian Revenues and Customs Authority or
the Central Statistical Authority provides these statistics in a published format.
  Step 2. Identify five to ten large and fast-growing markets for the firm's product.
Look at them over the past three to five years. Has market growth been
consistent year to year? Did import growth occur even during periods of
economic recession? If not, did growth resume with economic recovery?
 Step 3. Identify some smaller but fast-emerging markets that may provide
ground-floor opportunities. If the market is just beginning to open up, there may
be fewer competitors than in established markets. Growth rates should be
substantially higher in these countries to qualify as up-and-coming markets,
given the lower starting point.
 Step 4. Target three to five of the most statistically promising markets for further
assessment. Ministry of Trade and Industry, National Bank of Ethiopia, CSA,
business associates, freight forwarders, and others to further evaluate targeted
markets.

B. Assess Targeted Markets

 Step 1. Examine trends for company products as well as related products, which
could influence demand. Calculate overall consumption of the product and the
amount accounted for by imports. Some institutions offer Industry Sector
Analyses (ISAs), Country Commercial Guides (CCGs), and other reports that
give economic backgrounds and market trends for each country. Demographic
information (such as population and age) can be obtained from World Population
(Census) and Statistical Yearbook (United Nations).
 Step 2. Ascertain the sources of competition, including the extent of domestic
industry production and the major foreign countries with which the firm is
competing against in each targeted market by using ISAs and competitive
assessments.
 Step 3. Analyze factors affecting marketing and use of the product in each
market, such as end-user sectors, channels of distribution, cultural
idiosyncrasies, and business practices.
  Step 4. Identify any foreign barriers (tariff or nontariff) for the product being
imported into the country. Identify any barriers (such as export controls) that
affect exports to the country.
 Step 5. Identify any foreign government incentives that promote exporting of your
particular product or service.
C. Draw Conclusions

After analyzing the data, the company may conclude that its marketing resources would
be applied more effectively to a few countries. In general, if the company is new to
exporting, then efforts should be directed to fewer than ten markets. Exporting to one or
two countries will allow the company to focus its resources without jeopardizing its
domestic sales efforts. The company's internal resources should determine its level of
effort.

In general, below is the information to be gathered and analysed on the different

potential markets:

(a) Use of Trade Intermediaries

Exporting is usually divided into direct and indirect distribution of export goods. Direct
export means that the exporting coy itself operates in the foreign market, either by
physical presentation in the foreign market or through foreign selling agencies
originating from the exporter’s own country.

Indirect exporting involves selling through a third party who acts as an intermediary
between the exporter and the end user. The most common intermediaries include
distribution networks such as:

Exporter Wholesaler Retailer

Consumer
Exporter Retailer
Consumer
Exporter Agent/ importer Department store
Consumer
For the new exporter physical representation is not easy and thus not recommended.
Operating through an agent / importer or wholesaler provides a low-risk option that
should be pursued before venturing into other trade channels. The different channels
should be carefully studied before one embarks on exporting.

(b) General Information

Geographical area /location;
Population defined by race, religion, income, age and sex distribution;
Languages, official, indigenous and others;
Major commercial and industrial regions and centres;
Literacy rate and average education level

(c) Form and Nature of Government

Responsibility of central and regional governments;
Political attitude towards Ethiopia;
Economic and social policies

(d) General Marketing Factors

General market conditions;
Consumer tastes and preferences;
Trends in competition;
Quotation and payment terms;
Standards used, weights and measures;
Advertising and publicity media;
Leading import houses;
Main shipping and air links;
Relevant government ministries and departments;
Pricing structure of products;
Free trade zones;
Trade fairs;
List of potential distributors and agents

(e) Economic Indicators

 National currency, exchange rate stability;
Import and export statistics

(f) Banking Infrastructure

Number, type and competency of banks;
Import and export statistics

(g) Transport and Communication

Main ports and facilities;
Shipping services;
Airports;
Freight services;
Inland transport routes;
Condition of roads

(h) Foreign Trade Data

Total trade;
Main imports;
Main exports;
Trade with Ethiopia

(i) Market Access

General import policy;
Membership to a customs union or other free trade area;
Special trade relationships

(j) Import Licensing

Categories, basis of allocation, procedures

(k) Import Tariffs

Rates, basis of assessment, surcharge and other taxes

(l) Special Customs Provisions

 Entry regulations and procedures;
Free ports and bonded warehouses;
Samples, advertising and postage packages

(m) Other Factors

Foreign exchange controls, repatriation of profits, convertibility of currency;
Food, health, safety and quarantine requirements;
Marketing, packaging and labelling regulations;
Shipping and other required documents.

3.3 Product and Market Selection

STEP THREE
Product Selection: - There are several ways to evaluate the export potential of
products and services in overseas markets. The most common approach is to examine
the success of the products domestically. If your company succeeds at selling in the
Ethiopian market, there is a good chance that it will also be successful in markets
abroad, at least those where similar needs and conditions exist.

Another means to assess company's potential in exporting is by examining the unique

or important features of the product. If those features are hard to duplicate abroad, then
it is likely that you will be successful overseas. A unique product may have little
competition and demand for it might be quite high.

Finally, your product may have export potential even if there are declining sales in the
Ethiopian market. Sizeable export markets may still exist, especially if the product once
did well in Ethiopia but is now losing market share to more technically advanced
products. Other countries may not need state-of-the-art technology and/or may be
unable to afford the most sophisticated and expensive products. 

In general, the product(s) to be selected for export should have competitive advantage
in targeted foreign markets.
Market Selection: - After studying and analyzing data on a number of markets and
identifying potential products to be exported, the prospective exporter must select the
potential market(s). These should be selected bearing in mind the following important
points:

 To start with, it is advisable for he exporter to concentrate on at least two markets

and expand afterwards;
 Select markets with good potential in terms of market size and purchasing power;
 Choose markets that offer preferential access to Ethiopian products, whenever
possible;
 Start with closer and accessible markets in terms of distance and transportation;
 Choose markets where the product can be sold without costly adaptation;
 Don’t overlook the smaller and less obvious and perhaps less competitive markets;
 Entry into a market without strict exchange control regulations or import restrictions
would be advantageous;
 Avoid markets where peace is fragile;
 Avoid too distant markets with poor transport connections.

3.4 Establishing and Maintaining Contacts with Foreign Markets

STEP FOUR
When the most potential markets have been selected there is need to remain in touch
with the selected foreign markets. This can be achieved through:

 Sourcing of potential buyers through the use of business directories, trade

information centres, banks and by participating in trade missions and delegations;
 Trade fair and trade exhibition participation;
 Target market visits to meet with buyers and renew contacts;
 Contact and use Agent/Distributor Service (ADS) to locate foreign agents and
distributors abroad;
 Try to get an International Company Profile (ICP), a background report on a specific
foreign firm prepared by commercial officers overseas. These reports include
information on the type of organization, year established, relative size, number of
 employees, general reputation, territory covered, language preferred, product lines
handled, principal owners, financial references, and trade references;

When a personal visit, have samples of your product or well-prepared brochures

and ample supplies of your business cards.

3.5 Sources of Market Information

In Ethiopia there are a number of support institutions whose main function is to assist
the business community. The exporter is advised to be a member of these institutions
so as to benefit from their many services. Below is a summary of the sources of
information and services available to the business community:

3.5.1 Chamber of Commerce and Sectoral Associations

The Chambers of Commerce and Sectoral Associations provide the business with up-
to-date information on International Market trends and developments. Their main
service is to assist exporters, importers and potential exporters and the business
community as a whole to identify, develop and exploit international market opportunities.

The Chambers of Commerce and Sectoral Associations libraries and reference units
have information in hard copy - publications and trade directories. Special reference is
given the Addis Ababa Chamber of Commerce and Sectoral Association, which is
giving electronic-related services. The chamber has an Information Department,
Documentation Centre and has joined the pioneering chambers of the world to form the
World Chambers Network. This is besides its own home page on the Internet.
(http://addischamber.com.)

Information sources available from the Documentation Centre include:

- Trade directories (importers, exporters, manufacturers, products, etc.);

- Market studies;
- Company profiles;
- Product reports; trade journals and magazines.

The Information Department offers:

- Internet related services (trade opportunities and enquiries);

 - Online access to major international business databases through the Internet;
- Computerised databases on Ethiopian products, exporters and importers,
foreign buyers and sellers, international trade fairs, international trade
statistics, etc.

Other Services offered:

- Representation and lobbying;

- Business information and Advice;
- Training of Small and Medium Enterprises (SMEs);
- Organisation of forums to discuss topical issues with managers of industry;
- Organisation of trade fairs and trade missions.

3.5.2 World Chambers Network (WCN)

The Addis Ababa Chamber of Commerce and Sectoral Association has joined the WCN
(which is the world’s first and largest business network) with the view of assisting its
members to participate in the global market more conveniently and cost-effectively.
WCN is an Internet – based service that offers businesses an exciting new way to
increase business on a global scale.

The Global Business Exchange database allows for a direct link between potential
customers and sellers. The system has a unique marketing tool WCN –e- Club that
electronically matches interested companies with business opportunities from other
companies.

WCN also provides trade links to numerous resources that offer business, financial,
shipping and insurance information. For additional information on WCN, please contact
the Trade Information Department of Addis Ababa Chamber of Commerce and Sectoral
Association.

3.5.3 Business Development Services (BDS)

Business Development Services (BDS) facilitation has been introduced in Ethiopia since
2001 by about 30 public, private and commercial business development institutions.
Nevertheless, BDS delivery on the part of private commercial BDS providers still
remains weak and has to be strengthened further, if it is to become sustainable.
Business Development Services (BDS) comprise a wide range of non-financial services
provided by private suppliers (BDS providers) to entrepreneurs who use them to
efficiently operate and make their businesses grow. The types of services in a
functioning BDS system are determined by the demand articulated on the part of the
businesses.

Common Services Offered by BDS include:

 Market information; market linkages; trade fairs and product exhibitions;
development of samples for buyers; subcontracting and outsourcing; marketing
trips and meetings; market research; market space development; showrooms;
packaging; advertising;
 Linking MSEs to input suppliers; improving suppliers capacity to provide a regular
supply of quality inputs; facilitating the establishment of bulk buying groups;
information on input supply sources;
 Technology transfer/commercialization; linking SMEs and technology suppliers;
facilitating technology procurement; quality assurance programs; equipment
leasing and rental; design services;
 Mentoring; feasibility studies and business plans; exchange visits and business
tours; franchising; management training; technical training; counseling/advisory
services; legal services; financial and taxation advice; accountancy and
bookkeeping;
 Storage and warehousing; transport and delivery; business incubators;
telecommunications; courier services; money transfer; information via print, radio,
TV; internet access; computer services; secretarial services;
 BDS providers do not provide direct financial support, but link businesses to banks
and micro-finance institutions; provide information on credit schemes and
conditions; encourage savings; assistance in business planning for loan
applications.
Website Address: www.bds-ethiopia.net
3.5.4 Export Promotion Department of Ministry of Trade and Industry
In the initial stage, a trade facilitation centre known as Ethiopian Trade Point has been
established by the Council of Ministers Regulation No. 20/1997, which later on has been
by the Ethiopian Export Promotion Agency [EEPA] established at the end of 1998.
EEPA was the only public body established for the specific purpose of promoting export.
The EEPA has no extension office in the country other than the head office at Addis
Ababa.  The Agency was mandated to provide a wide range of services including
product development, market research, trade information, training, export facilitation,
advisory services, facilitating trade fairs, exhibition, and trade missions, match-making,
enquiry reply services, trade library services and internet and awareness creation and
assistance.

In mid 2005, the Ethiopian Export Promotion Agency has been merged to the Ministry of
Trade and Industry, with reduced status by the name of Export Promotion Department.
The department is currently responsible to provide professional support, alleviate
exporter’s problems, linkup Ethiopian exporters with foreign importers, collect, analyze
and disseminate trade related information to the community, facilitate the
implementation of export incentive schemes, encourage the existence of coordinated
and efficient wakening conditions among producers, exporters and service providers.

For further information contact through the following address:

Ministry of Trade and Industry,

Export Promotion Department,

P.O.Box 704, Addis Ababa,

E-mail: tpaddis@ethionet.et

Webpage: http://www.ethioexport.org/

3.5.5 ACP – EU TDP Information Service

The ACP – EU Trade Development Project in Brussels has developed an information

network which can be accessed through electronic mail (e-mail) and window displayed
websites.
Function of TDP Information System

 To identify, search, and distribute trade information according to the needs of the
business communities targeted in the ACP countries;
 Acts as a catalyst to meet the needs of enterprises regarding trade information.
The information user in Ethiopia can access the TDP information system through e-mail
or on the website. The website will present in an easy and interactive way the following
information options:
 Information on trading with the EU;
 Fact sheets on – export capacity;
 Steps towards exporting;
 Necessary export documents;
 Product and market profiles;
 Enquiry/ Reply Service.
Exporters with access to electronic mail services can access the information system
through this address: http://www.tradev.org.

N.B: It’s a question of survival out there because of the intense competition on world
markets, without adequate and timely information the exporter might not meet the
market requirements.
IV. EXPORT PROCEDURES AND DOCUMENTATION
Once an exporting company is legally established, then it should clearly know and
understand the various procedures needed to be regularly followed and performed.
The objective of this chapter is to inform/ make aware the new and potential exporters
with the range of procedures and the various types of documentation required to
successfully facilitate the export of goods from Ethiopia. New exporters particularly
would find it very useful.

4.1. Export Procedures and Documents Required

An exporter should strictly follow the procedures to effectively execute his/her export
activities in order to make a sound profit margin, minimize costs by avoiding repetitive
mistakes in producing export documents.

Step 1 Preconditions

 An exporter must make sure that he/she is ready to export a commodity by

availing/knowing how to avail export commodity, enough finance, human resource,
facilities like logistics such as ware house and transport facilities, packaging facilities
etc. On top of that knowing thoroughly the foreign counterpart’s (buyer’s) financial
soundness, reliability, integrity, full address, etc. Is very important.

 Exporters, VAT and VAT Registration

According to the Value Added Tax Proclamation (285/2002) 3 and the Regulation by
the Council of Ministers on VAT (Regulation 79/2002) 4, all exports of goods and
services are liable to VAT at the zero rates. This means that VAT is charged at 0%
(or no VAT has to be charged). However, more importantly an exporter is entitled to
reclaim the VAT on all the goods and services purchased to produce the exports.
But since this still means an exporter is still making taxable supplies even at a zero
rate, the law requires the exporter to register if the turnover exceeds the registration
limits

3
Federal Proclamation No. 285/2002 on Value Added Tax,
4
Council of Ministers Regulation No. 79/2002 on VAT
Step 2. Document preparations
Foreign trade is mostly executed by exchange of documents which are guarantees for
both parties (the importer and the exporter). These legal documents usually called bank
documents/ shipping documents are very sensitive and binding both parties so that
they rest assured that the importer would get the product and the exporter will certainly
get the value of his/her product. Different documents are prepared by the buyer, seller,
opening and negotiation banks, Etc. There are also documents that are produced by the
supporting institutions like Ministry of Agriculture, Quarantine, quality and Standards etc.
paper work and documentation are essential for the efficient execution of an export
order. Forms should be completed meticulously and procedures followed correctly to
avoid misunderstandings and costly delays.

The following table shows the major documents and where to get them.

s/n document Displayed on Type of document Where to get /who prepares it

1 Invoice Appendix 3- A Commercial invoice Prepared by the exporter
Counselor invoice Prepared by the embassy of the
importing country
Packing list Prepared
2 Export Appendix 3 – Bank permit Form available at the opening
Permits B bank. Exporter will get it from
this bank and fill the format
according to the contract
Appendix 3 - Customs declaration Format available at customs
C and/or Transitor Prepared and
handled by transitor
3 Quality Appendix 3 - Export authorization Issued by Quality and
certificatesD certificate Standards Authority
Weight and quality Issued by Inspection
certificate /surveillance company
Appendix 3 – represented by the buyer
E Phytosanitary Format available at Ministry of
certificate Agriculture Quarantine office
Coffee quality Format from Ministry of
certificate and Agriculture
Appendix 3 - Veterinary health Format from Ministry of
F certificate Agriculture
4 Compliance Appendix 3 – Certificate of origin Format available at the
of rules of G Chamber of Commerce
origin SPTA (Special Customs Authority and /or
Preferential Tariff Chamber of Commerce
Arrangement )
 certificate of origin
Appendix 3 – EUR 1, Customs Authority
H GSP Form A,
Appendix 3 - I AGOA
5 Insurance Appendix 3 - J Cargo Insurance Issued by Insurance companies
(not mandatory but
necessary for inland
and marine)
6 Transport Appendix 3 - Bill of Lading Issued by Shipping company
documents K when cargo is shipped on board
(Maersk, PIL, MSC etc)
Appendix 3 - L Air way Bill Issued by Airlines company
Ethiopian Airlines, etc
Road consignment Issued by Freighters company
Note
Appendix 3 - Rail Consignment Issued by Rail way Company
M Note Ethio Djibouti etc

These documents are prepared in compliance with International Chamber of Commerce

(ICC) regulations and are internationally similar in content

4.2.1 Negotiation
Before starting to produce documents, both parties must negotiate on the terms and
conditions of sales/purchase. Negotiation must be skillful so as to avoid suppression of
the other part in most cases the buyer. Upon agreement on the terms and conditions a
contract will be prepared.

4.2.1.1 Contract

Contract is an initial and binding document and is a base for other documents. It is an
agreement entered into by between both parties who met each other through different
media such as internet/ websites, intermediary brokers, face to face contact, through
Embassies etc. The major elements of agreement must be clearly elucidated in the
contract. These elements are:

 Full name and address of the Buyer

 Full name and address of the seller
 Type of commodity sold and year of production/manufacturing
  Quality of product sold. Care must be taken during negotiation on quality and
make sure that the demand of the buyer is attainable and fit to the Quality and
Standard office of the selling country ( Quality and Standards Authority of
Ethiopia)
 Unit price and mode of sales (FOB or CIF). FOB sales more preferable by the
seller as the responsibility ends at the port of loading. Once the carrier leaves the
port, responsibility would be shifted to the buyer. Whereas when sales are on
CIF basis, the buyer would be responsible for the cargo, sea/air freight and
insurance of the cargo up to the port of the buyer.
 Description of goods sold. The name of goods, Type, quantity sold in Metric
Tons, quality specification, unit price/mt etc must be clearly mentioned
 Arbitration clause must also be mention. Good to negotiate acceptance of the
buyer for local arbitration office. Otherwise usually GAFTA and FOSFA
conditions of London are applicable by default.
 Bank details of the seller is to be clearly put in the contract
 Contract must finally be duly signed by both buyer and seller

4.2.1.2 Documentary Credit /letter of Credit (L/C)

L/C is a bank document prepared by the opening bank (buyer’s bank). This L/C is
prepared following Incoterms and ICC regulation of Import and Export and major
content of it would be the details in the contract mentioned here above.

 It protects the interest of the buyer and seller. This is usually to enforce a legal
contract execution (delivery of good by the seller and payment of the value by the
buyer) as the two may not necessarily know each other face to face.
 The opening bank enters into commitment to settle payment and the sellers bank
usually called Negotiating Bank would assure export of the commodity and
preparation of the bank documents strictly as per the L/C
 L/C must incorporate
 Documentary credit (L/C) type such as Irrevocable, revocable, Cash
against Document CAD), Advance payment etc. Undertaking letter of
buyer that consignment will be settled within a maximum of 90 days from
 date of the Foreign Exchange Permit for Cash Against Document (CAD)
mode of payment is very important
 L/C number,
 Opening date
 name of beneficiary /Seller with full address,
 Name of the applicant /Buyer with full address
 Name of the opening bank with full address
 Credit amount
 Patial shipment allowed /not allowed
 Transshipment allowed / not allowed
 Port of loading
 Port of discharge
 Latest date of shipment ( end date after which shipping on board is not
possible unless the date is extended by the opening bank)
 Expiry date. It is last date of document negotiation. This date may be end
at the negotiating bank country or at the opening bank country. So
attention must be taken not to miss the dates.
 Bag marking instruction
 Descriptions of goods. Mode of shipment must be shown whether FOB
(Free on Board) or CIF (cost Freight and Insurance) must be shown in
description of goods.
 All pertinent bank documents required by the opening bank for negotiation must
be enumerated in the L/C including additional condition to be strictly followed.

Bank documents then must be strictly prepared by the seller according to the L/C
requirement without any single mistake including spelling error. Errors may call for
penalty of upto 100 USD/error as per the policy of opening bank .The major bank
documents as stipulated in the table above are commercial invoice, packing list, bill
of lading, insurance certificate on CIF term, Certificate of weight and quality,
certificate of origin, SPTA, phytosanitary certificate, etc.
 Step 3: Preparing cargo for export
Once the L/C is received, the seller must be sure that he/she would prepare the
cargo and deliver to the port of loading before latest date of shipment with strict
follow up of the date of arrival of nominated carrier at the loading port.

For this:

 Need to assure that the required commodity is in stock for processing. If not
need to immediately secure and made it available for processing.
 Need to prepare packaging material as per the L/C marking instruction. Note
to produce extra 1-2% packaging material to avoid shortage during
rebbaging.
 Need to process strictly as per quality requirement stipulated in the L/C

4.3.1 Bank permit

Bank permit form is obtained from the Negotiating bank and filled out strictly with
adherence to the L/C and the form itself. Documents required for getting bank permit
approval from the negotiating bank:

 Duly signed contract by seller & buyer

 Undertaking letter of our customer that consignment will be settled within a
maximum of 90 days from date of the Foreign Exchange Permit for Cash
Against Document (CAD) mode of payment and Authenticated message of L/C
opened for Letter Credit mode of Payment.

 Seller's invoice

 Export License Valid for the year

 Tax registration certificate (TIN certificate)

 Export permit application form duly filled, signed & stamped (as appropriate) by
the customer.

 NBE (National Bank of Ethiopia) issues delinquent list of exporters periodically.

Customer’s name should not appear in the delinquent exporters list of NBE for
 the period. If the name appears, there should be subsequent list indicating the
given customer has cleared all outstanding items at NBE.

 Two copies of each documents are required by the bank to approve bank permit

4.3.2 Getting export authorization and quality certificates for shipment

The prepared cargo must be certified by the relevant offices like Ministry of Agriculture,
Quality and Standards Authority, independent inspection company etc. To that effect
application must be submitted to relevant office with copies of contract, L/C, Bank
permit, phyotsanitory certificate and invoice. Then, they assign technical personnel to
draw samples of readymade cargo for shipment. Please see Table of documents
required. Relevant offices assure that the quality of the prepared cargo fits to the L/C
requirement (the inspectors and the Quarantine office, as well as approval of Quality
and Standards office that the cargo is according to the country’s regulation to export the
commodity).

4.3.3 Custom clearance

To avoid costly delays, the exporter declares all facts about the export consignment,
and all supporting original documents forwarded to the Customs Clearing Agents to
enable customs formalities and authorization of the dispatch of the export goods.
Accordingly, the exporter must hand over the following documents:

 Shipping instruction produced by the exporter

 Fill sign and stamp authorization form obtained from the shipping agent
 One original bank permit
 Commercial invoice
 Copy of contract and L/C
 Tax Identification number(TIN)

These all documents must be submitted to them before shipping the cargo to the
customs centre. Accordingly, shipping agent brings the documents to the customs office
and simultaneously loaded trucks will be sent to the custom station for check by custom
and sealing by the Quality and Standards for final release to the port. Quality and
Standards officer needs a notification of track and trailer no. before coming to the
custom for sealing as they prepare authorization for every truck. The exporter should
immediately communicate the details of shipment to the nominated insurance company
for inland coverage and need to follow every track until they arrive at the port and safely
unloaded. This is very important to avoid hassles due to track damage in transit and
consequently delay from shipment on board. If it so happen and track is delaying
beyond the latest shipment date, then need to immediately communicate the fact to the
buyer and ask for extension of the L/C shipping date and expiry date.

4.3.4 Preparation of bank documents / Shipping Documents

As soon as the cargo is on board, the shipping company is expected to send a draft Bill
of lading to the shipper/exporter for verification before producing original one. It is
important to carefully read and re read to check if any mistake in the content and
spelling in the bill of lading. Following correction, original Bill of lading must be issued
for fast preparation and delivery of bank documents to the bank for negotiation. In strict
conformity with the Bill of lading, all other bank documents requested by the opening
bank as stipulated in the L/C must be carefully prepared. Then, the exporter would
retain all copies of documents and submit the original and other copies to the
negotiation bank for negotiation. Bank clerks will see the whole documents and verify to
ask for correction for any (negotiate), and send to the opening bank by DHL.

4.3.5 Request for Payment of the sales value

Together with the complete bank documents prepared for submission to the bank for
negotiation, exporter will prepare a letter that accompanies the documents in which list
of the documents where listed and request for payment is made. If the cargo is sold on
FOB basis, then, the bank will immediately after negotiation credit exporters account for
the full amount of the sales value. Yet risk of claim by the buyer is still there until the
time that the cargo is safely delivered to his port and cleared. On CIF basis of sales,
Payment can be made but risk of the sea freight and insurance is still on the shoulder of
the seller. Risk on export is waived only when both parties are happy with the
transaction made and willing to continue their business relation.
V. EXPORT COSTING AND PRICING
Before a manufacturer can export his product, he needs to know the true cost of
marketing, selling and distributing it in a chosen market. Costs can be controlled by the
manufacturer to a certain extent, but the prices he can obtain for his goods are
influenced by external factors such as demand and competition. Hence the exporter will
rarely be able to fix a price independently. The cost of a product should therefore be
regarded as the minimum amount to be recovered.

5.1 Importance of Costing and Pricing

Pricing and costing are two different things and an exporter should not be confused
between the two. Price is what an exporter offer to a customer on particular products
while cost is what an exporter pay for manufacturing the same product.

Costing and pricing are important elements in export marketing for the obvious reason
that unless export – trading activities are profitable both from the view point of the
individual exporter and from that of the national economy there would be no advantage
in pursuing them. Even though profitability is not always the prime short-term objective,
it remains the ultimate long-term objective of trading. Otherwise, the activity would
represent a wasteful allocation of scarce resources.

The established exporters normally understand this. But the expansion of exports is
coming to depend increasingly on smaller micro enterprises (MSEs) – making non-
traditional products. Since export trading is generally much more difficult and complex
than producing for and selling in the domestic market, these small micro enterprises are
often ill-prepared in terms of managerial skills and resources to expand into export
marketing, or to face the technical, organizational and financial problems of growth in a
competitive export market.

Many of the principles of cost accounting apply to all operations of a manufacturing firm,
whether exporting or not. However, there is one vital distinction between the exporter
and the non-exporter. The latter may, without undue risk, dispense with some of the
finer techniques of cost and financial control, at least as long as the domestic market is
relatively uncompetitive, but under no circumstances is this possible for the exporter.
For the exporter, the effective control of costs is an area which cannot be neglected
from the moment planning of an export activity is initiated.

Major export projects have failed due to lack of due attention to the management of
costs. The minimization of risks is all the more important to SMEs who have limited
resources.

5.1.1 Problems to be Addressed

(i) Shortage of Trained and Experienced Staff

As a result, costing methods and procedures are often inadequate, and cost control is
not widely practiced. The growing competitiveness of export markets make these skills
increasingly essential, if enterprises are to improve their export performance which
depends substantially on better productivity and cost reduction.

(ii)Uncompetitive Costs

Most exporters complain that their costs of production are too high compared to the
prices obtainable for their products. Cost reduction is, therefore, essential, but cannot
be achieved by the mere manipulation of figures. Costs in monetary terms are the
reflection of a wide range of factors, which are at work in the supply process. An
exporter must, therefore,

a) Know his production costs in detail:- Direct costs must be analysed to show the cost
of each item of material used, the labour cost of each manufacturing operation, and
overhead costs which must be fully analysed according to the nature of the expense
and then allocated realistically to individual product costs. This can be a complex
exercise, but unless it is carried out, the entrepreneur will not know his costs, and
will no be able to control or reduce them and to develop an export strategy.
b) Know where and why his costs may be too high:- This means understanding the factors,
which determine unit costs and influence their level. High costs may reflect a wide range of
underlying physical problems, such as wastage of raw materials, low productivity (due to
 poorly trained workers, excessive idle time, poor supervision, poor production planning,
inefficient maintenance, etc.), under utilization of capacity (which makes overhead expenses
higher per unit of output). These physical problems must be solved before cost reduction
becomes possible.
c) Know-how to reduce his costs:- The cases of high costs being made clear, the entrepreneur
must then acquire the capability to improve productivity in general and use marketing
techniques to increase sales and raise capacity utilization, thereby reducing unit costs.

(iii)Unprofitable Exports

This comes as a result of high costs in relation to market prices. It can be improved if
effective cost reduction is achieved. But, it also depends on the recognition that
profitability must be the primary objective of an enterprise if it is to export. The domestic
market is relatively less competitive, with cost-plus pricing being the normal practice,
and profitability so assured and being taken for granted. Export markets are different,
they are usually highly competitive and they demand higher standards of product quality
and acceptability. In such markets, profitability will depend on:

 Accurate market forecasting;

 Planning of resource utilization;
 Pricing strategy appropriate to conditions in the chosen market.

5.1.2 Role of Costing and Pricing Techniques

To emphasise the role of export costing and pricing is logical, but it has to be
recognised that this alone is not sufficient to take care of all problems of export product
supply. Lack of adequate cost information and ineffective cost management is only one
part of the total spectrum. The key problem of SMEs has been realised to be often in
managerial capacity and operating at low capacity levels. These problems cannot be
resolved directly through costing and pricing techniques. The techniques can only
indicate some of the causes of the problems. The management of exports is an integral
process in which the financial element is a central part, with costs being the key to
competitive export supply and price the key to profitable export marketing.
5.2 Definitions of Costs
A Cost is:

- The amount of expenditure incurred (actual or nominal) on, or attributable to, a

specific activity or item.
- The value of economic resources used in producing an item or doing the
activity.

The value of each resource is always made up of two components: the quantity used
and the price per unit, so that a cost is equal to the quantity used multiplied by the unit
price.

Direct Costs:-
Direct material cost – is the cost of material entering into and becoming part/ elements
of a product or service.
Direct labour cost – is the cost of remuneration for labourers’ or employees’ effort and
skills applied directly to a product or service (i.e., transforming raw materials to a
product).

Indirect Costs or Overheads:-

Indirect materials: Any materials not actually incorporated in the finished products, but
essential to its manufacture, e.g. greases for machines.
Indirect labour: Wages for foremen, cleaners, inspectors and other personnel not
engaged in the actual work of production.
Other Indirect expenses: Rent, electricity, interest, etc.
Administrative overheads or factory overheads: are salaries of management and
staff, rent of offices, electricity, and stationery.

Variability of Costs with Production

These are defined as fixed costs, variable costs and semi-variable costs.

Variable costs – are those that vary in direct production to changes in the quantity of
output, e.g. materials, some supplies, electric power.
Semi – variable costs contain both fixed and variable elements. They are, therefore,
partly affected by changes in the quantity of output, e.g. repairs and maintenance.

Fixed Costs do not vary with output; the cost remains the same within a range
determined by the capacity of the plant, e.g. salaries of managers.

5.3 Types of Export Costs

There are various types of costs in export marketing, which exporters should pay
attention in their operation. These costs are briefly described as follows:

5.3.1 Production Costs

Production or manufacturing costs generally encompass fixed costs and variable costs.

Fixed Costs: are costs which remain fixed up to a certain level of output (investment in
land, building, rent, plant & machinery). Even if there is no production, some people are
paid salary, minimum fixed expenses like electricity cost etc.

Variable Costs: are costs which vary with the variation in the level of output and
include cost of factors like labour, material etc.

5.3.2 Selling and Delivery Costs

These include the cost of holding stocks packaging, transport, documentation, pre-
shipment inspection, insurance and cost of advertising, personal selling, salesman’s
salary (fixed cost), and commission and travelling & incidental expenses (variable
costs).

In general, the export costs that exporters incur at each level are briefly described/
explained as follows.

The Base Cost

Base costs are the total operating costs outlined above. They include all costs of
manufacturing, the particular product plus allocation on marketing and administrative
costs to be recovered through the selling price.

The amount of duty drawback should be deducted from the base cost prior to the
inclusion of profit mark up. There are a number of advantages for including profit mark
up at this stage. If you calculate the profit margin further (in the costing sheet) you will
be over-estimating your profit. Secondly, the calculation point should be consistent to
each and every exporting transaction to avoid unnecessary confusion.

Overseas Agents Commission

The inclusion of agent’s commission at this stage of cost analysis is done, since these
must be paid to gain access to a particular market. It seems appropriate that the cost be
added at this stage since it will be a payment that takes place between your firm and the
agent’s external account.

Labelling Costs

Labels should conform to the regulations of the importing country and or the customer’s
requirements. Interior labels are those placed on the resale package and external labels
are those placed on the exterior package. Labelling may seem an incidental activity, but
the costs of labels should be known and included in the cost structure. Otherwise, you
may be under pricing the product.

Export Packaging Costs

Export packaging is that packaging required in addition the domestic requirements. The
amount of protective packaging will vary according to the destination, mode of transport
and the product itself. It represents an additional cost to be added to the other export
costs. It is important to keep the cost of export packaging separate from the regular
packaging in that many countries charge a different rate of duty for the packaging and
the product itself.

Costs of Marking the Goods

Your goods must specify the country of origin and that of destination. This specification
should be made in any of the international languages used in the importing country.

It is advisable to use numbers and symbols. By stating the contents of packages you
will be inviting theft. Do not use abbreviations of a questionable meaning in another
language. Use international symbols for handling instructions and instructions where
they are visible. Remember there is always a threat of a shipment being lost due to
unclear markings.

Costs of Strapping

These should be used only when necessary. If the traps can aid the support to the
crating or if they aid the handling operations (usually when mechanised) and when the
strapping will not damage the product itself.

