Written by Melaku Sahlu - Horizon Ethiopia Staff Writer
Wednesday, 02 December 2009
In the first quarter of this year, the Hortiflora Ethiopia 2009 Exhibition was held at the Millennium Hall on Bole Road. Walking into the main exhibition area, one was immediately greeted by an impressive array of booths displaying everything from beautiful flowers (LOTS of them!) to fresh produce, fertilizers, greenhouse equipment and more. There was just one odd circumstance at the exhibition that one could not help but also notice after just a short while there…the majority of attendees (both visitors and exhibitors) were obviously foreigners.
Of course it is true that millions of Ethiopians are in fact farmers although mostly as smallholders engaged in subsistence farming or producing small quantities of cash crops like coffee from 1 or 2 hectares. But it is the recently resurgent sector of commercial farming in which foreign firms seem to be making much greater inroads than the country’s own nationals.
Neglected Sector
Recent news that very sizable tracts of land have been awarded to investors from Saudia Arabia, Turkey and even Djibouti are further evidence indications that foreign investors see very are very much attracted by the naturally strong prospects for agriculture in Ethiopia supplemented as they are by strong financial incentives to engage. In fact, over the past 5 years or so, they have been entering the sector in ever larger numbers including a number of German and Israeli firms looking to cultivate massive holdings for biofuel production. Any news regarding big agricultural investments by Ethiopians however, is few and far between. Floriculture may seem to be an exception to this rule but even given all the hoopla over Ethiopian flowers, there are only 85 such farms in the entire country covering only 1100 hectares (out of a total arable land mass of 23 million hectares). And, in any case, a good many of them are joint ventures with foreign firms
Instead, the bulk of attention by Ethiopian investors and entrepreneurs has focused on sectors such as real estate development, construction, rental of construction equipment and hospitality. Sectors considered easier and safer to operate in with the promise of faster payoffs given the burgeoning growth of urban centers and infrastructure throughout the country thus far. Not coincidentally perhaps, these also happen to be sectors in which foreign investment is significantly restricted. Needs fact check
Perking Intrigue
There is an increasing interest in the sector by Ethiopians who are either finally getting wise to the strong incentives the government provides or beginning to look away from the service industry investments for the moment. If you take a drive down to visit a horticulture farm in AwassaOnly a short drive outside of Addis, you will see the occasional swoop of greenhouses rising softly from the otherwise uneven landscape dotted by hundreds of smallholder farms. Many of these greenhouses produce flowers but a growing number (though still small) also produce vegetables for export. Even more frequent are the stories of an early vanguard of Ethiopians eagerly grabbing hundreds of hectares of agricultural land albeit with little idea of exactly what do with it.
Powerful government incentives in the sector along with diminishing returns from the construction, real estate and other previously hot sectors are no doubt playing some part in the new levels of interest. But so is the fact that agricultural pioneers such as Genesis Farms (General produce, poultry and dairy) have clearly demonstrated a strong business model for supplying a variety of quality products to the local market. Omega Farms (Vegetables), Jittu Horticulture (Flowers) and Luna Farms (Grapes) are examples of up and coming agricultural businesses that demonstrateing that Ethiopian farm products can compete strongly in the export market to the Middle East and to Europe. Finally, sectors which had previously held an inordinate portion of Ethiopian’s investment interest in the recent past (and btw in which foreign investment is largely barred) such as real estate, and construction and other similar areas, have in recent years begun to show cracks in the highly speculative fabric of their inflated profit structures.
Overcoming Obstacles
Clearly, significant financial resources (which most Ethiopian investors do not have access to) underpin many of the foreign investments in the sector and are a prerequisite for undertakings on the scale seen thus far. . A number of share offerings – including Jacaranda and Bright Hope Agroindustry (out of Bahir Dar) – have sprung up recently in answer to this particular challenge. But these are early days yet, and the jury is still out on the success of these effortsr otherwise. Of course such ventures do not have to involve tens of thousands of hectares. Significant quantities of vegetables for example, can be adequately grown on just 30 hectares of land requiring much less initial capital and could be a better fit for more of the Ethiopian investors beginning to explore the sector.
It is also true that there is some amount of knowledge gap to be overcome by these potential investors. Basic agriculture may not be rocket science. But it certainly isn’t child’s play either. And what some might find surprising in a country where 80% of the population work force is engaged in smallholder farming, is that many of the potential investors (read ‘well to do urbanites’) have little actual experience or even academic knowledge on the subject. Not helping matters much is the fact that a significant portion (if not all) of the capacity building assistance from the government or the numerous development organizations in Ethiopia, is targeted at smallholders. USAID’s ATEP program (implemented by Fintrac) is one exception to this rule as is the Dutch development organization, SNV which both make efforts to provide some level of assistance to commercial investors in commercial agriculture especially those of a smaller scale.
Finally, some of the aforementioned vanguard of Ethiopian agricultural investors have run into problems while trying to implement their ventures. An increasing number are reporting friction with smallholders in the area who sometimes regard commercial ventures as a direct threat to their livelihood. In the absence of education or cooperative frameworks to reduce such friction and instead build mutually beneficial partnerships, the only answer to such problems is stronger law enforcement which unfortunately is a farfetched prospect in many of the remote, rural areas hosting such investments. This is an area which federal and regional governments must address quickly and effectively before it casts a lasting shadow on the sector.
‘Untapped potential’ is a phrase that has been used to describe agriculture in Ethiopia by many observers and is one that holds the promise of profit in financial terms as well as goodwill. Whether the intent is to help solve chronic food insecurity in Ethiopia or to capitalize on the significant market needs in food supply that exist both locally and abroad, it is high time the Ethiopian private sector embraced agriculture as a significant investment opportunity and primary driver of the country’s economic development for the foreseeable future.
