February, 1998
Addis Ababa
| |
| 1. Overview of Economic Policy | |
| 2. Background to the Agricultural Sector | |
| 3. Ethiopia's Agricultural Potential | |
| 3.1 Land Resource | |
| 3.2 Major Crops | |
| 3.3 Livestock and other Animal Resources | |
| 3.4 Water Resources and Irrigation Potential | |
| 4. Sector Policies and Strategies | |
| 5. Potential Areas of Investment | |
| 5.1 Cash Crops | |
| 5.2 Horticultural Development | |
| 5.3 Livestock Development | |
| 5.4 Fisheries | |
| 5.5 Apiculture | |
| 5.6 Commercial Forestry | |
| 5.7 Agri-Business |
INVESTMENT OPPORTUNITIES
1. OVERVIEW OF ECONOMIC
POLICY
In mid-1991 the previous military regime ended, and a new government
was installed. At that time, the economy was to a large extent
under the dominance of the state which controlled both product
and factor markets, and owned a large part of the modern sector
of the economy. There were severe price distortions of foreign
exchange and interest rates as well as of goods and services.
Since then, the focus of economic policy has been to switch from
a command to a market economy and progressively integrate Ethiopia
into the world market.
The first task was to dismantle the legal restrictions on private
investment and withdraw the state from controlling prices and
markets. To this end, domestic and external trade were liberalised,
state monopolies were abolished, and, at the same time, public
enterprises were made autonomous in terms of management and finance,
cut off from budgetary support, and made subject to eventual divestiture.
Simultaneously, integration with the global market was initiated
through reduction of import tariffs and devaluation of the birr
(Ethiopia's currency). The maximum tariff rate was reduced from
230 to 80 per cent, while the birr was devalued by 142 per cent
against the US dollar. These measures changed the course of the
economy within a relatively short period of about two years, between
mid-1991 and 1993, bringing into operation market forces and removing
substantially price distortions.
In subsequent years, the establishment of a market economy and
integration with the world market was further reinforced. The
foreign exchange auction market for import of goods was fully
deregulated, and the auction itself was held more frequently,
changing from biweekly to weekly. Availability of foreign exchange
for payments of invisibles, such as business travel and medical
treatment abroad, was also increased. Import tariffs were further
reduced from a maximum of 80 to 50 per cent; the average rate
being presently 24.5 per cent. Price controls which remained on
a few essential goods were lifted, thereby virtually completing
the deregulation of prices of goods and services. In addition,
petroleum prices were made periodically adjustable to reflect
changes in world price. Pan-territorial pricing of fertilizer
was terminated as was fertiliser subsidy. Tariffs of electricity
and water were adjusted upwards, the former being scheduled to
cover costs fully and allow a profit margin in the coming few
years. Telecommunications, on the other hand, continues to be
operated on profit basis.
Privatisation gathered momentum after
an initial phase of preparation. Given the underdevelopment of
the economy, there are only about 200 state-owned enterprises
to be privatized including factories, state farms, hotels, construction
firms, transport corporations, wholesale marketing firms, and
small retail outlets and restaurants. State-owned marketing enterprises
lost their monopoly with the removal of entry barriers for private
firms, and shrank due to both deliberate down-sizing and competition,
while insolvent enterprises that could not be resuscitated were
allowed to go bankrupt. Retail shops, restaurants, a few factories
and hotels have been privatised. Several other enterprises have
also been offered for sale.
Currently, the main focus of the
on-going economic reform is the widening of the scope of foreign
investment to include telecommunications and electricity generation,
complete the liberalization of the current account, and the deregulation
of interest rates side by side with the creation of securities
market. In keeping with the objective of progressively liberalising
the foreign trade regime for goods and services, payments on invisible
trade are expected to be deregulated fully by the end of 1990s.
This will enable Ethiopia to attain current account convertibility.
At the same time, the maximum tariff on imports will be reduced
and the average rate lowered to 19.5 per cent.
To summarise, the transition from
a command to a market economy has been made. There remain, of
course, several scores of enterprises in the hands of the state,
but essentially due to the process of undertaking privatisation
itself, rather than lack of readiness to privatise. Perhaps more
challenging is the elimination of price controls, removal of subsidies,
commercialisation of telecommunications and electricity, and convertibility
on the current account. In all these areas, the achievement in
policy reforms has been remarkable, as Ethiopia has succeeded
to establish a market economy, with minimal price distortions
and successively decreasing tariff rates, on a sustainable footing.