Transport Costs
Transport costs may include the following:

i) Inland Transit Charges:- These are the costs of transporting the cargo from the
warehouse to the port of departure (Port of Djibouti). The goods can be carried by
road or rail.
ii) Terminal Charges:- Wharfage charges are the cargo handling charges (port
handling costs) between the truck and the ship.
iii) Freight Charges:- Ocean freight charges represent the largest the largest cost component
of the transport costs. The freight rate is based on weight tonne or volume – the one used will
be that which offers the most revenue to the ship. Thus, if you include unnecessary
packaging you may be charged on the basis of cubic measure which would increase your
freight costs relative to the freight charges computed on a weight measure.
 Flag preference. Duty cost savings can be achieved by shipping on your
customer’s country vessel. Some countries own shipping companies and to
ensure that they have cargo to haul, they give lower rates – flag preference.
 Conference or non-conference. These two types of shipping companies offer
two types of rates and also offer different services. The conference lines offer
regular services from one are to another with standard rates. The non-
conference ships offer a reduced rate primarily because their sailing times may
be irregular; they may have to wait in ports for cargoes, and they may not have
the right timing schedule. Therefore, you should consider the opportunity cost of
your money prior to making a decision to go with a non-conference ship.
Surcharges:- Surcharges will vary from port to port and even operator to operator.
  Bunkers surcharge. Bunkers refer to the fuel used by the ship. If fuel rates
increase and the shipping companies do not wish to increase their freight rate,
they merely issue a bunkers’ surcharge.
 Port Charges. The shipping company may choose to levy a port charge if it has
encountered any problems on the quays and labour problems.
 Congestion Charges. A congestion surcharge will be added when there are
major problems in a port. This is the same as demurrage and is paid when the
boats have to sit in line waiting to be unloaded or to berth.
Documentation Charges:- Fixed rates are charged for the export documents which
include: Certificate of Origin, GSP form A, EUR I movement Certificate, and Export
Authorisation forms. The documents are passed through transistors for Customs
clearance. The agents naturally charge for their service.
Forwarding Agent’s Fee:- A standard fee is normally charged as a percentage of
freight charges.

Other Charges:- There are a number of additional charges that may be levied which
are not listed on an export costing sheet. These include:

 Export permits – For every consignment you should get a permit from the
designated commercial banks. This involves clerical effort and takes time which
is a cost that should be included in your administration costs.
 Export duty – The duty is non-existent for all exports.
 Storage charges – The transport picking up the goods at the port of destination
to deliver them customer might not arrive on time, and storage charges will be
levied on you, not on the shipping company.
 Bank charges – Banks can assist you in the collection of payment from
customer. You can request them to hold documents until they receive payment.
A fee will be charged for this service.
 Financing charges – If your goods are going into a long term project, and the
customer, in order to buy requires a long - term credit, then these financing
charges to extend credit over the period of time obviously have to be added onto
your costs.
  Miscellaneous – In this category fall costs that one may describe as petty:
phone calls, telexes, fees for advice, stamp, etc.

Sub-total
You need to total the above costs in order to calculate the insurance.
Marine cargo insurance:- Warehouse to port of departure and finally port of
destination and warehouse is the typical coverage. It is best to deal with a reputable
insurance company. It should be noted that you could insure your merchandise in such
a way that you and your customer are assured of recovering the lost profit on loss or
damage of goods.

Total CIF
TOTAL of all of the above
Convert to currency of sale
Convert the total CIF into the preferred currency.

5.4 Export Pricing

Export pricing is an important determinant of a business success. It is important for the

exporter to keep the prices down keeping in mind all export benefits and expenses.
However, there is no fixed formula for successful export pricing and it differs from
exporter to exporter depending upon whether the exporter is a merchant exporter or a
manufacturer exporter or exporting through a canalizing agency.

Pricing is one of the essential variables in the export marketing mix that aims to provide
the right product in the right place at the right time at the right price. What is the right
export price? Right price does not always mean low price. Right price depends upon
factors like nature of the market competition, buyer’s purchasing power, foreign
exchange fluctuation, etc. Some of the factors are controllable by the Export Company,
but others are not. Flexibility is essential in any export pricing operation.
Export pricing includes an evaluation of a firm’s costs of producing the product and
bringing it to the market, but it also entails an assessment of the marketing situation for
the product. The market and the company’s objective in that market should be the
starting point for pricing decisions – cost information should be used only to determine
whether that market can be satisfied.

Factors Influencing Export Pricing Decisions

 Costs of manufacturing or obtaining the product;

 Target market situation – demand and supply, competitor prevailing prices, brand
image;
 Characteristics of the product;
 Government controls on prices in the target market and on the product itself;
 Size/volume of the order;
 The need for entry into a new market (market penetration);
 Export incentives provided in Ethiopia;
 Preferential access into the target market – EU preferential Scheme and GSP.

The exporters in Ethiopia have little scope in influencing most of the above factors and
as such are price – takers and not price –setters. Their pricing strategy normally
depends on their ability to manipulate costs. The true cost of the goods should be the
yardstick against which pricing decisions are made on an informed basis.

Export Pricing Based on Export Costing Sheet

In export pricing it is necessary to calculate all costs minutely in order to ensure that no
element of cost is lost sight of, at the same time allowing for a profit. One of the most
useful ways to analyze costs is to use an export-costing sheet.

The purpose of the export costing sheet is to tally all costs of production and exporting
to arrive at the CIF (cost, insurance and freight) charges for a particular product. It is
important to point out that costs used in the export-costing sheet must be correct. The
exporter should obtain these from well-informed sources such as freight agents and
shipping companies who can provide up-to-date transport charges.
Note: A costing sheet is your guide to pricing out how much it will cost you to produce,
transport, deliver, and finance your international transaction. Each costing stage
identifies the different delivery terms which will affect your responsibilities and risks in
the transaction. At each stage of pricing, your costs and quoted price to your buyer will
increase. Below is outlined a summary of model export costing process by the four most
common Incoterms™ (delivery terms).

Exporters who find it difficult to understand or use the costing sheet are advised to
consult the Ethiopia or Addis Ababa Chambers of Commerce and Sectoral
Associations.

EXPORT COSTING SHEET FOR PRODUCT X – Model for Export Cost Calculation
1. CALCULATING AN EXWORKS TRANSACTION

Product cost
Cost of Material $............................
Cost of Labour $............................
Cost of Plant overhead $............................
Administration $............................
Financing costs $............................
Domestic duties $............................
Total cost of production
$................................

Foreign Marketing Costs

Travel accommodations $............................
Promotion $............................
Communications $............................
Translation $............................
Professional fees $............................
Agency marketing costs $............................
Total marketing costs +
$..............................
Preparation for shipping
Cost of Labelling $............................
Cost of Packaging $............................
Cost of Packing $............................
Cost of Marking, etc. $............................
Total shipping preparation costs +$..............................
*Total Cost Ex Works of Product
$...............................
International Financing
Costs of instruments
Export credit insurance
Discount on receivables
Currency conversion fees
Loan interest cost
Total international financing costs
$..............................
Profit Mark-up
$...............................
QUOTE EX WORKS PRICE AT=
$.............................
2. CALCULATING AN FOB TRANSACTION
*Total Cost Ex Works of Product
$................................
Domestic Freight
Documentation
Factory loading charges
Transportation to port
Transport insurance
Unloading at port
Storage
Port costs
Ship loading charges
Freight forwarding fees
Total domestic freight
$..............................
**Total Cost FOB of Product
International Financing
Costs of instruments
Export credit insurance
Discount on receivables
=
$............................
$............................
$............................
$............................
$............................
+
+
=
$............................
$............................
$............................
$............................
$............................
$............................
$............................
$............................
$............................
+
=$ ………………….
$............................
$............................
$............................
 Currency conversion fees
Loan interest costs
Total international financing costs
Profit Mark-up
QUOTE FOB PRICE AT =
3. CALCULATING A CIF TRANSACTION
**Total Cost FOB of Product
International Freight
International freight
Shipping insurance coverage
(Usually 110% of value)
Total international freight
***Total Cost CIF of Product
International Financing
Costs of instruments
Export credit insurance
Discount on receivables
Currency conversion fees
Loan interest costs
Total international financing costs
$............................
Profit Mark-up
QUOTE CIF PRICE AT =
4. CALCULATING A DDP TRANSACTION
***Total Cost CIF of Product
Customs
Unloading at receiving port
Foreign duties
Broker fees
Storage
Total landing/clearing costs
Inland Freight
Loading charges
Transportation
Unloading at destination
$............................
$............................
+$..............................
+$...............................
=$...............................
$................................
$..............................
$............................
+$.......................
=$.......................
$............................
$............................
$............................
$............................
$............................
+
+$............................
=$.............................
$.............................
$............................
$............................
$............................
$............................
+$............................
$............................
$............................
$............................
Total inland freight +
$............................
****Total Cost DDP of Product =$............................

International Financing
Costs of instruments
Export credit insurance
Discount on receivables
Currency conversion fees
Loan interest costs
Total international financing costs
Profit Mark-up
QUOTE DDP PRICE AT=
$............................
$............................
$............................
$............................
$............................
+$............................
+$............................
=$............................

Notes:
• Foreign Distribution Agent(s)
Depending on your distribution channels, there may be a need to involve a local agent.
In such cases, these individuals or businesses are going to require a commission
payment based on the work that they undertake on your behalf. You will need to add
these additional costs to your pricing quotations.

• Freight Forwarders
Freight forwarding fees will vary depending on the responsibilities undertaken by the
Incoterms™. That is, the freight forwarders’ fees for FOB will be lower as the
responsibilities end at the departure port. The freight forwarders’ fees for DDP will be
increased as responsibilities extend to the destination terminal.

The above elements of export costs are not exhaustive. The exporter is advised to
include all costs that relate to the product dealt with and the target market. The inclusion
of the various elements depends on the contract, especially the delivery terms –
Incoterms.
5.5 Pricing Policy
The pricing policy determines the major source of income for most exporting
companies, which makes it very important. The major objectives of a pricing policy are
two fold: to achieve targeted return on investment; and to maintain or improve market
share of a company.

Pricing policy is subject to long-term and short-term considerations, so that company’s

pricing strategy may change markedly over time. For instance, prices may be set low in
the short-run in order to capture a new market segment or in order to maintain its share.
A company may bear a temporary loss as a result and this loss may be made up in the
future if the company is able to increase its prices without losing sales.

Pricing Strategy

The pricing strategy must include provision for many factors in addition to the income to
be recovered from each sale. All the incentives offered should be taken into
consideration when setting a price.

As in the domestic market, the price at which a product or service is sold directly
determines a firm's revenues. It is essential that a firm's market research include an
evaluation of all of the variables that may affect the price range for the product or
service. If a firm's price is too high, the product or service will not sell. If the price is too
low, export activities may not be sufficiently profitable or may actually create a net loss.

The traditional components of determining proper pricing are costs, market demand,
and competition. Each of these must be compared with the firm's objective in entering
the foreign market. An analysis of each component from an export perspective may
result in export prices that are different from domestic prices.

It is also very important that the exporter take into account additional costs that are
typically borne by the importer. They include tariffs, customs fees, currency fluctuation
transaction costs and value-added taxes (VATs). These additional costs can add
substantially to the final price paid by the importer, sometimes resulting in a total of
more than double the domestic price.
In summary, here are the key points to remember when determining your product's
price:

 Determine the objective in the foreign market;

 Compute the actual cost of the export product;
 Compute the final consumer price;
 Evaluate market demand and competition;
 Consider modifying the product to reduce the export price;
 Include "nonmarket" costs, such as tariffs and customs fees;
 Exclude cost elements that provide no benefit to the export function, such as
domestic advertising.

In general, the approaches and methods commonly followed in export pricing have
been briefly described in the following sub-sections:

i) Cost plus Pricing:- Total costs are calculated and a margin is added to provide an
anticipated profit per unit. This method demands a very accurate knowledge of the
structure of costs and the ability to notice how various categories of costs behave at
different stages.
ii) The Contribution Approach:- This method attempts to create a balance on market
demand and costs of production by developing tables which reveal the levels of sales
required to enable a company to breakeven. Sales above this level make a
contribution to profits.
iii) Competitive Pricing:- Under a competitive pricing strategy, prices are determined
by competitors established in the market. New comers to this market find that
consumers/buyers have already accepted a price structure, which yields a very high
profit to the companies concerned. To react to this by offering a new product at a
substantially lower price would invite problems from two sources:
 The customer who may not accept that a new cheaper brand is as a good brand
compared to the one already on the market;
 The competitors who may have large enough resources to start a price war in
order to drive the new entrants out of business.
iv) Profitable Pricing:- In setting up prices you have to constantly balance cost,
demand and competition. Once you have calculated a price for your product you will
increase this price overtime, watching your customer needs, estimating what they
would be prepared to pay, and always keeping an eye on the non-price benefits that
you can give your customer.

v) Negotiating Price:- When prices are negotiated they will be an important influencing
factor on prices quoted by competitors for the products of similar quality. It is,
therefore, advisable that the exporter negotiates on a well-informed basis. The
exporter should arrange to collect price information from the target market on a
continuous basis. Price information may be collected through:
 Agents;
 Trade Representatives;
 Chambers of Commerce (… and sectoral associations, if from domestic);
 Ethiopia’s Trade Representatives abroad;
 Trade Publications or Magazines.

In studying the market situation with respect to prices and costs, the following must be
carefully noted:

 Level of retail and wholesale prices, including profit margins;

 Discounts in relation to size of order;
 The tariff structures;
 Legislation governing price control;
 Any price agreements;
 Pricing policies and structures of main competitors;
 Buyers with significant influence on prices;
 Exchange rate levels and trends;
 Internal taxes (sales tax, etc.);
 Sensitivity of demand to prices.
It is important for the exporter to keep in touch with the foreign markets. The primary
aim is to offer products at a price level that does not exceed that of other competitors.
When entering a new market, prices should be lower than that of other competitors for
penetration and to capture market share. However, if the exporter is offering a unique
product with obvious customer benefits, the product can be priced at above competitors’
prices (At present very few Ethiopian products fall in this category).

vi) Export Quotation: A checklist

These are items that the exporter should cover when he draws up his price quotation
and conditions of sale.

The price quotation

Net price and currency

Trade discounts (if a standard price list is used)

Quantity of discount

Cash discount

Point of delivery for the price quoted (which foreign trade terms are used – FOB,
CIF, etc.)

Conditions of payment.

Example: Open Account (cash after X days after date of invoice)

Irrevocable, confirmed letter of credit

Sight bills, documentation against payment, etc.

General terms of sale (to be agreed upon between exporter and importer)

Who is to pay for export packaging?

Is the commission to the company’s representative or broker included in the

price quotation?

Date of delivery and possible penalties in case of default

Is shipment to be made in one lot or are partial shipments allowed?

Is direct shipment required or trans-shipment allowed?

Is shipment under special flag preference?

 Freight prepaid or freight collect?

Who is to arrange for booking of shipping space?

How is marine insurance to be arranged by seller or buyer, on open policy, etc

What documents are required and how are they to be handled?

Who pays fees for certificates of origin, visa or consular invoices?

What special inspection documents are required and who pays inspection
costs?

Are weight and quality discrepancies permitted? If so up to what percentage?

Which bank is to be used for the presentation of documents?

Who is to select the forwarding agent?

5.6 Export Pricing Structure

Individual prices must be set before a quotation is fixed for the importer. The price
structure is the main tool used to set export prices. It gives a detailed picture of all cost
elements from the factory gate to the consumer price.

A typical export price structure has the following assuming that the exporter gets the
product by collecting or assembling from producers or traders:

(Sample Cost per unit)

(i) Product buying price (producer gate price or traders selling price);…..….$ 21.34
(ii) Cost of assembly and transport to warehouse;…………………………….$ 1.00
(iii) Cleaning/ processing cost; ………………………………………………...$ 1.00
(iv) Cost of wastage on cleaning/ processing; …………………………………$ 0.50
(v) Export packaging, labelling and marking; ………………………………...$ 1.50
(vi) Costs of quarantine (phytosanitary certificate), quality testing
(export authorization certificate), costumes inspection, and fumigation;……. $ 0.25
(vii) Loading at warehouse or cleaning/ processing plant; ……………………..$
1.00
(viii) Transport to port, rail station or airport;………………………………… $ 2.20
(ix) Cost of documents (bill of lading, airway bill);…………………………. $ 0.65
 (x) Consular invoice, certificates of origin; …………………………………...$ 0.05
(xi) Bank charges – Domestic ………………………………………………….$ 0.30
(xii) Export duty - if any ………………………………………………………...$ -
(xiii) Profit mark-up …………………………………………………………….$ 3.00
i …. xiii = FOB price ……………………………………………….$32.79
(xiv) Insurance cost;……………………………………………………………..$ 0.45
(xv) Sea or airfreight charges ……………………………………………………$ 4.75
(xvi) Port /rail / airport handling charges;……………………………………….$ 2.50
(xvii) Banking costs - International;……………………………………………...$ 0.30
(xviii) Unforeseen cost; …………………………………………………………$ 0.50
(xix) Profit mark up ……………………………………………………………$ 0.85
i ….. xix = CIF price………………………………………………...$42.14
(xx) Unloading charges at destination;
(xxi) Cleaning agents fees;
i ….. xxi = Landed price…………………………………………....$____
(xxii) Transport to importer’s warehouse;
(xxiii) Importer’s margin/ mark up;
(xxiv) Wholesaler’s margin/ mark up;
(xxv) Retailer’s margin/ mark up
i ….. xxv = Final/ consumer price………………………………….$____

The above structure enables the exporter to build up his final price at every stage,
compare his pricing at all stages with that of competitors and analyse his price to
indentify savings in one of the elements.

Accurate and up to date cost information is vital for assessing the profitability of export
operations. The use of export costing sheet is a common method of keeping track of
the various cost increments which make up the export price quotations. But cost
information is not just useful in maintaining profitability of export transactions and
orders. It is vital for helping enterprises to plan future exporting activities and make for
correct strategic decisions about the development of the export operation.
 VI. PACKAGING FOR EXPORT

An important stage after manufacturing of goods or their procurement is their

preparation for shipment which involves packaging, packing and labelling of goods to be
exported. Proper packaging and labelling not only makes the final product look
attractive but also save a huge amount of money by saving the product from wrong
handling during the export process.

6.1 Packing and Packaging

Packing and packaging are very different and should not be confused. Packaging is the
presentation of the product for sale while packing is the protection of the product for
transportation.

Packaging remains with the product and is a marketing device. It helps to protect the
product during transportation but this is a subsidiary purpose. Its main function is to help
sell the product by giving it a good visual image, encouraging its display and selection
by customers, distinguishing it from competing products and adapting it to particular
markets. It is obvious that no consumer package can be exported without some sort of
outer packing.

The primary role of packing is to contain, protect and preserve a product as well as aid
in its handling and final presentation. It is intended to protect goods during carriage and
handling, in the course of, and after carriage. Packing is a major factor in the successful
completion of an export transaction. Inadequate or poorly designed packing incapable
of protecting the goods results in loss and damage of goods and loss of revenue for the
exporter.

The importance of packing varies with the nature of the product, the mode of transport
and the route and distances involved. Packing and packaging provides following
benefits to the goods to be exported:

 Physical Protection – Packing provides protection against shock, vibration,

temperature, moisture and dust;
 Containment or agglomeration – Packing provides agglomeration of small
objects into one package for reason of efficiency and cost factor. For example it
 is better to put 1000 pencils in one box rather than putting each pencil in
separate 1000 boxes;

 Marketing: Proper and attractive packaging play an important role in

encouraging a potential buyer.

 Convenience - Packages can have features which add convenience in

distribution, handling, display, sale, opening, use, and reuse.

 Security - Packaging can play an important role in reducing the security risks of
shipment. It also provides authentication seals to indicate that the package and
contents are not counterfeit. Packages also can include anti-theft devices, such
as dye-packs, RFID tags, or electronic article surveillance tags, that can be
activated or detected by devices at exit points and require specialized tools to
deactivate. Using packaging in this way is a means of loss prevention.

Good packing affects the quality and cost of transport, the quality and cost of handling
and the cost of insurance. The package should not be too bulky or heavy as this would
increase the cost of transport and handling. Conversely, the package should not be too
light, as this reduces safety. The cost of packing should be low enough to permit
competitive pricing of the goods. The exporter must take these conflicting factors into
consideration.

As export goods are transported from the point of production to the destination of
importation, they are exposed to many hazards that need to be carefully assessed to
determine the appropriate type of packing. The hazards include breakages and crushing
during handling, theft, damage due to contamination by other goods, infestation, climatic
hazards such as heat, humidity and freezing.

There are only two ways of controlling the hazards:

 Physically, technically and preventive which consists of good packing;

 Precautionary which consists of adequate export cargo insurance.
The exporter should draw a clear distinction between packing for domestic shipments
and packing for international shipments. Local packing using local resources may be
satisfactory for local needs, but packing for international markets must meet quality
standards in keeping with the technological levels and requirements of the importing
country.

The exporter should keep in mind the prime objective of supplying products in good
condition. Any damage, whether accident of not and regardless of the Incoterm used,
would damage the exporter’s image. Therefore, effective packing is one of the key
factors making for repeat orders.

Legal Aspects

Most Incoterms stipulate that the seller must “provide at his own expense the customary
packing of the goods, unless it is the tradition to dispatch the goods unpacked”. The
exporter is thus responsible for the packing and for the consequences of insufficient or
improper packing.

Where goods require protection, the exporter’s obligation is limited providing packing
sufficient to withstand the rigorous of carriage under normal condition.

Precaution

To avoid misunderstandings with the customer, the contract should specify the type of
packaging to be used to protect the goods during handling, carriage and storage. In the
event that the specific type of packing material is not readily available locally it is
advisable for the exporter to import. Most frequently this point is overlooked when
negotiating contracts. Its omission is the cause of many disputes, in which the exporter
is usually the loser.

To avoid disputes about packing the exporter should obtain specifications from the
importer country and comply with them. More practical advice in packaging can be
obtained from packing and forwarding enterprises.

Protection and preservation

(i) Physical Protection
A well-preserved package must be well protected and preserved so that the goods
reach the customer intact and in a fresh condition. The pack and the contents must be
protected against physical damage, humidity, odour pick up, contamination and any
other hazards between the point of shipment and delivery. It is essential to preserve the
purity and freshness of the product and to prolong its shelf-life.

Physical protection is required to withstand:

 transportation by sea, air, rail, or road;
 long periods of storage in open air;
 lack of air conditioning;
 shipment in different weather conditions (from or to the tropics)

The need for protection and preservation brings out the importance of selecting the right
type of packing materials capable of withstanding the hazards the product is prone to.
For example, variations in temperature and humidity may cause condensation inside
packages. The most suitable package must be impermeable to water internally and
externally, such as (aluminium foils, cellophane and plastic films).

The package should not contaminate the product or itself be adversely affected by the
product. This is known as “product – package compatibility”. This holds true for products
with delicate flavours and products that have to survive a long shelf-life – canned fruits,
etc.

(ii) Goods Handling and Transportation Hazards

There are certain ways of handling and transporting goods which can result in damages
and breakages, leakages and loosening of straps, nails, bolts and nuts. Shocks and
vibrations, due to stacking of packages, loose shunting of rail wagons, sudden stopping
or starting of trucks are among these.

Mechanical protection has to be provided as a solution to these hazards:

 Goods should be properly cushioned to reduce damage caused by rough handling
and transportation;
  Avoid direct contact between the pack and the contents;
 The gaps between the pack and the contents may be filled with cushioning
material/ space fillers to prevent the transfer of the impact the product. And also to
prevent the goods from moving with the package;
 Very fragile items require different treatment and must be isolated from the
container walls by means of suspension devices – shock absorbers, etc.

Generally, cargo is carried in containers, but sometimes it is still shipped as break-bulk

cargo. Besides the normal handling encountered in domestic transportation, a break-
bulk shipment transported by ocean freight may be loaded aboard vessels in a net or by
a sling, conveyor, or chute, that puts an added strain on the package. During the
voyage, goods may be stacked on top of or come into violent contact with other goods.
Overseas, handling facilities may be less sophisticated than in Ethiopia and the cargo
could be dragged, pushed, rolled, or dropped during unloading, while moving through
customs, or in transit to the final destination.

Buyers are often familiar with the port systems overseas, so they will often specify
packaging requirements. If the buyer does not specify this, exporters should be sure
that the goods are prepared using these guidelines:

 Pack in strong containers, adequately sealed and filled when possible;

 To provide proper bracing in the container, regardless of size, make sure the
weight is evenly distributed;
 Goods should be palletized and when possible containerized;
 Packages and packing filler should be made of moisture-resistant material;
 To avoid pilferage, avoid writing contents or brand names on packages. Other
safeguards include using straps, seals, and shrink wrapping;
 Observe any product-specific hazardous materials packing requirements.

One popular method of shipment is to use containers obtained from carriers or private
leasing companies. These containers vary in size, material, and construction and
accommodate most cargo, but they are best suited for standard package sizes and
shapes. Also, refrigerated and liquid bulk containers are usually readily available. Some
containers are no more than semi-truck trailers lifted off their wheels, placed on a vessel
at the port of export and then transferred to another set of wheels at the port of import.

Normally, air shipments require less heavy packing than ocean shipments, though they
should still be adequately protected, especially if they are highly pilferable. In many
instances, standard domestic packing is acceptable, especially if the product is durable
and there is no concern for display packaging. In other instances, high-test (at least 250
pounds per square inch) cardboard or tri-wall construction boxes are more than
adequate.

Finally, because transportation costs are determined by volume and weight, specially
reinforced and lightweight packing materials have been developed for exporting.
Packing goods to minimize volume and weight while reinforcing them may save money,
as well as ensure that the goods are properly packed. It is recommended that a
professional firm be hired to pack the products if the supplier is not equipped to do so.
This service is usually provided at a moderate cost.

(iii) Protection Against Theft

Packing provides some protection against theft. The more solid the packing the more
difficult theft becomes. A package case more than a cardboard box, and a sealed
container is better than a packing case. Effective protection against theft requires the
following:

 Packages and containers should be difficult to break into. Hooping with metal or
even plastic straps prevents entry;
 Contents of packages should not protrude outside, since this would attract theft;
 Goods should be shipped by the most direct route possible with the fewest
possible inter-mediate re-loadings. Goods are usually stolen on quay or in the
storage areas of ports, airports, railway stations and road terminals.

- No identification of contents
- No identification of exporter
- Discreet marking should be used
 To avoid theft - Solid, well closed packages, with
metal or plastic hoops

- Shipment by most direct route

- Fewest possible intermediate
relocations

Source: ITC Manual

6.2 Markings and Labelling

Like packaging, labeling should also be done with extra care. It is also important for an
exporter to be familiar with all kinds of sign and symbols and should also maintain all
the nationally and internationally standers while using these symbols. Labelling should
be in English, and words indicating country of origin should be as large and as
prominent as any other English wording on the package or label.

Labelling on product provides the following important information:

 Shipper’s mark
 Country of origin

 Weight marking (in pounds and in kilograms)

 Number of packages and size of cases (in inches and centimeters)

 Handling marks (international pictorial symbols)

 Cautionary markings, such as “This Side Up.”

 Port of entry

 Labels for hazardous materials

Labelling of a product also provides information like how to use, transport, recycle, or
dispose of the package or product. With pharmaceuticals, food, medical, and chemical
products, some types of information are required by governments.
Every shipment should be carefully marked to reach its destination. Marks and labels
are meant to facilitate quick identification of the packages in a particular consignment.
Inadequate or overcrowded marking makes identification difficult and can cause
unnecessary delays at the port and unavoidable expenses to the exporter.

Marking refers to the marks and numbers stenciled on export cases for the purpose of
easy identification, storage, counting, handling, examination and delivery. As a general
rule, all external packing should be marked and numbered with symbols agreed by the
exporter and the importer. The markings usually consist of figures and letters.

The general practice is that importers give instructions regarding “markings”. As a rule,
the following instructions can be given:

 The name of the country of origin should appear above the symbol, which may
be any figure;
 The name of the port of destination appears at the bottom of the symbol;
 Below the name of the port of destination is the number of each individual
package.

N.B. The packages in a consignment are numbered consecutively. Thus, for a

consignment consisting of 100 packages, the numbering can be 1/100, 2/100, and
3/100 and so on, until 100/100.

The characteristics of a good marking are shown below, which must be:

 legible
 indelible
 sufficient
 well placed
 in conformity with importing country regulations
 discreet regarding contents.

International marking regulations require that shipping cases be marked with weidgts.
This means that on the package the gross weight and net weight or cubic
measurements should be indicated.
Marking on packages should be made in clear bold letters. Stenciling is one of the best
methods of marking. The marking should be at least on two sides to enable
identification in whatever position.

Lettering should be 7.5cm high for essential information and at least 3.5cm high for
subsidiary information. When using stencils, ensure that the following letters and figures
are clearly legible.

B – R – P; O – G – C – D; H – N; 6 – 9 – 0; 1 – 7 and 3 – 8

Handling Instructions

It is always necessary to incorporate in the markings specific handling instructions such

as “handle with care” or “this way up”. The language used in marking may be an
international language but may not necessarily be understood by the persons handling
the goods at the docks. In such cases, pictorial markings offer the only possibility of
communication. These are internationally accepted symbols, which show how packages
should be handled.
VII. SHIPPING

When shipping a product overseas, the exporter must be aware of packing, labeling,
documentation, and insurance requirements. It is important that exporters ensure that
the merchandise is:

 Packed correctly so that it arrives in good condition;

 Labeled correctly to ensure that the goods are handled properly and arrive on
time at the right place;
 Documented correctly to meet Ethiopian and foreign government requirements,
as well as proper collection standards; and
 Insured against damage, loss, pilferage and delay.

Most exporters rely on an international freight forwarder to perform these services

because of the multitude of considerations involved in physically exporting goods.

A thorough knowledge of the shipping procedure and documentation is a must for every
exporter, so as to avoid unnecessary delays and wastage.

The delivery terms (FOB, C&F, CIF, etc) as agreed in the export contract indicate the
extent of responsibility of the exporter in arranging for the transportation and shipment
of the export goods. The steps involved in arranging shipment require expertise and
practical experience and it is normally advisable use clearing and forwarding agents.

7.1 Steps in Arranging Shipment

 Book space in advance normally by contracting a shipping agent or company;

To export goods by air arrangements should be made with the Ethiopian Airlines
Cargo office – five days in advance. When using rail the relevant authority is the
Ethio – Djibouti Railway Company, and to export by road there many private
transporters that can be contracted.
 Pack goods in suitable containers enclosing the packaging list in the case. The
packing list describes the contents of the case, together with the quantity, brand,
weight and all relevant details on the contents. The list enables the customer to
check if all the items dispatched have been received.
 Label clearly on at least two sides of the package (case) for easy identification,
storage and delivery.
 Issue precise shipping instructions (as per contract) to the clearing /forwarding
agent. The shipping instructions contain information that is used to prepare the bills
of lading and on how the cargo is to be handled through the ports when shipped.
 Immediately notify importer of the shipment dispatching the relevant supporting
documents. The documents would enable the buyer to claim title to the goods and to
make the payments (this depends on what was initially agreed in the agreement of
sale).

7.2 Choice of Mode of Transport

The handling of transportation is similar for domestic and export orders. Export marks
are added to the standard information on a domestic bill of lading. These marks show
the name of the exporting carrier and the latest allowed arrival date at the port of export.
Instructions for the inland carrier to notify the international freight forwarder by
telephone upon arrival should also be included.

Exporters may find it useful to consult with a freight forwarder when determining the
method of international shipping. Since carriers are often used for large and bulky
shipments, the exporter should reserve space on the carrier well before actual shipment
date. This reservation is called the booking contract.

International shipments are increasingly made through a bill of lading under a

multimodal contract. The multimodal transit operator (frequently one of the transporters)
takes charge of and responsibility for the entire movement from factory to final
destination.

Criteria to Choose Suitable Mode of Transport

The following criteria should be considered while determining suitable method of
international transport:

 Cost of the shipment;

 Exact destination of the goods;

 The delivery schedule, and

 The accessibility to the shipped product by the foreign buyer.

Before shipping, the firm should be sure to check with the foreign buyer about the
destination of the goods. Buyers often want the goods to be shipped to a free-trade
zone or a free port where they are exempt from import duties.

The vast majority of export shipments from Ethiopia are by sea. Ethiopia being a
landlocked country, there is always a combination of overland (road and rail transport)
and maritime transport. Some export cargo is transported by air. This gives the exporter
a range of choice on the methods of transporting export cargo.

Criteria of Quality Transport

Three factors should be considered: cost, speed and safety. The order in which they
should be placed is less obvious. In the past, the main element has been cost, but the
tendency now, however, is to stress safety and speed through the use of efficient
modes of transport even if it means a higher cost.

7.2.1 Air Transport

With air transport the emphasis is on speed, reliability and punctuality. In addition,
product type or sensitivity to damages may necessitate choosing air transport.
Airfreight is considered the most suitable for perishable export products such as
horticultural products, fish and meat products.

Air Freight Rates and Airport Handling Operations

Whenever possible, exporters shipping by air should obtain a guarantee of embarkation

for which no charge is made. Once the cargo has been delivered to the air carrier and
the airport forwarding agent confirms that the goods are loaded on the agreed flight, the
exporter must send a telex to the buyer advising of the shipment.

To be complete and useful the telex should include the following:

 Airway bill number;

 Flight number;
 Date of flight;
 Name of airline in full;
 Airport of arrival;
 Estimated time of arrival (ETA).

The customer’s order number should also be quoted.

As matter of routine, check that the consignment is loaded on the agreed flight. The
airway bill number, flight number and date of the flight are essential to the consignee
(buyer).

The document of air transport is the Airway Bill (AWB).

