As Ethiopia develops and launches GTP II, agriculture sector programs must be able to drive the country's commercialization and growth. Integrating a market-driven, value chain and geographically focused approach, based on lessons learned from past national and international experience, is critical to this endeavor.
To be sure, the government recognizes agriculture as the pillar of the economy that provides the population with employment, foreign exchange earnings, source of raw materials for industry and source of food for the population and believes it determine the pace and direction of industrial development through financing the industrial sector and generating effective demand for industrial outputs.
Agriculture is believed to determine the pace and direction of industrial development -.through financing the industrial sectoor and generating effective demand for industrial outputs. In the industry development sector itself, the export-oriented principle plays a leading role.
Since 1992, the Government has successfully implemented a series of reform programs in order to transform the economy from command to market economy, speed up the integration of the economy into the world economy and encourage the wider participation of the private sector in the development of the national economy. As a result, a great deal has been achieved in moving from a highly centralized economy to a more liberal market economy. Particularly, the economy has shown growth at annual average rate of two digits in the last four years.
The development policies and strategies particularly recognize the need for transforming the agriculture sector from its low-productivity status and subsistence production orientation to a high productivity and market-oriented production. The focus has been on attaining food security and earning of foreign currency through expanding medium and large commercial farms in the country in addition to the best practice scaling up program.
Furthermore, the agricultural policy also recognizes the key role private capital plays in the development of large-scale modern farming. To realize this, the government has created enabling conditions to encourage both domestic and foreign private investment. To accelerate the progress, the government has been heavily investing on infrastructure, rural finance, research, access to improved technology and information, market development, agricultural extension services, promotion of cooperatives, education, and resettlement programs.
In line with that, the Second Growth and Transformation Plan (GTP II) envisages:
Indeed, expansion and upgrading of Agro-industrial processing are vital given that there exist high potentials in the agriculture sector, value addition and agro processing opens much wider room for investment. To increase productivity and efficiency of agricultural sector agricultural value chains are vital for the success of rural economies and to improve the incomes of rural populations and the commercial farms as well.
That is why the government has started establishing Agro-processing industrial parks in Tigray, Amhara, Oromia and Southern Nations, Nationalities and Peoples’ states, spending of 2.5 billion USD. So far, more than 17 agro-processing plants have been identified and out of these the first to engage would be Bahker in Tigray, Bure in Amhara, Ziway in Oromia, and Sidama in SNNP as their feasibility study is already completed. Studies have shown that there is abundant livestock and fish, sesame, spices, and honey in the identified areas. As they are also close to port, towns and infrastructure, they could be profitable to investors.
An industrial development zone is defined as:
Industrial Park, in particular, enables creating facilities that can be shared by several firms. The advantages of shared investment, access to technical information and tax incentives, scale of operation and the provision of services (such as power, water and wastes disposal) are obvious, particularly when seen in retrospect and from a distance.
Experiences of India show that a well-designed agro-industrial park with all the requisite facilities has considerable potential for commercial success. By definition an ‘agro-industrial park’ focuses upon the processing required of ‘agricultural products’ (and the mix of ‘non-agricultural’ industries may be low or non-existent). Of prime importance is access to a viable hinterland, where a range of productive agro-horticultural enterprises may exist. Services such as management, information, transport, storage and packaging can be shared across a range of different crop and livestock products. There may also be opportunities for recycling wastes and/or using rejected products from the one processing stream as the raw material for the next.
Agro-industrial parks provide networks of contacts between producers, markets and processors, but also provide the physical infrastructure required for the transforming industries. Herein is the role of the planner, public servant, engineer (in structures, water, power, etc.) and, importantly, the entrepreneur and those within the local finance industries that support them. Joint investment and industrial planning are central to issues of park construction and operation.
There are a number of discrete advantages with establishing a dedicated agro-industrial park that will attract similar or complementary enterprises. Working in close proximity provides for rationalization of management, of supervision, of services and of shared market exploitation. The different enterprises are able to share and/or exploit the complementarity of raw materials, utilities, information resources, transport, import/export arrangements, and similar co-ventures that comes from a cooperative and well-coordinated industrial estate supported by both local government and private industries.
The concept of the agro-industrial park, with the provision of common infrastructure and services that may be used by similar processing enterprises on site, offers potential to minimize expenditure and thus reduce both borrowings and risks to investors and industrialists). There are also issues of scale involved, for example, with the provision of services and of plant for treatment and/or disposal or recycling of wastes. These may require a minimum throughput that could not be provided economically by the many separate enterprises involved. An agro-industrial park may have a greater chance of becoming self-sustaining from the outset, with costs (for services, information, technologies, etc.) shared across the many enterprises involved.
