Chapter would reduce the economic growth. This would again
Chapter One: Introduction1.1 Background of the studyThe modern credo of economic development of a nation is “export more or perish”(Singh and Mahadevan, 2010).Export is a vital part of any economy and these result in efficient allocation of resources better capacity utilization, exploitation of economies of scale and technological improvement, as result of competition in the foreign market (Kumar,2007, Sharma,2010). Developing countries of the world have always been placed at a disadvantage vis-à-vis the developed European and western nations and perilous balance of payments situation as their export fall behind their import requirements”(Singh and Mahadevan, 2010). According to (Andargie,2015, Douglas and Okonkwo,2016 ) almost all LDCs countries failed to meet the minimum import requirements of target rate growth and consequently, a persistent trade gap would be generated, which in turn would reduce the economic growth. This would again reduce investment and save and finally deteriorate the situation of tax revenue (Devkota, 2002 and UNTCAD, 2016). From the national point of views, without foreign currencies, developing countries cannot import the materials, equipment and technologies it needs for development and even the basic necessity of life (Kapoor, 2002). Furthermore, export performance in a majority of developing countries has suffered serious setbacks in the mid of 1972 and 1980 (Thomas et.al 1993). Consequently, the import substitutions model was no longer advantage positions as the option of trade policy in developing countries (Silva, 2007; Khazragui, 2011; Dike, 2011; Neumann, 2013). Then by the early 1980s, the export-led strategy policy regimes have gained agreement among several scholars, researchers and policy makers and the new policy regimes considered to be the conventional wisdom in the developing world (Serven, 1968; Tyler, 1981; Feder, 1983; Balassa, 1978; Heitger, 1987).Therefore, thus developing countries consider export promotion and development precedence for economic development (Smith, 2001). East Asian economies model is a mere example that developing countries can compete effectively in international markets. They present a blueprint for economic growth valid to many developing countries (Khazragui, 2011).Despite, the positive effort most African countries are not successfully in international trade due to different variables (Vastveit, 2013). pioneering work of Tookey (1964) who first attempted to identify major determinants export performance. Continuously, in an extensive literature review, Gemunden (1991) counted over 700 variables that were advanced and analyzed as determinants of export performance. Among them customs administration is key determinants of international trade (Wulf and Sokol, 2005). In this trading environment in which tariffs have been gradually reduced, customs procedures and practices are considered the principal remaining barriers to international trade (Bodegraven, 1999). The World Bank (2003) concluded that the cost of transporting goods between destinations and across international borders, together with delays in customs processing, is as important as formal trade determinants. Furthermore, customs in Africa countries have faced a number of challenges, such as growing trade volume, the risk of smuggling, and rampant commercial fraud, and it is becoming increasingly difficult to handle the growing trade volume with limited resources (UN, 2009).As result, Africa’s share of global exports performance has dropped by 50 percent over the last three decade (Lyakurwa, 1998 Freund and Rocha, 2011). Similarly, SSA has lost its share of world exports by over 250% over the last 30 years (Herve et.al 2014). Africa’s poor export performance and its failure to integrate in world trade are associated with poor customs administrations performance such as lack of trade facilitation, high transaction cost, delays in transit times, smuggling and excessive documentations, poor customs procedure (Clarke, 2005; WB, 2011; Persson, 2012; Hummels and Schaur 2013; Seck, 2014). Like many other developing countries Ethiopia also follows an East Asian economic model since 1992, which was guided by the idea of export-led growth (Allaro, 2012 and Shiferaw, 2017). Despite all these efforts, it is evident that Ethiopia’s export performance has remained sluggish (Zerihun et.al, 2016). According to the national bank of Ethiopia annual report (NBE,2016), exports performance was stagnated around the £3 billion range within the past five years, which meant that by the end of the first Growth and Transformation Plan (GTP I – 2010-2015), the value of exports was significantly short of the $5.8 billion targeted to be achieved during the plan period. Export to GDP ratio also dropped from 10% in 2010 to 4.6 % in 2015(NBE, 2016).As pointed out by Delessa (2015), the country faced severe macroeconomic such as failing export earnings, worsening the balance of payment and mounting debts and declining economic growth. Several studies (for example Sisay, 2010; Anagaw, 2011; Ataklity, 2010; Andragie, 2015) have been carried out on determinants of export performance in the context of Ethiopia. These papers generally conclude that reason for low export performance is associated with supply and demand side. Humera customs station is main legal export outlets for different livestock, agricultural products and some industrial commodities of Ethiopia into Sudan and through Sudan to rest of world. According to the annual report of customs stations export performance was decline 29 percent on average within the past five years. Identifying and examining the determinants that significantly affect Ethiopia’s export performance in customs should facilitate the design of policies to improve the performance and ultimately overall economic growth. Therefore, the purpose of this study is designed to examine the potentials determinants of export performance in Ethiopian revenue and customs authority (ERCA), in the case of Humera customs stations.1.2. Statement of the Problem In today’s highly