7.2.2 Sea Transport

Ethiopia, being a land-locked country, has access to sea ports through its neighbouring
countries, namely the ports of Djibouti, ports of Sudan (through Port Sudan), etc.
currently. Great efforts have been made to modernise the port of Djibouti for the speedy
handling of cargo and development of large storage areas.
Port Cargo Agents are responsible for making arrangement for loading and unloading of
cargo.

Types of Ship Available

 Conventional Cargo carriers;
 Container Ships;
 Roll On/ Roll Off Ships;
 Combined Vessels.
Conventional Cargo Carriers

Conventional cargo ships carry general merchandise in their holds. The ships have their
own handling gear so they can load and unload at ports where facilities are not
available. Although they are widely used on routes serving cargo handling is slow and
subject to accidents. Stays in port are lengthy and turnaround time is poor, reducing the
profitability of operations.

The cargo for sea freight can be loose (break bulk) or containerized. Although there are
cost differences, the main distinction is in the handling of the cargo. In break-bulk (loose
cargo) shipment the goods are stowed in the ship hold in bags on pallets or in slings.
The disadvantages are quite numerous:

 the goods can be exposed to bad weather;

 the bags can be torn or otherwise damaged during loading and unloading;
 there is a risk of contamination from other cargo during the voyage;
 the loose cargo can be lost or mixed up with other shipments.

Containerized cargo, on the other hand, remains in the container throughout the journey
to final destination. Conventional break-bulk vessels are, therefore, at disadvantage and
of decreasing usage in international trade.

Container Ships

Instead of conventional holds, container ships are equipped with cells to which
containers can be lowered like a lift cage in its shaft. Once positioned the containers are
secured to the ship by automatic systems.

Container transport is faster, more efficient and more secure than break bulk
transportation. Modern container ships only spend short periods in the port as all cargo
is assembled before its arrival, and loading can, therefore, proceed irrespective of
weather conditions. Consequently, strict schedules can be maintained, and turn-around
time is shorter.

Roll-on / Roll-off Ships (Ro/ Ro) Horizontal Handling

These ships are fitted with side ramps by which wheeled or tracked vehicles can drive
on directly without handling. They can accommodate all kinds of goods – including
containerized goods – loaded on trailers, if the ship is fitted with rails, railway wagons
are simply driven on and off the vessels. Because of the width of the ramp, loading and
unloading can proceed simultaneously and very bulky loads can be accommodated.
The Roll- on/ Roll – off vessels are quicker than standard container vessels.

Sea Freight and Port Handling Operations

Regular scheduled shipping services between a particular group of ports are called liner
services. Most ocean liners belong to a liner conference (or simply conference).
Conferences consist of groups of ship owners who offer freight space on regular
sailings between certain groups of ports and who charge the same freight rates.
Conferences stipulate the ports of loading and discharge in addition to controlling freight
rates. Conferences are advantageous because freight rates are fairly stable, schedules
are published well in advance and they provide regular and dependable service.

Freight charges are generally quoted per paying unit either by weight – (per ton) or by
volume – (per cubic metre), whichever provides the greatest revenue. Products such as
coffee, hides and skins and oilseeds are usually quoted by weight or container load. A
unit charge can be made for such items as live animals.

Loading and discharge costs vary, depending on efficiency and schedule. Freight rates ,
therefore, consist of :

 cargo loading and unloading costs;

 maritime transport cost.

Very high rates are payable on small packages. These should not be shipped by sea, it
is advisable to use air transport.

Exporters should have in their offices the updated schedules of sailings and tariff
schedules of shipping lines serving their ports of departure.

Most exports, however, are shipped on FOB terms under which the receiver pays the
freight cost. Many importers, therefore, consider that they, rather than the exporter,
should negotiate freight charges. Large importers often have more bargaining power
than the individual exporters, as they also do business with the shipping companies in
other parts of the world. However, if freight rates applicable to individual exporters rise,
their FOB price may have to fall. The exporters should, therefore, involve themselves in
freight negotiation. Freight rates are generally expressed in US Dollars.

Port handling charges are generally very high, depending on the nature of the goods.
Schedules of these charges are published.

Given the constant variations in freight rates, it would be pointless in a guide of this
nature to list current rates. It is much more important for the exporter to have a good
grasp of the general principles governing rates and to closely examine rates on a
proposed route – perhaps in conjunction with other exporters in order to negotiate
reductions and, thereby, improve price competitiveness.

The document issued for sea transport is the Bill of Lading (see appendix …).

Some Common Problems and How to Avoid Them

- Missing documents … Assurance

come in the form of a written guarantee for missing documents issued and counter
signed by the bank.
- Delay in documents … The exporter
can assure the buyer that he will ultimately be supplied with any documents that may
be delayed. The exporter will reimburse the buyer for any financial loss resulting from
the temporary absence of the documents or for failing to supply them in time.
- When the absence of documents
prevents the importation of a shipment, the buyer will not make payment on the basis
of a guarantee, as he will be unable to gain access to the shipment.

Occasionally, an entire set of documents is lost or destroyed in transit. The shipping

company can then be requested to issue duplicate bills of lading. On provision of the
details of the shipment and satisfactory explanation of the loss of documents,
importation can be authorised without the relevant certificates of origin, etc.
The importer can declare the exporter in default if documents are not received in 30
days of arrival of shipment at destination. However, given all the ways in which an
exporter can resolve the problem of missing documents, this should never happen.

Comparative Advantage and Disadvantage of Air and Sea Freight

Advantages Disadvantages
SEA
- Economy/ Cheaper - Takes more time
- Bulky cargo space - Rough handling of cargo
- Variety of ship types - Insurance more expensive
- Packaging more expensive
- Delivery to and from ship
expensive
- Increased stock requirement
- Relative frequency of sailings
AIR
- Speed / timeous delivery - High freight costs
- Safe handling of cargo - Limited cargo space/ capacity
- Savings on insurance - Unsuitable for bulk cargo / large
- Saving on stocks items
- Frequent flights - Some goods prohibited
- Short journeys to and from
airport
- Accessibility to any area

7.2.3 Rail Services

In Ethiopia rail service is offered by Ethio – Djibouti Rail Company, which runs between
Addis Ababa and Djibouti until recently. However, the Company’s service is currently
almost non-existence and no export good is shipped through rail transport.

7.2.4 Road Haulage

In Ethiopia, there are adequate roads linking the productive areas in the interior to the
ports. Road transport offers the exporter door – to – door service with guaranteed
delivery dates. Unlike ships, aircraft and trains, which deliver to the port and airport
station, road vehicles can also take the cargo to its final destination. Unfortunately, this
does not apply to smaller consignments.

In Ethiopia there is a sizable fleet of vehicles owned by private firms, which take
contracts for moving export goods. Only 20–40 ton capacity trucks are used in hauling
exports to the ports.

Types of Vehicles Available

- Single vehicles: lorries or trucks
- Articulated vehicles.

The freight rates are subject to fluctuation, depending on the competition among the
different carriers and the conditions of the roads. When specific rates are required the
appropriate firms should be contacted for accurate information. The transport document
is known as the Road Consignment Note.

Comparative Advantage and Disadvantage of Rail and Road Freight

Advantages Disadvantages
RAIL
- Economy / Cheaper - Takes more time
- Bulk transport - two trans-shipment in stations
- Variety of wagon types - Limited networks
- Sidings/ substations
- Other services (Customs clearance en
route & storage facilities)
ROAD
- Flexibility - More expensive
- Speedy delivery - Road / traffic accidents
- No trans-shipment of full vehicle loads - Less suitable for bulk cargo
- Accessibility to most areas

7.2.5 Dry Port Facility

Dry port for countries like Ethiopian who are landlocked is very important. Recently such
arrangement is well under way and facilities are under construction at some strategic
places like Modjo and Samara towns. When it will be complete, the problems of port
congestion, theft in transit to the port and spillage losses will be minimized and handling
cost will also be very reasonable.

7.2.6 Postal Services

Postal parcel service, which accepts packages under 30KGs, should not be overlooked.
They offer exporters an alternative to modes of transport and may be highly
advantageous. Postal parcel service is mainly used for sending samples to prospective
buyers.

The advantages are substantial. Access is simple, since packages can be handed in at
the post offices. Customs formalities are mush simpler and the cost is not very high.
The service is world – wide, since parcel post reaches all countries.

However, there are some disadvantages. The delivery date is not guaranteed, and there
is a risk of parcels being lost or stolen.

The procedure and formalities are quite simple. A postal form must be completed, with
an invoice if the contents are more than a specified sum. The rates are publicly
available and are set for groups of countries and go up in steps.
- Declaration of value
- Exports to the EU markets sent through the post should be accompanied by EUR
2 form for duty free entry (the procedure is the same as EUR I, only the former is
used for small consignments by post).

Exporters using the postal parcel service should have:

 a copy of the rates schedule in their office;

 the necessary labels;
 forms and wrapping material.
Exporters should know that the post office is not liable for delays. Urgent packages
should not be sent by parcel post; they should be sent through an express courier
service guaranteeing the date of delivery.

The best known worldwide services are DHL, XP parcel services and the post offices’
Express Mail Service (EMS).

7.3 Importance of Transport Documents

The transport documents from the different modes of transport have many common
features and it will be more convenient to avoid repetition if their importance is covered
together with reference where needed.

Transport documents are usually stipulated in documentary credit method of payment.

They are very important as documents of title to the goods and they constitute evidence
needed to support an insurance claim.

All transport documents give evidence of the transport contract and define the mutual
obligations of the carrier and shipper.

Among the obligations are the carrier’s obligations to convey the goods to the stated
destination and the exporter to pay the cost of the carriage. Depending on the terms of
the contract of sale, the carriage of the goods may be prepaid under CIF … terms or
may be paid after shipment.

Transport documents may serve to invoice transport and related charges. These include
freight charges, loading and handling, the hire for slings, pallets and containers,
customs clearance, warehousing, etc.

The Bill of Lading or any other transport document should be completed carefully and
should provide the following information:

 Place and date of issue;

 The name and address of recipient (Consignee);
 The name and address of sender (Consigner);
  Description of the goods – nature;
 Number of parcels;
 Marks and numbers;
 Type of packing;
 Gross weight;
 HS coding;
 Date of expedition;
 Station /port /terminal of departure;
 Station/ port/ terminal of arrival.

Together with the Bill of Lading or consignment note, the shipper has to provide the
buyer with a copy of the invoice (for customs clearance). The invoice should carry the
following information:

 All information indicated on the consignment note of bill of lading;

 Description of the goods shipped;
 Cost of the individual items and total;
 Materials used;
 Condition of sale (FOB, CIF, etc.);
 Commodity Codes under the Harmonized System.

Under a credit method of payment, the exporter through the agents should submit to the
bank all documents, including the transport documents. Payment will only be effected
on a clean bill of lading. This is a document which provides the information that the
carrier received the consignment from the seller in good order; it does not bear a
superimposed clause that declares a defective condition of the export goods and /or the
packaging. Yet bills are often qualified by “superimposed clauses” a major potential
cause of disputes between buyer, seller and carrier.

It is important to exert every effort to avoid:

 Delay with customs formalities;

 Confusion about the contents;
 Problems that could delay or prevent shipment.
VIII. TERMS OF SALE AND METHODS OF PAYMENT

8.1 TERMS OF SALE

In any sales agreement, it is important that there is a common understanding of the
delivery terms since confusion over their meaning can result in a lost sale or a loss on a
sale. The terms in international business transactions often sound similar to those used
in domestic business, but they frequently have very different meanings. For this reason,
the exporter must know the terms before preparing a quotation or a pro forma invoice.

A complete list of important terms (including many new terms and abbreviations) and
their definitions is provided in Incoterms 1990.

The following are a few of the more frequently used terms in international trade:

 CIF (cost, insurance, freight) to a named overseas port where the seller quotes
a price for the goods (including insurance), all transportation, and miscellaneous
charges to the point of debarkation from the vessel. (Used only for ocean
shipments.)
 CFR (cost and freight) to a named overseas port where the seller quotes a
price for the goods that includes the cost of transportation to the named point of
debarkation. The buyer covers the cost of insurance. (Used only for ocean
shipments.)
 CPT (carriage paid to) and CIP (carriage and insurance paid to) a named
place of destination. These terms are used in place of CFR and CIF,
respectively, for all modes of transportation, including intermodal.
 EXW (ex works) at a named point of origin (e.g., ex factory, ex mill, ex
warehouse) where the price quoted applies only at the point of origin. The seller
agrees to place the goods at the buyer's disposal at the specified place within the
fixed time period. All other charges are put on the buyer's account.
 FAS (free alongside ship) at a named port of export where the seller quotes a
price for the goods that includes the charge for delivery of the goods alongside a
vessel at the port. The seller handles the cost of wharfage, while the buyer is
accountable for the costs of loading, ocean transportation, and insurance.
  FCA (free carrier) at a named place. This term replaces the former "FOB named
inland port" to designate the seller's responsibility for handing over the goods to a
named carrier at the named shipping point. It may also be used for multimodal
transport, container stations, or any mode of transport, including air.
 FOB (free on board) at a named port of export where the seller quotes the buyer
a price that covers all costs up to and including the loading of goods aboard a
vessel.
 Charter Terms:

o Free In is a pricing term that indicates that the charterer of a vessel is

responsible for the cost of loading goods onto the vessel.
o Free In and Out is a pricing term that indicates that the charterer of the
vessel is responsible for the cost of loading and unloading goods from the
vessel.
o Free Out is a pricing term that indicates that the quoted prices include the
cost of unloading goods from the vessel.

It is important to understand and use sales terms correctly. A simple misunderstanding

may prevent exporters from meeting contractual obligations or make them responsible
for shipping costs they sought to avoid.

When quoting a price, the exporter should make it meaningful to the prospective buyer.
For example, a price for industrial machinery quoted "EXW Saginaw, Michigan, not
export packed" is meaningless to most prospective foreign buyers. These buyers would
find it difficult to determine the total cost and might hesitate to place an order.

The exporter should quote CIF or CIP whenever possible, as it shows the foreign buyer
the cost of getting the product to or near the desired country.

If assistance is needed in figuring CIF or CIP prices, an international freight forwarder

can help. The exporter should furnish the freight forwarder with a description of the
product to be exported and its weight and cubic measurement when packed. The freight
forwarder can compute the CIF price usually at no charge.
If at all possible, the exporter should quote the price in U.S. dollars. This will eliminate
the risk of exchange rate fluctuations and problems with currency conversion.

8.2 METHODS OF PAYMENT

It is important that that an exporter be certain of receiving payment due for the goods
supplied to the importer. The payment may be cash in advance or deferred. In the latter
case the starting date and duration of the credit as well as the number and type of
payments and the rates of interest are specified. The method of payment is normally
agreed upon by both parties in advance. So are the conditions of payment, especially if
the business relationship has existed for sometime. When offering to a new buyer the
exporter must specify the payment conditions in the offer.

In choosing which method to use, New Exporters must also take into consideration the
wishes of the buyer. In these days of intense competition it might not be advisable to
insist on very strict terms. The exporter should negotiate terms with the buyer without
compromising on the security of payment, quality and delivery. However, in this process
the exchange control regulations of the country of origin and destination must be strictly
observed. The following are the factors influencing the method of payment:

 Type of transaction;
 Nature of the export goods / merchandise;
 Amount involved;
 Credit standing of importer;
 Political and economic conditions in the importing country;
 Exporter’s financial position;
 Acceptable financial practices;
 Regulations prevailing in the exporting country.

Requirements of Exporter (Seller) and Importer (Buyer)

SELLER BUYER
CONTRACT FULFILMENT
Assurance that he will be paid Assurance that he doesn’t pay the
within the agreed time limit seller until the seller has fulfilled his

CONVENIENCE
The convenience of receiving
payment in his bank or through a
bank in his country when making
payment
obligation correctly
The convenience of using a third party
in whom both buyer and seller have
confidence (bank)

PROMPT PAYMENT
Prompt payment for the sale so as A managed cash flow by the
to improve the liquidity of his possibility of obtaining bank finance
business

ADVICE
The knowledge necessary to Export assistance in dealing with often
conduct complex trade transactions complex transactions and procedures

8.2.1 Types of Payment

There are several ways in which you can receive payment when selling your products
abroad, depending on how trustworthy you consider the buyer to be. Typically with
domestic sales, if the buyer has good credit, sales are made on open account; if not,
cash in advance is required. For export sales, these ways are not the only common
methods. The following are basic methods of payment:

 Advance payment;
 Documentary letter of credit;
 Documentary credit or draft;
 Open account; and
 Cash against Documents.

(i) Advance Payment

Payment for the goods is done at a time of placing the order or sometimes before the
goods has been shipped. While full advance payment of contract value offers the
exporter the greatest security possible, in this case the importer (buyer) extends credit
to the seller (exporter). From part of the exporter, receiving payment by cash in advance
of the shipment might seem ideal. In this situation, the exporter is relieved of collection
problems and has immediate use of the money. Therefore, this method may defeat the
original intention of receiving payment before shipment.

From part of the importer (buyer), having paid in advance the importer has no guarantee
at all that the goods will arrive or that they will be in a satisfactory condition if and when
they do. This method goes against common practice and is, therefore, rarely used. For
the buyer, however, advance payment tends to create cash flow problems, as well as
increase risks. Buyers are often concerned that the goods may not be sent if payment is
made in advance. Exporters that insist on this method of payment as their sole method
of doing business may find themselves losing out to competitors who offer more flexible
payment terms. However, an advance payment of a cash deposit, a portion of the
contract value from the buyer with the balance to be paid in one of the ways discussed
in this chapter, is a more balanced arrangement.

The advance cash deposit is normally used under the following circumstances:

 When selling to an unknown buyer of to a country with foreign exchange

problems;
 When exporter needs part payment to purchase significant quantities of raw
materials or invest in additional plant, machinery or manpower to meet the
specific exports order;
 The method can also be used if goods are being manufactured to importer’s
specification and cannot therefore be resold to anyone else.

(ii) Sales on Open Account

In a foreign transaction, an open account can be a convenient method of payment if the
buyer is well established, has a long and favorable payment record, or has been
thoroughly checked for creditworthiness. With an open account, the exporter simply bills
the customer, who is expected to pay under agreed terms at a future date. Some of the
largest firms abroad make purchases only on open account. This method requires prior
approval by the authorized commercial bank. The procedure is very simple to sales in
the domestic market. The exporter sends goods to the foreign buyer abroad, prepares
and sends invoice and waits for payment, which has to be made on an agreed date.
However, there are risks to open account sales. The absence of documents and
banking channels might make it difficult to pursue the legal enforcement of claims. The
exporter might also have to pursue collection abroad, which can be difficult and costly.
Receivables may also be harder to finance, since drafts or other evidence of
indebtedness are unavailable. There are several ways to reduce credit risk, through
such means as export credit insurance and factoring exporters contemplating a sale on
open account terms should thoroughly examine the political, economic, and commercial
risks. They should also consult with their bankers if financing will be needed for the
transaction before issuing a proforma invoice to a buyer.

(iii) Documentary Credit

In international trade there is no physical exchange of goods per se, but an exchange of
title on the export products through documents. Once this has been successfully
executed payment can be done. The procedures outlined so far are simple and fairly
straightforward, but in the majority of transactions the requirements are more complex,
mainly because the prudent exporter is unwilling to let his goods out of his hands before
he is certain of being paid. The experienced buyer on the other hand is unwilling to part
with money before he is certain of receiving the goods and knows they are as he
ordered them. The banks play a major role as powerful and reliable intermediaries to
reconcile the two opposing requirements.

Banks have invented in documentary credit, and make use of specialized vocabulary,
which the traders should be familiar with. The buyer (customer, importer) is known as
the applicant, since he applies to have the credit opened and at that time stipulates the
conditions on which he is prepared to pay.

The seller (supplier, exporter) is known as the beneficiary because he will benefit from
the agreed payment if he faithfully fulfils the buyer’s requirements.

As might be expected, the buyer opens the credit at his usual bank. The latter is known
as the issuing bank, because it issues the credit.

Banks have a worldwide network of associated or correspondent banks. The issuing

bank (buyer’s bank) accordingly transmits the documentary credit to its correspondent
bank in the exporter’s country. The latter is called the advising bank because it advises
the beneficiary of the letter of credit. Except in rare cases the seller’s usual bank acts as
the advising bank in situations where the issuing bank does not have representation in
the exporter’s country.

All banks provide their customers with printed application forms for documentary credits.
The forms are completed by the applicant, with the bank’s advice, and are then
forwarded by the bank after being checked.

The first three stages in the process are illustrated below:

APPLICANT = BUYER
Instructions to open BUYER’S
credit COUNTRY

ISSUING BANK = BUYER’S

BANK
Issuance of credit
document
Far, as much as 10,000km

ADVISING BANK = SELLER’S

CORRESPONDENT COUNTRY
of issuing bank or
seller’s bank advise
of opening of credit

BENEFICIARY =
SELLER

The application forms record the applicant’s instructions:

 Exact description of the goods bought, nature, weight, volume, exact value and
currency of payment;
  Detailed list of the documents to be presented by the exporter to receive
payment;
 Date of dispatch of the goods and period of validity of the credit documents;
 Partial shipments and trans-shipment either permitted or prohibited.

Irrevocability

Revocable documentary credit may be amended or cancelled by the buyer anytime

without previous notice to the seller. It thus offers no security to the seller and is,
therefore, rarely used.

On the other hand, the irrevocable documentary credit offers a three fold security to the
seller:

 It constitutes an irrevocable commitment on the part of the buyer and the issuing
bank to pay if the documents are in compliance with the conditions of the credit;
 It cannot be amended or cancelled without the agreement of both parties;
 The irrevocable commitment to pay given by a bank, provided that the
documents comply with the terms of the credit, already represents a solution to
the seller’s need of security.

Unfortunately, the bank is far away – and it is after all in the buyer’s country – and the
exporter may not be familiar with it or know anything of its respectability and
importance. There is still a risk on the part of the seller, since the payment has to be
transferred from the buyer’s country to the seller’s before it is credited to the seller.
Apart from the time taken, which may be considerable and, therefore, expensive, the
greatest danger is the possibility that the transfer of the funds may be prevented due to
political factors – financial disagreements between the two governments, political crisis
or natural disaster that brings every thing to a halt. It is, therefore, obvious that the
irrevocable commitment of a bank does not offer all the security desired.

Confirmation

Confirmation of the irrevocable letter of credit provides the seller with the inestimable
advantage of an irrevocable commitment by a bank in his own country, in addition to the
irrevocable commitment by the issuing bank to pay, provided the documents are in
order. In this sense, it can be said that confirmation of the credit eliminates distances
and wipes out boundaries. As the confirming bank in his own country would pay the
seller, he is no longer subject to the risk of non-transfer and delays. However, it must be
noted that irrevocable and confirmed documentary credit carry high costs in terms of
fees charged by the confirming bank.

Bills of Exchange

A Bill of Exchange is defined as an “unconditional order in writing, addressed by one

person to another, signed by the person giving it requiring the person to which it is
addressed to pay, on demand, or at a fixed or determined future time, a certain sum of
money to a specified person, or to the bearer”. Normal practice is for a seller to draw a
bill of exchange on an overseas bank as shown in the export contract for the sum
agreed. The most common bills of exchange are Sight Bills – abbreviated as D/P –
Document against Payment and Usance Bills – abbreviated as D/A – Document
against Acceptance. A Bill of exchange to which the documents of transaction are
attached is commonly referred to as a documentary bill. Such bills are drawn on the
buyer and presented together with the accompanying documents through the seller’s
bank to the buyer for acceptance.

Documentary Sight Bills – Documents against payment

When Sight bills are used, the amount payable is due on delivery of the goods. The
exporter ships the goods and the importer takes delivery of consignments after making
payment of the Bill of Exchange to the bank.

Procedure: After shipping the goods the exporter presents the bill of exchange and
shipping documents to his bank – advising bank – which in turn mails them to the
correspondent banks overseas. The correspondent bank notifies the importer who, on
paying the Bill of Exchange, takes possession of the shipping documents.

Documentary Usance Bills - Documents against acceptance

In the case of Usance bills – payment is normally due within an interval of 30 – 90 days
from acceptance of the bill. The importer gets possession of the goods before paying
the Bill of Exchange. In other words, control of the goods is lost before payment is
received.

Procedure: Upon shipment, the exporter draws a Usance Bill of Exchange on the
importer and presents it to the bank. The bank sends the Bill of Exchange, together with
the shipping documents, to the correspondent bank. The correspondent bank obtains
acceptance of the by the importer and then delivers the shipping documents to the
importer (thus giving possession of goods). On the maturity date of the bill of exchange
the importer pays the correspondent bank, which then pays the exporter’s bank.

This method of payment is, therefore, not commonly used. It is only used when the
parties know each other well or when the bank backs the buyer’s acceptance of the bill.

(iv) Documentary Letter of Credit L/C

A Letter of Credit L/C is a written instruction issued by a bank – called the issuing bank
or opening bank at the request of the buyer/ importer. It is an understanding from the
buyer’s bank to the exporter’s bank that payment will be made against certain
documents such as invoice, certificate of origin, certificate of quality and bill of lading
(for sea transport) or waybill (for road and rail) or airway bill for air transport. The
importer authorizes the exporter to draw drafts for payment on the L/C in accordance
with its stated terms and conditions. This is a definitive commitment on the part of the
issuing bank to reimburse the seller upon fulfilment of the terms and conditions of the
L/C.

A letter of credit adds a bank's promise to pay the exporter to that of the foreign buyer
provided that the exporter has complied with all the terms and conditions of the letter of
credit. The foreign buyer applies for issuance of a letter of credit from the buyer's bank
to the exporter's bank and therefore is called the applicant; the exporter is called the
beneficiary.

Payment under a documentary letter of credit is based on documents, not on the terms
of sale or the physical condition of the goods. The letter of credit specifies the
documents that are required to be presented by the exporter, such as an ocean bill of
lading (original and several copies), consular invoice, draft, and an insurance policy.
The letter of credit also contains an expiration date. Before payment, the bank
responsible for making payment, verifies that all document conform to the letter of credit
requirements. If not, the discrepancy must be resolved before payment can be made
and before the expiration date.

An exporter should check that the documents specified in the L/C are obtainable.
Sometimes a buyer requires verification of documents by an Embassy or Consulate not
located in the exporter’s country. He may insist on documents, which the exporter is not
contractually required to provide. If the items and conditions are not met the exporters’
bank may not pay the exporter until the buyer has confirmed that all is in order. This
may involve sending the documents abroad without payment. If at that stage the buyer
refuses to make payment, the exporter may find himself with an unpaid shipment in
some foreign port. Thus, it is very important to conform to all the terms and conditions in
a letter of credit.

Advantages of using L/C

Letters of credit are used for a number of reason, some of them being listed as follows:

 Credit risk is reduced if the documents comply with the terms of the letter; it is,
therefore, a comparatively safe method of payment;
 The L/C are covered by international rules and systems for settling disputes
(Uniform Customs and Practice for Documentary Credit – ICC);
 They can be a quick method of payment if cable drawings are provided for;
 The L/C provides the seller with firm evidence of an export sale, which is an aid
to obtaining local or international pre-export finance, given the banker’s
preferences for granting loans against the collateral on actual sale (i.e. letter of
credit rather than on a sales contract).

Disadvantages of using L/C

 Letters of credit are costly compared with other methods of payment because of
the associated bank charges;
  They tend to be time consuming;
 Once issued the L/C is difficult to amend;
 If letters of credit are opened too far in advance they may tie up the buyer’s credit
line in banks. Furthermore, the bank commission is generally calculated on a
quarterly basis;
 A letter of credit is limited in time. When there are, for example, difficulties in
obtaining freight space within the given time period, the L/C loses its validity
unless the buyer agrees to extend it;
 The many types arrangements possible under L/C often lead to
misunderstandings;
 Letters of Credit are useful only when the contractual price has already been
determined.

RECAP:
Documentary letter of credit is simply a written statement issued by a bank, which
guarantees payment to the beneficiary against presentation of title documents of
shipment. At the initial stage – three parties are involved – the banker who issues credit
in favour of the seller, the buyer who requires the credit, and the seller in whose favour
credit is opened. If the draft is negotiated through the seller’s bank an additional party is
involved.

The different forms of documentary L/C are described as follows:

Revocable and Irrevocable Letters of Credit

A letter of credit may either be irrevocable or revocable. An irrevocable L/C cannot be
amended or cancelled without the agreement of all parties concerned. In contrast, a
revocable letter of credit can be modified or cancelled at any time without prior notice to
the seller. All letters of credit explicitly state whether they are revocable or not. If there is
no clear indication of this, it is assumed that the L/C is revocable, even though an expiry
date is stipulated.

A change made to a letter of credit after it has been issued is called an amendment.
Banks also charge fees for this service. It should be specified in the amendment if the
exporter or the buyer will pay these charges. Every effort should be made to get the
letter of credit right the first time since these changes can be time-consuming and
expensive.

A revocable letter of credit is inadvisable as it carries many risks for the exporter. On the
other hand, as the irrevocable L/C offers the most protection to both the seller and the
buyer, it is the most often form used.

Confirmed or Unconfirmed Letters of Credit

It is normal for the buyer’s bank to use a corresponding bank or intermediary bank,
which issues the L/C. in the case of unconfirmed credit, the intermediary bank is
requested to transmit the undertaking of the issuing bank to the seller without assuming
any responsibility towards the seller. This holds even if the L/C is irrevocable on the part
of the issuing bank, because the advising bank has no contractual relationship with the
seller. Under a confirmed L/C, the advising bank adds its own confirmation to the
notification of credit to the seller. Such confirmation constitutes a definite understanding
on the part of the confirming bank that the provision for payment will be fulfilled,
provided the documents are in order. Such an undertaking binds the confirming bank to
honour the L/C even in the event of failure by the issuing bank to fulfil its obligation
because of political disturbances, financial or other reasons.

(v) Cash against Documents (CAD)

Under CAD terms, payment is made as set out in the contract. There are various rules
governing the declarations that must be made to the buyer concerning the documents to
be presented for payment.

Once again if the seller has any doubts about the buyer’s ability to pay cash against
documents, the seller should protect himself by inserting a clause in the contract stating
that the payment that the payment is to be made by banker’s draft or banker’s
telegraphic transfer with telexed confirmation, since there is always the possibility that a
cheque will be returned to drawer unpaid.
Under the CAD system documents should be presented to the buyer before payment is
made. The documents are usually presented to the buyer’s bank or agent and are sent
to the buyer against prompt payment.

The Advantages of CAD system include:

 Promptness of payment, because the funds are usually remitted by cable or telex;
 Low cost unless the bank fees are high and it does not require the buyer to open an
L/C far in advance.

Disadvantages of CAD system

 First, the exporter subjects himself to credit or market risk, as there is no prior
assurance of payment. For instance, the price of primary commodities, e.g. coffee
may fall between the time of the sale and delivery of documents. In such a case the
buyer may refuse to accept the product on the old price. The resource available to
seller is open arbitration proceedings, which may be cumbersome and time
consuming;
 A second constraint of CAD system is the seller’s lack of documentation other than
the sales contract for obtaining pre-export finance.

Overall, the CAD system provides less of credit security than a confirmed, irrevocable
letter of credit.

8.2.2 Checklist on Documentary Credit

On receipt of Letter of Credit the exporter should check that:

(i) the type of credit and its terms and conditions are I conformity with the sales
contract;
(ii) there are no unacceptable terms;
(iii) the documents can be obtained in the form required;
(iv) the description of the goods and any unit price conform to the sales contract;
(v) he has not been made liable for interest charges that he has not provided for in
making the sales of the goods;
(vi) the shipping and expiry dates and the period of time for presentation of the
shipping documents following their date of issuance allow sufficient time for
processing the order, effecting shipment and making presentation of the
documents to the banks for payment, acceptance or negotiation;
(vii) the ports of shipment and destination are as agreed;
(viii) the provision of insurance is in accordance with the terms of the sale;
(ix) his name and address are shown correctly.

N.B. The exporter who is the beneficiary must above all remember that payment is conditional
upon his compliance with the terms and conditions of the letter of credit.

8.2.3 Some of the Most Common Discrepancies

 Clause (unclean) bills of lading;
 No evidence of goods actually “shipped on board”;
 Shipment made between ports other than those stated in credit;
 Presentation of insurance document of a type other than that of credit;
 Insurance cover expressed in a currency other than that of credit;
 Insurance not effective from the date on the shipping documents;
 Documents inconsistent with each other;
 Description of goods on invoice differs from that in the credit;
 Weights, marks and numbers differ between documents;
 Documents not presented in time;
 Absence of documents called for in the credit;
 Bill of lading and insurance documents not endorsed correctly;
 Absence of signatures where required on documents.

8.3 Mechanism and Procedures of Dispute Settlement and

Arbitration
Once a contract has been entered into effect a multitude of factors may intervene or
disturb its smooth functioning. Whether caused by external circumstances or by parties
themselves, such facts can, in the case of exports, lead to non-payment and disruption
in trading relations. To cope with the problems that may arise, the International
Chamber of Commerce (ICC) offers a wide range of services aimed at assisting parties
to overcome their problems through arbitration of disputes.

Procedure
The party making a request for conciliation shall apply to the ICC through the local
chambers of commerce or directly to the secretary general of ICC. The request shall
consist of a statement of the case from the point of view of the complainant and shall be
accompanied by copies of relevant documents. The ICC committee will communicate
with both parties to the dispute, directly or through their national chambers of commerce
in order to procure all the information. The parties may appear in person before the
committee or by representation of duly accredited agents. Solicitors may also assist
them.

For further details on the ICC arbitration services exporters should contact the Ethiopian
Chamber of Commerce and Sectoral Associations.

