Considering the structure of Ethiopian economy and the level of poverty, it would be interesting to examine to what extent Ethiopia’s industrialisation effort has succeeded or failed in establishing internal and external competitiveness. Competitiveness is the way to face the challenges and to grasp the opportunities provided by globalisation. Thus, the need is not simply manufacturing expansion, but also to identify firms in which there is competitive advantage for selective intervention. Based on the analytical framework outlined in section 2 and considering the local context, this paper estimated domestic and international competitiveness of the Ethiopian manufacturing industry. We further developed a composite index criteria taking into account contribution to the economy, factor and raw material base, resource use efficiency, and competitive advantage in order to inform manufacturing policy for selective priority interventions. It was found that Ethiopian experience in industrialisation and competitiveness is poor. In fact the existing competitiveness capacity of the sector is not good. What is most surprising is that the findings do not fully support what the government propagates with regard to manufacturing sector where the focus is based on resource-based theory. All the four-digit manufacturing activities in the textiles and leather sub-sectors prove to be uncompetitive even in the domestic market. The lesson drawn from this paper is that non-resource based firms can also be competitive through improved productivity and high learning rate.