2. BACKGROUND TO THE
AGRICULTURAL SECTOR
Ethiopia is endowed with abundant
agricultural resources. Having an altitude ranging from 180 meters
below sea level to 4,620 meters above sea level, the country is
characterized with diverse physical features that comprise 18
major agro-ecological zones and 62 sub-zones each having its own
physical and biological potential. Due to these facts, the country
possesses one of the largest and most diverse genetic resources
in the world.
Although the country lies within
the tropics, temperatures range from a mean annual of above 30c0
to a mean annual of below 10c0. In the lowlands, seasonal
temperature variations are high, i.e., very cold in January and
very hot in April/May. At higher altitudes with higher rainfall
and greater variations in cloudiness, temperatures reach up to
250c during day time, and, in certain seasons in particular,
drop to below 100c at nights.
There are two rainy seasons in Ethiopia.
These are the short rainy season, Belg, during the mid-February
to the end of April, and the main rainy season, Meher, covering
the months of June to September. Rainfall distribution throughout
the country varies depending on agro-ecological conditions of
each specific area. Rainfall ranges from 2,200 mm in the south-west,
decreasing to below 100 mm in all coastal plains.
Diverse soil types occur in the country.
Combisols are predominant over much of the highlands while vertisols
occur in large areas of the south-eastern highlands and in the
south-western parts of the country. Regosols occupy much of the
Somali plateau, Wollo and Tigray regions.
Agriculture is the mainstay of the
Ethiopian economy. The sector accounts currently for 52 percent
of the GDP, 90 percent of the total foreign exchange earning and
85 percent of employment. It also plays a crucial role in providing
raw materials to the local industry. Ethiopia, with an area of
112.3 million hectares, is the ninth largest and third most populous
country in Africa.
The Ethiopian agriculture is basically
comprised of smallholder farming which accounts for more than
90% of the agricultural production and 95% of the total area under
crop. 94% of crop and 98% of coffee is produced by smallholders.
The remaining 6% of crop and 2% of coffee is generated from mechanized
farms.
The major crops grown are cereals,
pulses and oil seeds in order of their importance. Considering
the 1992 smallholder farmers' production, cereals (teff, wheat,
barely, maize and sorghum) accounted for 89% of the total crop
production and 81% of the crop land. In the same year, pulses
contributed about 10% of the total production, occupying 15% of
the total land cultivated; while oil seeds production accounted
for 1% of the total production occupying 4% of the total land
under cultivation.
Agriculture is predominantly rainfed
depending on two rainy seasons. These are the short rain season,
Belg, from mid-February to the end of April that contributes 5%
of the crop output, and the long rain season, Meher, covering
the months of June to September which accounts for 95%. For many
years, crop production showed a fluctuating trend with an average
annual growth rate of 0.8%. It grew by 2% per annum during 1965-73,
and at 0% - 3% during 1974-91. It reached its lowest point of
0.5% in 1991/92. In 1992/93 it showed an improvement by 6.2%.
In 1993/94 it declined below zero by 4.5% due to severe droughts,
pest outbreaks, etc. After many years of stagnation, food production
started peaking recently with a record 8.7 million tonnes of cereal
production in 1995/96 and about 10 million tonnes in 1996/97.
Presently, it is believed that there
are two ways in which the productivity of the smallholder farmer
can be improved in Ethiopia. One way is to use existing resources
of land, labour and capital in better ways through improved technology,
be it biological, chemical or mechanical. The former is viewed
in terms of allocative efficiency and the latter in terms of technical
efficiency within the same agro-ecological zone.
Over the last decades, the land/labour
ratio has decreased quantitatively and qualitatively and so has
the capital/labour ratio, though not to the same extent. At the
farm family level, the land holding has shrunk, and the number
of oxen available for farming has decreased. In other words, the
mix of resources has changed. In this process of change, the allocation
of resources of the smallholder has become progressively inefficient
because of the increasing under utilization of labour in agriculture
which at any rate was not compensated by off-farm engagement.