Summary of Procedures Under Documentary Credit

PROCEDURE 1
ISSUING OF CREDIT
SELLER …………. CONTRACT ………… BUYER
1. Seller and buyer conclude sales contract providing for payment by documentary
credit;

2. Buyer instructs his bank – the issuing bank to issue credit in favour of seller
(beneficiary);

3. Credit – the issuing bank asks another bank usually in the country of the exporter to
advise or confirm credit;

4. Advise – the advising or confirming bank informs the seller that the credit has been
issued. There are usually two banks involved, i.e. the bank for the buyer and the
bank for the exporter.
 PROCEDURE 2
PRESENTATION OF DOCUMENTS
SELLER ………. GOODS ………BUYER
5. As soon as the seller receives credit and is satisfied that he can meet the conditions
and terms of credit he is in a position to prepare and load/ dispatch the goods;

6. The seller then sends the documents evidencing the shipment of the goods to the
bank where the credit is available;

7. The bank checks the document against the credit. If the documents meet the
requirements of the credit, the bank will pay or accept according to the terms of
credit;

8. Advising/ confirming bank will send the documents to the issuing bank;

9. the issuing bank checks the documents, and if they meet the requirements a
payment will be effected or the documents will be accepted in accordance with the
credit.

PROCEDURE 3
SETTLEMENT
10. When the documents have been checked by the issuing bank and found to meet the
credit requirements they are released to the buyer upon payment of the amount due
or upon other terms agreed between him and the issuing bank;

11. The buyer sends the transport documents to the carrier who will then proceed to
deliver the goods.

Source: International Chamber of Commerce – ICC – Documentary Credit Operations

IX. EXPORT FINANCE AND INSURANCE

9.1 EXPORT FINANCE

This chapter introduces the basic aspects of export financing and exports cargo
insurance in Ethiopia. Being a complex subject, some detail might not be covered
adequately. The exporter is, therefore, advised to approach the relevant financial
institution for more details.

Export financing is often a key factor in a successful sale. Successful exporting is

possible through the availability of the necessary funds. The funds are required to
enable the exporter to procure production inputs required to produce export products
and cover export operation costs.

Exporters naturally want to get paid as quickly as possible, while importers usually
prefer to delay payment until they have received or resold the goods. Because of the
intense competition for export markets, being able to offer attractive payment terms
customary in the trade is often necessary to make a sale. The need to finance the
operation comes soon after the contract for export/import has been signed. Exporters
should be aware of the many financing options open to them so that they choose the
most acceptable one to both the buyer and the seller. The usual way to finance
business activities is by use of the capital made available by the owners and
shareholders of the businesses. Only a few firms are sufficiently rich to finance all their
operations from their own / internal funds. This is not always possible for the relatively
new and small exporter. The exporter can turn to external sources of finance in order to
complete a particular export transaction. In many cases, government assistance in
export financing for small and medium-sized businesses can increase a firm's options.
Banks supply loans and overdraft facilities to cover the needs and the business pays
back the loan with interest at a given later date.

9.1.1 Important Considerations Regarding Financing

The following factors are important to consider in making decisions about financing:

(i) The need for financing to make sale

In some cases favourable payment terms make a product more competitive. If the
competitors offer better terms and have a similar product, a sale can be lost. In other
cases the exporter may need financing to produce the goods that have been ordered or
to finance aspects of the sale.

(ii) The cost of different methods of financing

Interest rates and fees vary. Where an exporter can expect to assume some or all of the
financing costs, their effect on price and profit should be well understood before a pro
forma invoice is submitted to the buyer.

(iii) The length of time financing is required

This determines how long the exporter will have to wait before payment is received and
influences the choice of how the transaction is financed. The period of time between the
beginning of the contract payment varies with the type of contract. Contracts from start
to finish are rarely completed in under a few months. Credit periods may need to be
taken and given for many months.

It has been illustrated that if Bills of Exchange (D/A or D/P) or irrevocable letters of
credit are issued then the date for payment will be set and will be in the near future. In
these cases, the exporter will not have to wait too long for payment. Still, the operation
has to be financed even for a short period of time.

Costs increase with the length of terms. Different methods of financing are available for
short, medium and long terms. However, exporters also need to be fully aware of
financing limitations, so that they can obtain the financing required to complete the
transaction.

(iv)The risks associated with financing the transaction

The riskier the transaction, the harder and more costly it will be to finance. The political
and economic stability of the buyer's country can also be an issue. To provide financing
for either accounts receivable or the production or purchase of the product for sale, the
lender may require the most secure methods of payment, a letter of credit (possibly
confirmed), or export credit insurance or guarantee.

(v) The need for pre-shipment finance and for post-shipment working capital

Production for an unusually large order, or for a surge of orders, may present
unexpected and severe strains on the exporter's working capital. Even during normal
periods, inadequate working capital may curb an exporter's growth. However,
assistance is available through public and private sector resources.

9.1.2 Export Finance Classification

The export financing needed by exporters may be classified as Pre-shipment Credit
and Post-shipment Credit.

(i) Pre-shipment Finance

Pre-shipment finance meets the working capital requirements between the time of the
receipt of the order and the time of shipment. It is of particular importance to SMEs and
normally covers the following:

 Procurement of raw materials for the export goods;

 Processing or manufacturing of the export products;
 Packaging of the goods for export;
 Costs of special inspection or tests required by the importer;
 Transportation of the goods to seaport or airport or railway siding of departure or
destination (depending on the delivery terms);
 Ports, customs and shipping agents’ charge;
 Freight and insurance charges depending on whether it is CFR or CIF contract;
 Cost of documentation; port handling operations, warehousing, etc.

(ii) Post-shipment Credit

Post-shipment finance represents bridging finance – working capital provided to the
exporter for the time interval between the shipment of the goods and receipt of payment
from the importer. The funds enable the exporter to continue in business during this
period.

9.1.3 Export Finance in Ethiopia

Both pre-shipment and post-shipment finance in Ethiopia is provided by the commercial
banks (both private and state-owned). Exporters in need of such finance are therefore
advised to contact their bank credit managers or branch managers.

Examples of factors taken into account by banks when considering proposals for export
credit facilities include:

 Capability of exporter to execute the orders in the stipulated delivery schedules;

 Type of goods to be exported;
 Method of payment agreed upon with the importer;
 Period for which finance is required;
 Financial viability of the export contract whether the amount applied for is
commensurate with the company’s export turnover;
 Whether the appropriate arrangements have been made to import the necessary
raw materials;
 Collateral security is a must;
 Audited statements, depending on the loan size;
 For green field business (new businesses) interim financial statements or
provisional statements are required;
 The economic and political status of the importer’s country;
 Other lending criteria as stipulated by individual banks.

Collateral Security
To be acceptable the collateral security must be identified, realised and of a permanent
nature such as land or buildings. However, many small and medium enterprises (SMEs)
that are new to exporting don’t have such collateral, as they have no formal title to land
(title deeds). In this particular instance the new exporter might be requested to present
his audited statements reflecting past performance and the financial standing of the
business. Bankable business plan and cash-flow statements are required to support the
application. (See appendix 9 – A: example on the preparation of business plan adapted
for export business).

Forms of collateral security acceptable to the banks

 Leased land and buildings;
 Vehicles;
 Foreign Bank Guarantee;
 Share Certificates and Insurance policies;
 Personal Guarantee or Cash Deposits.

9.1.4 Types of Financial Facilities

There are various types of financial facilities available for exporters, which are briefly
described below:

Overdraft Facilities:- An overdraft facility is offered as pre-shipment finance. Drawing

under the facility takes the form of overdrawing the current account up to the amount
that has been agreed upon with the bank.

Interest is charged on the outstanding balance of the overdraft. The borrower has the
flexibility of repaying or reducing the loan amount as and when he is in a position to do
that. The facility is renewable on a bi-annual basis, i.e., after six months. Depending on
the capability of the exporter it can be on an annual basis.

Bank Loan:- Usually exporters can obtain pre-export financing in the form of a bank
loan, either secured or unsecured. The risk factor for unsecured loans is higher for the
bank and this is usually reflected in the interest rates. For secured loans the bank will
assess the collateral security offered, the seller’s track record and the type of
transaction. All these factors are taken into consideration to safe guard against the non-
payment of loans.

The short-tem loan is repayable within twelve months and repayments are made on
instalment basis, on a monthly, quarterly or bi-annual basis.
Merchandise Loan:- Given that most exporters do not hold title to land nor permanent
structures like buildings, most commercial banks in Ethiopia accept actual inventories
(stock/ merchandise) as collateral for pre-export financing. Such arrangements are
generally based on customs bonded warehouse receipts, which provide documentation
on, and legal title to, stocks (e.g. stocks of coffee). The owner of the stocks uses the
receipts as collateral by passing them to the lender. One advantage of this type of pre-
exporting financing is that it may be funded at lower interest rate charges.

An exporter can apply for a merchandise loan for a short duration which is payable in
three months. As an alternative, he can opt for a revolving merchandise loan which is
renewable every three months.

The banks in Ethiopia require joint holding with the exporter of the locks to the
warehouse where the stocks/ merchandise are stored.
Buyer / Importer’s Credit:- In some cases the buyer offers pre-export financing for part
of the value of the transaction. This can take the form of an unsecured loan made as a
straight pre-payment or an advance letter of credit. Usually this happens when both
parties have a long-standing business relationship. The second method is safer for the
buyer because the seller despatches the shipping documents within a definite time
period.

Alternatively, the buyer can arrange for secure credit financing by requesting a bank in
the exporter’s country to make advances available to the seller either against
warehouse receipts or under a Red Clause letter of credit.

Red Clause Letter of Credit:- The normal L/C may contain an additional clause –
which authorises the advising /confirming bank to make advances to the beneficiary
before the presentation of the documents. The clause is incorporated at the specific
request of the applicant i.e. the buyer.

The Red Clause letter of credit is so called because the clause was originally written in
red ink to draw attention to the unique nature of the export contract value.

This type of L/C specifies the amount of advance that is authorised, in some instances it
may be for the full amount of the credit.
It is often used as a method of providing the exporter with funds prior to shipment.
Therefore, it is of great value to the exporter who requires pre-shipment financing and
where a buyer would be willing to make special concessions of this nature.

For example, an importer of leather in Italy would use this type of credit to enable a
leather exporting company in Ethiopia to obtain funds to pay the actual suppliers of
hides and skins by obtaining a loan from the bank in Ethiopia. This bank would get
repayment of the loan from the proceeds due to the exporter when the leather has been
shipped and documents presented in accordance with the terms of the credit. If,
however, the beneficiary fails to ship the leather and so fails to repay the loan by
presenting the documents asked by the credit, the Ethiopian bank would have the right
to demand repayment from the issuing bank and that bank would have a similar right of
recourse against the applicant of the credit.

This type of credit puts the onus of final repayment on the applicant (buyer) who would
be liable for repayment of the advance if the exporter failed to present the documents
called for in the credit. This is the main disadvantage of this type of credit.

However, this facility can only be used when buyer and seller know each other well, as
it can be risky from the buyer’s point of view.

Another possibility is for the buyer to open a documentary letter of credit in favour of the
exporter. This is one of the simplest ways of providing pre-export finance, as it can often
be used by the exporter to negotiate an advance from his local bank.

9.2 EXPORT INSURANCE

Damaging weather conditions, rough handling by carriers, and other common hazards
to cargo make insurance an important protection for exporters. If the terms of sale make
the exporter responsible for insurance, the exporter should either obtain its own policy
or insure the cargo under a freight forwarder's policy for a fee. If the terms of sale make
the foreign buyer responsible, the exporter should not assume (or even take the buyer's
word) that adequate insurance has been obtained. If the buyer neglects to obtain
adequate coverage, damage to the cargo may cause a major financial loss to the
exporter.
All export goods are vulnerable to damage from moisture, loss from torn bags or
damage, contamination, infestation and other hazards. The goods, therefore, need to be
insured against all these risks. Shipments by sea are covered by marine cargo
insurance. Air shipments may also be covered by marine cargo insurance or insurance
may be purchased from the air carrier.

9.2.1 Insurance of Local Inland Transit

As the goods are transported within the country of origin (Ethiopia) from the warehouse
to the port of departure, (Djibouti) they must be insured against any loss or damage
during the inland transit.

If there are many journeys involved throughout the year, the exporter is advised to take
an Annual Goods in Transit policy (Inland Policy) since it would be time consuming and
expensive to insure each shipment separately. The annual policy would be for a fixed
premium, which is renewable at a date fixed by the insurance company. It is important
that the limit stated in the policy is adequate enough to cover any eventuality.

9.2.2 Insurance of International Shipments

Although shipment of most exports from Ethiopia usually involves sea voyage, the same
general insurance principle apply to other means of transportation. The responsibility of
insuring the cargo depends upon the terms of the contract. If the goods are sold FOB or
CFR terms the seller is responsible for insuring the goods to the last warehouse at the
port of shipment and while there are in storage there. The seller should give notice to
the buyer in adequate time so that he can arrange for the insurance of the exports from
the port of shipment to the port of destination. The seller, therefore, has an interest in
the buyer’s policy in respect of the transit between the warehouse and the vessel. If
there is a loss or damage at this stage of the journey the buyer is obliged to make his
insurance available to the seller.

When goods are sold on CIF terms, the seller is responsible for arranging insurance for
the benefit of the buyer. This must cover the transit from the final warehouse at the port
of loading to the warehouse at the final port of discharge. The seller has the right to
benefit under the policy until the documents are paid for.
The insurance should cover all risks, including strikes and war risks. This is best
achieved by insuring the goods under war clause and strikes clause (see specimen
copies). These clauses may accommodate the realities of export trade. Continuity of the
insurance cover is essential. The period of insurance should extend from when the
goods leave the warehouse or place of storage at the port of shipment until the cargo
arrives at the warehouse or place of storage at the port of destination.

When shipments are in containers, it is advisable that the insurance covers the period
from when the goods are loaded into the containers to when the goods are unloaded.
Otherwise, it would be difficult to arrange for an extension of the insurance to cover the
last lap of inland transit (from port of discharge to the final destination).

Under CIF terms, the documents must include a policy or certificate of all risks that
insurance will be covering the entire journey up to the final destination. The value of the
insurance should be in the currency of the contract. If for some reason the policy or
certificate is not in the currency of the sales contract, the buyer will expect the seller to
provide a guarantee to pay any foreign exchange loss arising from a claim.

9.2.3 Types of Insurance Policies

(i) Time Policy:- It is for a predetermined time period usually not exceeding 12 months.

(ii) Voyage Policy:- Under this policy insurance coverage is from the port of departure
to the port of destination, irrespective of any time element. Nevertheless, cargo
insurance on this basis is normally subject to a “warehouse to warehouse clause” and
coverage would in any event terminate 60 days after unloading at destination.

(iii) Open Cover Policy:- When a seller is involved in a considerable number of CIF
contracts during the year it is advisable that he takes out an open cover policy with a
reputable insurance company. Under open cover the insured (seller) agrees to declare
all CIF sales during the period of insurance (usually one-year). The cover usually
specifies an agreed range of ports destinations, although it may be worldwide. As the
seller declares each shipment, the insurance company provides him with an insurance
certificate setting out the terms and conditions of the insurance. This must be presented
to the buyer together with other documents required by the contract.
Advantages of Open Cover policy

- The cover is always available when required;

- The premium insurance rate for any shipment is known in advance;
- The premium rates quoted under open cover are usually considerably lower than
quotations for single shipment;
- If claims have been low or none at all when the cover comes up for renewal, the
insurer may well agree to a lower premium rate for the following year.

The information on the open cover policy is listed below:

- The name the insured party;

- The period of cover (usually one year);
- Cancellation clause – gives the period of notice required when either of the parties
wishes to cancel the policy. There should be continuity of cover for shipments,
which may be at risk when the cover is cancelled, as it is essential that these
shipments be insured through to their final destination.

Conveyance
- The cover stipulates the type of vessels regarded as suitable by the insurer for
carrying the cargo.

Voyages
- This section indicates the voyages to fall within the policy. The description should
be as wide as possible to cover any expansion of destinations during the period of
cover.

Interest
- Describes the goods that fall within the scope of the cover;
- Basis of valuation and loss settlement, this sets out the agreed basis of settlement
in the event of loss or damage.

Sum insured
- The cover will always indicate the limited amount for any one vessel or means of
conveyance.
Conditions
- The cover will specify the various standard clauses applying to the goods, such as
the Institute of Cargo clause. It is important that the insured party make sure that
the conditions do not limit the amount to less than that required by the contract of
sale.

Premiums ratings
- Premiums are usually expressed as a percentage of the insured value; they are
usually not more than 2% of the insured value.

9.2.4 Insurance Certificates

When a single shipment is insured on an individual basis, an insurance policy is issued
which is part of the shipping documents. However, when shipment is made under an
open cover, an insurance certificate is issued instead. Letters of credit should, therefore,
stipulate whether the provisions of either an insurance policy or an insurance certificate
are acceptable.

The details of a particular shipment are then typed or written on the pre-printed form.
Certificates are issued with pre-printed serial numbers. Cancelled or spoilt certificates
should be returned to the insurance company.

Each certificate is printed with several copies and one original. The original certificate
has to be passed on with the shipping documents. One copy is returned to the
insurance company for record purposes. Claims are paid against the original certificate.
If the claimant is not able to produce the original certificate ha may be required to prove
that he is authorised to collect any settlement of the claim.

Insurance Certificates normally carry the following pre-printed details:

- Name and address of insurance company;

- Serial number of the certificate;
- Name of insured;
- The amount of cover and the conditions;
- Instructions in the event of loss or damage;
 - Insurer’s signature;
- List of documents required to support claims;
- A clause relating to the liability of carriers.

The following details on the particular shipment covered are normally typewritten on the
certificate:

- Date of issue;
- Insured value;
- Description of shipment, e.g. bill of lading number, marks and numbers;
- Vessel’s name and sailing date, or date of bill of lading;
- Place where claims are payable;
- Insured party’s signature.

Cargo insurance has many advantages, BUT some exporters do not insure

The reason given by exporters who decide not to insure their shipments are interesting.
Among these, the main reasons are the following:

- My goods are safe; there is no danger of breakage or theft. I do not insure them;
- My goods are so expensive it would cost a fortune to insure the;
- More commonly the carriers are insured, if anything happens I will claim from
them.

These arguments ignore the protection the carriers enjoy under international
conventions.

- Limitations of liability;
- Exemptions from responsibility (unforeseeable circumstances);
- Exemptions peculiar to each mode of transport.

In the interest of the firm’s safety export cargo must be insured against transport
risk. Premiums are not high and the risks taken by not insuring are greater than
the savings made.
X. ETHIOPIA’S EXCHANGE CONTROL REGULATIONS

10.1 General Foreign Exchange Regulations

The current foreign exchange regulations of Ethiopia fully liberalize current account
international payments for various purposes 5. Accordingly, the regulations allow
payments for all imports of goods, except goods that are believed to be detrimental to
the health of the public and security of the nation. Payments for imports can be made by
letter of credit, cash against documents, advance payment, etc. Imports of second hand
or used goods are also allowed, more specifically various used vehicles, machinery and
equipment, in which foreign exchange is availed to these items in relation to their
service year after manufacture and the original FOB price.

Similarly, exports of goods and services are allowed through letter of credit, cash
against document, advance payment, consignment, etc., and payments for services
associated with these exports are also permitted. Small items of limited value and
quantity are also allowed to be exported without foreign exchange repatriation
requirements. With a view to encouraging and supporting the export sector, the foreign
exchange regime allows exporters to open a retention account to hold a specified
amount of their export earnings for a defined period and use their forex holdings for their
export business promotion. A credit guarantee scheme is also made available to
exporters to back the export sector.

Forex bureaus established at commercial banks are allowed to engage in the buying
and selling of major convertible currencies, operate in spot transactions with immediate
delivery of currencies bought or sold, sell and/or buy cash notes and travellers cheques
at displayed exchange rates before any subsequent change.

In addition, firms, companies, and business entities engaged in manufacturing or

business activity whose products are sold to external markets generating foreign
exchange income are allowed to have access to external financing and suppliers' credit
5
National Bank of Ethiopia, Consolidated Foreign Exchange Directives.
from abroad to finance imports of input or auxiliary materials essential for their export
product.

In summary, the various foreign exchange transactions described above indicate in brief
the type, nature and facets of the current foreign exchange regulations that are now in
force.

Exporters in Ethiopia should observe at all times the Ethiopian Exchange Control
Regulations as outlined in the "Directive to transfer NBE's Foreign Exchange
Functions to Commercial Banks Directive No. FXD/07/1998", Section 6 articles 1 –
16, Export of Valuable Goods” and its subsequent amendments (Directive No.
FXD/12/2000, Directive No. FXD/16/2001, DIRECTIVE No. FXD/18/2001, Amendment
No. FXD/22/2004, and Amendment No. FXD/26/2004) 6. As per the directive and its
amendments, approval to export valuable goods has to be granted by any of the
registered commercial banks operating in Ethiopia. The exporter should undertake to
surrender the resultant sales proceeds in foreign exchange to an authorized bank either
before or after the actual export, or within a period of not later than three months.

10.2 Application and Registration of Exports

i) Upon acknowledgement of export order should submit an application to his usual
commercial bank for an export permit for the particular consignment;
ii) Once the export sales contract is final, it is mandatory to have it registered at the
bank for exchange control purposes.
Where applicable, satisfactory evidence may be required if the buyer has obtained an
import license from the authorities or that an import license is not required. The sales
contract is valid for a maximum period of three months – 90 days. Any extension of an
unfulfilled contract should be authorized by the bank.

All export goods should be insured against the usual risks of damage or loss. Exporters
are advised to have a full cover of the declared value.

6
National Bank of Ethiopia, Directive to transfer NBE’s Foreign Exchange Functions to Commercial Banks -
Directive No. FXD/07/1998 and its Subsequent Amendments (FXD/12/2000, FXD/16/2001, FXD/22/2004, etc.)
10.3 Payment of Exports
All payment for valuable goods shall be made in foreign exchange by the debit of a
"Non-Resident Transferable Birr or Foreign Currency Account" maintained with
Commercial banks by their correspondent banks abroad.
According provisions made under Directive Amendment No. FXD/26/2004, the
Commercial Banks are authorized to allow exports under the following mode of
payments.
(i) Letter of Credit: ( i) at sight, and (ii) on acceptance;
(ii) Cash Against Document: (i) at sight, and (ii) on acceptance;
(iii) Consignment;
(iv) Advance Payment received in the form of:-
(a) bank transfers
(b) travellers cheques bought by the purchaser from abroad
(c) cash notes provided that the purchaser presents Customs Declaration form
signed and sealed.
10.3.1 Exports under Letter of Credit
A/ Documents Required:
Commercial Banks shall allow exports for goods to be exported abroad other than
coffee against submission of the following documents:
(a) Valid foreign trade license for export;
(b) Copy of authenticated L/C;
(c) 5 copies of Customs Declaration duly completed, signed and sealed;
(d) 6 copies of Bank’s declaration duly completed, signed and sealed;
(e) 2 copies of invoices duly completed, signed and sealed. The invoices could be
chamberized, as the case may be;
(f) a copy of sales contract;
B/ Terms of Payment Applicable under Letter of Credit
(i) L/C Payment as Sight
Commercial Banks shall allow exports for goods to be exported abroad on
irrevocable and/or confirmed letter of credit basis.
(ii) Payment on L/C Acceptance Basis
 Commercial Banks shall allow exports for goods to be exported abroad on L/C
acceptances basis provided:
(a) The payment shall be secured by irrevocable confirmed Letter of credit
advised through a local bank.
(b) The acceptance period shall be contained within the L/C validity date and is
coherent to the 90 days repatriation time allowed.
(c) The maximum allowable time for the L/C acceptance shall be 60 days.

10.3.2 Exports under Advance Payments

Exporters who wish to obtain export applications under advance payments are required
to submit the following documents:
(a) All documents indicated under item 10.2 (i) [a and c - f] are required;
(b) Evidence of foreign currency receipt advised through banks.

10.3.3 Exports on Consignment Basis

Exporters who wish to obtain export applications on consignment basis are required to
submit the following documents:
(a) All documents indicated under item 10.2 (i) [a and c-f] are required;
(b) The consignment sales are applicable to perishable items such as fruits cut
flowers, meat, live animals, molasses and others as may be approved by the
NBE.

10.3.4 Exports on Cash Against Document (CAD)

Commercial banks shall allow exports for goods to be exported abroad on CAD sight or
on acceptance basis provided:
(a) All documents indicated under item 10.2 (i) [a and c-f);
(b) Clearance issued by NBE for each export permit to be issued by commercial banks
is attached.
(c) The repatriation of the foreign exchange value is to be secured within 90 days from
the date of the issue of export permit.
(d) The exporter shall take a full undertaking in writing stating its obligation to
repatriate the amount involved in the permit issued.
 (e) The maximum allowable amount for a single permit shall not exceed USD 30,000
(Thirty Thousand), however, the ceiling of USD 30,000 may be exceeded
depending on the credibility of buyers and viability of the sales terms; and
subsequent permit shall only be issued upon full repatriation of the allowable
amount.
(f) With the ceiling of USD 30,000 (Thirty Thousand) approved for single permit, set
under (e) above, exporters shall have access to the remaining balance.

10.3.5 Exports with partial shipment

Banks shall issue separate partial shipment vouchers along with the original export
permit to enable exporters process customs formalities and to show that the foreign
exchange payment for the exports of each partial shipment is covered by one of the
payment systems eligible.

Bills of Lading for Exports to be made out in the name of a local bank:- When
issuing shipping instructions to the shipping company or shipping agent, should indicate
the name of the bank in whose order the bill of lading should be issued with respect to
the export goods shipped. After shipment the shipping agents would then take the
documents evidencing shipment of goods from Ethiopia to any destination abroad to the
respective bank.

The same applies to the Airway Bill, Rail or Road consignment note. The shipment
notes should be made out in the name of the exporter’s bank operating in Ethiopia.
Delivery or distribution of the transport documents falls under the direct responsibility of
the clearing and forwarding agents.

Except in the case of wild animals, the bill of lading, airway bill or railway bill shall be
made out in the name of the buyer and the negotiating bank make payment in advance
and/or by letter of credit providing payment.
Validity:- Export applications shall be valid for 30 days from the date of issue. The
applications for export transit, export freight and other charges shall be valid during the
month of issue only.

Renewal of Export Applications:- Export applications can be renewed at the request

of an exporter. An extension of a maximum of 30 days may be granted by the exporter’s
Commercial Bank.

Cancellation of export applications:- Approved export applications may be cancelled

upon request and presentation of the full set of documents and a letter of consent of
both parties. The cancelled export applications shall be forwarded to NBE.

10.4 Application of Foreign Exchange

Export Transit
Foreign exchange can be made available for export transit expenses upon submission
of the following documents to the Commercial Banks:-
(a) An application form duly completed, signed and sealed in two copies;
(b) Transit invoice;
(c) Bill of lading, if exported on C & F or CIF basis;
(d) Insurance policy or cover note, if exported on CIF basis;
(e) Original sales contract;
(f) A copy of Commercial Bank's credit advice.

Export Freight
Foreign exchange can be made available for export freight to exporters upon
submission of the following documents:-
(a) An application form duly completed, signed and sealed in two copies;
(b) Bill of lading;
(c) Freight invoices;
(d) Original sales contract;
(e) A copy of Commercial Bank credit advice.
Application of foreign exchange for claims
An exporter can apply to remit foreign exchange to cover claims against exported goods
for the following purposes:
 Payment of commission as agreed in the sales contract;
 Loss of weight claims if supported by acceptable evidence;
 Claims for interior / non-conforming goods if supported by documentary evidence
such as arbitration awards.
Other export charges
Commercial Banks shall allow foreign exchange for exporters to cover other charges
such as quality claim, loss of weight, commission, demurrage charges upon submission
of the following documents.
a) An application form duly completed, signed and sealed in two copies;
b) Sales contract;
c) Commercial Bank advice;
d) Invoice;
e) Quality certificate incase of quality claim, weight certificate in case of loss in
weight, and bill of lading incase of demurrage charges.
Foreign exchange requirements for business trip
Foreign exchange for business trips is granted to exporters and import – substituting
industries and importers of essential industrial goods. The application for foreign
exchange for a business trip should be accompanied by the following:
 Valid travel documents;
 Itinerary showing the number of days intended to stay in each of the countries to
be visited;
 Details on the purpose of the business mission.

USD 1,200 will be issued in cash and the balance in traveller’s cheques. The exporter
has to sign an undertaking that any unutilized foreign exchange will be surrendered to
the authorized bank. There is no limitation on the amount of foreign exchange grated for
a business trip.
10.5 Foreign Currency Retention
Following government’s commitment towards export development and the new export
drive geared towards providing an environment conducive for exports, a directive has
been issued "The Retention and Utilization of Export Earnings and Inward Remittances
Directives No. FXD/11/1998" which simplifies the previous procedures.

Commercial Banks may open foreign exchange retention accounts for eligible exporters
of goods and recipients of inward remittances without prior approval from the NBE.

Forex Retention Accounts shall mean foreign currency accounts maintained by

eligible exporters of goods and services and recipients of inward remittances.
A Recipient of Inward Remittances shall mean a resident company, institution or
individual, government organizations, other than a diplomatic mission, who receives
foreign exchange transfers from abroad.
An Eligible Exporter of Goods and Services shall mean an exporter who has fully
settled his/her foreign exchange commitments with the NBE and whose name does not
appear on the delinquent list.

10.5.1 Types of foreign Exchange Retention Accounts

Eligible exporters may open two types of foreign exchange retention accounts (current
accounts) which shall be designated as "Foreign Exchange Retention Account A" and
"foreign Exchange Retention Account B".

Exporters shall have to retain their foreign exchange earnings in Retention Accounts A
& B as follows:
Account A: Ten percent (10%) of the foreign currency account balance to be retained
for an indefinite period of time.

Account B: Ninety percent (90%) of foreign currency account balance for upto 28 days.
During this time period the exporter could sell to the banks on the competitive rate. After
the expiry of 28 days i.e. on the next working day, Commercial Banks are obliged to
convert balances on Account B for their own account and pay the Birr equivalent to
such customers, using the NBE's marginal rate for that week. The foreign exchange
balances so converted shall form part of a bank's foreign exchange position
surrenderable to the NBE in accordance with the Open Position Directive No.
SBB/23/97.

10.5.2 Utilization of Foreign Exchange Retention Accounts

Eligible exporters may maintain their foreign exchange retention account B for only a
maximum of 28 days, and Foreign Exchange Account A for an indefinite period of time
to transact business related to current payments for the following purposes:
(i) import of goods and related services;
(ii) export promotion;
(iii) payment of advertising and marketing expenses;
(iv) subscriptions to business publications;
(v) payment for services rendered by non-residents against evidence that payment
is contractually due;
(vi) training fee and educational expenses;
(vii) payment for settlement of external loans;
(viii)payment for settlement of suppliers credit;
(ix) payment of specifically approved transactions by the bank.

All eligible customers shall be free to sell all part of their account balances to a
commercial banks as follows:
 Retention Account A: At any time at a freely negotiated rate;
 Retention Account B: At any time up to 28 days at a freely negotiated rates.

10.6 Repatriation of Export Proceeds

Commercial Banks bear the responsibility for ensuring that export proceeds for all
export permits approved are repatriated into the country within 90 days from the date of
issue of export permits for all modes of payments applicable. Banks have to made
follow-ups and exercise a reasonable care and take measures to insure timely
repatriation of proceed.
10.7 Exchange Control Regulations of the Importing Country
When negotiating with the importer, the exporter should also observe strictly the
exchange control regulations of the country of destination of the export goods.

Before exporting the goods, the seller must ascertain that the importer has got the
necessary permits to import, and that he/she will be able to pay:
 Many of Ethiopia’s neighboring countries have various forms of import and
exchange control;
 Exporters are advised to consul with their banks on the best method of handling
each transaction.
XI. ACCOUNTS AND TAXATION

Numerous studies undertaken in Africa have concluded that sustained economic growth
cannot be maintained in the absence of sound accounting and auditing infrastructure
and appropriately trained accounting professionals. Inadequate accounting and auditing
has hindered the development of financial decision making. 7

In this chapter the prime objective is to introduce the role and importance of accounting
in export business. Even though all companies have a section or unit dealing with the
accounts of the business, the use of the accounting information is not only limited to that
office. Management especially, has to constantly refer to the account statements while
making important decisions. Therefore, it is necessary for the decision-makers (non-
financial managers), to have an appreciation of the need for a standard accounting
system.

11.1 Role of Accounting in Export Business

In exporting business, complex inter-relationships exist both in the internal and external
business environment. Thus it is virtually impossible to keep track of events so as to
satisfy these inter-relationships, unless a proper system of recording is followed.
Through a system of accounting all the information can be collected, summarised,
analysed and communicated to the various stakeholders who must make decisions on
the particular enterprise. Frequently, accounting reports are the only available
systematic and dependable source of information concerning the complex inter-
relationships of the organization and the results of its many events.

Accounting can be defined as the language of communicating financial facts about an

enterprise to those who have an interest in interpreting and using those facts 8. It is a
means of analysing and controlling the operations while at the same time planning
future actions. In order to be useful it must be adapted to the particular needs of the
different users of the accounting information.

7
World Bank: “Improving Financial Management in Sub-Saharan Africa”, 1998
8
Accounting and Business Decisions – Homer Black, John E Champman, II Edition
Who are the users of this information?

The owners of the business (shareholders in case of share company);

Management;
Financial institutions – Banks;
Creditors (suppliers of inputs);
Government (both state and federal);
Employees of the business.

The main objective of accounting is to measure the income of the business over time.
Income is measured for a selected time period by determining what revenue is realised
within that time period and then deducting the associated expired costs and losses. The
actual process requires qualified personnel. For this exercise parts of the system are
highlighted.

The system is meant to be orderly and efficient so as to provide accurate and timely
financial information. A standard format has to be adopted in entering the data in the
various books of accounts. These include:

 Basic business documents or forms such as checks or sales tickets, which serve
either to get things done or report what has been done;

 Journal in which the effects of the transaction on assets and liabilities are analysed
in terms of debts and credits;

 Ledgers in which the results of transactions are summarized according to each

asset or liability affected;

 Trial balance, which is the listing of all ledger accounts checks that all debits and
credits agree;

 The balanced trial balance is the starting point for drawing up the income
statement and balance sheet;

 Financial statements and reports.