challenging world, trade and investment will flow towards efficient, supportive and facilitating locations and at the same time it will rapidly ebb away from locations which are perceived by business as bureaucratic, lacking good governance, and synonymous with high costs (WCO, 2006). A poorly functioning trade logistics environment, as well as the combination of factors that make up the transaction costs, the cost of clearing customs, transport costs, non-customs trade documentation requirements, and unenforceability of legal trade document also contributed to the failure of many developing countries to integrate successfully into the world economy (Luc Wulf and Jase Sokol, 2005). Since 1992 the government of Ethiopia has introduced a variety of trade reforms aimed at improving macroeconomic stability, improving export performance, accelerating economic growth through enhancing of export expansion (Azmera, 2013).However export performance is not boosting during the last five years, the actual export performance results were far from projections estimated by the GTP I Policy Matrix five years and export proceeds have been stagnant at around three billion dollars for the past five years (NBE, 2016). in addition the first phase of the growth and transformation plan (GTP) already over, export plans increased by an average of 50.6pct while performance remains at 19pct (Anteneh,2016).Furthermore, the high cost of doing business across borders in Ethiopia becomes a major constraint to economic development (Negus et.al, 2011, WB, 2017).In addition, Ethiopia is one of the countries with the highest set of challenges in cross border trade (Tilahun, 2014). Recently according to the World Bank (2017) study of trading across borders ranking puts the country at 167th in the world out 189 in the world. This has contributed to the country’s current 159th 132nd rank out of 190 nations in the World Bank doing business index (WB, 2017).This has affected Ethiopia’s international trade relation and has hampered its trading across borders track record in the face of global competition for foreign direct investment(Tilahun, 2014).Few studies have been conducted on determinants of export performance at globally, regional and national level using different methods during a different period of time. For example Clarke (2005) has studied factors that affect the export performance of manufacturing enterprises in African countries using a cross country manufacturing survey and finds that manufacturing enterprises are less likely to export in countries with poor customs administrations and restrictive trade and customs regulations. Pham et.al (2010) studies trade on time. These papers concluded that for each additional day that a product is delayed in the exporting country, the trade volumes are reduced by at least 1 per cent. Maureen and Alemayehu (2002) in Kenya, Karamurio, Karukuza in Uganda (2015) and Abemarkos in Ethiopia (2015) for example have tried to explore determinants of export performance in the context of their country.Recent study was conducted by Mengistu (2016) on challenge of customs on export trade facilitation and his result indicated, customs automation, risk management, human resource development and management, customs procedures, coordination and cooperation among customs and other government agencies, and unclear, ambiguous, non-predictable, and inconsistent customs laws and regulations are identified as major challenges of customs in export trade facilitation.However, the determinants of export performance in Ethiopia customs are not studied before in detail. The major aim of this study is therefore to fill this research gap by examining the major potential determinants of export performance in Ethiopian customs in case of Humera customs office stations, with special emphases on some important determinants variables such as contraband, international transit, infrastructure, transaction cost, trade facilitation, customs export clearance process, transport cost, coordination and cooperation conformity and standard. 1.3 Objectives of the Study To answer the research question the researcher has set the general objective and specific objectives. 1.3.1 General objective of the studyThe general objective of this research is to identify the major determinants of export performance in customs in the case of humera customs border office 1.3.2 Specific objective of the study In light of the above general objective, this study aims to address the following the specific objectives:i) To analyze the export Clarence procedure at humera customs stations.ii) To compare the Ethiopian export cross border compliance with East African countries. iii) To examine the major determinants of export performance in customs at Ethio- Sudan border. iv) To evaluate the significance of export performance.1.5 Research questions In connection with the aim and the objectives mentioned above the following research questions are set to guide the studyi) What do customs export clearance procedure look like at Humera customs stationsii) How does the Ethiopian border export compliance compare with east African countries?iii) What are the major determinants of export performance in Humera customs stations?iv) Does the export performance is significance?1.6 Significance of the StudyExport is a significant issue that has become even more important today, leading to a number of international requirements from both government and the trading community. As international trade now requires efficiency and effectiveness in customs systems and procedures, there is a need for customs administrations to develop their operational efficiency and capacity to support the international trading community and enhance the competitiveness of individual nations.This research aimed to examine the determinants of export performance in customs at Humera customs border station during the past five years 2011-2016. Related to customs area there are a sufficient number of journals, articles, and studies conducted globally in relation to the customs role on international trade. However, in the cases of Ethiopia, there is a