As the size of land holding diminished, the labour input of the
farm family decreased since the technique of production remained
unchanged.
The government has initiated a five-year
agricultural development programme with the objective of closing
the country's food gap in
the medium term by attaining a sustainable food production growth
at a rate higher than the population growth. In the food-deficit
areas which are moisture stressed, the government has developed
and put to effect a "Sustainable
Agricultural and Environmental Rehabilitation (SAER)"
programme that focuses on the development of small-scale irrigation
mainly through water harvesting.
3. ETHIOPIA'S AGRICULTURAL
POTENTIAL
3.1 Land Resource
Land is the basic agricultural resource
on which the Ethiopian society presently depends for the production
of food, clothing, energy and housing. Out of the 112.3 million
hectares total land area, about 56 percent is regarded to be suitable
for cultivation. However, only 14.8% of the total land is under
cultivation presently for the production of annual and perennial
crops.
| Grazing land | 51.0 | |
| Cultivated with perennial and annual crops | 14.8 | |
| Forest land | 3.6 | |
| Bush-and-shrub land | 8.1 | |
| Currently unproductive land | 3.8 | |
| Total: | 100.0 |
Source: MOA Department of Land
Use Study and Administration, Land Use Systems and Soil
Conditions of Ethiopia, Addis Ababa, June 1995
On the basis of altitude, temperature
and rainfall, there are three main production zones in the country,
namely, high potential cereal zone, low potential cereal zone
and high potential perennial zone. The highlands comprise the
high potential cereal and perennial zones that constitute 36.3
percent of the total land area and support 88 percent of the human
and 70 percent of the livestock population.
The lowlands, which constitute about
63.7 percent of the total land area of the country, support 12
percent of the human and 30 percent of the livestock population.
This portion of the country has immense potential for commercial
agriculture, if utilized fully and efficiently.
Until recently, the development of
irrigation schemes has been minimal. The combination of land degradation
and lack of adequate rainfall in some years have often caused
crop failures. In order to stabilize and boost agricultural production,
it has become necessary to expand irrigated agriculture. The lowlands
of the country, with their large flat and fertile land, hold great
potential for the development of large scale irrigation schemes.
The potential gross irrigable area is estimated to be 3.5 million
hectares. To date, only 5 percent of the total potential is utilized.
3.2 Major Crops
a) Food Crops
Ethiopia has rich soil and diversified
climatic regions suitable for the production of food crops. About
146 types of crops are grown. The major food crops grown in the
country are cereals, pulses and oil seeds.The main cereal groups
include teff, barely, wheat, maize and sorghum; and pulses comprise
beans, peas, chickpeas, lentils, rough peas, fenugreek, soybeans
and haricot beans. Oil seeds are grown in Ethiopia in several
varieties. Among the major oil crops are sesame, niger seed, groundnut,
rape and flax seeds. Sunflower and castor beans also have great
potential.
Despite the country's high potential
for agriculture, the production from this sector, except for 1996
crop year, could not be commensurate with the size and growth
of the population. For as long as the rate of population growth
remains high, increasing food production at a rate higher than
the population growth becomes imperative. In line with this, an
integrated agricultural extension programme has been launched
throughout the country. By implementing the programme for the
last two years, encouraging results have been registered in various
regional states. To further strengthen this effort, the involvement
of the private sector in large scale commercial farming and agro-industrial
activities is vital.
b) Cash Crops
Coffee, cotton, tobacco, sugar tea
spices and horticulture are the major commercial cash crops grown
in Ethiopia. More will be said on these crops in a later section.
3.3 Livestock and other Animal
Resources
The livestock population of Ethiopia is the largest in Africa and ranks 9th in the world. The country has about 31 million cattle, 23 million sheep, 18 million goats and 53 million poultry. The livestock subsector accounts for about 30 percent of the agricultural GDP and about 16 percent of the total GDP. Hides and skins are the second major foreign exchange earners, second to coffee. The livestock subsector provides per capita consumption of about 23.9 kg of milk, 10 kg of meat and 40 eggs.