(1) Income Statement reports the revenues realised during a stated time period and
the costs that were incurred during the same period. Income statements are normally
prepared for a period covering 12 months – one year and they show the organization’s
sales revenue for that period and the costs of generating these revenues. The income
statement is divided into three parts – the trading account, where we calculate gross
profit; the profit and loss account where we calculate the net profit and the retained
earnings account where we show the amount of money that is retained in the business
after allowing for dividends, taxation and transfers to reserves.

(2) Balance sheet is the report on the actual financial position of the business. The
balance sheet is prepared as of a specific moment in time, such as end of the year ( it
serves as a snap shot). It lists all the property called assets, owned by the business and
the sources from which the assets were financed, whether owned by the owners, the
creditors (banks and suppliers) or from retained profits from prior operations.

(3) Cash – flow statement which shows where the money came from (sources include
profit, cash injection from shareholders, cash injection from loans, etc.) and where
money is going (application or use of funds include buying assets, repaying loans,
paying creditors, increasing stocks).

The income statement and the balance sheet are the most common general accounting
statements although prepared primarily for the owners and management, are useful to
the other stakeholders.

Since accounting is flexible, the general accounting reports (income statement and
balance sheet) reports can be analysed and adjusted to reflect the most important
information that pertains to a decision. The modern methods of processing data
(computerized accounting) make it more feasible the storage and analysis of data for
any specific purpose.

Accounting Standards

However, the users off the financial statements need assurance that these reports
present reliable information. To help provide this assurance, practising accountants and
professional accounting organizations have developed standards of financial report
preparation. These standards must be observed even if the reports are intended to
serve only one specific purpose. This is because a company has no control over the
use of its reports once they have been released.

The primary standard for all financial statements is that they should disclose accurately
and adequately all-important matters, which would influence the judgement of an
interested and informed user, such as banks and the government tax department.
Specific standards, which relate to adequate disclosure deal with the qualities of
inclusiveness, clarity, timeliness, materiality, and comparability. These are guidelines
which can only be carried out through the professional integrity of the accountant.

11.2 The Need for Auditing

The services of independent auditors are required to provide the assurance that the
accounting books represent the financial results of the business fairly in accordance
with the generally acceptable accounting methods.

The Independent Auditor is a professional accountant who is contracted to review the

system of internal controls of a business and its accounting records. And on the basis of
this review, the auditor expresses an opinion as to the fairness of the information
reported in the financial statements. His review or examination is called the Auditor
Report, which is primarily addressed to the outside users of the financial statements.
The Audited Statements are the financial statements reviewed by the Auditor.

Government Requirements
Government, both federal and state, is concerned with the accounting of a business,
both as regulatory and taxing bodies. The company’s accounting records must make it
possible for the government to determine whether the employer has complied with the
minimum wages, laws and provisions for over-time and pay. The accounts also reflect
the amount of taxable income.

Financial Institutions
Financial institutions (banks) require independently audited statements before they will
consider the application for financing. They investigate the financial standing of the
enterprise before deciding to extend credit and under what terms. They pay primary
attention to the liquidity – i.e. the ability of the business to convert its assets /property
into money upon short notice without making a loss, and the solvency – the ability to of
the business to pay debts. They observe closely the trend of income over time in order
to estimate the degree of liquidity and solvency of the business at future dates.

Many regulating bodies require that companies under their jurisdiction submit periodic
financial statements accompanied by audit reports of an independent auditor.

The financial statements are considered to be prepared by the management of the

business, and the independent auditor’s report contains his opinion as to the fairness of
the statements.

11.3 Company Taxation

It's imperative that one knows the existing tax regulations in Ethiopia when one plans to
start business in the country and while doing business in Ethiopia. On formation, a
company is required to register for at the Federal Inland Revenue Authority as a tax
payer. A copy of the certificate of Incorporation is required for the collector’s records.
Companies are required for business tax payment, as well as to collect VAT, TOT,
Withholding taxes, etc. depending on their annual business turnover rates. The
company will be issued with a registration number, as well as current tax tables, receipt
books for Personal Income Tax. Remittance is done monthly, once the relevant
calculations have been made. Personal income tax is payable at the latest before the
end of the following month. Year-end reconciliation is made at the end of the tax year.
Tax and earnings are recorded and reconciled. These must be submitted annually to
the Federal Inland Revenue Authority. The annual reconciliation should be completed
within a specific period as shown below based on categories of businesses– at the end
of the financial year.

11.3.1 Category of Business /Companies

Businesses/companies are grouped into three categories, A, B, and C as per recent

taxpayer’s regulations, based on their annual turnover of business transactions shown below.

Category Turnover “ETB”

A - Any company incorporated under the laws of Ethiopia 500,000 & above
or in a foreign country
 - Any other business having an annual turnover of Birr
500,000 or more

B - Unless already classified in category “A”, any Over 100,000

business having an annual turnover of over Birr
100,000 would be classified under category “B”
taxpayers
C - Unless classified in categories “A” and “B”, those Up to 100,000
businesses whose annual turnover is estimated up to
Birr 100,000 are classified under this category of
taxpayers
Category A – businesses are required to submit to the Tax Authority, at the end of the
year, a balance sheet and a profit and loss statement. Category B businesses/
taxpayers should submit to the Tax Authority profit and loss statement at the end of the
year. Category C businesses have one month after July the 7 th of each year. Category
“C” businesses and individuals generating income are taxed (annually).

11.3.2 Types of Taxes in Ethiopia

The main purpose of this sub-section is to aware the business community with the
different types of taxes existing in Ethiopia especially category B and C taxpayers to
assist avoiding problems with the respective tax collecting authorities.

The major types of taxes existing in Ethiopia are categorized under direct taxes and
indirect taxes.
(A) Direct Taxes:- Direct taxes that are operational in Ethiopia are the following:

(i) Personal Income Tax: progressive and ranges from 10% to 35%.
(ii) Rental tax: progressive for persons and ranges from 10% to 35% and 30% flat
rate on bodies.

(iii) Business Profit Tax: progressive for unincorporated businesses and

ranges from 10% to 35% and 30% flat rate on incorporated businesses (eg. PLC,
Share Company).

(iv)Withholding Tax: On imported goods at 3% of the sum of cost, insurance and

freight (CIF). On payments made to taxpayers at 2% on cost of supply goods
 involving more than Birr 10,000 in any one transaction or contract and services
involving more than Birr 500 in one transaction or service.

(v) Other Taxes (Taxes from Royalties, Income from Rendering Technical service,
Income from Games of chance, Dividends, Income from Rental of property,
Interest Income on deposits gain on trainer of certain In-properly)

(B) Indirect Taxes:- Indirect taxes existing in Ethiopia include the following:

- VAT (Value Added Tax): 15%

- Excise Tax: varies widely for different goods and one may check the separate
category for excise tax shown in this text.

- TOT (Turnover Tax): 2% on goods sold locally; for services 2% (two percent) on
contractor, grain mills, tractors and combine-harvesters and 10% (ten percent) on
others

11.3.3 Business Income Tax Rates in Ethiopia

(i) Business Income/Profit Tax Rates and Deductions:- According to Proclamation

286/2002 a tax is imposed on commercial, professional or vocational activity or any
other activity recognized as trade by the commercial code of Ethiopia and carried on by
any person for profit.

This is the tax imposed on the taxable business income / net profit realized from
entrepreneurial activity. Taxable business income would be determined per tax period
on the basis of the profit and loss account or income statement, which shall be drawn in
compliance with the generally accepted accounting standards. Corporate businesses
(eg., PLC, Share Company) are required to pay 30% flat rate of business income tax.
For unincorporated or individual businesses the business income tax ranges from 10% -
35%. Unincorporated or individual businesses are taxed in accordance with the
following schedule below:

No Taxable Business Income / Tax Rate (in %) Deduction

 Net Profit per year
(in Birr)
Over Birr To Birr
Exempt
01 0 1,800 None
threshold
02 1,801 7,800 10 180.00
03 7,801 16,800 15 570.00
04 16,801 28,200 20 1,410.00
05 28,201 42,600 25 2,520.00
06 42,601 60,000 30 4,950.00
07 Over 60,000 35 7,950.00

Example: Computation of business profit tax

Business Net Profit per year/Taxable Income = 70,500.00 Birr
- Business Profit Tax = 70,500 Birr x 35% tax rate = 24,675 Birr
- Deduction = 24,675 Birr - 7,950 Birr deduction fee
- Tax payment = 16,725.00 Birr
In the determination of business income subject to tax in Ethiopia, deductions would be
allowed for expenses incurred for the purpose of earning, securing, and maintaining that
business income to the extent that the expenses can be proven by the taxpayer.

(ii) Tax on Income from Employment / Personal Income Tax

Every person deriving income from employment is liable to pay tax on that income at
the rate specified below.

Employment Income /Per-

Deduction in
No months/ Tax Rate (%)
Birr
Over Birr To Birr
1 0 150 Exempt threshold None
2 151 650 10 15
3 651 1400 15 47.5
4 1401 2350 20 117.5
5 2351 3550 25 235
6 3551 5000 30 412.5
7 Over 5000 35 662.0

Example: Computation of Personal Income Tax

Monthly Salary of 500.00 Birr
- Personal Income Tax = 500 Birr x 10% tax rate = 50 Birr
- Deduction = 50 Birr - 15 Birr deduction fee
 - Tax payment = 35 Birr

Employment income shall include any payments or gains in cash or in kind received
from employment by an individual. Employers have an obligation to withhold the tax
from each payment to an employee, and pay the Tax Authority the amount withheld
during each calendar month. In applying the procedure, income attributable to the
months of Nehassie and Pagume shall be aggregated and treated as the income of one
month.
If the tax on income from employment, instead of being deducted from the salary or
wage of the employee, is paid by the employer in whole or in part, the amount so paid
shall be added to the taxable income and shall be considered as part thereof.
(iii) Withholding Tax Rates:- According to the Income Tax Proclamation No.
286/2002, withholding tax is the current payments of income tax at time of goods
imported and payments made on account of goods and certain services. The rates of
withholding tax are:
- On imported goods at 3% of the sum of cost, insurance and freight (CIF);
- On payments made to taxpayers at 2% on cost of supply goods involving more
than Birr 10,000 in any one transaction or contract and services involving more
than Birr 500 in one transaction or service.

In addition, a withholding agent who makes a payment to a person who has not
supplied a TIN (Taxpayer Identification Number) is required to withholding 30% of the
amount of the payment. A taxpayer who has not supplied the TIN to the withholding
agent, in addition to the above 30% is liable to pay a fine of Birr 5000.00 or the amount
of the payment whichever is less.

Types of services that are subject to withholding tax: -

 Consultancy
 Designs, written materials, lectures and dissemination of information;

 Lawyers, accountants, auditors and other services of similar nature

  Sales persons, arts and sports professionals and brokers including insurance
brokers and other commission agents

 Advertisements and entertainment programs for television and radio broadcasts

 Construction

 Advertisement services

 Patents for scientific and intellectual works

 Rent for lease of machineries building and other goods including computers

 Maintenance services

 Tailoring

 Printing and

 Insurance

(iv) Turnover Tax Rate and Exemption:- In accordance with the Turnover Tax
Proclamation No. 308/2002, Turnover Tax in Ethiopia has replaced Sales Tax. If VAT is
charged over goods or services, then TOT will not be charged. Filing of Tax Return and
Payment of TOT can be done either at the end of each Ethiopian calendar month or
once in at the end of every quarterly year of the tax year (that is every three months
starting from 8th of July (Hamle 1 Eth. PY).
The Rate of Turnover Tax shall be:
 2% (two percent) on Goods sold locally;
 For services rendered locally:

o 2% (two percent) on contractor, grain mills, tractors and combine-

harvesters;

o 10% (ten percent) on others.

The base of computation of the Turnover tax shall be the gross receipt in respect of
goods supplied or Services rendered. A person who sells goods and services has the
obligation to collect the Turnover Tax from the buyer and transfer it to the Tax Authority.
Hence, the seller is principally accountable for the payment of the tax.

Exemption: The following shall be exempted from Turnover Tax:

 the sale or transfer of a dwelling use for a minimum of two years, or the lease of
a dwelling;
 the rendering of financial services;

 the supply of national or foreign currency (except for that used for numismatic
purposes)

 and of securities;

 the rendering by religious organizations of religious or other related services:

 the supply of prescription drugs specified in directives issued by the relevant

government

 agency, and the rendering of medical services;

 the rendering of educational services provided by educational institutions, as well

as child

 care services for children at pre-school institutions:

 the supply of goods and rendering of services in the form of humanitarian aid:

 the supply of electricity, kerosene, and water;

 the provision of transport;

 permits and license fees;

 the supply of goods or services by a workshop employing disabled individuals (if

more than 60% of the employees are disabled); and

 the supply of books.

(v) Excise Tax Rate According to Excise Tax Proclamation No 307/2002, Excise tax in
Ethiopia is imposed and payable on selected goods, such as, luxury goods and basic
goods which are demand inelastic. Moreover, it is believed that imposing the tax on
goods that are hazardous to health and which are cause to social problem, will reduce
the consumption of such goods. We have included in this page the rate of excise in
Ethiopia, base of computation of excise tax in Ethiopia and payment of and time of
payment of excise tax in Ethiopia.

The excise tax shall be paid on goods imported or produced locally at the rate
prescribed in the schedule (appendix 11 – A) shown below. The base of computation
of excise Tax is: the cost of production in respect of goods produced locally, and cost of
insurance and freight (CIF value) in respect of goods imported. The excise tax shall be
paid:

 by the importer when imported at the time of clearing the goods from customs
area;
 by the producer When produce locally, not late than 30 days from the date of
production.

11. 3.4 Where to pay your Tax in Ethiopia

Depending on the category of the taxpayer and type of tax in Ethiopia, one has to go to
different places to pay tax. Here is a compiled list of places indicating where to pay tax
in Ethiopia.

Category A Taxpayers:-

1. For VAT, TOT and Business Income Tax, the Large Taxpayers office or branch
offices in different regions
2. For Payroll tax, the sub city or Woreda finance and economy development offices
in Addis Ababa and other regions

Category B Taxpayers:
 1. For TOT and Business Income Tax, the sub city or Woreda finance and
economic development offices in Addis Ababa and other regions;
2. For Payroll tax, the sub city or Woreda finance and economic development
offices in Addis Ababa and other regions

Category C Taxpayers:
1. For TOT and Business Income Tax, the Kebele tax offices
2. For Payroll tax, the Kebele tax offices.
XII. EXPORT INCENTIVES
The Government of the Federal Democratic Republic of Ethiopia has introduced a
number of export and investment incentive schemes, which creates an enabling
environment and competiveness for investors and manufacturer exporters. The
incentive schemes introduced in this context are described in the following sections.

12.1 Export Trade Duty Incentives

The Federal Government Proclamation cited as the “Export Trade Duty Incentive
Scheme Establishing Proclamation No. 249/2001 9” has introduced the export trade duty
incentive scheme. Later on, this proclamation was replaced by Revised Proclamation
No. 543/200710 so as to extend the benefits of the scheme to indirect exporters and
filling the gaps that have been observed in the earlier proclamation. The objectives of
the export trade incentive scheme were: to improve the foreign currency reserve of the
country by enhancing export trade and to enable exporters access inputs at world
market price, so that they will be able to compete on equal footing with their
competitors.

12.1.1 Scope of the Revised Export Trade Duty Incentive Scheme

The Revised Export Trade Duty Incentive Scheme Proclamation No. 543/2007 shall
apply to:
 Raw-materials and commodities re-exported after having been imported upon
payment of duties for being not inconformity with purchase order specifications,
damaged, or not in market demand;
 Raw-materials imported or produced locally to be used in production of export
commodities;
 Goods to be used for packing and containing export commodities;
 Imported oil, lubricants and other energy generating substance used by
producers which are wholly engaged in manufacturing commodities for export;
 Locally originating or imported raw materials for use in the production of goods
which are in turn employed as input to produce commodities for export market.
9
Federal Proclamation entitled ‘‘Export Trade Duty Incentive Scheme Establishing Proclamation No. 249/2001’’;
10
Federal Proclamation entitled ‘‘The Revised Export Trade Duty Incentive Scheme Establishing Proclamation
No.543/2007”.
The duty incentive schemes established by Proclamation No. 543/2007 include the
following:
a) Duty Draw-Back Scheme

b) Voucher Scheme

c) Bonded Manufacturing Warehouse

12.1.2. Duty Draw- Back Scheme

Duty Draw – Back means a scheme by which duty paid on raw material used in the
production of commodities is refunded upon exportation of the commodity processed
and shall include refund of duties paid on goods re-exported in the same condition for
being not in conformity with purchase order specifications, damaged, short delivery or
not in market demand.

A/ Beneficiaries of the Scheme

Persons or organizations who are eligible for duty draw–back scheme are:

1. Producer exporter wholly, partially or occasionally engaged in exporting their

products;
2. Indirect producer exporters wholly, partially or occasionally supplying their products
to producer exporters or exporters in the form of raw material or finished goods;
3. Indirect producer exporters supplying imported raw material to producer exporters
without processing it;
4. Exporters;
5. Re-exporting commodities, or raw materials, they have imported upon payment of
duties for being not in conformity with purchase specifications, damaged, short
delivered or not in market demand.

B/ Duty Draw-Back Rate

1. When the export of raw material or commodity on which duty to be drawn-back is
ascertained;
(a) If re-exported in the same condition 95% (ninety five percent);
(b) If exported after being processed or used for packing and containing 100%
(one hundred percent); of the duty paid shall be refunded,
 2. Having calculated the amount of duty payable on each commodity produced locally
and exported thereafter, the Customs and Revenues Authority (as per directive No.
22/2000) shall pay the duty to the bank account of the beneficiary, or pay the
beneficiary by cheque.
C/ Conditions for Being Beneficiary of Duty Draw-Back Scheme

1. The commodity produced with the raw material should be exported with in one year
from the date on which such raw material has been imported or purchased locally;
however, the Customs and Revenue Authority may extend this period by one
additional year taking into account the nature of the raw material;
2. The Ethiopian Customs and Revenues Authority has been represented by Directive
No. 22/2000 (Eth. C.) issued by the Ministry of Finance and Economic Development
to pay back the beneficiaries of the scheme payment of the duty to be drawn back in
accordance with the proclamation.
3. Beneficiaries of the duty draw-back scheme may file request for duty draw-back only
in respect of goods which they have produced and exported or which they have
received from other producers and exported, or in the case of indirect producer
exporters, in respect of raw materials which they have supplied to producer
exporters, and the request for duty draw-back submitted to the appropriate body
shall have to be accompanied by imports and exports or other supporting
documents, which shall contain the following information:
a) Name and address of the claimant;
b) If the raw material or commodity is imported, the date of importation;
c) The amount of duty paid;
d) The type and quantity of the commodity or raw material on which draw-back is
claimed;
e) Input output coefficient;
f) The type and detailed description of the manner of exportation of the commodity to
be exported;
g) If the commodity or raw material is re-exported in the same condition, the
damage that could be caused by not being re-exported.
4. The burden of proof that the duty claimed and the raw material and commodity
presented for draw back are in accordance with proclamation No. 543/2007 shall
rest with the claimant of the draw back, failing which the Customs and Revenues
Authority shall have the discretion to make its own decision;
5. The claimants shall give all assistance to the Customs and Revenues Authority while
it conducts inspection to prove the accuracy of duty draw- back claim;
6. Request for duty draw-back have to be filed by a beneficiary of the scheme within 6
months from the date of export of the last batch of commodities.

12.1.3 Voucher Scheme

A Voucher or Voucher Book is a document printed by the by the Customs and

Revenues Authority, to be used for recording the balance of duty payable on raw
materials imported for use in the production of goods for external market by persons or
organizations availing themselves of the voucher scheme under proclamation No.
543/2007.

A/ Beneficiaries of the Scheme

Beneficiaries of the Voucher Scheme are only persons and organizations who have
obtained eligibility certificate issued by the Ministry of Trade and Industry. The Ministry
of Trade and Industry has issued a separate directive that contains eligibility criteria.

B/ Conditions for being Beneficiary of Voucher Scheme

To become beneficiaries of the scheme, persons and organizations must:

1. Have manufacturing or exporting license;

2. Submit at the beginning of the budget year their annual business and export plan;
3. Submit input-output coefficient along with memorandum showing amount of raw
materials wasted in production process, amount and type of by-products to be
supplied to a foreign or local market, the input used out of the raw material imported
in the production of the by-product, in percentage, during execution of the annual
production plan;
4. Supply information concerning raw materials wasted in the process of production;
5. Submit evidence of export performance in the last two years, if they are not new to
the sector;
6. Sign an agreement with the Customs Authority undertaking to fulfill obligations
enabling them to become beneficiaries of the scheme;
7. If the raw materials are imported on suppliers credit or Franco-Valuta basis;
(a) Submit evidence confirming that the commodity has demand and that
demand is confirmed by a purchase order issued by the prospective buyer or
submit a purchase agreement concluded with the prospective buyer;
(b) If the raw material is sent by a foreign company to its local affiliate with the
objective of producing export commodities submit memorandum describing the
mode of affiliation between the two companies;
8. If the exporters are new entries into the sector:
(a) Submit their annual export plan;
(b) Submit investment certificate and/or trade license from appropriate
government organ.

C/ Procedures for the Application of Voucher Scheme

(1) The Customs and Revenues Authority

shall issue voucher book on which is entered the amount of duty to be paid on raw
materials they may import, to producers who are desiring to become beneficiaries of
voucher scheme upon satisfying conditions laid down by proclamation and the
Directive issued by Ministry of Trade and Industry;
(2) Upon arrival of imported raw materials at
Customs Port, the producer importing the raw materials shall present his voucher
book to Customs Station where the raw materials are declared. The Customs Officer
at the station shall deduct the amount of duty payable on the raw materials from the
initial entry/ previous balance and enter the current balance on the book, and then
raw materials shall directly be transferred to the private warehouse in the premises
of the production site ;
(3) Customs formalities shall be carried out
in the producers’ private warehouse. However, the Customs Authority may at its own
discretion decide that the examination be carried out at the port of entry;
(4) Raw material imported under the Voucher
Scheme may not be sold in the local market. Any producer who, in violation of the
prohibitions provided herein, sells the raw materials imported under the Voucher
Scheme, shall forfeit his right to use the scheme;
(5) If the producer, because of events
beyond his/her control, terminates his production or export activity, or if the raw
material he imported does not meet the required quality standard for use in the
production of export commodity, or for any other reason rendering the raw material
unusable for production, or in the case of finished products, if the exported
commodity is re-imported because of defect, and the producer can present adequate
evidence to prove it, he may after securing the consent of the Customs Authority,
sell the raw materials or the commodity upon payment of duty;
(6) Export Commodities produced from raw material imported under the Voucher
Scheme shall be declared and exported in accordance with Customs Procedure
Code issued for this purpose by the Customs Authority;
(7) Raw materials imported under the Voucher Scheme must be fully utilized within
one year from the dated of their importation. However, the Customs Authority may
extend this period for an additional one year considering the nature of the raw
material;
(8) After input output coefficient submitted by the producer is approved by Ministry of
Trade and Industry, the Customs Authority shall assess the duty payable on raw
materials imported under Voucher Scheme on the basis of this input output
coefficient;
(9) The Customs Authority shall commence the assessment referred under C(8)
above on the first day of the eleventh month from the date on which the voucher
book was issued or renewed and the assessment must be completed within thirty
days;
(10) If the Customs Authority can not complete the assessment within 30 days, the
producer shall have the right to import raw materials 3 times against insurance
 guarantee until such assessment work is completed to prevent disruption of
producers activity. However, upon renewal of the voucher book, the duty payable
on raw materials imported by the producer against insurance guarantee shall be
deducted from previous balance entered on the book;
(11) If the assessment shows that there is unused raw material, unless the period in
which the raw material must be utilized is extended in accordance of C(7) above,
the producer shall be made to pay the duties on such raw materials together with
the interest thereon;
(12) As per directive of Ministry of Finance and Economic Development, the Customs
Authority shall be responsible for assessing and refunding duty paid by
beneficiaries of the Voucher Scheme on raw materials purchased locally for use in
the production of export commodity;
(13) The Customs Authority shall print
adequate number of voucher books for the beneficiaries of the voucher scheme;
(14) The voucher books to be printed shall:
contain tables for deducting the amount of duty payable on each raw material
imported and for registering the balance remaining after each deduction; be non-
transferable to third party; and be filled with the name, address, voucher certificate
number and the identification number of the voucher book of the producer, holding
the book.

12.1.4 Bonded Manufacturing Warehouse Scheme

A/ Beneficiaries of the Scheme
Beneficiaries of the Bonded Manufacturing Warehouse Scheme are producers wholly
engaged in exporting their products who are not eligible to use the Voucher Scheme
and who have license that enables them to operate such warehouse.

B/ Conditions for being Beneficiary of Bonded Manufacturing Scheme

Persons or organizations that can be beneficiaries of the Bonded Manufacturing
Warehouse Scheme are persons who have fulfilled the following condition:

1. Have manufacturing license;

2. Having warehouse fully complied with all requirements provided for by Customs laws
and regulations;
3. That pay allowances to Customs officials assigned in the warehouse and license
fees as determined by law;
4. Present evidence showing that they have insured the warehouse;
5. Provide to the Customs Authority their annual export plan showing the type, quantity
and value of the products intended to be exported during the year, and the raw
materials they import to use in the manufacture of such products;
6. Submit input output coefficient and memorandum showing the amount of raw
material wasted in production process, the amount and type of by-product to be
supplied to a foreign or local market, the input used out of the raw material imported
in the production of the by-product in percentage, during the execution of the annual
production plan;

C/ Procedures for the Application of Bonded Manufacturing Warehouse Scheme

1. The customs official and the exporter shall jointly lock the licensed warehouse;
2. The Exporter who imports raw materials shall complete transit formalities at the port
of arrival and the raw materials shall directly be transferred to the warehouse. All
necessary Customs formalities shall be completed at the warehouse;
3. The raw material to be used for production must be removed in presence of
Customs official;
4. The product shall be registered and transferred to the warehouse and shall be
exported after all Customs export formalities have been completed;
5. Unless the raw materials transferred into the warehouse are fully utilized and unless
the products are exported within one year from date of transfer to the warehouse,
the exporter shall be made to pay the duties together with interests thereon.
However, Customs Authority may extend the period for one additional year
consideration nature of the raw material;
6. If products manufactured by use of raw materials imported free of duty through the
Bonded Manufacturing Warehouse Scheme are sold locally, the beneficiary of the
scheme shall pay sales and excise tax due thereon.
D/ Other Conditions
I. Conditions for Importers of Raw Materials to use the Voucher Scheme

Indirect exporters engaged in the supply of imported raw materials to direct or

indirect producer exporters, and who choose to become beneficiaries of the Voucher
Scheme shall be required to furnish a guarantee in the form of insurance bond in an
amount equal to the initial amount to be entered in their Voucher Book.

II. Input-Output Coefficient

1/ The Ministry of Trade and Industry shall develop the input-output coefficient;
2/ Until the input-out put coefficient is developed in accordance with the provisions of
II(1) above, the input-output coefficient developed by the exporters or producers
shall be reviewed by the Ministry of Trade and Industry and be put into use.
III. Raw Materials Wasted in the Process of Production

1/ Calculation of raw materials used in the production of export commodities, or the raw
materials used to produce such raw material, shall taken into account the wastage
and scrap of raw material;
2/ As per Directive of Ministry of Finance and Economic Development, the beneficiary of
a voucher or bonded warehouse scheme may be allowed to include in the demand
of raw materials a maximum of a 7 percent wastage of raw materials;
3/ In exceptional circumstances where the nature of product necessitates, the Ministry
of Trade and Industry may allow up to a 20 percent wastage margin after evaluation;
4/ The producer may, against payment of duty sell in local market by-products and/or
raw materials wasted or damaged in the process of production.

12.2 Cost Sharing Scheme

In June 2004, the Ministry of Finance and Economic Development has issued a
directive in which Government supports and encourages organizations engaged or
planned to engage in export focused activities through cost sharing scheme. The
directive is meant to exempt income tax to be paid on salaries of foreign professionals
and experts hired by these persons or organizations. The objective of the scheme is to
support and encourage managerial and technical skill capacity building efforts being
done by export focused organizations hiring foreign professional and experts by
exempting income tax paid on their salaries.

A/ Beneficiaries of the Cost Sharing Scheme

The beneficiaries of Government Cost Sharing Scheme shall be those
persons/organizations engaged in the following activities:

(1) Those manufacturing industries like textile and garments, leather and leather
products, agro-processing, meat and meat products, fruits and vegetables,
handcrafts industries that are generating or capable to generate foreign currency
earning by exporting their products;
(2) Those creating added value to domestic products to produce inputs and semi-
processed products like packing, zipper, buttons, labeling, etc and supply them to
direct exporters indicated under A(1) above;
(3) Those organizations on project stage hiring foreign experts for civil, mechanical and
electrical engineering works and providing consultancy services, who upon
commissioning production shall export their products.

B/ Conditions for Being Beneficiary of Cost Sharing Scheme

(1) Trade or Investment License:- The applicants should have a

renewed trade business license or investment license provided from appropriate
government organ.
(2) Project Description and Proposal: - Those applicants who can
become the beneficiaries of the scheme should attach documents containing the
following major points to their application while submitting to the Ministry of Trade
and Industry;
(2.1) Project Description:- Applicants should prepare project description which
can indicate their company profile containing the following points:

(a) Company Vision and Mission;

(b) Company’s annual Production Capacity by type, quantity, and value;
(c) Company’s annual export product by type, quantity and value;
(d) Employment opportunity created by the company by type of profession;
 (e) Company’s capital by type, quantity and value;
(f) Export performance if the company was earlier engaged export market.

(2.2) Project Proposal:- A project proposal indicating reasons for

needing foreign expert, time the expert will stay and detailed duties to be
performed by the expert during contract period should be prepared, verified
and submitted by the applicant.

C/ Procedure of Hiring Foreign Expert

(1) The Foreign expert, should submit his experience and
educational testimonies that indicated his competence to carry on the duties and
the salary amount he is demanding;
(2) The foreign experts to be hired should confirm that they can
achieve the results indicated on the project proposal within the contract period;
should indicate this by activity time table (action plan); and strategies to be
followed to perform detailed activities;
(3) The foreign expert or the company administering the expert
should sign contractual agreement with the applicant that the activities shall be
accomplished as per the action plan indicated under sub-article (2) above. The
contractual agreement should be submitted to the Ministry of Trade and Industry;
(4) The companies hiring foreign experts have responsibility to
make sure, based on their agreement, that the hired foreign experts had provided
necessary training and replaced by Ethiopians within two years period.

D/ Governments Role in Cost Sharing Scheme

(1) After evaluating the project description and project proposal of
the applicant, the Ministry of Trade and Industry, if convinced that the applicant
needs foreign expert, approves the foreign expert to be beneficiary of tax
exemption to be paid on the demanded salary.
(2) After approval, the Ministry of Trade and Industry shall transfer
the decision made to the Ministry of Finance and Economic Development and the
appropriate tax collecting authority.
E/ Period of Exemption from Income Tax
(1) The time period allowed for the income tax exemption opportunity
given to foreign experts hired by companies engaged on export focused activities
is only two years;
(2) The initial time period of the tax exemption shall be from the time
the company hired the first foreign professional or expert and become beneficiary
of the scheme.
(3) Upon approval by Ministry of Trade and Industry, the beneficiary
company can hire required number of foreign expert at any time needed and
become beneficiary within the given two years period.

12.3 Exporters Prize Awards

In order to encourage and recognize the efforts being made by exporters the Council of
Ministers of the Federal Democratic Republic of Ethiopia has issued regulations cited as
“Export Prize Awards Council of Ministers Regulations No. 126/2006 11.

A/ Objective of Awarding Export Prizes

The objective of awarding export prizes shall be to acknowledge the efforts and
achievements scored by persons involved in the export sector and thereby create result
oriented competitive environment to ensure further improvements in the export sector
performance.

B/ Establishment of Export Prizes

According to the regulations, the following export prizes are instituted:

a) Excellent Export Performance Prize;

b) New Export Products Prize;
c) Export Product Buyers Prize;
d) Export Product Input Suppliers Prize; and
e) Export Support Prize.

C/ Eligibility for Export Prize Awards

11
Council of Ministers regulation cited as “Export Prize Awards Council of Ministers Regulations No. 126/2006
According to the regulations, the criteria for eligibility for export prize awards are the
following:

1) Excellent Export Performance Prizes shall be awarded to best performing

exporters in any export sector;
2) New Export Product Prizes shall be awarded to best performing exporters
exporting new export products;
3) Export Product Buyers Prizes shall be awarded to best performing Ethiopian
export product buyers or their agents;
4) Export Product Input Suppliers Prizes shall be awarded to best performing input
suppliers;
5) Export Support Prizes shall be awarded to best performing governmental and
private organizations in providing support to business community engaged in the
export sector;
6) The specific selection criteria for export prize award winners shall be prescribed as
per directives of the Ministry of Trade and Industry (MOTI);
7) According to directives issued by MOTI, the selection of export prize winners shall
be done by a committee composed of relevant governmental and private sectors
organizations;
8) Export prizes shall be awarded during the annual celebrations of the export days.