lack of sufficient theoretical and empirical literature at the national level to fulfill literature requirements for similar surveys in ERCA. Therefore, the study can have much significance: one, it can something to reduce the gap in the empirical literature on the issues of determinants of export performance in customs; second, it can indicate the major determinants of export performance in customs environment; third, it can enrich the researcher knowledge and solves exporter’s challenges; fourth, will add new knowledge to policy makers in their effort to improve the existing poor export performance, moreover the study can be used by future researchers as base for further related studies.1.7 scope of the study It is generally believed that the wider the scope, there greater the contribution of the research. However, the study is delimited conceptually, geographically and in terms of participants. Conceptually, it is focused on determinants of Ethiopian customs performance in facilitating of Export. Geographically coverage of this study is confined to determinants of export performance in customs at Humera customs border stations. 1.8 Limitation of the StudyConsidering expecting limitations during the study period such as lack of sufficient time, budget, and data reference, will be some of the limitations during the course of the study. However necessary effort will do until to achieve the objective. To solve such limitations, the researcher is trying to set detail interview guideline and try to gather the desire data from few participants as much as possible. In addition, the researcher is trying to work closely with respondent to get all necessary primary data as possible to compensates the gap of secondary data. Until to achieve the desired In conducting this study the researcher is faced many limitations and constraints. Some of the impediments encountered, among other things discussed under this title. In order to compromise some of the limitations related to lack of reference materials and empirical study in the library, the researcher highly depended on the web information. To overcome the limitation of primary data collection, the researcher closely communicates with those respondents until the required data will be collects.1.9 Description of the Study Area According to an article of 3 proclamations of 587/2008, the Ethiopian Revenues and Customs Authority (hereinafter the “Authority”) is hereby established as an autonomous federal government agency having its own legal personality. The authority came into existence on 14 July 2008 by the merger of the ministry of revenue Ethiopian customs authority, and the federal Inland Revenue authority who formerly were responsible to raise revenue for the federal government and to prevent contraband. The Ethiopian revenue and customs authority (ERCA) has a responsibility to establish branch office every regional state of the countries. Currently the authority has 14 customs branch office. Therefore, Mekelle branch office is one of the liaison offices of the Authority located in Tigray regional state. Humera customs control stations are one of sub branch of mekelle office which found in Ethio-sudan border at Humera city. There is 2899 individuals’ business activity and these there are 180 traders are registered in Humera customs station as exporters and importers. Through this ethio-sudan corridor mostly traded commodity are livestock such camel, goats, kettle, maize, traditional cloth, honey etc. Humera city is found in the Tigray national regional state.Orally the city was founded since 1897.the city is located at 1364km from Addis Ababa through mekelle and 1000km through Gonder .its astronomical location in between 14”17 north latitude and 36”36 east longitude, with the temperature range from 35oc to 39 oc and annual rain falls of 450-500mm the town encircles with Qafta humera in south and east, north Sudan in the west and Eritrea with north. The city is the center of of trade and development corridor with standard infrastructure facility such hospital preparatory schools, technical vocational training center, commodity exchange market and asphalt road through lugudy customs kela directly to Sudan that enhances trade facilitation between Ethiopia and Sudan. According to CSA, 2007 the total population of the city was 28624 comprising 51% female and 49% male. 1.10 Organization of the StudyThe study has five chapters (Figure 1.2). The first chapter deals with the introductory aspect of the study; the second chapter is about review of related literature which consists of the theoretical and empirical literature on factors that determine export performance in customs environment ; the third chapter deals with the research methodology; the fourth chapter deals with data analysis and discussion; and finally, the fifth chapter presents the conclusions and recommendations followed by the limitation and suggestions for further study. Moreover, the study is accompanied by the references and appendixes.Figure 1.2: Organization of the StudySource: Own Design (2018)1.11 SummaryThis chapter lays the foundation for this research regarding determinants of export performance in Ethiopia customs in the case of Humera customs control stations. Despite the role of export in economic development is hugely significant, the factor that the determinants of export performance in is not well identified in previous studies. The purpose of this study is, therefore, to identify the major determinants export performance in Ethiopian in the case of Humera customs control stations. This chapter it has provided the focus of this research, the background of the study, research problem, the research question and objectives and limitation of the study, significant of the study, descriptive of the study area and the main delimitations have then been presented. Given the aforementioned background, the next chapter presents existing literature pertinent to the study under examination with a special focus on the potential determinants of export performance in customs of developing the country in general and in Ethiopian customs in particular.