3.4 Water Resources and Irrigation
Potential
Ethiopia has abundant water resources
that can be used for irrigated agriculture. There are nine major
rivers (7,000 kms long) and a number of lakes (7,400 sq. km in
area). Because of this, the country is often referred to as the
"water tower" of Northeastern Africa. The country's
total surface water availability is estimated at about 110 billion
m3. On the other hand, the nine great river systems
have an estimated total annual discharge of 102 billion m3.
Based on present indicative information, the total potential irrigable land in Ethiopia is about 3.5 million hectares. This figure could change as more reliable data emerge from more detailed studies currently underway. To date, only about 160,000 hectares have been developed, and yet more land has to come under irrigation to feed the fast growing population, provide raw materials for local industries, and combat recurring droughts. Table II below presents the potential irrigable area existing in the major river basins and the size of actually irrigated area.
|
|
|
| ||
| Abay (Blue Nile) | 977,915 | 21,010 | 2.10 | |
| Rift Valley Lakes | 122,300 | 12,270 | 10.00 | |
| Awash | 204,400 | 69,900 | 34.20 | |
| Omo-Ghibe | 450,120 | 27,310 | 6.10 | |
| Genale-Dawa | 435,300 | 80 | 0.02 | |
| Wabi-Shebelle | 204,000 | 20,290 | 9.90 | |
| Baro-Akobo | 748,500 | 350 | 0.05 | |
| Tekeze | 312,700 | 1,800 | 0.57 | |
| Afar | 3,000 | - | - | |
| Mereb | 37,560 | 8,000 | 21.30 | |
Total: | 3,495,795 | 161,010 | 4.07 |
Source: MoPED, 1993
Within the overall policy framework
of the agreement, Ethiopia's
agricultural sector policy is to enhance the productivity of smallholder
farming and at the same time promote commercial farms especially
in the various river basins where the scope for irrigated agriculture
is very wide. While the government does not foresee the share
of agriculture in the total GDP to remain at its present level,
the sector is placed at the core of the government's
overall development strategy, more commonly known as Agriculture-Development-Led
Industrialization (ADLI). More specifically, Ethiopia's
agricultural sector policy may be summarized as follows:
By and large, the strategy of ADLI
focuses primarily on agricultural development. This is to be attained
through improvement of productivity in smallholdings, and expansion
of large-scale farms particularly in the lowlands. ADLI foresees
that agriculture would supply commodities for exports, domestic
food supply and industrial output, and at the same provide market
for domestic manufactures.
Agriculture is the foundation of
the country's food production.
The smallholder sub-sector is in particular the major source of
staple food production. Food security can be achieved basically
by promoting smallholder development in a sustainable manner.
In light of this, a special emphasis
is placed on encouraging smallholder farmers to raise their productivity
through various incentive packages (access to fertilizer, credits,
etc.) and other supports. The development of the smallholder farming
is envisaged to proceed in three stages, viz:
The first and the second stages are
land augmenting in that more output would be obtained from the
same unit of land. Output per farm-family would increase depending
on the pace of productivity improvement. It is the firm belief
of the government that sustainable agricultural development can
only be ensured with the realization of Stage Three which is dependent
on accelerated industrial development.
The agriculture sector strategy focuses
on improvement of productivity of smallholder agriculture, whilst
encouraging greatly the growth of both extensive mechanized farming
and intensive commercial agriculture. The expansion and development
of large-scale modern private farms would be promoted. To this
effect, the policy is to:-
5. POTENTIAL AREAS OF
INVESTMENT
5.1 Cash Crops
Coffee, cotton, tea, sugar, spices,
oil seeds and tobacco are among the major commercial crops in
Ethiopia.
Ethiopia is the original home of coffee and the name "coffee"
itself was derived from Kaffa, a region where coffee has been
and still is a wild crop. The country produces one of the best
coffee in the world. Coffee is also the single most important
crop of Ethiopia as a provider of foreign exchange. Prior to the
coming to power of the defunct military regime, coffee production,
processing, and trading were in the hands of the private sector.
During the military regime, private farms were nationalized and
smallholder coffee producers were neglected. Private entry into
coffee export got a high fillip after the declaration of a new
economic policy by the Transitional Government of Ethiopia (TGE)
in 1991. As a result, the number of private coffee exporters has
been rapidly increasing and the volume of coffee export has significantly
increased.