D/ Privileges due to Awardees of Export Prizes

Awardees of export prizes shall be entitled to: preference to get service under
equipment lease or financial lease schemes; cost sharing support to efforts being
made to meet international standards and thereby get accreditations; access to
Exporters Credit Guarantee Scheme for agricultural products not already included in
the scheme; cost sharing support to participate at international exhibitions; financial
support to cover space rentals to participate at national exhibitions; promote their
organizations and products through the magazines, brochures, newsletters and
website of the Ministry of Trade and Industry; preference to participate in trainings
offered by public institutions; be registered in the honorary register kept by the Prime
Minister’s Office; preference to participate in inward and outward trade missions; and
get VIP status while travel departures from and arrivals to Ethiopia.
12.4 Export Financing Incentive Schemes
The Government of Ethiopia has designed and put in place a number of export
financing incentive schemes, which creates an enabling environment for exporters.
These incentive schemes included: export credit guarantee scheme, foreign exchange
retention scheme, and foreign credit scheme.

12.4.1 Export Credit Guarantee Scheme

This is to support the export sector by availing the necessary financial resources from
banks for a pre and post shipment financing of exports. The scheme provides exporters
access to pre-shipment and post-shipment finance equivalent to the total value of the
previous year export proceeds without any collateral requirement for existing exporters
and with 20% and 30% collateral requirement for new producer exporters and new
exporters respectively.

The pre-shipment export credit guarantee is a guarantee provided by the National Bank
of Ethiopia up to a maximum of 180 days to the exporter to cover pre-shipment export
loan extended by the financing bank starting from the issue date of the guarantee.
Similarly, the post-shipment export credit guarantee is a guarantee provided by the
bank up to a maximum of 180 days to the exporter to cover post-shipment export loan
extended by the financing bank starting from the issue date of the guarantee.

12.4.2 Foreign Exchange Retention Scheme

In an effort to encourage exports, the government has allowed exporters to retain the
foreign exchange they themselves earn in two types of foreign exchange accounts. In
account “A” exporters are allowed to retain 10% of the proceed from their exporting for
an indefinite period of time and the remaining 90% in account “B” for about 28 days to
transact business related to current payment for the import of goods and related
services, export promotion payment of advertising and marketing expenses, training fee
and educational expenses.

12.4.3 Foreign Credit Scheme

Suppliers or Foreign Partners Credit is an interim financing provided by a supplier or a
foreign partner. It is usually short term financing, but can include medium and long term
financing. Foreign Credit Should be registered and authorized by the National Bank of
Ethiopia. These Credits can be used to finance capital goods; raw materials, semi-
finished goods; spare parts and other inputs that may be used for the production of
export products. Foreign credit shall be paid from the export proceeds of the project or
transaction financed by the credit (from exporters retention account) and it should be
known that the National Bank of Ethiopia or the Government does not provide foreign
exchange for the purpose of such payments.
XIII. INTERNATIONAL TERMS

Incoterms™ are internationally accepted commercial trade terms which determine the
passing of risk and the passing of costs under an international contract of sale. The
terms tell each party to the contact what their obligations are for the carriage of goods
from the seller to the buyer, for insurance and export and import clearances. In addition,
should a dispute arise, Incoterms™ are the only international trade terms recognized in
a court of law. It is strongly recommended that express reference is made in the
contract using the words “Incoterms 2000" to avoid confusion with any previous version
of Incoterms™.

13.1 INCOTERMS: Facilitating the export process

International sales contracts contain a number of standard abbreviations such as “FOB”,
“CIF” and “DDP” and expressions such as “Ex – quay,” etc., which may be confusing to
a new exporter. Even experienced traders are not always fully aware of what such
abbreviations mean. The inclusion of these expressions and abbreviations in a sales
contract places specific obligations on the seller and the buyer that entail financial
commitments.

By accepting a contract containing such an abbreviation or expression an exporter is

agreeing to carry out (and pay) certain of the handling, transport, documentation and
other costs connected with the transaction as well as take responsibility for some of the
risk elements of the operation, for example, loss or damage of the goods during transit.

It is therefore in a trader’s interest to know what these expressions imply so that ha can
choose the most appropriate one for his trading operation and be familiar with his right
and obligations under it.

The purpose of the “INCOTERM” is to provide a set of international rules for the
interpretation of the most commonly used trade terms in foreign trade. Thus, the
uncertainty of differences in interpretation of such terms in different countries can be
considered or at least reduced to a minimum.
For example, the case of two traders of different nationalities, speaking different
languages, used to different trade practices and 10,000kms apart. The situation can
result in misunderstandings, disputes and in the end waste of time and money. To
remedy the situation it is essential that they should be able to resort to a common
language – the use of INCOTERMS.

The International Chamber of Commerce published the first set of INCOTERMS in

1936. Amendments and additions were later made in 1953, 1967, 1976, 1980, 1990,
1997, and 2000 in order to bring the rules in line with current international trade
practices. For example, the new transport technique have contributed to the revision,
particularly the unitisation of cargo in containers, multi-modal transport and the roll
on/roll off traffic with road vehicles and railway wagons in marine transport.

There are 13 Incoterms™ and they are divided into four major groups: “E”, “F”, “C” and
“D” terms. The first letter is an indication of the group to which the term belongs. Each
group means additional responsibilities and costs for the exporter. For example, the
most commonly used terms under each of these groups are: Ex Works (EXW), Free
Alongside Ship (FAS), Free On Board (FOB), Cost and Freight (CFR), Cost, Insurance
and Freight (CIF), and Delivered Duty Paid (DDP). In this guide, we chose to present
the 6 most common Incoterms™ widely used by exporters around the world.

13.2 Definitions of Incoterms™ 2000

To provide a common terminology for international shipping and minimize
misunderstandings, the International Chamber of Commerce has developed a set of 13
terms known as Incoterms™. They are presented, along with their definitions, as
follows:

EXW - EX WORKS (…named place)

”Ex Works” means that the seller (foreign supplier) delivers when he places the goods
at the disposal of the buyer (importer) at the seller’s premises or another named place
(i.e. works, factory, warehouse, etc) not cleared for export and not loaded on any
collecting vehicle. The exporter is not responsible for the loading of the goods on the
vehicle of for clearing the goods for export, unless otherwise agreed.
FCA - FREE CARRIER (…named place)
”Free Carrier” means that the seller delivers the goods, cleared for export, to the carrier
nominated by the buyer at the named place.

FAS - FREE ALONGSIDE SHIP (…named port of shipment)

”Free Alongside Ship” means that the seller delivers when the goods are cleared for
export and placed alongside the vessel at the named port of shipment. This means that
the buyer has to bear all costs and risks of loss of or damage to the goods from that
moment.

FOB - FREE ON BOARD (…named port of shipment)

”Free on Board” means that the seller delivers when the goods are cleared for export
and pass the ship’s rail at the named port of shipment. This means that the buyer has to
bear all costs and risks of loss of or damage to the goods from that point. This term can
only be used for sea or inland waterway transport.

CFR - COST AND FREIGHT (…named port of destination)

”Cost and Freight” means that the seller delivers when the goods pass the ship’s rail in
the port of shipment. The seller must pay the costs and freight necessary to bring the
goods to the named port of destination BUT the risk of loss or damage to the goods, as
well as any additional costs due to events occurring after the time of delivery, are
transferred from the seller to the buyer. This term can only be used for sea or inland
waterway transport.

CIF - COST, INSURANCE AND FREIGHT (…named port of destination)

”Cost, Insurance and Freight” means that the seller delivers when the goods pass the
ship’s rail in the port of shipment. The seller must pay the costs and freight necessary to
bring the goods to the named port of destination BUT the risk of loss or damage to the
goods, as well as any additional costs due to events occurring after the time of delivery,
are transferred from the seller to the buyer. However, in CIF the seller also has to
procure marine insurance against the buyer’s risk of loss of or damage to the goods
during carriage. This term can only be used for sea or inland waterway transport.
CPT - CARRIAGE PAID TO (…named place of destination)
”Carriage paid to...” means that the seller delivers the goods to the carrier nominated by
him but the seller must in addition pay the cost of carriage necessary to bring the goods
to the named destination. This means that the buyer bears all risks and any other costs
occurring after the goods have been so delivered. The term can be used on any mode
of transport.

CIP - CARRIAGE AND INSURANCE PAID TO (…named place of destination)

”Carriage and Insurance paid to…”means that the seller delivers the goods to the carrier
nominated by him but the seller must in addition pay the cost of carriage necessary to
bring the goods to the named destination. This means that the buyer bears all risks and
any additional costs occurring after the goods have been so delivered. However, in the
CIP the seller also has to procure insurance against the buyer’s risk of loss or damage
to the goods during the carriage. This term may be used for any mode of transport.

DAF - DELIVERED AT FRONTIER (…named place)

”Delivered at Frontier” means that the sellers delivers when the goods are placed at the
disposal of the buyer on the arriving means of transport not unloaded, cleared for
export, but not cleared for import at the named point and place at the frontier, but before
the customs border of the adjoining country. The term “frontier” may be used for any
frontier including that of the country of export. Therefore, it is of vital importance that the
frontier in question be defined precisely by always naming the point and place in the
term. The term is primarily intended to be used when goods are to be carried by rail or
road, but it may be used for any mode.

DES - DELIVERED EX SHIP (…named port of destination)

”Delivered Ex Ship” means that the seller delivers when the goods are placed at the
disposal of the buyer on board the ship not cleared for import at the named port of
destination. The seller has to bear all costs and risks involved in bringing the goods to
the named port of destination before discharging. If the parties wish the seller to bear
the costs and risks of discharging the goods, then the DEQ term should be used. The
term can only be used for sea transport.

DEQ - DELIVERED EX QUAY – duty paid (…named port of destination)

”Delivered Ex Quay” means that the seller delivers when the goods are placed at the
disposal of the buyer not cleared for import on the quay (wharf) at the named port of
destination. The seller has to bear all costs and risks involved in bringing the goods to
the named port of destination and discharging the goods on the quay. The DEQ term
requires the buyer to clear the goods for import and to pay for all formalities, duties,
taxes and other charges upon import.

DDU - DELIVERED DUTY UNPAID (…named place of destination)

“Delivered Duty Unpaid” means that the seller delivers the goods to the buyer, not
cleared for import, and not unloaded from any arriving modes of transport at the named
place of destination. The seller has to bear all costs and risks involved in bringing the
goods thereto, other than, where applicable, any “duty” (which term includes the
responsibility for and the risks of the carrying out of customs formalities, and the
payment of formalities, customs duties, taxes and other charges) for import in the
country of destination. Such “duty” has to be borne by the buyer as well as any costs
and risks caused by his failure to clear the goods for import in time. The term may be
used irrespective of the mode of transport.

DDP - DELIVERED DUTY PAID (…named place of destination)

“Delivered Duty Paid” means that the seller delivers the goods to the buyer, cleared for
import, and not unloaded from any arriving modes of transport at the named place of
destination. The seller has to bear all costs and risks involved in bringing the goods
thereto, including, where applicable, any “duty” (which term includes the responsibility
for and the risks of the carrying out of customs formalities, and the payment of
formalities, customs duties, taxes and other charges) for import in the country of
destination. Whilst the EXW term represents the minimum obligation to the seller
(exporter), DDP represents the maximum obligation.

The exporter should referrer to the following summary of responsibilities best owed
upon buyer an seller as specified in incoterms 2000.
 Summary of Responsibilities under Each Incoterm

  EXW FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ DDU DDP

Free Free Cost Carriage Delivered Ex

Ex Free Cost & Carriage Delivered At Delivered Ex Delivered Delivered
Alongside Onboard Insurance & Insurance Quay Duty
Works Carrier Freight Paid To Frontier Ship Duty Unpaid Duty Paid
SERVICES Ship Vessel Freight Paid To Unpaid

Warehouse Storage Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Warehouse Labor Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Export Packing Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Loading Charges Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Buyer/
Inland Freight Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
Seller*

Terminal Charges Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Forwarder's Fees Buyer Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller

Loading On Vessel Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Ocean/Air Freight Buyer Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller

Charges On  Arrival At Destination Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller Buyer Buyer Seller Seller Seller

Duty, Taxes & Customs Clearance Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller

Delivery To Destination Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller

Source: 2000 International Business Institute, inc.

Provisions Common to all INCOTERMS

Some rules apply to all Incoterms. The seller must, for example, supply the goods in
conformity with the contract of sale and place the goods at the buyer’s disposal at the
time as provided in the contract. The buyer’s first obligation is to pay the price as
provided in the contract. Packaging is always the responsibility of the seller and at his
expense.

Customs of port or particular trade

Since the trade terms can be used in different trades and regions, it is impossible to set
forth the obligations of the parties with precision. To some extent therefore, it would be
necessary to refer to the custom of the particular trade place or to the practises, which
the parties themselves may have established in the previous dealings.

It is advisable for both parties to keep themselves duly informed on customs of the
trade when they negotiate their contracts and whenever uncertainties arise clarify their
legal position by appropriate clauses in the contract of sale. Such special provisions
would supersede anything, which is set as a rule of interpretation in the various
INCOTERMS.

Customs clearance

Normally the exporter arranges the customs clearance before shipment of the goods
while the importer clears the goods for import. However, under certain circumstances
the buyer might undertake to clear the goods for export in the seller’s country – the
terms (EXW, FAS) would apply. And in other cases the exporter might clear the goods
for import in the buyer’s country (DEQ and DDP) apply. There is need to ascertain that
customs clearance performed by, or on behalf of a party not domicile in the respective
country is accepted by the customs authorities.

An importer might wish to collect the goods at the exporter’s premises under the EXW
or to receive the goods alongside a ship under the term FAS, but would like the seller to
clear the goods for exports. If so –the words “cleared for exports” should be added after
the respective term.

Conversely, the exporter may be prepared to deliver the goods under (DEQ or DDP) but
without assuming the obligation to pay the duty and taxes levied on the goods upon
importation. The term duty unpaid should be added after DEQ or the particular tax e.g.
VAT unpaid. If the exporter clears the goods for importation and pays the duties the
term DDP applies.

13.3 Presentation on Incoterms

The terms can be grouped in four different categories, namely starting with the term
whereby the seller makes the goods available to the buyer ate the seller’s own premises
(the E – term) EX WORKS. Followed by the second group whereby the seller is called
upon to deliver the goods to a carrier appointed by the buyer (the F – terms FCA, FAS
and FOB). The third group consist of the (C – terms CFR, CIF, CPT, and CIP) whereby
the seller has to contract for carriage, but without assuming the risk of loss or of
damage to the goods or additional costs due to events occurring after shipment and
dispatch. Finally, the fourth group (the D – terms ) – whereby the seller has to bear all
costs and risks needed to bring the goods to the country of destination (DAF, DES,
DEQ, DDU, and DDP). These grouping of Incoterms are presented as follows.

INCOTERMS

GROUP – E EXW EX Works … (named place)

Departure
GROUP – F FCA Free Carrier --- (named place
Main Carriage FAS Free Alongside Ship … (named port of shipment)
unpaid FOB Free on Board … (named port of shipment)
GROUP – C CFR Cost and Freight … (named port of destination)
Main Carriage CIF Cost, Insurance and Freight … (named port of destination)
paid Carriage Paid To ..… (named place of destination)
CPT Carriage & Insurance Paid to …(named place of
CIP destination)
GROUP – D DAF Delivered At Frontier … (named place)

Arrival DES Delivered Ex Ship … (named port of destination)

 DEQ Delivered Ex Quay … (named port of destination)

DDU Delivered Duty Unpaid … (named place of destination)

DDP Delivered Duty Paid … (named place of destination)

The terms show the division of responsibility between the two parties. Once agreed the
seller knows the exact place and time at which he ceases to be responsible for the risks
and costs of the movement of the goods. Conversely, the buyer knows exactly when
and where the risks and costs become his liability.

XIV. ETHIOPIAN TRADE AGREEMENTS

Ethiopia has entered into various trade agreements. Some are bilateral between
Ethiopia and one other specific country and others are multilateral between Ethiopia and
a grouping of other countries. In addition to trade agreements, Ethiopia is a member of
regional agreements of cooperation, such as COMESA (Common market for Eastern
and Southern Africa) and a member of international agreements under the LOME
Convention. Ethiopia is also a member of regional agreements of cooperation, namely
IGAD and Sana’a Forum, which recently initiated trade as component of cooperation.

The purpose of a trade agreement is to stimulate and encourage trade between

countries or groups of countries who sign the agreement, by giving one another
preferential treatment in the reduction or elimination of customs duties.

Import duty and import associated taxes can constitute a large percentage of the final
price for cross border transactions. A reduction or elimination of the duty and tax,
therefore, can give the Ethiopian exporter or importer a substantial advantage in terms
of cost or price over those competitors from countries without such trade agreements.

Exporters should be able to use this advantage as a marketing strategy to give their
product(s) a competitive price incentive to customers in the countries which Ethiopia
has agreements with:

 Registered exporters in Ethiopia are able to offer better prices in the countries
where agreements have been made, as opposed to competitors from a third
 country which does not have similar agreements, given that all production factors
are the same.
 Also, if you are importing some inputs which originate from a country which has a
trade agreement with Ethiopia, then the landed cost for those inputs could be
reduced by the amount of the duty reduction or elimination, thereby making the
product more price competitive.

14.1 Ethiopia’s Bilateral Trade Agreements

Since 1991, Ethiopia has signed a sizeable number of Bilateral Trade Agreements and
Protocols (see appendix 14 - A). However, out these trade agreements few are active
trade agreements and others are almost non-active trade agreements.

14.1.1 Active Bilateral Trade Agreements

Out of the list of only one agreement between Sudan and Ethiopia seem to be actively
operational at this time. The trade agreement between the Sudan and Ethiopia was
made in March 2000 and has now almost entered into a status of Free Trade Area
(FTA). Below are brief notes on the provisions of a well progressing and long standing
trade agreement between the two trading partners.

According to the trade agreements the two contracting parties shall take appropriate
measures, in accordance with the laws and regulations of the each country and their
binding international obligations to facilitate, strengthen, diversify and expand trade
between their two countries. The trade agreements between the two countries have the
purpose of offering the benefits under the qualifying criteria. They aim to encourage and
stimulate trade between the two countries, through the Most-Favoured - Nation
Treatment, the elimination of import duty applicable to the importation and exportation of
goods. The two countries have agreed to undertake appropriate measures to facilitate
and regulate boarder trade between their countries which has now progressed to FTA.

The agreements allows for importation/ exportation at preferential rates as long as the
goods in question qualify under the terms of the agreement and are registered as such
with the relevant authorities.
With the aim of promoting trade between the two countries, the trade agreements allow
the two countries to encourage and facilitate the holding of, and participating in, trade
fairs and exhibitions to be conducted in either country, as well as exchanging
delegations, trade missions and market information. Each contracting party shall also
exempt goods and materials imported for trade fair and exhibition purposes from
customs duties, taxes and other charges. This allows Ethiopian Exporters to export
sample products and publicity materials duty-free, as long as those goods are solely
used for promotional purpose and not for sale. The agreement also allows Ethiopian
Exporters to transport goods through to the Sudan without payment of any cross-border
transit charges or levies.

Therefore, Ethiopian exporters are advised to take advantage of the trade preferences
in the Sudan as the terms of trade are in favour of Ethiopia. This is considered to be
particularly good for the new exporter because market entry would be relatively easy.

14.1.2 Non-Active Bilateral Trade Agreements

The remainder of the listed bilateral agreements can be categorized as non-binding

agreements. These arrangements are intended to encourage trade between other
states (see list in appendix 14 - A ) and Ethiopia but are not very active. These
agreements are seen as initial stages leading to an active bilateral trade agreement.
They assist in laying down the groundwork and assessing whether there is enough
justification to eventually enter into a binding agreement.

14.2 Multilateral Trade Agreements

Ethiopia has entered into multilateral trade agreements with region based group of
nations in order to encourage trade between these groups of nations. These multilateral
trade agreements include COMESA, Lome Convention, IGAD and Sana’a Forum as
well as AGOA as special trade agreement.

14.2.1 COMESA – Common Market for Eastern and Southern Africa

The Common Market of Eastern and Southern Africa (COMESA) is a regional

integration grouping of 19 African states (Burundi, Comoros, Democratic Republic of
Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius,
Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, and Zimbabwe) which have
agreed to promote regional integration through trade development and to develop their
natural and human resources for the mutual benefit of all their peoples. It was
established on the 8th of December 1994 to replace the Preferential Trade Area (PTA)
for the Eastern and Southern Africa States, which had been in existence since
December 1981. The Common Market for Eastern and Southern Africa (COMESA) is
the largest regional economic organization in Africa, with a population of about 390
million which creates favorable interregional market opportunities.

The intended aims and objectives of COMESA have been designed so as to remove the
structural and institutional weaknesses in the member states by pooling their resources
together in order to sustain their development efforts either individually or collectively.
This is to be achieved by eventually creating and maintaining the following:

 A Free Trade Area guaranteeing the free movement of goods and services
produced within COMESA and the removal of all tariffs and non-tariff barriers;
 A Custom Union under which goods and services imported from non-COMESA
countries will attract an agreed single tariff in all COMESA states;
 Free Movement of Capital and Investment with common involvement practises
so as to create a more favourable investment climate for the COMESA region, a
gradual establishment of a Payment Union based on the COMESA clearing
house and eventual establishment of a common a monetary union with a
common currency;
 The establishment of a common visa arrangement, including the right to free
movement of people.

14.2.2 Lome IV Convention and Cotonou Agreement

The Lome Convention is a trade agreement between 15 EU member states at initial

(currently 27) and African, Caribbean and Pacific (ACP) states which has been in
existence since 1975 and over the years it has been periodically revised. There were
70 listed ACP countries at the initial time (currently 77), and Ethiopia is one of these and
can, accordingly, benefit from the agreement.
The Lomé Agreements were initially considered as highly innovative development
cooperation agreements. However, over the years the Lomé relationship came under
increasing pressure, especially after the end of the Cold War and did not achieve its
expected results. Addressing the weaknesses of the Lomé Conventions, the EU and the
ACP agreed to radically reform the ACP-EU trade relationship through the negotiation of
the Economic Partnership Agreements (EPAs). The Cotonou Partnership Agreement
(CPA), signed in June 2000 to replace Lome Convention, stipulates that the
negotiations on EPAs would start in September 2002 and would be concluded no later
than 31 December 2007. However, the EPA negotiation under the ESA configuration
(Eastern and Southern Africa) did not concluded by the end of 2007 and is still going on.
The LDCs in ESA regions, including Ethiopia continued receiving access to the EU
under the EBA (Everything But Arms) as per the Cotonou Agreement that extended the
lifetime of the non-reciprocal preferential trade arrangements of Lomé IV for a
transitional period12.
The main objective of both Lome Convention and Cotonou Agreement is to help
balance the level of trade between the two groupings, and the promotion of
development of ACP economies. The agreement was based on asymmetrical
reciprocity – in favour of the ACP countries. This implies that the EU grants trade
preferences to the ACP countries more than the ACP states need to grant To the EU.
However, the ACP states must give EU countries at least “Most favoured Nation” status
for their products.

The Agreement (both under Lome and Cotonou Agreement) allows ACP courtiers to
export all products produced in the ACP state and have duty-free access to the EU
markets, though certain products have specific quotas. The EU offers duty free and
quota free access for all Ethiopian export products (except arms) under its Everything
But Arms (EBA) initiative.

The quota system was designed to protect EU producers of the same commodity. On
those quota products the EU offers a special price which is higher than the world price

12
Economic Partnership Agreements Negotiations: A Comparative Assessment of the Interim Agreements, Report
on Joint AU, UN & EU Annual Conference, March 2008, Addis Ababa
to ACP exporters if they supply within their ceiling (a ceiling is the maximum amount
that can be exported). This is the same price that is offered to the EU producers. If ACP
countries supply more than their ceiling the price offered will be lower than the special
price. This will only be permitted if there is unfulfilled demand in EU.

The products that have quotas ascribed to them are: beef, veal, bananas, lamb, poultry,
milk, cheese, pears, and sugar.

In case of Ethiopia, the current range of export products from Ethiopia to the EU
markets doesn’t fall under the quota allocation, except sugar.

In the case of horticultural products, the agreement has provisions to protect the
horticultural producers of the EU when their produce is in season. The provisions don’t
allow ACP countries, for example, to export certain produce such as flowers, green
beans and oranges when the EU countries have theirs in season. The period in
question varies from year to year and is announced on an annual basis.

14.2.3 IGAD and Sana’a Forum

Ethiopia has multilateral agreements in two regional groups called “IGAD and SANA’A
FORUM”. The Intergovernmental Authority on Development (IGAD) in Eastern Africa
was created in 1996 to supersede the Intergovernmental Authority on Drought and
Development (IGADD) which was founded in 1986. The recurring and severe droughts
and other natural disasters between 1974 and 1984 caused widespread famine,
ecological degradation and economic hardship in the Eastern Africa region. Although
individual countries made substantial efforts to cope with the situation and received
generous support from the international community, the magnitude and extent of the
problem argued strongly for a regional approach to supplement national efforts. Seven
(7) countries in the Horn of Africa, namely Djibouti, Eritrea, Ethiopia, Kenya, Somalia,
Sudan and Uganda are member countries and states of IGAD.

The areas of cooperation of IGAD until recently were agriculture and environment,
economic cooperation and social development, peace and security, and gender affairs.
Recently in 2008, trade has also been added as new area of cooperation in by IGAD
member countries and states.

The Sana’a Forum is another regional multilateral agreement made to work jointly
towards peace and sustainable development, and recently included trade in the
agreement and initiated discussion on ways of forming Free Trade Area (FTA) in the
region. The members of the Sana’a Forum are: Ethiopia, Somalia, Sudan and Yemen.

14.2.4 AGOA Special Trade Agreement

The purpose of the African Growth and Opportunity Act (AGOA) is to use preferential
trade access to the U.S. market as a catalyst for economic growth in sub-Saharan
Africa by encouraging governments to open their economies and build free markets. It
amends the U.S. Generalized System of Preferences to grant duty-free treatment to
specified products from eligible countries. AGOA as part of the Trade and Development
Act of 2000 was approved and signed into law May 18, 2000 and amendments to
AGOA signed in August 2002, which expanded preferential access for eligible sub-
Saharan African counties. Two years later, the AGOA Acceleration Act of 2004 was
signed, which extended preferential access for imports from eligible sub-Saharan
African countries until September 30, 2015, and extended and clarified textile-related
provisions in the Act. As the law now stands, nearly all imports from eligible countries in
sub-Saharan Africa enter the U.S. duty-free through 2015. Ethiopia is beneficiary of
AGOA particularly in apparel and textiles. United States offers duty free access for a
large set of Ethiopian products under its Africa Growth and Opportunity Act (AGOA).

In general, various multilateral trade agreements would create wider opportunities for
Ethiopian exporters so that exporters should exhaustively exploit these market
opportunities.

14.3 Generalised System of Preferences Extended to Ethiopia

The Generalized System of Preference (GSP) is a preferential tariff system. Under this
system developed countries provide reduced Most Favoured Nation (MFN) tariffs, or
duty-free access to eligible products exported by developing countries. The major
countries which extend GSP to Ethiopia are: United States of America, China, India,
Japan, South Korea, Canada, Australia, Morocco, and Turkey.

How to Export Under GSP

As a first step, the exporter must find out whether his product is eligible for preferential
treatment under the GSP Scheme of the target market. It is important to not that each
preference giving country has its own specific rules and list of products eligible for
preferential treatment. Products eligible for tariff treatment under a GSP Scheme are
defined in terms of their tariff classification in the Customs Tariff Schedule of the
preference giving country using the Harmonised Commodity Description and Coding
System (H.S). it is necessary to know the first four – digit tariff numbers heading of the
product for completion of Form A Certificate of Origin in the case of export to Japan and
USA and member countries of EFTA.

You should, therefore, begin by establishing the H.S tariff code number of your product.
Should there be any difficulties in establishing the correct tariff classification of your
product, you must seek assistance from, the customs and revenues authority, the
prospective importer or the Chambers of Commerce and Sectoral Association.

14.4 Rules of Origin

Every agreement has rules, which outline how an exporter can be eligible for
preferential treatment in the area of duty payment. These are called the Rules of
Origin. In the case of Ethiopia’s bilateral or multilateral trade agreements, an exporter
can qualify in one of the two ways. The goods must either be:

 Wholly produced in Ethiopia. An example of such products would be grain

produce, fruits and vegetables, etc.
 In the case of processed/ manufactured, a product must have undergone an
acceptable amount of processing and have a specified percentage of
Ethiopian content. A good example of such product is leather products and
clothing and textiles.

A Certificate of Origin is the proof that your goods or products are originating from
Ethiopia and even if part of the inputs would have been imported, processed and then
re-exported. The certificate of origin forms can be obtained from the ECCSA and the
Dire Dawa Chamber of Commerce and Sectoral Association.

Each trade agreement has provisions or rules, which must be met before this
preferential treatment can be granted. The basis of this rule is that the goods in question
must have specific local content input from the country which is exporting them.

Local Input:-The definition of local input is specific to each individual trade agreement
and it is under this primary criterion that the goods may or may not qualify. These are
defined differently in different agreements. Certain agreement might exclude
manufacturing overheads as local input, whereas they are allowed in other agreements.
Therefore, a careful reading of the rules and regulations of each agreement is
important. In addition, the percentage of local input (value addition made) on a given
product to be a product of a particular country especially for manufactured and
processed products is not fixed, it varies between agreements made with different
countries, some countries agree at 25% or even 15% and others may agree it to be
50% or more. Hence, the percentages of local content of different products to be
exported are listed in the Ethiopia’s trade agreements entered into with various
countries. Copies of all Ethiopia’s Trade Agreements can be found in the Ethiopia
Chamber of Commerce and Sectoral Association (ECCSA). Many trade agreements
have a list of acceptable products from each trading partner.

Example of calculation of “Local Content”

Below is an imaginary company “Bold Fencing PLC” which produces a variety of wire
products, including high security fencing.

The company has enjoyed moderate growth on the domestic market and has recently
won a tender to supply fencing to the national parks of a neighbouring country. It has
not yet registered for preferential treatment. The company imports the galvanised steel
wire from a supplier in country X which contributes to a larger proportion of the cost of
the finished product. Under the trade agreement between the country of the exporter
and the importing country, the local content of the goods must be at least 25%.
Let’s look at the unit cost breakdown.
Description Origin Cost per meter
(Birr)
Galvanised Wire Imported 73.00
Direct labour Local 10.00
Other raw material Local 5.00
Direct overheads Local 8.00
Administration costs Local 4.00
Total Operation Cost 100.00 = 100%
Total Import Costs 73.00 = 73%
TOTAL LOCAL CONTENT 27.00 = 27%

Once the company itself is satisfied that their fencing does indeed have at least 25%
local input they can proceed to apply. The company needs to apply in writing to the
Customs and Revenues Authority furnishing them with the details of the company and
inputs of the production process.

The Customs and Revenues Authority analyses the costing and determines that the
fencing does indeed qualify under the agreement because the local content meets the
25% level required by the agreement.

The rules of origin vary with the different bilateral and multilateral trade agreement. The
rules of origin pertaining to these different trade agreements are briefly described as in
the following sub-sections.

14.4.1 Rules of Origin Pertaining to COMESA

The COMESA Rules of Origin have five (5) independent criteria and goods qualify as
originating in COMESA if they meet ANY ONE of the five. The exporter is free to base
his claim to COMESA duty-free or preferential tariff treatment on any one of the criteria,
according to which of them has been complied within the production process.

How does Ethiopian Exporter Benefit?

Ethiopia does not presently participate in the COMESA Free Trade Area (FTA). Ethiopia
has completed national studies and consultations concerning the proposal to join the
FTA, which is being considered by the Government of Ethiopia. However, the national
study did not cover the Trade Diversion aspect; as a result, a study was prepared to
address the issue.
Ethiopia has signed and ratified the following COMESA Legal Instruments and
Protocols13:

 The Regional Customs and Bond Guarantee;

 The Charter establishing the Federation of National Associations of Women in
Business in Eastern and Southern Africa, and
 The Protocol for the establishment of the Fund for Cooperation, Compensation
and Development;
 The Charter on a Regime of Multinational Industrial Enterprises (not ratified) and
 The Charter for the establishment of a Metallurgical Technology Centre (MTC) (not
ratified).

Ethiopia is a member of the Eastern and Southern Africa Trade and Development (PTA)
Bank and the Leather and Leather Products Institute (LLPI). Ethiopia hosts the
COMESA regional office for Leather and Leather Products Institute (LLPI).

Although Ethiopia does not currently participate in the COMESA Free Trade Area,
Exporters can still use and benefit from the PTA arrangements. The COMESA
Agreement is still using the old PTA, Preferential Trade Area, Treaty rules of origin
which are still recognized by all of its members. This requires manufactured goods to
meet the following key conditions to qualify for registration.

The products using a very high proportion of imported materials need also to be
involved in a genuine process of manufacturing. Qualification is based on a minimum of
45% of local content calculated as follows:

Cost of any local material + direct manufacturing cost

____________________________________________ = 45%
Ex-factory price of finished products
The percentage reduction of duty should be uniform for all countries, but due to the
uneven manner in which each member country has implemented the tariff reduction
they are, in fact, all at different stages of implementation. Accordingly, before

13
COMESA Secretariat, 2007; COMESA Regional Perspectives 2007 – 2008 (Ethiopia)
considering exporting to any fellow member state it is important to get a reading from
the Customs Authority of the particular country for the product which you intend to
export.

The majority of the member states have reduced their general duty tariff by between 60
– 90%, so these can be very valuable benefits to the importer/ exporter and it is worth
the time and trouble to check with the relevant customs authority. A few members have
sought and received permission not to reduce their tariff at this stage.

Again registration is done through a written application the Customs Authority providing
them with details of the company and input costs of operations. Once the company has
registered, the PTA Certificates of Origin must be completed by all exporters from
Ethiopia for goods to the PTA states under the PTA agreement and submitted to
customs for verification and stamping before the goods leave Ethiopia.

14.4.2 Rules of Origin Pertaining to EU Countries (EBA)

Majority of the products from ACP countries are governed by the Rule of Origin, which
enables them to qualify for export into EU countries duty-free. For the purpose of
implementation, a product shall be considered to be originating in the ACP State.

