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ETHIOPIA In Focus
Editorial

I. Spotlight

II. Horticulture and Floriculture Industry: Ethiopia's Comparative Advantages

III. Visit Ethiopia IV. Press Brief
V. Promotional Information on Trade

 

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Horticulture and Floriculture Industry: Ethiopia’s Comparative Advantage

Development Potential

Over two decades have elapsed since Ethiopia started exporting horticultural and floricultural products (fresh produce and cut flowers) to European off – season market and for the past forty years fresh fruits and vegetables have been exported to the Djibouti market.

Ethiopia produces a broad range of fruits and vegetables, including citrus, banana, mango, papaya, avocado, guava, grapes, pineapple, passion fruit, apples, potatoes, cabbages, cauliflower, okra, egg plant, tomato, celery, cucumbers, pepper, onion, asparagus, water melon, sweet melon, carrots, green beans and cut flowers.

Cut flower and vegetable are fast growing export businesses: in 2003/04 over 40,000 tons of fruits, vegetables and flowers were exported. The volume of export of these products is growing and currently showing great promise. As a result of the attention given by the government to this sector and the unparalleled advantages that Ethiopia has in this sector, a substantial number of investors have started investing in Ethiopia. Currently 25 foreign and domestic investors have already started their construction while 20 of them started production and export of roses to European market. The foreign investors have joined this investment activities from Europe and Middle East.

  • Suitable Climatic and Natural Resources

 Ethiopia has a favorable climate, comparatively abundant land and labor as well as reasonably good water resources, that created ample opportunities for horticulture and floriculture production. The agro-ecological factors of the country give the chances of all-year-round production capability.

The country has 122 billion cubic meter surface water, 2.6 billion cubic meter ground water, 12 river basins, 18 natural lakes including the Rift Valley lakes and a potential of 3.7 million hectares irrigable land. About 80-90 percent of these resources are located in the west and south-west of the country where close to 40 percent of the Ethiopian population lives and 10-20 percent of these resources are located in the east and central part where most of the population has settled.

Ethiopia’s agro-Climatic conditions make it suitable for the production of a broad range of fruits, vegetables as well as cut flowers. The range of altitude, temperature and soil variability of the country has created an enormous ecological diversity and a huge wealth of biological resources. In other words the wide range of ecological conditions that prevail in the country have created a favorable habitat for diversified forms of life including plants, animals and microorganisms. Notable among the resources of Ethiopia is the vegetation. According to a document published in 2001 by the Ethiopian Institute of Biodiversity Conservation and Research, the number of higher plants alone was over 7000 species, approximately 12% of which being endemic.

  • Principal Production Sites

 

The country’s producers of horticultural and floricultural products can generally be grouped into three major categories. Namely: state farms, private commercial farms and small scale farms around the capital, UpperAwashValley, LakeZiway and Gibe.

Addis Ababa, the capital, with its altitude, elevated about 2000 meters, is the most suitable place for the production of high quality roses. Besides its suitable weather, all the infrastructures like roads, power, telecommunication and water have been availed for the investors in floriculture sector. All the 25 foreign and domestic investors on flower production have started their production on this area. It is also practically witnessed that Ethiopian highlands provide “near ideal” growing condition for roses. Ethiopia has globally competitive advantages in the production of roses in quality, freight cost and production cost. As one pioneer investor in this sector commented “ the best value for many roses in the world goes to Ethiopian roses.”

In the UpperAwashValley there are four farms with an altitude spanning from the range of 1200 to 1400 meters and an area totaling 8610 hectares. The farms are located along the length of the River Awash within 149 –220 km away from the capital.

Ziway Farm, which is located in the southern region of the country (165 km from Addis Ababa) situated between Lake Ziway and the main highway, is known for its fine beans and cut flower production. It is 970 hectares wide and its altitude ranges between 1600 –1700 meters above sea level.

Gibe farm is another state farm situated along the banks of the GibeRiver, about 185-km southwest of Addis Ababa at an elevation of 1100m. It comprises a total area of 689 hectares. The farm was known by its flavourous high quality capsicum production, which won a gold medal in the German market. Other three small private companies are also producing pea beans and cut flower for the European market in the Ziway Area. They totally cover about 100 hectares of land.

  • Principal Produce

Horticulture:

Research findings and business experiences have attested that the Ethiopian soil and climatic condition are very much ideal for growing a variety of fruits and vegetables. Among the common varieties in Ethiopian export business the following are prominent ones:

Bobby BeansHeld Beans French Beans

Red Onion AmboyTalion

Red ShallotPotatoTomato

MelonsOkraCapsicum

Peppers AsparagusMango

PapayaMinneolaGrapefruit

 

Floriculture:

The existing agro-ecological factors also allow producing a great variety of flower crops. The major flower varieties produced in the country and entered in to export business includes:

RosesAllium

Carnation (Stand, Spray)CarthamusStatice (Yellow, Purple, White)

  • High Level of Support by the government

The reason for the growing involvement and interest of investors in the horticultural and floriculture industry is the renewed commitment of the government to reactivate the agricultural export sector.

The Government of Ethiopia has introduced various measures and launched an all-out effort towards the attainment of agricultural development. The government’s relentless efforts to exploit the linkages between agriculture and industry through the private sector development is now firmly holding ground.

Ethiopia’s industrial development strategy highly encourages investors engaged in the production and export of agricultural products (especially in floriculture, horticulture, pulses and oilseeds). The government has allocated a substantial amount of finance for investors who would be engaged in this sector for export and can apply loans for up to 70% of their investment project. This preferential financing scheme clearly demonstrates that the horticulture and floriculture sector is the priority area of the government.

This special loan is provided through the Development Bank of Ethiopia (DBE) and the bank has the following credit policy:-

  • Interest rate is fixed at 7.5% per annum. However, this could vary from time to time.
  • The Bank shall give its clients maximum grace period that involves the period up to the commencement of operation. Maximum allowable grace period is fixed at three years.
  • All fixed asset of the project shall be held as collateral or loan security of the project.
  • The debt / equity ratio requirement shall be 70 / 30 for newly starting projects. However, for ongoing projects which include expansion of existing projects, ratio shall be 60 / 40.
  • Loan repayment period is determined taking into account the profitability and debt servicing capacity of the borrowing concern as well as the economic life of major investment items, with the maximum repayment period of 10 years.

6.Ethiopia’s Investment Law and Incentives

Ethiopia’s market – oriented economic development strategy embraces wide reforms with inducements to both domestic and foreign private investments. The private sector is encouraged to invest in all areas of the economy. To this end, the government has recently revised the investment law of the country offering attractive incentives.

A foreign investor can invest on his / her own or jointly with domestic investors. The minimum capital required of a foreign investor should not be less than USD 100,000 in cash and / or in kind as an initial investment capital per project to start business. The minimum capital for a foreign investor also wishes to team up with a domestic investor or company for a joint investment is USD 60,000.

The investment law guarantees capital repatriation and remittance of dividends. The investment law also provides investment guarantee.

To encourage private investment and promote the inflow of foreign capital and technology into Ethiopia, some of the major incentives which are granted to investors (both domestic and foreign) engaged in new enterprises or expansion in areas qualified for investment incentives include the following:

  • One hundred percent exemption from the payment of import customs duties and other taxes levied on imports is granted to an investor to import all investment capital goods, such as plant machinery, equipment, etc., as well as spare parts worth up to 15% of the value of the imported investment capital goods, provided that the goods are not produced locally in comparable quantity, quality and price.
  • Investment capital goods imported without the payment of import customs duties and other taxes levied on imports may be transferred to another investor enjoying similar privileges.
  • Exemptions from customs duties or other taxes levied on imports are granted for raw materials necessary for the production of export goods.
  • Ethiopian products and services destined for export are exempted from the payment of any export tax and other taxes levied on exports.
  • Any income derived from an approved new manufacturing and agro-industry investment or investment made in agriculture shall be exempted from the payment of income tax for different periods of time depending upon the area of investment selected, the volume of export to be made, and the location in which the investment is undertaken.
  • Any remittance made by a foreign investor from the proceeds of the sale or transfer of shares of assets upon liquidation or winding up of an enterprise is exempted from the payment of any tax.
  • Business enterprises that suffer losses during the tax holiday period can carry forward such losses for half of the income tax exemption period following the expiry of the exemption period.

7.Export Potential

Despite the enormous potential of the country, foreign currency earning from the horticultural sub-sector is still at a lower stage, but the trend is positive. As it can be clearly seen from Ethiopia’s export statistics horticultural export volume has shown more than 100 percent growth in 2003 compared to that of five years ago. The growth of the export level came amid intensified efforts of the government to boost the export of agricultural products of the country.

Likewise, Ethiopia has great potential for the development of floricultural industry. Flora Culture International once wrote that the only future for Dutch rose growers is to “immigrate” to Africa particularly to eastern Africa, where, it said, “Certainly there is plenty going on in the floral industry.” It further mentioned that Ethiopia is certainly one of the potentially rich countries in Africa. The writer also noted that the Dutch were coming to Ethiopia.

One of the major companies engaged in the floriculture sector in Ethiopia is Golden Rose Agro Farms Ltd, which is UK and Kuwaiti owned private company established in 1999. The company believes that Ethiopia’s exports of flowers are blooming because of their high quality. “ We have been satisfied enough to expand our farm twice since we began four years ago and we are now three times bigger than we were when we started,” Says Ryaz Shamji, managing director of the Golden Rose Agro Farms Ltd. The company, which has employed 350 workers currently, cultivates 10 varieties of roses on 20 ha farm, in Tefki village, 45 km southwest of Addis Ababa. It exports 18 million roses per year, with major destinations to Scandinavian countries, Italy and Dubai (United Arab Emirates).