Coffee provides sustenance, directly
or indirectly, to nearly a quarter of the population in production,
processing and marketing activities. Thus, the need to encourage
the private production, processing and marketing of high-value
yielding coffee is of paramount importance to the government.
Cotton is an important fiber crop grown in Ethiopia. Large-scale
production, under irrigation, is carried out in the Awash Valley
where there is about 50,000 ha. under cotton. Small-scale farmers
cultivate around 42,000 ha. of cotton annually. There is a huge
potential for expansion of cotton cultivation specially in the
Omo-Gibe, Wabi Shebelle, Baro-Akobo, Blue Nile and Tekeze river
basins. There is also a good opportunity for exporting lint cotton.
Tea was introduced to Ethiopia in the early 1920s with some trials
in production. Since 1980, tea has been planted on commercial
scale. Currently there are 1,300-1,500 ha. of land under tea.
It is also foreseen that the habit of drinking tea in Ethiopia
will further develop, while coffee remains the favorite.
A considerable opportunity exists
for the production of sugar and spices for the domestic as well
as for the export market. At present, there are three large-scale
sugar estates in the country; two of them in the Awash Basin and
one in the Blue Nile Basin. Spice bearing plants are cultivated
in the southern and south-western parts of the country. Ethiopia
exports significant quantities of spice extracts.
Oil seeds serve as raw materials
for the domestic edible oil industry. Some oil seeds, including
sesame, are important export crops. Favorable agro-ecological
conditions exist for introducing coconut for the production and
processing of palm oil.
Tobacco is presently grown at two
different sites, i.e., Shoa Robit and Blatie. The farms are operated
by Addis Ababa Cigarette Factory. The Shoa Robit farm is 80 ha.
and the Blatie farm 250 ha. In addition, 350 ha. of land is cultivated
by outgrowers who get extension service from the factory. The
yield per hectare at both farms is estimated at 1,000 kg. The
factory is not, however, self-sufficient in the supply of tobacco
and accordingly imports about 600 tonnes per year.
5.2 Horticultural Development
The agro-climatic conditions of Ethiopia
are suitable for the production of different kinds of horticultural
crops (fruits, vegetables and shrubs). The involvement of the
private sector is highly encouraged in the production of edible
fruits and vegetables such as oranges, bananas, mangos, apple,
peach, papaya, avocado, grapes, lemon, carrots, tomato, cabbage,
etc.; in the production and marketing of flowers, horticultural
seeds and other ornamental crops; and in the establishment of
nurseries, storage and preservation facilities for fruits, vegetables
and flowers.
5.3 Livestock Development
The country has fast weight-gaining
cattle breeds, abundant area for ranch and good potential for
export of live animals and livestock products. The economic benefits
from the sector has not, however, been commensurate with its size.
The major production constraints that have impaired the exploitation
of such a large resource are undernutrition, malnutrition, disease
and poor marketing system. To increase the benefits from the livestock
subsector, the improvement of traditional animal management techniques
and the utilization of more efficient and effective methods of
livestock farming becomes indispensable.
Private investors are highly encouraged
to participate in the areas of commercial breeding, production
and processing of meat, milk, eggs and animal feed.
5.4 Fisheries
Ethiopia has enormous water bodies
known for their abundant fish resources. The annual fresh water
fish production potential is estimated to be about 45,000 tons
of which only 20 percent is being exploited. This is equivalent
to a consumption of about 175 grams per person per annum. Fish
production and consumption has tremendous potential for increasing
incomes of fish farmers, improving nutrition level of the population
and earning foreign exchange through exports. The development
of this sector is, however, constrained by lack of cold storage
and transport facilities, poor fishing equipment, inadequate processing
capacity, etc. The entry of private investment in the production,
processing and preserving of fish and fish products and in aquaculture
development is highly desired.
5.5 Apiculture
The flora of Ethiopia is very heterogeneous
and has rich endemic element. It is estimated to contain between
6,500 and 7,000 species of higher plants of which about 12 percent
are endemic. There are about 10 million bee colonies and over
800 identified honey source plants in the country. Although smallholder
farmers use traditional bee hives, the annual honey and bee wax
production are estimated at 24,700 tons and 3,200 tons, respectively,
of which more than 90 percent of honey produced is used in the
country for domestic consumption. Ethiopia is the first honey
producing country in Africa, and the fourth bee wax producing
country in the world after China, Mexico and Turkey. Present studies
show that, under modern management, the traditional yield of 5
kgs of honey in one harvesting season can be improved to 15-20
kgs. Such a vast and untapped potential could be a favorable area
of activity for investors.
5.6 Commercial Forestry
At the turn of this century, the
forest cover of Ethiopia was over 40 percent. However, the forest
resources are being depleted unabated at a very fast rate. The
deforestation rate is estimated to be about 175,000 ha. per annum.
The most recent estimations indicate that only 3.6 percent of
Ethiopia's land area is now
under forest cover. This awful situation has adverse effects on
agriculture, energy and construction. An estimated three million
hectares of natural forest presently remains in 58 areas designated
as National Forest Priority Areas (NFPA). Out of these, 13 areas
are administered under integrated management systems, with about
80,000 hectares of industrial forest having been established for
limited sustainable exploitation. To reverse the dangerous trend
of the current deforestation rate and at the same time maximize
the use of the resource, undertaking a sound forest
development and utilization programme
that includes private investors becomes imperative. In this regard,
some of the investment opportunities
in the subsector are:
5.7 Agri-Business
a) Fertilizers
Fertilizer is an input to which a
relatively large number of farmers have access in the country.
The consumption of fertilizers, where the food crop producing
smallholder farmer is the major consumer, has reached a level
of 251,000 tons in 1996. At present, the average fertilizer use
is about 9 kg/ha and approximately 32% of cultivated area (2.8
million hectares) receive fertilizer. It is estimated that currently,
only 20% of the farmers in the country use fertilizers.
On the other hand, much of the land
and particularly the high potential cereal production area has
been traditionally cultivated since time immemorial and, hence,
has been exposed to severe loss of fertility. Intensification
of the crop production systems in this and other potential areas
necessitates, among other things, a greater and more efficient
use of different types of fertilizers.
Ethiopia does not produce mineral
fertilizers. However, some initiatives are being taken to produce
these chemicals based on the country's
natural resource endowments. To this effect, a techno-economic
feasibility study for putting up a single super phosphate (SSP)
plant, (20 percent P2 O5) and an identification
study for a coal-phosphate fertilizer complex project have been
conducted. The Calub Gas Project, currently in the pipeline for
privatization, is expected to produce considerable amount of fertilizer.
Thus, there is a vast area of investment opportunity for foreign
investors to participate in the production of fertilizers.
b) Agrochemicals
Agricultural pests are always a serious
threat to crop production in Ethiopia. Although no systematic
loss assessment studies have been done, the annual pre-and post
harvest losses are estimated to be at least 30% or equivalent
to two million tons of grain.
At present, chemical application
is one of the available pest control mechanism in the country.
Pesticides required to control migratory pests like desert locust,
quella birds, army worms, etc. are estimated at about 500,000
lts per year. The demand for pesticides to be used for non-migratory
pests, for sprayers and other safety equipment such as goggles,
gloves etc. is also high.
Hence, once again, potential investors
are welcome to participate in the supply of different kinds of
plant protection chemicals and equipment.
c) Agricultural Machineries
and Farm Implements
The use of modern tractors, combine
harvesters and related heavy machineries is still very limited
in Ethiopia. The Nazareth Tractor Factory, with its limited capacity,
is the only company that assembles tractors in the country. On
the other hand, a rising trend in the import of tractors and harvesters
is being observed as of recent years. Small-scale farmers on their
part are looking more into the use of small mechanically-powered
equipment both for crop production and post-harvest activities.
Thus, great opportunities lie in the importation, assembly, manufacture
and distribution of agricultural heavy machineries as well as
of small-powered equipment such as irrigation pumps, sprayers,
mowers, bailers, shellers, threshers, flour mills, powered fishing
boats, etc.
Furthermore, agricultural hand tools and traditional ploughs still
constitute the major means of agricultural production by Ethiopian
farmers. Artisanal production, the main supplier of hand tools
and implements, is showing a declining trend mainly due to shortage
and rising cost of raw materials. The current industrial production
of these implements is believed to be far below the present and
future needs of farmers. Consequently, the manufacture, for instance,
of improved agricultural tools and implements is very much encouraged.
始めへ