 If it wholly obtained (originates) in the ACP country;

 If it is manufactured, sufficiently worked on or processed in the ACP states. In this
context inputs into the manufacturing process which originate in the EU countries
can be treated as local content for the purpose of cost calculation.

Exporters who wish to export their products to the EU should make a written application
to the Customs and Revenues Authority. In order for the product to qualify within the
meaning of the protocol, the customs and revenues authority may have the right to call
for any documentary evidence or carry out checks they may consider appropriate. Once
the authorities are satisfied a movement certificate EUR1 will be issued which
represents the Certificate of Origin in the case of the LOME IV Convention.

There are a number of methods outlined in the agreement for determining whether a
particular product has been manufactured, sufficiently worked on or processed in a
particular country. If the tariff heading of the finished product is different from the tariff
headings of all the non-originating materials which went into manufacturing that product,
then the product in question will only have access, subject however, to Annex II of the
agreement.

Annex II of the agreement contains a listing of products and describes against each
product the type of working or processing which has to be carried out on the non-
originating materials used to make up the product.

If you wish to see if your product is listed in this Annex, a copy of the Lome Convention
is available at the:

The EU Library

Delegation of the European Commission in Ethiopia

P.O.Box 5570; Tel: 61 25 11; Addis Ababa

Under Annex II the amount and detail of processing required for non-originating
materials varies by product type. The example below from the clothing industry
illustrates how the calculation is done. According to the agreement if the company
imports fabrics from any of the EU of ACP states in order to produce clothing items,
then it does not have to pay duty if it exports the clothing to any EU state. However,
duty will be paid if the imported cloth comes from a non-ACP State and exceeds 47.5%
of ex-works price of the finished product.

Example:- Safari Clothing PLC imports its garment materials from a South East Asia
state (non-ACPstate), which does not have preferential treatment. However, the
garment is imported in a loom state, i.e. plain white or grey and the company further
processes the material through printing and bleaching. The costs of producing a man’s
suit are as follows:

Description Origin Unit Cost Birr

Cloth South East Asia 300.00
Printing and Bleaching Local 70.00
Direct Labour Local 240.00
Direct Overheads Local 75.00
Total Ex-works cost 685.00
Total Import cost 300.00= 43.8%
Total Local cost 385.00= 56.2
The above cost structure enables Safari Clothing PLC to export its product to the EU
market. The cost of the imported material does not exceed 47.5%; the company can
therefore export under the preferential scheme and enjoy the duty-free access. The
percentage requirement varies by product types. So it is essential to examine carefully
the Annex II listing.

14.4.3 Rules of Origin Pertaining GSP Treatment

In order to ensure that the benefits of preferential tariff treatment under the GSP are
confined to products which are produced or manufactured in the preference – receiving
country, the preference - giving country has prescribed certain conditions commonly
known as the Rules of Origin.

Strict compliance with these rules is essential if the export products are to qualify for
preferential treatment. The main components of these rules are: Origin criteria;
Consignment condition; and Documentary evidence which establishes compliance with
the above conditions.

The claim for GSP treatment must be supported by a Certificate of Origin Form A, (GSP
form). This certificate is accepted as documentary evidence as to the origin and
consignment of goods.

The exporter wishing to export under the GSP should make an application for
registration to the head office of the Customs and Revenue Authority in Addis Ababa.
The department will examine the process of manufacture of export goods and
determine whether the requirements stipulated in the Rules of Origin of the preference –
giving countries are fully met. If the Customs and Revenues Authority is satisfied,
approval to export the goods under GSP will be given. The customs office will then
process Form A at the time of shipment of the goods.

Form A must be completed by the exporter or his agent in triplicate and submitted along
with other documents to the customs office for certification at the time of seeking
custom’s approval to export the goods. The original and duplicate copies of the
Certificate of Origin in Form A are returned to the exporter who must send the original
certificate to the overseas buyer.
Where to Seek Advice
Exporters requiring further clarification on the GSP Scheme, or the specific rules of the
different preference – giving countries are advised to contact the Ethiopian Chamber of
Commerce and Sectoral Associations or the Ethiopian Customs and Revenues
Authority.
XV. QUALITY REQUIREMENTS IN THE MARKET PLACE

15.1 Introduction
Product quality is among the major factors that enables sale of a product. Repeat and
sustained sales can be achieved only on the basis of good quality at reasonable price.
A business man can fail despite good quality products, but with poor quality no
enterprise can sustain itself for long. With the opening up of the economies and trade
liberalization, companies that do not meet international quality standards will face
serious threats in the long term.

While tariff barriers have gradually come down, non-tariff barriers in the form of quality
requirements (official/ mandatory and commercial/ voluntary) increasingly affect the
ability of developing countries to compete in the global market. Nowadays, product
quality and capacity to confirm that required standards are being met largely determine
a country’s export performance. At the same time, quality and confirmation of
compliance are the two areas where developing countries are weakest.

On the world market, the acceptability of Ethiopian exporters as suppliers depends on

whether they meet international quality standards. It will also depend on their ability to
give positive assurance of their capabilities for fulfilling quality and delivery
commitments.

In this market environment, the establishment of certified quality systems conforming to

international standards is becoming an inescapable necessity for entering and
sustaining business in export markets. In Ethiopia, the Quality and Standards Authority
is the institution responsible for quality assurance and certification.

15.2 Quality System Concepts and Standards

Recap – For an enterprise to remain in business and make profits over a long time it
should satisfy the needs of the customer.

Most manufacturing usually assume that product specifications given by the customer
when placing an order cover all the requirements. It is further assumed that if these
requirements are met during production and verified by inspection, full customer
satisfaction will be achieved. In fact, the issue is more complicated.

First, in addition to the stated specifications, there may be implied requirements, which
also have to be met if the customer is to be satisfied with the product. The supplier
should look beyond the specifications and understand the implied needs. These could
relate to the exterior finish, colour tone, quality of printing on the product, its other
characteristics which cannot be fully quantified. Other aspects such as packaging,
handling and mode of transport can directly influence the quality of the product when it
reaches final destination and the ultimate consumer.

Unless the supplier pays attention to all these aspects – the product may not satisfy the
customer. The exporter must also be familiar with the various regulatory standards of
the country where the product is to be exported. These would normally include
environmental standards (which are not yet mandatory), testing and approval from a
health and safety point of view and regulations on information labelling. When all these
requirements are understood, definitive steps need to be taken by various groups in the
company to ensure that the requirements are incorporated into the design, process
planning, production, inspection, packaging, and transportation activities.

Some exports are sold upon presentation and acceptance of a sample of the product.
When sending the actual consignment one should make sure that the quality of the
export products is inconformity with that of the sample. Failure to do so would have
serious repercussions on the payment for the consignment.

Quality Awareness

Once the customer requirements have been identified, the quality building effort should
continue throughout the various stages of manufacturing and even after delivery of the
consignment to the customer. There is need to follow up promptly to customer
complaints if any and to obtain accurate feedback. Feedback is essential for future
improvements.

Quality does not happen by chance, it has to be managed at every stage of the life
cycle of the product. These include the following activities that impact on quality:
  Marketing and market research;
 Product design and development;
 Process planning and development;
 Purchasing of inputs;
 Production;
 Verification;
 Packaging and storage;
 Sales and distribution;
 After-sales service;
 Disposal or recycling after the end of the product’s useful life.

A quality system harmonises the effort of all groups in the organization towards a focus
on the quality of what it produces and what it produces and what factors might prevent it
from achieving the required quality.

Definitions

ISO 8402 defines quality as the totality of features and characteristics of a product or
service that bear upon its ability to satisfy stated or implied needs.

Quality control is defined as the operational techniques and activities applied to ensure
quality. A customer is the one who receives the product or service. The customer can
either be external or internal. The external customer buys the final product; the internal
customer receives the semi finished product for further processing. In all these
relationships, quality requirements must be met.

Quality assurance is defined as “All those planned and systematic actions necessary
to provide adequate confidence that a product will satisfy given requirements for quality.

Quality improvement is the organised creation of beneficial change.

Quality management, therefore, embraces the models of quality control, quality

assurance and quality improvement.

The need for standards in a quality system

Traditionally buyers request samples from potential suppliers and carry out inspection
and testing to determine whether the samples conform to specifications. Actual
shipments however have been known to contain non-conforming products even when
the samples have passed all tests. Because of this problem, major buyers send their
technical experts to assess the quality control system of the supplier to assure himself
or herself that the supplier will be able to supply products of consistent quality.

The pre-assessment of the supplier’s capability can be quite costly for the buyer and on
the part of the supplier multiple assessments by different purchasers likewise can be
extremely expensive, because of the extra effort required to prepare for each
assessment. The individual technical experts may have different perceptions of the
same quality system and as a result the supplier will receive different assessment
reports.

To solve these problems, it is necessary for the exporter to adopt a universally accepted
quality assurance system. It is for this reasons that the International Organization for
Standardization (ISO) issued the ISO 9000 series of standards for quality assurance
systems.

The ISO 9000 series of standards consist of two broad categories of standards, core
standards and supplementary standards.

Product Quality Standards specifies various characteristics and partners, which the
product should meet if it is to conform to the product standard. The basic principle in
product certification authorises a manufacturer, through a license, to use the prescribed
certification stamp on a product. Conformity of a product to its specification is
ascertained by the certification body through periodic testing of product and samples.

Quality System Standards defines the method of managing quality in a company to

ensure that products conform to the quality level it has set for itself. A company is free
to set any quality standards for its products. But in a contractual situation,
implementation of the ISO 9000 system will help the company to clearly understand
customer requirements. The operation of the company will be managed to ensure that
the final product meets contractual requirements. The ISO 9000 standards apply to
products and services as well as to big and small companies.

15.3 Benefits of ISO 9000

 The primary purpose is to inspire confidence among customers in contractual
situation;
 It enables the supplier to achieve customer satisfaction cost-effectively;
 If all tasks are carried out correctly the first time, there would be no waste, costs
will be minimized and profits maximized;
 It enables the supplier to identify, plan tasks and their method of performance so
as to yield best results;
 It provides performance improvement and thus preventing and reducing problem
recurrence;
 It enables staff to control their own operations. This creates job satisfaction
among workers;
 It provides a means of documenting the company’s experience. This can serve
as a basis for staff training and performance improvement;
 It generates objective evidence to demonstrate the quality of products and
effectiveness of the system and thus to build confidence among customers.

Most companies over the world are implementing quality system standards and the
bigger companies are insisting on their suppliers to implement quality systems.
Therefore, it is imperative for Ethiopian export companies to gradually adopt
international quality systems (ISO 9000), as this would greatly help in the improvement
of their image and products, their credibility and acceptability in the international market,
factors essential for success in export trade.

15.4 Quality Infrastructure and Its Elements

Quality infrastructure can be understood as the totality of the institutional framework,
whether public or private, the output of which includes the process of formulating,
issuing and implementing standards and the associated evidence of compliance in
order to improve the suitability of products, processes, and services for their intended
purposes, prevent barriers to trade and facilitate technological cooperation.
The organizations that make up a quality infrastructure should individually or collectively
provide the following output:

 Standards – the formal documentation containing the requirements that a

product, process or service should comply with. Standards are considered
essentially to be voluntary in nature. It is only once they are called up in a
contract, for example, the compliance becomes a binding requirement.
 Metrology – the technology or science of measurement. Metrology can be
subdivided into scientific metrology (the organization and development of the
highest level of measurement standards), legal metrology (the accuracy of
measurements where these have an influence on the transparency of
economical transactions, health and safety) and industrial metrology (the
adequate functioning of measurement instruments used in industry, production
and testing).
 Testing – the determination of product characteristics against the requirements
of the standard. Testing can vary from a non-destructive evaluation (e.g. X-ray or
pressure testing after which the product can still be used) to a total destructive
analysis (e.g. chemical, mechanical, physical or metallurgical tests after which
the product can no longer be used), or be any combination thereof.
 Accreditation – the activity of providing independent attestation as to the
competency of an individual or organization to provide specified services (e.g.
testing, certification).
 Certification – the formal substantiation that a product, service, organization or
individual meets the requirements of a standard.

These elements are all interrelated and to some extent all are required to provide the
purchaser, user or authorities with the appropriate confidence that the product, process
or service meets expectations.

15.5 Quality and Standards Authority of Ethiopia

The Quality and Standards Authority of Ethiopia (QSAE) is the National Standards body
of Ethiopia established in 1970 and is a non-profit government organ accountable the
Ministry of Science and Technology. It has undergone several restructuring, of which
the latest was based on Proclamation No. 102/1998, and organizing the Authority to
effectively promote quality management practices as one of its central objectives in
addition to standards Development, Certification, Metrology and Testing.

Objectives of QSAE

The basic organization-wide objectives of QSAE are:

 To promote and assist the establishment of appropriate quality management

practices as an integral yet distinct management function in the social and
economic sectors;
 To assist in the improvement of the quality of products and processes through the
promotion and application of Ethiopian Standards;
 To promote and coordinate standardization at all levels in the country;
 To establish a sound national metrological system as a basic structure for
economic development; and
 To strengthen, promote and enhance the reliability of testing laboratories nation
wide.

QSAE’s Core Business Areas

The following are the core businesses/ activities areas in which QSAE is engaged:

 Ethiopian Standards Development;

 Regulation Enforcement (Compulsory Product Certification service) through
inspection on selected:
a) Locally manufactured products;
b) Import products;
c) Export products;
d) Measurement instruments (Legal Metrology)
 Provide Calibration Service;
 Laboratory Testing Service;
 Training and Technical Support;
 Provide Quality and Standards related Information;
  Public Education on Quality and Standards.

In addition product certification (voluntary schemes/ programs), pre-shipment inspection

and system certification (ISO 9000, HACCP and Others) are among the core activities
started recently.

Quality Policy

The Quality and Standards Authority of Ethiopia is committed to continuously and

consistently satisfy the needs and expectations of its customers in a process of
continuous improvement.

QSAE strives to support the national effort for social and economic development by
providing efficient, reliable and impartial services on:

 Formulating Ethiopian Standards;

 Product Certification;
 Laboratory Testing;
 Calibration and Verification of Measuring Equipment; and
 Standards Information and Training.

How are Ethiopian Standards (ESs) Implemented?

Implementation of or compliance with Ethiopian Standards is normally voluntary, but for

standards prepared on products/ services that have direct influence on health, safety
and related considerations, compliance is often made compulsory.

In general, implementation of standards is done by different regulatory bodies,

consumer organizations, and most importantly, by industry. It is also enforced by QSAE
through certification of selected products and services for which QSAE has the
competence and mandate to carry out.

15.6 Misconception about Quality

Most businesses are aware of the need for producing good quality products and they
consider quality as a socially desirable objective, and regard the contribution of quality
to profitability as very minimal. This is because of a number of misconceptions:
15.6.1 Higher Quality Costs More

This is the most common misconception about quality. However, when proper methods
of production are used to achieve high quality it will not cost more. It is important to
understand how quality is built into a product in modern production processes.

15.6.2 Emphasis on Quality Leads to Reduced Productivity

There is a widespread notion that quality products can only be made at the cost of
quantity. This view relates to the situation where quality control involves largely physical
inspection of the final product. In that situation, more stringent inspection requirements
result in the rejection of a large proportion of the output produced. To date, quality
control has moved a step further. The emphasis is on prevention during design and
manufacture. So that defective artcles are not produced in the first instance. Efforts to
improve quality and increase production have, therefore, become complementary, in
that quality improvement would generally lead to higher productivity.

For instance, one of the most important quality assurance activities is the review of a
design before it is released for production. This review establishes whether the design
is, in fact, capable of meeting the customer’s requirement. It also determines whether
the product can be easily manufactured with the existing plant and machinery. If
necessary, changes have to be made so that the product is manufactured by the most
economical process possible.

The Labour Force is Entirely to Blame for Poor Quality

In most cases management blames the labour force for poor quality products due to
their lack of ability and lack of quality consciousness. But workers can only be
responsible for poor quality if management:

 Has thoroughly trained the machine operators;

 Has given employees detailed instructions on what to do;
 Has established the means to verify or assess the results of the employee’s action;
 Has provided the means for regulating the machines if the results are found to be
unsatisfactory.
However, many managers have failed to provide these vital inputs in most factories.
Rather than finding excuses, companies need to examine the weakness of their system.

Quality Improvement Requires Large Investments

It is widely assumed that an organised quality improvement program would require

heavy investments in new plant and machinery. Yet this is not necessarily true.
Machinery and equipment constitute only a component of the total quality system. By
themselves, machines are not sufficient to assure high quality. Quality can significantly
improve by creating awareness among workers about meeting customer requirements,
standardization of processes, training operators and enforcing technical discipline.
These activities do not require large financial investment, but only a genuine
commitment to quality on the part of management.

Quality can be Assured by Strict Inspection

Inspection was the first formal quality control mechanism since the beginning of the
century and most manufacturers still believe that quality can be improved by strict
inspection. It should be clearly understood that inspection could only lead to a
separation of good from bad pieces. Since it is done at the end of the production
process it cannot by itself improve the quality of manufactured product.

Recent studies have shown that about 70% of defects detected on the shop floor are
directly or indirectly related to lapses in such areas as design, method of production and
purchasing of raw materials and inputs. Therefore, it should be stressed that quality
control is not an isolated activity which can be carried out by the inspection department
alone. To be effective, it should include the cooperation of all departments including
those responsible for marketing, design, production, purchasing, packaging, dispatch
and transportation. In fact, quality control must cover both suppliers of inputs and
customers. It is important to understand customer requirements and to obtain accurate
feedback on their perception of the product.

The Avoidable Costs of Manufacturing for Export

Traditionally, the cost associated with poor quality is the costs of scrap, rework and
excessive effort in inspection and testing. These costs are understood but they are
mostly not recorded in the company’s books of accounts. Additionally, poor quality
management results in other avoidable costs such as:

 Wasteful use of materials owing to poor design and inefficient manufacturing

process;
 High inventories resulting from poor choices of supplies and ineffective control of
purchased inputs;
 Damage and deterioration during transit and storage due to poor packaging and
handling;
 Under-utilization of plant and machinery owing to mismatch of jobs and machines.
This results from inadequate information on process capability and poor work
planning;
 Waste of time and money on travel by company executives to sort out quality
problems with customers, generally to the detriment of the executives who have
many other responsibilities;
 Penalties for late delivery and failure to meet requirements.

Another area requiring consideration is that the nonconformity at any stage of

production incurs an associated cost (by way of rework or replacement) over and above
the normal cost of production. Furthermore, the magnitude of this cost depends on the
point in manufacturing or delivering at which the problem of nonconformity is
discovered. The late it is discovered the the higher the costs.

For an exporter the worst happens when nonconformity / defects are discovered by the
customer after a consignment has been sent overseas. Hardly any repair can be done
in such a case; the exporter would be forced to replace all the non-conformity items.
The costs incurred in replacements and transport may drastically reduce the profitability
of the transaction. In addition, the credibility of the exporter will be adversely affected,
which may place his future business prospects in jeopardy. Thus, exporters should take
particular care to manage appropriately all activities which affect the quality and timely
delivery of their product.
Using ISO 9000 quality systems greatly assists in effective quality assurance and cost
reduction. These in turn can give the entrepreneur a competitive edge in export
markets.
XVI. TRADE RESTRICTIONS

Free, open trade between countries is important to healthy economies. It allows

companies and workers to specialize in what they do best. Competition forces
companies to be more productive.
Costs are kept lower. Consumers have the options of buying cheaper and better goods
and services. Free trade helps create jobs, both in the domestic country where goods
are produced/ manufactured and in the foreign country where the goods are imported.
In spite of the many advantages of free trade, many nations put limits on trade for a
variety of reasons. The main types of trade restrictions are tariffs, subsidies, quotas,
embargoes, licensing requirements, and standards.

16.1 Types of Export Restrictions

Export restrictions take a variety of forms. In general the types of export restrictions
imposed by importing countries are of two forms:
(i) Tariff Barriers
(ii) Non Tariff Barriers

16.1.1 Tariff Barriers

A tariff may be one of the following four kinds: Specific, Ad valorem, Alternative and
Compound

I) A Specific duty:- Is a tax of so much local currency per unit of the goods imported (based

on weight, number, length, volume or other unit of measurement? Specific duties are often

levied on foodstuffs and raw materials.

ii) Ad Valorem duty:- The kind most commonly used, is one that is calculated as a
percentage of the value of the imported goods - for example, 10, 25 or 35 per cent.

This may be based, depending on the country, either on destination (c.i.f.), or on the
value of the goods at the port in the country of origin (f.o.b.).
iii) An Alternative duty:- Is where both an Ad valorem duty and A Specific duty are
prescribed for a product, with the requirement that the more onerous one shall be Ad
valorem duty value plus 10 cents per kilo.

iv) Compound duties:- These are imposed on manufactured goods that contain raw
materials that are themselves subject to import duty. The "specific" part of the
compound duty (called compensatory duty) is levied as protection for the local raw
material industry.

Flat-out export bans are relatively rare, as they violate many of the rules of world trade.
However, several countries have banned exports of, for example steel scrap, including
Argentina, Indonesia, Jamaica, Kenya, Mongolia, Saudi Arabia, Uruguay, and
Zimbabwe. The most commonly used restrictions on exports are export taxes. These
are taxes on exports of a given raw material. The tax can be expressed either ad
valorem (as a percentage of the value of the exported good) or as a fixed tax (usually
per ton). The tax is often applied to wastes and scraps, to encourage recycling of the
scrap within the country. Export taxes may be combined with reference prices, the
government-set prices on which taxes are calculated.

A tariff is a tax on goods imported from a foreign country. Tariffs raise the price of the
imported goods. This makes the price of the imported goods equal to or higher than the
price of the domestic goods. The government of the country that is importing the goods
collects the money from the tariff. Remember that a tariff on tea led to the American
Revolution!

16.1.2 Non-Tariff Barriers

Non-tariff barriers to trade include: license, import quotas, voluntary export restrains,
local content requirement, subsidies, trade embargoes, and health and safety
requirements.

Licenses - A license is granted to a business by the government, and allows the

business to import a certain type of good into the country. For example, there could be a
restriction on imported cheese, and licenses would be granted to certain companies
allowing them to act as importers. Some countries require a producer to get a license to
import or export goods. In this way, the government can limit the number of imports by
limiting the number of licenses issued. Export licenses can be used to keep domestic
prices on agricultural products from rising. If too much wheat, for example, were
exported, it would cause the domestic price of wheat to rise. Sometimes export licenses
have been used to restrict trade with certain countries for political reasons. The
government collects money from the sale of licenses. This creates a restriction on
competition, and increases prices faced by consumers.

Import Quotas - An import quota is a restriction placed on the amount of a particular

good that can be imported. Putting a quota on a good creates a shortage, which causes
the price of the good to rise. That allows domestic producers to raise their prices and to
expand their production. A quota on cars, for example, might limit foreign-made cars to
one million a year. If Americans buy twenty million new cars each year, this would leave
most of the market to American producers. A quota benefits domestic producers, but it
does not benefit the government. This sort of barrier is often associated with the
issuance of licenses.  For example, a country may place a quota on the volume of
imported citrus fruit that is allowed.

Voluntary Export Restraints (VER) - This type of trade barrier is "voluntary" in that it is
created by the exporting country rather than the importing one. A voluntary export
restraint is usually levied at the behest of the importing country, and could be
accompanied by a reciprocal VER. For example, Brazil could place a VER on the
exportation of sugar to Canada, based on a request by Canada. Canada could then
place a VER on the exportation of coal to Brazil. This increases the price of both coal
and sugar, but protects the domestic industries.

Local Content Requirement - Instead of placing a quota on the number of goods that
can be imported, the government can require that a certain percentage of a good be
made domestically. The restriction can be a percentage of the good itself, or a
percentage of the value of the good. For example, a restriction on the import of
computers might say that 25% of the pieces used to make the computer are made
domestically, or can say that 15% of the value of the good must come from domestically
produced components.

Subsidies: Subsidies are like tariffs in reverse. A government will give money to
domestic producers of certain goods. This allows the producers to charge less than
foreign producers to keep prices low. Tariffs are paid for by the consumers of the goods.
But subsidies are paid for by the government (which gets its money from taxpayers).
Taxpayers may or may not use the goods that are subsidized, so they may be paying
for the cost of a product they do not even use. Some things that are commonly
subsidized in the United States are gasoline, utilities, farm crops, and some student
loans.

Trade embargo: An embargo stops exports or imports of a product or group of products

to or from another country. Sometimes all trade with a country is stopped. This is
usually for political reasons. Because the U.S. doesn't want to support countries that
may support terrorism, it has used embargos against Iran, Iraq, and Syria.

Health and safety

Health and safety standards are set for imported goods. These are sometimes used to
restrict imports by many countries. Because the standards are set by the importing
country's government, the standards are sometimes much higher than those for
domestic goods. Standards have become a major form of trade restriction.

All of these trade restrictions limit world trade. This has the effect of limiting total
production of goods. It shifts production away from the most efficient producers to less
efficient ones. It reduces employment and/or wages, and it causes an increase in
prices.

If trade restrictions are bad, why do countries use them? They want to protect their own
businesses and workers. Some beginning businesses that are just getting started need
extra help to become successful. Governments also want to protect certain industries.
Agriculture is one area where tariffs and subsidies are commonly used to help domestic
farmers earn enough from farming to keep raising food. Political reasons are also a
major reason for trade restrictions.

16.2 Impact of Export Trade Restrictions

Restrictions on exports of raw materials have two obvious effects. By artificially limiting
international supply of the material in question, international prices (i.e., prices outside
the country of production) will rise for importers of these materials, which in turn raise
their overall cost of production. In some cases, actual shortages of the material may
arise, as has occurred periodically with steel scrap. Conversely, export restrictions
artificially increase domestic supply, causing domestic prices to fall, so that domestic
consumers of the material enjoy lower costs of production. Domestic consumers pay
less, and international costumers pay more. This gap between domestic and
international prices gives domestic consumers of the materials an advantage in
international competition. If the gap is significant, and the material represents a sizable
portion of the total cost of raw materials, the advantage can be potentially decisive.

By artificially lowering world supply of a given material, and raising its world price,
export restrictions also create pressure on exports from non-restricting countries. For
example, restrictions on exports of steel scrap by Russia, Ukraine, and other countries
have brought about higher exports from non-restricting countries like the United States
and Canada. Because, domestic supply of the raw material has been partially diverted
to exports, the prices in these countries for this input rise even further.

Finally, export restrictions create uncertainty in markets. Countries frequently change

their export restrictions, often with little or no notice. In 2008, for example, China
increased the export tax on coke from 5 percent to 40 percent. China frequently adjusts
the export quota for coke as well. Moreover, even the rumor of possible restrictions on
exports can affect current and future prices. This uncertainty makes it very difficult for
steel producers to estimate their raw material costs or to plan their purchases and
operations. Uncertainty may affect producers in less-developed countries
disproportionately, as they may lack the ability to shift to alternative sources of supply.

16.3 Conclusion
Although Ethiopia has got free access to foreign markets through GSP and EBA, the
trade restrictions imposed on foreign exporters have equally limited Ethiopia exporters
to export these specified products. Fore example, trade restrictions in the form of quota
imposed on sugar and horticulture products from EU, special safety and health
requirements for processed foods, animals and animal products in EU markets have not
enabled Ethiopian exporters to export to EU markets. Therefore, exporters should focus
on products that do not have such trade restrictions.
XVII. EXPORT MARKET DEVELOPMENT STRATEGY

The purpose and objective of this chapter is to embrace in a logical framework every
phase of the export operation through cross referring wherever applicable – from the
identification of markets, negotiation of contracts, production of the goods, delivery and
final receipt of payment. At the same time, it is to highlight the importance of compliance
to the national and international rules and regulations governing the export trade
operation. In general, product development and export market strategy, management
strategy and export promotion strategy have been explained in the following sub-
sections.

17.1 Export Marketing Strategy

Nowadays, exporters must work out export strategy in detail. Choices must be made in
advance, after due consideration of all the aspects of the export process. They must not
be arrived at piecemeal by improving changes in response to a chain failure. To do so
would be costly and detrimental to the success of the company.

Successful marketing requires that an organization should seek to make a profit by

serving the needs of the consumer groups. Effective marketing starts with the
recognition of customer needs and then work backward to devise products that satisfy
the needs. Thus, the firm should not only emphasize the production and sales but
importantly the needs of the customer. “To satisfy the customer is the mission and
purpose of every business”.

17.1.1 Market Search and Identification

The exporter needs current and reliable trade information which should be gathered,
processed and utilized continuously. Market research is an integral part of the overall
marketing decision support system. Based on the market information gathered and
analyzed, the exporter should identify and select target markets. After selecting target
market, exporters have to develop their own market entry strategy. Foreign markets can
differ in many ways, in income levels, standards, climates, sizes of people and space,
language, religion, cultural preferences and taboos, business practices, etc. Without a
“market-conducive” entry strategy, you will not be able to use the full market potential;
or worse, you could make costly mistakes.

17.1.2 Product Development Strategy

After market research and identification of target markets, the exporter can make a
decision on the products the firm will produce for the export market. Product strategy is
a crucial element of the export strategy, since it is through the sales of products and
services by which the export company earns revenue. Successful exporting depends on
understanding the nature of the products, i.e. product quality, product design, and
product packaging.

Product Quality

In order to produce quality products, suppliers must have a customer/ market

orientation, must establish an adequate product quality price relationship, must have a
well trained and motivated workforce and must possess a firmly established quality
management system. Furthermore, the market now increasingly requires the adoption
of internationally recognized quality management systems and the demonstration of this
fact through certification or registration by independent accredited bodies. Such
certification is considered a factor in competitiveness, since it adds value and increases
buyer confidence and facilitates access to national and international markets. ( ISO
9000 is a family of international standards developed under the auspices of the
International Organization for Standardization – that describes a basic set of elements
from which a quality management system can evolve).

Product Design

A product is divided into groups of similar consumers (market segments). An exporting

company must select the most appropriate segment for its product. The product
features and design should be tailor –made to meet the needs of the particular
customer group. Producers of leather related products and exporters of clothing and
textiles should pay particular attention to the market /fashion trends and design their
products accordingly. Recap – markets are not static – customer needs and
preferences are constantly changing.
Product Packing and Packaging

The basic thinking behind this is that packaging cannot be considered separately from
the other elements of the marketing strategy. Packing is one instrument in the orchestra
of distribution, from which rewards are obtained only when it is attuned to such other
marketing instruments as quality of product, distribution channels, price levels, etc. this
implies that there is no “good” or “poor” packaging as such. Packaging should be more
or less adapted to the marketing situation of which it is intended to cover.

For example, the combined requirements of fresh produce (fruits, vegetables and cut
flowers) and their transport requirements often impose a severe condition of the
packaging to be used. As a result higher packaging quality is usually more needed for
fresh fruits and vegetables than for manufactured goods of the same weight (e.g.
leather products). However, this does not mean to say that leather goods can be
crammed into a container. For instance, handbags packed this way may arrive at their
destination flattened and creased and generally unpresentable. They would then require
reconditioning, an expensive and time consuming activity which can be easily avoided
through proper packaging.

Exports from Ethiopia generally have long distance to go before reaching the final
destination. Therefore, careful attention should be paid to providing seaworthy and solid
packaging. In export marketing, packaging can make or break an export deal and must
be discussed with the buyer before any shipment is made. Legal requirements in the
importing companies have to be complied with. Packing materials have to be recyclable.
Ecological requirements are being more stringent. Exporters should consult their
overseas buyers and the authorities concerned.

There is a wide choice of packaging materials: wood (crates, cases, plywood), metal
(drums, cans, containers), cardboard (plain, corrugated, two- or- three ply, triple
corrugated), plastic, paper, glass, jute and sisal. In Ethiopia most of these materials are
now available. Exporters of fragile products and that require special handling should
seek the assistance from packaging companies on the most suitable packaging
material.
Hooping, marking and labeling, palletization and containerization are examples of the
packing techniques with which an exporter must be familiar.

Place

In the marketing mix, the term “Place” refers to the physical location of the market and
how the product reaches that market. This section deals initially with the physical
location of the market and then the latter. When deciding where to market, the exporter
has to take into consideration factors such as market access, i.e. the general import
policy of the country; membership to a customs union (COMESA); special trade
relationships (EU, GSP); and entry regulations and procedures.

Generally, it is logical for an exporter to choose markets that offer preferential access to
Ethiopian exports, for example the EU market and the countries where GSP scheme
applies. The special trade agreements allow for the importation of the Ethiopian exports
free of import duties or at reduced rates. This has a direct bearing on the landed price of
the product, which would be cheaper compared to a product of the same nature, which
does not qualify for duty free entry. In order to able to benefit from these preferences,
the exporter should provide documentary evidence which confirms the origin of the
product, compliance with market regulations and conform to requirements in terms of
product quality (health certificate and inspection certificates, etc.).

Organizing for Exporting

A company new to exporting generally treats its export sales no differently than its
domestic sales, using existing personnel and organizational structures. As international
sales and inquiries increase, the company may separate the management of its exports
from that of its domestic sales. The advantages of separating international from
domestic business include the centralization of specialized skills needed to deal with
international markets and the benefits of a focused marketing effort that is more likely to
increase export sales. A possible disadvantage is that segmentation might be a less
efficient use of corporate resources.

Larger companies at advanced stages of exporting may choose to retain the

international division or to organize along product or geographic lines. A company with
distinct product lines may create an inter-national department in each product division.
A company with products that have common end users may organize geographically.
For example, it may form a division for Europe and another for the Pacific Rim.
Regardless of how a company organizes its exporting efforts, the key is to facilitate the
marketer's job. Good marketing skills can help the firm operate in an unfamiliar market.
Experience has shown that a company's success in foreign markets depends less on
the unique attributes of its products than on its marketing methods.

Once the company is organized to handle exporting, a proper channel of distribution

needs to be carefully chosen for each market. These channels include sales
representatives, agents, distributors, retailers, and end users.