According to Mr. Tsegaye Abebe, the chairman of Ethiopian Horticultural Producers and Exporters Association (EHPEA), green beans are by far the most promising agro-product of Ethiopia capable of winning the European market particularly in Holland, Germany and Belgium. In fact, he says that highland roses are also increasingly getting good demand in the global flower market.

The chairman of EHPEA also says that the amount of exportable horticultural products is increasing. At the same time, investors are planning to increase their export products by 50% this year, motivated by various incentives and supports given by the government.

“ The success story we have for the time being is the marketability of our products in the
international market,” says Dr. Lemlem Sisay, manager of another company called Ethio Dream PLC, which has started exporting roses in the first months of 2003.

Ethio Dream, foreign owned private company of Italian, Saudi and Yemeni citizens, currently cultivates roses on 22 hectares of land in Holleta, 50 kms west of Addis Ababa with a total of 100 employees. “ The production plan of the company is about 2.4 million stems per year. Through the on-going expansion of business, however, the output is planned to grow 10-11 million stems per year,” says Dr. Lemlem.

The manager further indicated that although roses produced by Ethio Dream are exported mainly to European countries, namely Germany, Italy and to some Scandinavian countries, a small share of the market is also to the Middle East such as Saudi Arabia and UAE.In relation to the competitiveness of the company’s products in the world market, where quality, standards and price highly matter, Dr. Lemlem says,” the results we achieved so far are encouraging.”

8.Proximity to the Global Market and Efficiency of the Transport System

Ethiopia is strategically located in the Horn of Africa, at the crossroads between Africa, the Middle East and Europe. It is situated within easy reach of the Horn’s major ports which connects it with the Middle East and Europe, which are Ethiopia’s traditional markets for its export products. Ethiopia’s geographical proximity to Europe and the Middle East, has a direct implication to its floriculture export as the major players in the global market are found in these areas.

Road transport is by far the most dominant means of transport in Ethiopia providing for over 90% passenger and freight carriage. Both asphalt and gravel roads radiate from Addis Ababa to main cities, towns and centers of commercial, industrial and agricultural activities. International highways also link Addis Ababa to neighboring countries like Djibouti, Kenya and the Sudan.

Ethiopian Airlines, renowned and reputed for its excellence in its 58 years of service, offers efficient passenger and cargo air transport services. Its international flights link the country with over 45 cities in four continents. Twenty six in Africa, twelve in Asia, five in Europe and two in America.

Its extensive domestic network serves 26 destinations. The new passenger terminal at Addis AbabaBoleInternationalAirport matches the growth in operation and fleet of the airline. It is believed that the construction of an additional ultra-modern cargo terminal and maintenance hangar will provide the utmost competent service.

9.Abundant and cheap labor resource

With a population of more than 70 million, 80% of whom living in the rural areas, Ethiopia can provide sufficient labor force, which is competitive in terms of cost. As it is known, the long process required from seedling, cultivating, packing and exporting makes the horticulture and floriculture sector unique in absorbing huge labor force. The cost of labor in Ethiopia is not only lower than some Asian nations, but also African countries such as Tunisia, Mauritius, Kenya, etc.

10. Conclusion

As a whole, there is a growing trend in the development of the floricultural and horticultural industry. The trend basically portrays how the government’s policies and measures in support of genuine investment activities are changing the realities in the agro-business sector, which is found at the heart of the economic development strategy of the nation. The government has equally stepped up efforts that have enabled it to provide condusive investment environment as can be seen from the investment law, incentives and environment.

On the other hand, the export business in the sub-sector has shown great potential and has proven to gain higher amount of hard currency. The trend shows that “this country can make more than double of the revenue it used to obtain from coffee,” as Tsegaye Abebe of EHPEA stresses. And more importantly, the location of Ethiopia makes it suitable for export to Europe and the Middle East.

Moreover, the floricultural and horticultural industry is labor intensive which Ethiopia has a comparative advantage over other African countries. And this uniqueness is beneficial to both the investor and the country. The investor gets cheap labor source and the country benefits by employing huge labor force, even compared to other agricultural sectors.

Based on the aforementioned comparative advantages of Ethiopia, therefore, the government of Ethiopia invites all interested companies to participate in the investment of Ethiopia’s horticulture and floriculture industry. It is possible to set up wholly owned (sole) companies or invest in joint venture with Ethiopian companies. Companies who are interested to invest in Ethiopia can contact the Ethiopian Embassy in Beijing or the Honorary Consulate Offices in Melbourne, Kuala Lumpur, Hong Kong or Singapore. The Embassy would be pleased to provide additional information or assist in identifying reliable partners to interested companies. The addresses of the Embassy and Honorary Consulate Office are provided in the inside back cover of this magazine.

 

January 2005 Vol.VII, No1