Ethiopia has the potential to follow the examples Vietnam and similar of developing countries that managed to create millions of jobs in light manufacturing by leveraging similar advantages and by attracting leading investors into their countries. It can surely become globally competitive in large segments of light manufacturing (apparel, leather products, and agribusiness) and, if successful, could create millions of productive jobs in the process by leveraging its labor cost advantage (low wages combined with high labor productivity in good-practice firms) and comparative advantage in the natural resource industries (agriculture, livestock, and forestry). Other
Ethiopia has many natural resources that can provide valuable inputs for light manufacturing industries serving both domestic and export markets. Among its abundant resources are cattle, which can be processed into leather and its products; forests, which can be managed for the furniture industry; cotton, which can support the garments industry; and agricultural land and lakes, which can provide inputs for agroprocessing industries. Ethiopia has abundant low-cost labor, which gives it a comparative advantage in less-skilled, labor-intensive sectors such as light manufacturing.
Unfortunately, the agro-industry potential has been untapped due to interrelated problems. The shortage and low quality of inputs is often blamed for the failure to penetrate reliable markets in Agro related sub-sectors. However, it is equally true that there is scarcity of processing firms in areas where there are abundant agricultural products. On the reverse, in places where industries are found, dearth of raw materials has resulted in low income.
The agro-processing parks would go a long way in solving and tackling the lack of value chain and will add value to agricultural products destined for export. Feasibility studies indicated that there is abundant raw materials in the identified areas and given they would be attractive to investors given their proximity to port, towns and infrastructure.
Each of the industrial parks will have initially up to eight rural transformation centers that would serve as pre-processing sites. The parks will incorporate companies engaged in exporting value-added agricultural products to the world market. The parks will go online next year, after the study conducted to select areas with large agriculture production. The integrated agro industry parks are set to be established at coffee, sugar, sesame seed, fruit and vegetable production sites.
Given the ready availability of the technology and skills, the potential to boost the linkage to the next level of manufacturing is even greater. for example, to the sub-sector manufacturing garments, there is obvious potential for domestic firms to increase their share in the domestic and global clothing markets. A significant and growing labor cost advantage, access to a state-of-the-art and well-located container port in Djibouti, and duty-free access to the U.S. and EU markets offer Ethiopia the opportunity to expand its apparel industry. Foreign direct investment can accelerate the process of ramping up production and exports.
Ethiopia’s potential for expanding its production of high-quality cotton enhances the potential benefits associated with expanded production of clothing. The binding constraint on Ethiopia’s competitiveness in apparel has been poor trade logistics, which wipe out its labor cost advantage and cut it off from the higher-value, time-sensitive segments of the market. Establishing a green channel for apparel at customs, reducing the cost of transportation by improving infrastructure, and setting up an industrial zones would resolve the most important trade logistics issues.
Ethiopia has even greater potential in leather, which is more labor intensive than apparel. Italian shoe importers express the highest regard for Ethiopian leather. Modest, targeted reforms could enable Ethiopia’s large animal herds to produce vast amounts of some of the best leather in the world. Furthermore, the penalty of poor trade logistics is less serious because leather products are less time sensitive than apparel. The immediate constraint is limited access to high-quality processed leather.
Indeed, the Textiles and Garments subsector is one of the best demonstrations of the industrialization stride and the success of the policy as it became to receive substantial interest from key global textile companies. Even if the textiles sector have a rich history in Ethiopia stretching back thousands of years, its industrial scale production dates back less than a century, and until a decade ago it remained highly uncompetitive and limited to a small portion of the domestic market.
Following the accomplishments of the first Growth and Transformation Plan, however, the sector started to undergo fundamental structural change and now set to make Ethiopia an important hub for the industry. In sharp contrast to its lukewarm performance a decade ago, the industry is now showing promising export revenue, of nearly US$100 million.
This highflying performance of the textile and garment sector is a result of continuous improvement in the production capabilities of domestic textile, garment, knitting and weaving firms; more importantly, there has also been the performance of foreign firms which have recently entered the industry. The government’s efforts to attract foreign investment into the sector have been successful in not only establishing a first round of established international textile and garment firms but also providing a strong demonstration effect, placing the country as an emerging textile powerhouse on the global industry map. There are a number of reasons to explain the choice of Ethiopia as an investment destination for international textile and garment companies, but the most relevant are its comparative advantages in terms of production factors and the policies put in place by the Ethiopian government.