The next step is the decision on how the products will be physically delivered to the
buyer. The modes of transport available (target market), regulations of importing
country, and regulations of the national authorities and government are factors should
be considered. The exporter has a range of choices on the mode of transport, sea, air,
road, rail and post. Each mode of transport has advantages and as well as
disadvantages. It is, of course, unusual in practice for the five options to be
simultaneously available for any one shipment. The nature of the product, weight and
volume of the goods and the route normally limit the range of choices.

For the actual movement of goods there are regulations that the exporter has to follow
from the local government and the importing country. Local Government (Ethiopian)
Regulations and Requirements include: export registration and licensing; export permit
for every shipment; price regulations and control; declaration of export value; and
customs clearance and examination.

Regulations of Importing Country include: import license; certificate of origin; and quality
standards certification.

Each shipment whether by sea, air, road, or rail will be accompanied by international
transport documents. The transport documents give evidence of the transport contract
and define the mutual obligation of the carrier and exporter/ importer.

Mode of transport Transport Document

 SEA Bill of Lading
AIR Airway Bill
RAIL Rail Consignment Note
ROAD Road Consignment Note (Way Bill)
Shipping Documentation

As documentary requirements may vary from country to country, these should always
be cleared with buyers before goods are shipped. In general, the requirements are
similar. The usual documents are: Commercial Invoice, Bill of Lading, Airway Bill, Way
Bill or Rail Consignment Note, Packing list, Certificate of Origin, and Insurance
Certificate.

In addition, pro-forma invoice, consular invoice, EUR 1 certificate (exports to the EU),
EU 2 certificate (exports to EU by post), GSP form A, shipping company certificate, and
Import license may be required.

17.1.3 Distribution Strategy

The way your company chooses to export its products can have a significant effect on
its export plan and specific marketing strategies. The basic distinction among
approaches to exporting relates to the company's level of involvement in the export
process. There are at least four approaches, which may be used alone or in
combination:

i) Passively filling orders from domestic buyers who then export the product.
These sales are indistinguishable from other domestic sales as far as the original seller
is concerned. Someone else has decided that the product in question meets foreign
demand. That party takes all the risk and handles all of the exporting details, in some
cases without even the awareness of the original seller. (Many companies take a
stronger interest in exporting when they discover that their product is already being sold
over-seas).
ii) Seeking out domestic buyers who repre-sent foreign end users or customers.
Many foreign corporations, general contractors, foreign trading companies, foreign
government agencies, foreign distributors and retailers, and others in the United States
purchase for export. These buyers are a large market for a wide variety of goods and
services. In this case a company may know its product is being exported, but it is still
the buyer who assumes the risk and handles the details of exporting.
iii) Exporting indirectly through intermediaries. With this approach, a company
engages the services of an intermediary firm capable of finding foreign markets and
buyers for its products. EMCs, ETCs, international trade consultants, and other
intermediaries can give the exporter access to well-established expertise and trade
contacts.
iv) Exporting directly. This approach is the most ambitious and difficult, since the
exporter personally handles every aspect of the exporting process from market research
and planning to foreign distribution and collections. Consequently, a significant
commitment of management time and attention is required to achieve good results.
However, this approach may also be the best way to achieve maximum profits and long-
term growth. With appropriate help and guidance from the Department of Commerce,
state trade offices, freight forwarders, international banks, and other service groups,
even small or medium-sized firms can export directly if they are able to commit enough
staff time to the effort. For those who cannot make that commitment, the services of an
EMC, ETC, trade consultant, or other qualified intermediary are indispensable.

Most exporting is done through “local agents” or “distributors”, or “directly”. Overseas

sales offices, joint ventures and subsidiaries are last-resort options. When the volume
being exported is high then such methods are used. Only with such high volumes, can
the high cost of setting up the “sales offices” be reasonable.

Pricing strategy

Ideally, the price at which you sell in the export markets, should cover all
costs, be competitive, attract buyers, and still make a profit! The "optimum"
price in one market may not work in other markets. Whatever the market,
price planning must start with the “product’s baseline unit costs”. Pricing
below cost is economically unwise.
Baseline export costs include: fixed costs to produce the product and variable
costs to market and deliver the product abroad. Under competitive conditions,
the closer the exporter gets to the customer is better. This can be done by
quoting, say CIF instead of FOB basis. A price quotation on CIF (cost,
insurance and freight) basis leaves only customs duties and landing costs for
the buyer.

Prices of certain products are regulated/ controlled by the government. For

the exporter, the law that makes certain pricing decisions illegal should be of
primary consideration when negotiating export price. Pricing decisions should
integrate the firm’s costs with the marketing strategy, business conditions,
competition, consumer demand, product variables (quantity), and channels of
distribution and transportation. Pricing decisions should take into account the
fact that a firm is a dynamic entity operating in a very competitive
environment. And as a result there are many ways for money to flow out of
the business in the form of costs, but very often there is only one way to bring
in revenue and that is by the price-product mechanism.

For new exporter, freight forwarder, bank expert or lawyer can help to draw up
proper terms and conditions of for the sale. The exporter should accept, all
the help he needs to establish his prices correctly and quote them clearly. His
product although useful or its design or how well promoted it may be, has to
be priced correctly to succeed in the export market.

Methods of Payment

The export transaction provides for a centralized exchange function through which
goods are distributed/ delivered to the buyer in return for payment. The payment can be
made in advance or deferred. Payment in advance or on delivery, payment against
documents and the various types of documentary – revocable, irrevocable and
confirmed – offer the exporter must carefully choose the one offering him the desired
degree of security. The exporter has to bear in mind the exchange control regulations
prevailing in the local environment as well as in the importing country.
Export Finance

Like any other business, finance is the lifeline for export business. An exporter usually
needs finance for processing /manufacturing the goods for export. This is termed “pre-
shipment finance”. After the shipment, the exporter has to wait until payment for goods
is finally received by the buyer. “Post shipment finance “is needed by the exporter to
bridge the financial gap between the time of shipment and the actual receipt of payment
for the goods. In Ethiopia, both pre-shipment and post-shipment finance is provided by
the local commercial banks.

The commercial banks usually require export permit and license, audited financial
statements; profile of managers/ directors (CV); organizational structure (in case of new
company); business plan/ proposal (for new initiatives) and financial forecasts; and
collateral documents (title deeds, insurance policy, foreign bank guarantee, etc.) before
extending credit.

Because banks will only offer credit on the basis of the feasibility of and viability of the
project, new exporters should seek assistance from the Chambers of Commerce and
Sectoral Associations on the preparation of project proposals and business plans.

Accounting, Auditing and Taxation

An exporting business operates in an environment where there are parties interested in

its performance. These include the owners (shareholders), the creditors (suppliers), the
financial intermediaries (banks), and the government and relevant authorities (tax
collector). For the business to satisfy the many needs of the stakeholders it should
maintain records in a proper system of accounting. Annual audits should be carried out
to confirm the reliability of the records.

After each financial year the company is required by law to pay corporation tax – which
is a 30% of net profits. Personal income tax for the employees is payable on a monthly
basis.
The exporter should aim to take advantage of the export incentives currently on the
ground which includes: duty draw-back, voucher scheme, bonded manufacturing
warehouse, export credit guarantee scheme, foreign exchange retention scheme,
foreign credit scheme, export tax exemptions for all exporters, and exemption from
customs duties.

17.2 Management of Export Sales

An exporter can draw on a great deal of outside professional service, freight forwarders,
transporters, insurers, and bankers for advice and assistance. But, the complexity of the
operation as summarized above requires the setting up of a unit, whose core function is
to coordinate and follows up the chain of administrative and logistical activities of
exporting. The unit may be called a division or department, depending on the size of the
exporting company.

Whatever the size of Export Management Unit (EMU), it is necessary and should be
healed by a good export manager, on who is familiar with the export techniques,
documents, and procedures and capable of keeping the process moving to ensure that
the customer receives the goods he has ordered in time.

The range of exporting activities cannot be left to the head of the company, the sales
staff or the accounts office. This is an organizational mistake frequently encountered by
SMEs. In exporting, incidents and delays result in additional costs for the firm and
ultimately with dissatisfied customers.

Functions of EMU

 Assistance to the sales staff, offering them information on the cost of transport, so
that Quotations will be made on the basis of prevailing rates;

 The unit is responsible for updating information on regulations, port operations,

customs and external trade regulations and maintain close contact with forwarding
agents;
  In case of advance orders the unit maintains files of export customers and may be
required from time to time to obtain information regarding the financial status of
present and potential export customers;

 Maintaining export records;

 Follow up exports shipments until delivery.

17.3 Export Market Promotion Strategy

You will need some promotion in target markets to make your products
known. The options abroad are generally the same as domestically – a
Company Webpage, direct mail (regular or e-mail), telemarketing, press
releases, paid ads, trade shows, and sales trips. Most countries have
adequate media and can support any of these methods. However, some
techniques may work better than others in particular markets. Costs could
also affect the approach.

Localization Strategy

Most countries have different languages, cultural values, tastes, business

practices, income levels, environmental conditions, product standards, legal
requirements, etc. These all have important sales implications. To be
successful in different markets you need to "localize" your approach.

For example, sales won't do well if:

 The product is incompatible with local health, electrical and
technical standards.
 The product is unaffordable for buyers.

 The product needs added protections against abnormal climates,

pestilence, pollutants, etc.

 The product requires downsizing to fit smaller people, homes,

streets, etc.
 The product or packaging uses colors, shapes, words or symbols
that offend or appear foolish to target customers.

 The sales literature and user manuals need translation to be

understood.

Increase Market Exposure Abroad

If you're not already known abroad, you'll need to promote your company and
products overseas. You won't sell much if the buyers don't know who you are.
Generally, the more you promote, the greater the impact. You can best
increase your overseas market exposure through a combination of the
following techniques.

Company Website:- Your own company website can potentially be "seen" by

anyone in the world at any given moment. You can design it as a
company/product catalog, with text, images, price sheets, order forms and
anything else you wish. You can track and collect data on site visitors and
incorporate automatic e-mail responses to orders and inquires. Webpage set-
up costs are fairly low.

Export Directories:- Unlike directories of manufacturers, export directories

only list companies actually engaged or interested in exporting. Since many
manufacturers do not export, foreign buyers will more likely look in an export
directory to find potential suppliers. It's to your advantage to be listed in export
directories, particularly those with worldwide Internet outreach. There are two
types of export directories -- company-specific and product-specific. An export
company directory essentially lists the companies by name and industry
category. An export product directory lists the products each company offers
for export, often with detailed descriptions and images.

However, since foreign buyers primarily look for products, not companies, you
may get better promotional results from listings in export product directories.
Export “Sell Offers’’:- You can post your own "offers to sell" in a number of
different electronic trade lead websites. It's best to provide as much
information as possible in your offer, to reassure potential respondents that
you are a serious and reliable supplier. When posting a trade lead, you must
specifically describe: your export product (specifications, uses, benefits),
quantity available, price and delivery options, and what you would like to know
from respondents

Targeted Promotion:- Here your promotion reaches just the “targeted market
or audience”. Your message can be more detailed and personalized. Your
objective is high-quality, high-impact exposure. The costs are higher, but so
are the rewards. If you have foreign representatives, they can do some or all
of the targeted promotion in their areas, usually on a cost-sharing basis.
Consider targeted promotion techniques such as overseas business trip,
overseas trade shows and expos, and domestic trade shows and expos.
 GLOSSARY
Accounting : The language of communicating financial facts about an enterprise to those who
have an interest in interpreting and using those facts.

Articles of Association : Rules and regulations which govern the internal affairs of the
company.

Balance Sheet : An accounting report on the actual financial position of the business.

Base Cost : Total operating costs which include all costs of manufacturing the particular
product plus allocation on marketing and administrative costs to be recovered through the
selling price.

Bill of Exchange : An unconditional order in writing, addressed by one person to another,

signed by the person giving it requiring the person to which it is addressed to pay, on demand,
or at a fixed or determined future time, a certain sum of money t a specified person, or to the
bearer.

Certificate of Origin : A signed statement providing evidence of the origin of the goods.

Cost Amount of expenditure on, or attributable to; the value of economic resources used in
producing an item or doing the activity.

Cash-flow Statement : Shows where the money come from and where money is going.

Duty All indirect taxes and duties paid on raw materials and commodities imported or produced
locally.

Duty Draw- Back A scheme by which duty paid on raw material used in the production of
commodities is refunded upon exportation of the commodity processed.

Exporter A businessperson who transports goods and services abroad (for sale).

Export Trade Goods or any articles of commerce sold and shipped to other countries; another
name is outward trade.

Forex Retention Accounts Foreign currency accounts maintained by eligible exporters of

goods and services and recipients of inward remittances.

Free Trade Area A form of economic integration among a group of countries that allows each
member to maintain its own set of tariffs, quotas, etc., against non-members.

Income Statement A report showing the revenues realized during a stated time period and
the costs that were incurred during the same period.

Imports Goods and services and resources purchased from foreign suppliers.

Letter of Credit/L/C/ A written instruction issued by a bank – called the issuing bank or opening
bank at the request of the buyer/ importer.

Liquidity The ability of the business to convert its assets/ property into money upon short
notice without making a loss.
Market Research Gathering and analyzing of market information on a foreign market in a
systematic manner.

Marketing Strategy An outline of the manner in which marketing is used to accomplish the
objectives of the form.

Marking Refers to the marks and numbers stenciled on export cases for the purposes of easy
identification, storage, counting, handling, examination and delivery.

Memorandum of Association Document that defines company’s objectives and intentions.

Partnership Voluntary unincorporated association of two or more persons who contribute

money and other resources to engage in business for common undertaking and profit.

Packaging The presentation of product of product for sale.

Packing The protection of the product for transportation.

Quality The totality of features and characteristics of a product or service that bear upon its
ability to satisfy stated or implied needs.

Quality Assurance All those planned and systematic actions necessary to provide adequate
confidence that a product will satisfy given requirements for quality.

Quality Control The operational techniques and activities applied to ensure quality of a product
or service.

Raw Materials Refers to goods that are mixed with or fixed to other goods in the production
process to bring about export commodities.

Recipient of Inward Remittances A resident company, institution or individual other than

diplomatic mission, who receives foreign exchange transfers from abroad.

Rules of Origin : Agreement rules which outline how an exporter can be eligible for
preferential treatment in the area of duty payment.

Solvency : The ability of the business to pay debts.

Target Market : The defined customer group to which a firm appeals.

Tariff : The most common form of trade restriction in which a tax is placed on imported goods
by a foreign government.
Appendix 1 – A: Most Exported Products of Ethiopia

No Product Category/Description 2004/05 2005/06 2006/07  2007/08 2008/09

1 Coffee Qty. in tons 59,989 153,155 176,390 170,888 133,994
Rev. in '000 USD 334,863 365,585 424,144  525,203 375,838
Pulses, Oil Qty. in tons 308,230 380,533 406,213  406,040 440,763
2 Seeds & Spices Rev. in '000 USD 173,075 255,442 267,552 374,323  456,604
Qty. in tons 21,301 22,125 22,667 22,390  25,477
3 Chat Rev. in '000 USD 83,390 88,105 92,810 108,298  139,230
Qty. in tons 4 4.97 5.58 4.44  4.72
4 Gold Rev. in '000 USD 44,192 64,716 96,966 94,099  99,430
Qty. in tons 15,331 15,491 15,679 15,494  7,338
5 Hides and Skin Rev. in '000 USD 66,968 75,328 89,541 101,040  75,733
Qty. in tons 33,832 14,100 24,340 28,003  27,000
6 Sugar Rev. in '000 USD 14,553 8,245 15,836 16,016  15,549
Qty. in tons 400 353 415 422  341
7 Bees Wax Rev. in '000 USD 1,177 1,516 1,825 1,842  1,572
Flowers (In Qty. in tons 83 186.4 689 1,015.5  1,295
8 million Stems) Rev. in '000 USD 12,645 21,967 63,599 111,731  130,692
Meat and Live Qty. in tons 111,659 171,231 245,810 304,167  209,179
9 Animals Rev. in '000 USD 28,679 45,585 52,262 61,802  79,262
Cereals and Qty. in tons 18,022 38,466 5,973 3,575  40.9
10 Flour Rev. in '000 USD 8,761 14,078 1,634 1,220  41
Fruits and Qty. in tons 37,645 34,550 42,067 39,257  37,161
11 Vegetables Rev. in '000 USD 15,971 12,741 16,947 12,055  11,912
Textile and Qty. in tons 2,212 3,581 3,900 3,351  3,858
12 Textile Products Rev. in '000 USD 7,034 11,098 12,622 14,526  14,434
Qty. in tons 1,499 596 691 776  491
14 Tea Rev. in '000 USD 1,833 913 913 1,219  944
Qty. in tons 1,228 6,177 11,760 14,909  4,411
15 Cotton Rev. in '000 USD 1,848 6,809 14,341 19,240  4,900
Qty. in tons 3,791 3,529 3,976 4,612  3,563
16 Natural Gum Rev. in '000 USD 4,946 5,363 5,650 6,918  9,675
Qty. in tons 80 122 144 239  232
17 Tantalum Rev. in '000 USD 3,936 4,343 6,151 6,083  7,187
Qty. in tons 70,519 73,784 56,483 73,380  60,641
18 Others Rev. in '000 USD 15,156 26,162 22,290 25,806  27,157
Qty. in '000 tons 785,825 917,984 1,017,203 1,088,523 955,790
Total
Rev. in '000 USD 819,027 1,008,568 1,185,083 1,481,421 1,450,160
Source: Ethiopian Customs Authority and Ministry of Trade and Industry, Dec. 2009
Appendix 3 – A: SOURCES OF MARKET INFORMATION
1) NATIONAL AND CITY CHAMBERS OF COMMERCE AND SECTORAL ASSOCIOTIONS

ADDIS ABABA CHAMBER OF COMMERECE NAZARETH CHAMBR OF COMMERCE AND

AND SECTORAL ASSOCIATIONS SECTORAL ASSOCIATION
P.O.BOX 2458, Addis Ababa P.O.BOX 36
Tel.+251-115518055/5515989, TEL. 022 311 20 83
Telex: 2123 Fax. +251-11-5511479, 
Email: aachamber1@ethionet.et;
Webpage: www.addischamber.com
AWASSA CHAMBR OF COMMERCE AND ASSELA CHAMBER OF COMMERCE AND
SECTORAL ASSOCIATION SECTORAL ASSOCIATION
P.O.BOX 167 P.O.BOX 278
TEL. 046 – 220 07 85 PHONE 022 331 13 97
DESSIE CHAMBR OF COMMERCE AND BAHIRDAR CHAMBER OF COMMERCE AND
SECTORALASSOCIATION SECTORAL ASSOCIATIONS
P.O.BOX: 86 P.O.BOX 48
TEL. 03? 311 23 33 TEL. 058 220 04 81
ETHIPIAN CHAMBR OF COMMERCE AND DIRE DAWA CHAMBR OF COMMERCE AND
SECTORAL ASSOCIATION SECTORAL ASSOCIATION
P.O.BOX 517 P.O.BOX 198
TEL. 011 551 82 40 TEL. 025 111 30 82
FAX 011 551 76 99
JIMMA CHAMBR OF COMMERCE AND MEKELE CHAMBR OF COMMERCE AND
SECTORAL ASSOCIATION SECTORAL ASSOCIATION
P.O.BOX:143; Jimma P.O.BOX 417; Mekele
TEL. 047 111 11 40 TEL 034 440 07 23
GONDER CHAMBR OF COMMERCE AND SHASHEMENE CHAMBR OF COMMERCE AND
SECTORAL ASSOCIATION SECTORAL ASSOCIATION
P.O.BOX 50 TEL. O46 210 1193
TEL. 08 – 11 03 20

2) Other sources of information

 Commercial Banks,
 National Bank;
 Ethiopian Revenues and Customs Authority;
 Shipping and Freight Forwarding Companies;
 Trade Promotion Organizations world-wide;
 Trade representatives of other countries in Ethiopia;
 Ethiopia’s trade representatives abroad;
 Other exporters;
 Ethiopian Economic Attaches in Foreign Countries;
 Websites and internet sources.

The above list is by no means exhaustive, thus prospective exporters are advised to explore every
possible means of getting authentic information.
Appendix 3 – B

CHAMBER OF COMMERCES AND INDUSTRY OF NEIGHBOURING COUNTRIES

Djibouti Chamber of Commerce Kenya National Chamber of Commerce

Information Centre and Industry
Lagarde Place Foreign Trade
P.O.BOX : 84 ; Djibouti P.O.Box : 47024 ; Nairobi, Kenya
Tel : (253) 35 10 70 ; Fax : (253) 250 Tel. : (2542) 220866; Fax : (2542)
096 340664 e-mail
Telex : 5957 cicid dj : kncci@arcc.permanent.org.
e-mail : cicid@intnet.dj or kncc@arcc.or.ke
URL : www.intnet.dj/public cicid.

SUDAN Union of Chambers of ERITREA

Commerce P.O.Box : 81 Asmara Chamber of Commerce ,
Khartoum Trade Information Service Department,
Tel/ : (24911) 772346 P.O.Box 856 , Abiot Avenue, ASMARA
Fax : (24911) 780748 Tel. : (2911) 121388
Fax : (2911) 120138
Appendix 4 – A: Summary of Export Procedures and Documentation

Export Procedure Document Origin of Document

1. Order acknowledgement Export order Buyer

2. Finalization of export contract Export Sales Agreement Buyer and Seller

3. Application to export Export permit Any commercial bank

4. Registration of export consignment Customs Declaration Annex Any commercial bank

5. Application for quality testing Quality testing form QSAE

6. Quality testing and certification Quality Assurance Certif. ,,

-Export Authorization ,,
Certificate
Ministry of Agriculture &
- Phytosanitory Certif. Rural Development
,, ,, ,,
- Veterinary Cetif.

7. Compliance with rules of origin Certificate of origin ECCSA

Dire Dawa CCSA

8. Compliance with tariff schemes EUR 1 Certificate Customs Authority

GSP Form A Customs Authority

9. Insurance of cargo Insurance certificate/ policy Insurance company

10 Customs Declaration Customs Declaration Form Customs Authority

11. Movement of cargo from exporter Transport Documents; From main carrier
to buyer
Bill of Lading Shipping line

Airway Bill Airline

Road Consignment Note Road transport

Rail Consignment Note Ethio-Djibouti Railway

company
Appendix 6 – A : Materials Used for Packing
Material Type Examples of Advantages Disadvantages
packages
METAL Sheet metal Drums Solidity High cost
Tinplate Cans Easy stacking Corrosion
Steel Containers reusable Hard to dispose of
Pressurized weight
containers
Metal boxes
WOOD Rough sawn timer Cases Easy to use Fairly high cost
Planed timber Pallets Variety Affected by sun and
Plywood Crates, etc (for Easy stacking damp
Fiber wood food staffs Subject to rote
Practice board Subject to
contamination
Hard to dispose of
Heavy and
cumbersome
CARDBOARD Flat Boxes Inexpensive Vulnerable to damp
Corrugated Flexibility can be Easily perforated
Double sided carried and Easily damaged
Double double stored flat Needs care in stacking
Triple corrugated Light Not reusable
Easy to dispose
of
PLASTICS Polyethylenes Bags Leakproof Inflammable
Polystyrenes Drums and bottles Great variety Difficult to dispose of
(including polyvinyl Bottle crates Reusable
chloride) Rigid and semi-
(PVC) rigidcontainers
PAPER Multiwall bags Sacks and bags Cheap Inflammable
Easy to dispose Very easily damaged
of
GLASS Bottles Transparent Easily broken
Flasks Easy stacking Heavy
Carboys, etc. Easy to dispose Takes up space
of
COMPOSITES: incorporating two different materials, as foe example a cardboard box with a flexible plastic
pouch inside
Appendix 9 – A
FORMAT FOR A BUSINESS PLAN (EXPORT BUSINESS)
1. Executive Summary

2. Introduction /Background/

2.1 Objective(s) of the Business Plan

2.2 Methodology used in the preparation of the Business Plan

2.3 Main components of the plan

3. The Business

3.1 Definition of the (export) business

3.1.1 Its scope under present Ethiopian policies and conditions

3.1.2 Problems and constraints

3.2 Size of the Business

3.2.1 Global

3.2.2 Present conditions in Ethiopia

3.2.3 Potential in Ethiopia

4. The Company

4.1 Objectives of the Company (Exporter)

4.1.1 With respect to contribution to the economy

4.1.2 With respect to employment generation

4.1.3 With respect to tax revenue generation

5. The Market

5.1 Global market size, situation and trend for export product(s) under plan (Demand)

5.2 Analysis of ability for a sustainable & competitive supply of export product(s) Supply)

5.3 Identification of target export market(s) taking into consideration variables such as:

5.3.1 Critical needs and anticipated market growth

5.3.2 Volume of demand and supply

5.3.3 Determination of specific or regional market target, etc

5.3.4 Availability and ease of delivery

 5.4 Pricing and Gross Margin Targets

5.4.1 Market penetration versus gross margin setting

5.4.2 Discount structures on volume, if any

5.4.3 Consideration of incentives, preference wherever applicable

6. The Competition

6.1 Identification of competition on the export product(s) nationally and internationally

6.1.1 Existing competition

6.1.2 Potential competition

6.1.3 Direct competition

6.1.4 Indirect competition

6.2 Regulatory Requirements

6.2.1 Government regulatory requirements

6.2.2 Costs of meeting these requirements

6.2.3 Anticipated changes in these requirements

6.2.4 Shortage of materials and equipment

6.3 Strength and weakness of the exporter with respect to:

6.3.1 Ability to satisfy buyer needs both in quality, quantity and delivery

6.3.2 Market penetration ability of the exporter

6.3.3 Track record and reputation if an already established export house

6.3.4 Staying power (financial resources) of the exporter

6.3.5 Key personnel available to the exporter

6.3.6 Existing production and processing facilities available to the exporter

7. Export Strategy

7.1 Procurement and production strategy

7.2 Market penetration strategy (high profitability or significant market share?)

7.3 Growth strategy

7.3.1 Own production or/and?

7.3.2 Acquisition?

7.3.3 Horizontal or vertical growth?

 7.3.4 Promotion of product.

8. Technical Input Requirement

8.1 Machinery and equipment available to the exporter

8.2 Other machinery, equipment and materials required for the export process

9. Organization and Management

9.1 Legal structure of the Business

9.2 Actual or proposed organization chart of the Business showing major functional

9.2.1 –Management level staff

9.2.2 –Other staff levels and numbers

9.3 Staffing and compensation

9.3.1 Monthly payroll amount if already established

9.3.2 Plan for expansion on staff number and level

10. Financial Analysis and Projection

10.1 Cost estimates such as,

10.1.1 Investment cost projection

10.1.2 Direct production projection

10.1.3 Overhead cost projection

10.2 Summary of initial financial requirement

10.3 Sources and uses of fund

10.4 Revenue projection

10.5 Profit and /or loss projection

10.6 Cash flow projection

10.7 Balance sheet projection

10.8 Profitability analysis,

10.8.1 Net present worth on the export

10.8.2 Financial internal rate of return

10.8.3 Benefit cost ratio

10.9 Assumptions used for financial projection for the export business

10.10 Depreciation schedule on machinery and equipment used in the export business.
 Appendix 11 –A
Goods to be liable to Excise Tax (produced locally or imported)

Excise Tax Rate

S.N. Type of Product
(%)
1 Any type of sugar/In solid form excluding Molasses 33
2 Drinks  
  All types of soft drinks/except Fruit/ Juices 40
  Powder soft drinks 40
  Water bottled or canned in a factor 30
  Alcoholic drinks  
  All types of beer & stout 50
  All types of wine 50
  Whisky 50
  Others alcoholic drinks 100
3 All types of pure Alcohol 75
4 Tobacco & Tobacco products  
  Tobacco leaf 20
  Cigarettes, Cigar, Cigarillos, pipeTobacco snuffs and other tobacco products 75
5 Salt 30
Fuel-Super Benzene, Regular Benzene, Petrol, Gas-online and other motor
6 30
spirits
7 Perfumes and toilet waters 100
8 Textile and Textile products  
Textile fabrics, knitted or woven of natural silk, Rayon, nylon wool or other
  10
similar material
Textile of any type partly or wholly made from cotton which is gray, white,
dyed or printed, in pieces of any length or width /except mosquito net and
  10
"Abudgedid"/ and including blankets, bed sheets, counterpanes, towels,
table clothes and similar articles
  Garments 10
9 Disk washing machines of a kind for domestic use 80
10 Washing machines of a kind for domestic purpose 30
11 Video decks 40
12 Television and video cameras 40
Television broadcast receivers whether or not combined with gramophone,
13 10
radio, or sound receivers and reproducers
Motor passenger cars, station wagons, utility cars, and land rovers, tips
14 pickups, similar vehicles/including motorized caravans/ whether assembled,  
tighter watt gaur appropriate initial equipment.
  Up to 1,300 C.C 30
  From 1,301 C.C up to 1800 C.C 60
  Above 1,800 C.C 100
15 Carpets 30
16 Asbestos and Asbestos products 20
17 Clocks and watches 20
18 Dolls and toys 20
Appendix 14 - A

Ethiopia’s Bilateral, Multilateral and Special Trade Agreements

No Name of Type of Agreement Date of Enforcement or

Contracting Country Signature
A Bilateral Trade Agreements
1 Russian Federation Trade Agreement Nov. 26, 1999
2 Malaysia ,, ,, Oct. 22, 1998
3 Republic of the ,, ,, March 6, 2000
Sudan
4 Democratic People’s ,, ,, Nov. 19, 1997
Republic of Algeria
5 Republic of Tunisia ,, ,, Nov. 3, 1994
6 Republic of Yemen ,, ,, August 20, 2007
7 Republic of India ,, ,, March 6, 1997
8 Republic of Kenya ,, ,, July 23, 1997
9 Peoples Libyan Arab ,, ,, January 27, 2004
Jamahirya
10 Republic of Cuba ,, ,, Nov. 4, 2000
11 Republic of Korea ,, ,, June 3, 2002
12 Islamic Republic of ,, ,, July 21, 2002
Iran
13 Nigeria ,, ,, In 2006
14 Equatorial Guinea ,, ,,
B Multilateral (Regional and Special) Trade Agreements
1 COMESA Preferential Free Trade Area Established as PTA in
1981 and as COMESA in
1994
2 EU EBA/EPA – Ethiopia is beneficiary Lome Convention in
of EBA which is indefinite for 1975 & Contonou
LDCs; EPA is still under Agreement on June 23,
negotiations 2000
3 IGAD Trade, Conflict Resolution and Trade initiated in 2008
Desertification
4 Sana’a Forum Trade cooperation Initiated recently
5 United States AGOA – extended to end of 2015 Dec. 20, 2001
C GSP Extending Countries (to Ethiopia)
1 China GSP (Generalised System Preferences)
2 India ,,
3 Japan ,, 2001
4 South Korea ,,
5 Canada ,,
6 Australia ,,
7 Turkey ,,
8 Morocco ,,
9 USA ,,

Appendix 14 – B
COMESA Member Countries

1. Burundi 11. Malawi

2. Comoros 12. Mauritius
3. Democratic Republic of Congo 13. Rwanda
4. Djibouti 14. Seychelles
5. Egypt 15. Sudan
6. Eritrea 16. Swaziland
7. Ethiopia 17. Uganda
8. Kenya 18. Zambia
9. Libya 19. Zimbabwe
10. Madagascar

Appendix 14 – C
IGAD Member Countries

1. Djibouti 5. Somalia
2. Eritrea 6. Sudan
3. Ethiopia 7. Uganda
4. Kenya

Appendix 14 – D
Sana’a Forum Member Countries
1. Ethiopia
2. Somalia
3. Sudan
4. Yemen
Appendix 14 – E
European Union Member Countries

1. Austria 15. Latvia

2. Belgium 16. Lithuania

3. Bulgaria 17. Luxembourg

4. Cyprus 18. Malta

5. Czech Republic 19. Netherlands

6. Denmark 20. Poland

7. Estonia 21. Portugal

8. Finland 22. Romania

9. France 23. Slovakia

10. Germany 24. Slovenia

11. Greece 25. Spain

12. Hungary 26. Sweden

13. Ireland 27. United Kingdom

14. Italy
Appendix 15- A

The Structure of the ISO 9000 Standards

The ISO 9000 series of standards consists of two broad categories of standards: core
standards and supplementary guidance standards.

Core Standards

The five core standards are:

 ISO 9000-1: 1994, Quality management and quality assurance standards – Part 1:
Guidelines for selection and use. This standard clarifies principal quality – related
concepts and provides guidance for the selection and use of the ISO 9000 family of
standards for quality assurance and management;
 ISO 9001: 1994, Quality systems – Model for quality assurance in design,
development, production, installation and servicing;
 ISO 9002: 1994, Quality systems – Model for quality assurance in production,
installation and servicing;
 ISO 9003: 1994, Quality systems – Model for quality assurance in final inspection
and test;
 ISO 9004 – 1: 1994, Quality management and quality system elements – Part 1:
Guidelines. This standard is meant for internal use by organizations and provides
guidance in designing and implementing a quality system so that they can meet
their market needs and achieve overall success.

It should be noted that the quality assurance models set out in standards ISO 9001, ISO
9002, and ISO 9003 represent three distinct quality system requirements suitable for
two – party contractual purposes. These standards also form the basis for third – party
certification. Standard ISO 9004, on the other hand, is not intended for contractual,
regulatory or certification purposes.

Source: ISO 9000.

 List of Key Contacts

1. Export Promotion Department, Ministry of Trade and Industry

2. Foreign Trade Relation Department, Ministry of Trade and Industry

3. Trade Registration and Licensing Department, Ministry of Trade and

Industry;

4. Ministry of Finance and Economic Development;

5. Quarantine Sub-Directorate, Ministry of Agriculture and Rural Development;

6. Ethiopian Revenues and Customs Authority;

7. National Bank of Ethiopia;

8. Ethiopian Chamber of Commerce and Sectoral Associations