One of the showcases of the textile sectors progress is the announcement of Ayka Addis Textile & Investment Group, a subsidiary of Istanbul-based Ayka Textile, its plan to invest one billion Ethiopian birr (31 million pounds) in an expansion of its current RMG production unit in Alem Gena, 19 kilometers away from Addis Ababa. The expansion will create an additional 13,000 jobs, thus tripling employment, and take production capacity up to 100 percent. The company is also expecting exports to triple to 150 million US dollars by the end of 2015 from which was 56 million US dollars in 2012/13.
Another example is the decision of the textile industry giant Tesco and H&M to start producing in Ethiopia. Last year, the clothing megabrand H&M announced it was looking to source clothes from Ethiopia. H&M plans to source a million garments a month from Ethiopia. Immediately, it started training of employees and became engaged in working hour management, quality of products, and growth in productivity, as well as environmental protection".
In general, the growing demand for Ethiopian textiles and garments in Western markets can be seen in the fact that more than 45 percent of the national production is exported to Germany. Moreover, according to the Ethiopian Textile Industries Development Institute (ETIDI), thirteen new additional factories with a combined production capacity of 100 tons a day are expected to start production until the end of 2015.
Another area of potentially linked to the promotion of agro-industry parks is the leather and leather products subsector which registered high growth in export revenue year after year. Even if Ethiopia possesses the largest livestock herd in Africa, and the 10th largest in the world and it annually produces 2.7 million hides, 8.1 million sheepskins and 7.5 million goatskins, the sector underperformed for centuries. Therefore, despite the leather industry's potential to become a world-class supplier of high quality finished leather and leather products, including shoes, garments, gloves and accessories, little achieved for long.
The main leather-related export item of Ethiopia is, however, low value-added hides and skins. The Government of Ethiopia has been promoting to shift the major export items from the low value-added hides/skins to high value-added finished leather. The leather industry has been one of the major traditional industries together with the coffee and garment industries, but it is now at a turning point to change itself from a traditional industry to a modern industry to penetrate the international high value-added leather market, under the strong initiative of the government.
The government of Ethiopia has made the leather and leather products value chain among the top four priority industries in the country due to its strong backward linkages to the rural economy aiding in the alleviation of poverty and its potential for increasing exports and hence the flow of foreign currency into the economy.
The leather footwear industry is considered at important sub-sector that leads the whole sector’s modernization. Although the export of leather footwear started only in 2005, the export value has been growing steadily since then and is expected to make a big impact on the Ethiopian economy.
The importance of the leather footwear industry as a part of the leather industry has been emphasized by the GOE at various levels. In the PASDEP (Plan for Accelerated and Sustained Development to End Poverty), the leather industry was mentioned as an important sector for trade and industry development.
The development of the leather industry is in line with the Agricultural Development Led Industrialization (ADLI), which is the basic development strategy of the country, in that the promotion of high value-added leather products is going to encourage the process of the industrialization of agriculture.
In the first Growth and Transformation Plan (2011-2015), the Government has made the footwear industry one of its focus areas, since it is one of the most labor-intensive industries, providing ample employment opportunities, a key to successful industrial development.
As a result, Ethiopian leather products are now being exported in large volumes to markets in Europe, especially Italy and the UK, America, Canada, China, Japan and other Far Eastern countries, the Middle East and other African countries including Nigeria and Uganda. Ethiopia is indeed making a name for itself in the world of mass-produced footwear.
Moreover, foreign investors are now showing increased interest in Ethiopia’s potential. Ethiopia has recently become an increasingly important destination for international buyers looking for high-end shoes, because of its fine leather products and a strong commitment to quality. The footwear industry in Ethiopia is thriving. There have been a growing number of new and innovative enterprises, as well as expansion of existing companies, improving the quality of their products and developing new marketing systems. In the face of fierce competition Ethiopian entrepreneurs have been introducing new ideas for product design, production methods, labor management, procurement, and marketing.
Foreign Direct Investment was increasingly attracted due to government policies. Besides the excise breaks, tax holidays and cheap land rental offered to investors in certain preferred sectors make Ethiopia attractive. Ethiopia‘s has the added advantage of a competitive and youthful workforce.
International retailers have been showing interest in opening new factories in Ethiopia or exporting footwear from Ethiopian leather factories such as Tikur Abay, Peacock, Anbessa and Ramsey. Huajian, a Chinese shoe maker, opened a factory in 2012 in Ethiopia employing over 3000 people and currently produces shoes for Guess, Tommy Hilfiger, Naturalizer, and other Western brands at its Dukem factory. Another shoe factory established in Bole Lemi Industrial Zone, the George Shoe Corporation, is now offering its first 10,000 pairs of shoes for the international market.
As a senior official recently noted: