ethiopia

Name: Federal Democratic Republic of Ethiopia (Ityop'iya Federalawi Demokrasiyawi Ripeblik)
Political Capital: Addis Ababa
Major cities: Dire Dawa, Gondar, Macallé, Bahir Dar, Gimma, Harar e Jijiga
Form of Government: Federal Republic
Political situation: chief of state: President Girma Woldegiorgis (since 8 October 2001); head of government: Prime Minister Hailemariam Desalegn (since 21 September 2012); note: prior to his approval as prime minister, Hailemariam had been acting prime minister due to the death of former Prime Minister Meles
Territorial subdivision: 9 regions, or killoch, are based on ethnic territoriality: Afar, Amhara, Benishangul-Gumuz, Gambela, Harari, Oromia, Somali, Southern Nations – Nationalities - and People's Region, Tigray; Additionally there are two chartered cities: Addis Ababa, Dire Dawa
Population: 91,195,675 (July 2012 est.)
Urbanization rate: 17% of total population (2010)
Population density: 82.58/ km²
Ethnic groups: Oromo 34.5%, Amara 26.9%, Somalie 6.2%, Tigraway 6.1%, Sidama 4%, Guragie 2.5%, Welaita 2.3%, Hadiya 1.7%, Affar 1.7%, Gamo 1.5%, Gedeo 1.3%, others 11.3% (2007 Census)
Official religions: Orthodox 43.5%, Muslims 33.9%, Protestants 18.6%, Traditional religions (animists) 2.6%, Catholics 0.7%, others 0.7%
Official language: Oromigna (official regional), Amarigna (Amharic) (official), Somaligna, Tigrigna (official regional), Sidamigna, Wolayitigna, Guaragigna, Affarigna, Hadiyigna, Gamogna, other, English (official) (major foreign language taught in schools), Arabic (official)
Territory surface: 1,104,300 km²
Land: 1 million km²
Neighboring countries: Djibouti, Eritrea, Kenya, Somali, South Sudan, Sudan
Climate: tropical monsoon with wide topographic-induced variation
Festivities: May 28 - National Day, January 07 - Ethiopian Christmas Day, January 24 - Milad un Nabi (Birth of the Prophet Muhammad), March 02 - Victory of Adowa, May 01 - Labor Day, May 03 - Ethiopian Good Friday, May 05 - Ethiopian Easter Sunday, May 05 - Patriots' Victory Day, May 28 - Derg Downfall Day, August 08 - Eid al-Fitr (End of Ramadan), September 11 - Ethiopian New Year (Enkutatash), September 27 to 29 - Finding of the True Cross (Meskel), October 15 - Eid al-Adha (Feast of Sacrifice) (2013)
Passport and Visa: Except Kenya and Djibouti nationals, visas are required for all visitors to Ethiopia. Visitors should obtain a visa from an Ethiopian Embassy or Consulates before departure. Visas for Ethiopia are required byeveryone except transit passengers continuing to a third country within 12 hours - providing they do not leave the airport, and hold valid travel documents for onward destination. Some tourist visas can be issued on arrival at Addis Ababa Bole International Airport: foreign nationals coming from countries where there is no Ethiopian mission and foreign nationals coming from and who are permanent residents in any of the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Poland, Portugal, Spain, Sweden, UK and USA. If applying for a tourist visa on arrival, visitors will require two passport photographs and US $20; application can take up to two hours. Note the visa is valid from the date of issue not the date of entry into Ethiopia.
Local currency: Ethiopian Birr (ETB)
Currency exchange rate: 1 US dollar - 18.43 ETB / 1 Euro - 24.02 ETB
GDP (official exchange rate): $41.89 billion (2012 est.)
GDP growth rate: 7% (2012 est.)
Inflation: 21.7% (2012 est.)
Unemployment: 17.50% (2012)
Transport system: Airports - 58; Pipelines - oil 886 km; Railways - 681 km (Ethiopian segment of the 781 km Addis Ababa-Djibouti railroad) note: railway is under joint control of Djibouti and Ethiopia but is largely inoperable; Roadways - 36,469 km, Merchant Marine - 8; Ports & Terminals - Ethiopia is landlocked and uses ports of Djibouti in Djibouti and Berbera in Somalia
Economy: Ethiopia's economy is based on agriculture, which accounts for 46% of GDP and 85% of total employment. Coffee has been a major export crop. The agricultural sector suffers from poor cultivation practices and frequent drought, but recent joint efforts by the Government of Ethiopia and donors have strengthened Ethiopia's agricultural resilience, contributing to a reduction in the number of Ethiopians threatened with starvation. The banking, insurance, and micro-credit industries are restricted to domestic investors, but Ethiopia has attracted significant foreign investment in textiles, leather, commercial agriculture and manufacturing. Under Ethiopia's constitution, the state owns all land and provides long-term leases to the tenants; land use certificates are now being issued in some areas so that tenants have more recognizable rights to continued occupancy and hence make more concerted efforts to improve their leaseholds. While GDP growth has remained high, per capita income is among the lowest in the world. Ethiopia's economy continues on its state-led Growth and Transformation Plan under its new leadership after Prime Minister Meles's death. The five-year economic plan has achieved high single-digit growth rates through government-led infrastructure expansion and commercial agriculture development. Ethiopia in 2013 plans to continue construction of its Grand Renaissance Dam on the Nile-the controversial multi-billion dollar effort to develop electricity for domestic consumption and export.
Exports: coffee, khat, gold, leather products, live animals, oilseeds
Imports: food and live animals, petroleum and petroleum products, chemicals, machinery, motor vehicles, cereals, textiles
Primary Sector: Agriculture - cereals, pulses, coffee, oilseed, cotton, sugarcane, potatoes, khat, cut flowers, hides, cattle, sheep, goats, fish
Secondary sector: Industries - food processing, beverages, textiles, leather, chemicals, metals processing, cement
Tertiary sector: In the last few years, with the end of the military dictatorship, services have shown a significant growth, led by tourist services (thanks to natural treasures as well as the cultural heritage and historical, religious and archeological sites), by telecommunications, transports and financial and insurance services
Renewable energies: Ethiopia has a very high potential for solar, wind, and hydro power, in addition to biogas as alternative energy sources. In the next five years, the country intends to quintuple its own clean energy productive capacity and to become a CO2 zero-emission country by 2025 (also thanks to EEPCO, Ethiopian Electric Power Corporation, which intends to increase the electricity generation capacity, especially through wind and geothermal energy, from the current 2000 MW to 10,000 MW)
Investment incentives*: The Government continues in its commitment to foreign investors attraction and it has gave birth to a broad modification of the legislative framework with the aim of boosting investments, with several improvements in FDI discipline. Through 2002 Law Nr. 280 and 2003 Regulation Nr. 84, some incentives were introduced (tax and custom exemptions) and several disposition were modified in order to support investments. Among others, it is worth considering the remarkable time simplification and acceleration in licenses issue and in investment permissions. Some sectors are reserved to “local investors”, Ethiopian citizens or foreigners permanently resident in the country. The list, contained in the 2003 Regulation, includes 18 activity sectors, among which wholesale and retail trade, import and export of raw coffee and other agricultural products (kat, oils and vegetables), constructions, hotel (except from high quality hotel and resorts) and tourist business, as well as mining extraction which is attracting several international groups, offering interesting investment opportunities especially for bricks and cement production, for marbles and other building materials, and for oil, natural gas and gold field detection

* Source: www.ambaddisabeba.esteri.it

Historical Background

Ethiopia is not only the first country to have gained independence in Africa, but it is also one of the oldest nations in the world. Tracing its roots to the Kingdom of Aksum, in the 1st century BC, Ethiopia has been a monarchy for most of its history. The country as we know it today began under the reign of Menelik II who, ruling from 1889 to 1913, fended off colonial encroachment by European powers. Italy posed the greatest threat, in the mid 1880s, when it began to occupy part of what was to become its future colony of Eritrea, going beyond the terms agreed under the 1889 Treaty of Wichale. The dispute culminated with the Battle of Adwa in 1896 when the Ethiopians defeated Italian troops.

 In 1936, while new Emperor Haile Selassie was in power, Italy again invaded part of Ethiopia, but only for a short time as it was soon defeated by Ethiopian patriots with the aid of British troops. The long tradition of monarchy ended in 1974 when Emperor Haile Selassie was overthrown in a Marxist military coup. Under the lead of Mengistu Haile Mariam, a provisional council was set up, which gave rise to a totalitarian government. Terrible droughts and famines worsened the already brutal regime, which ended 17 years after its creation, in 1991, when Mengistu was overthrown by guerilla groups from the north of the country.

The main rebel group, the Ethiopian People’s Revolutionary Democratic Front (EPRDF), formed the Transitional Government of Ethiopia (TGE) with Meles Zenawi as head of state. He pledged to oversee the creation of a multi-party democracy by forming a constitutional assembly with the task of adopting the constitution of the Federal Democratic Republic of Ethiopia, in December 1994. The first elections were held in 1995, when Meles officially became Prime Minister, an office that he covered until his death in August 2012.

Geography

Ethiopia is located in the Horn of Africa and covers a territory of 1.104.300km2. It is bordered by Eritrea to the north and north-east, by Djibouti and Somalia to the east and south-east, by Kenya to the south, by Sudan and the newly established South Sudan to the south-west. The country is characterized by a high and dissected central plateau, with a altitude that ranges from 1290 to 3000 meters, where the highest mountain reaches 4533 meters. The Great Rift Valley divides the plateau and is crossed by a series of rivers, in particular the Blue Nile, which originates from Lake Tana. Between the valley of the High Nile and the Ethiopian border with Eritrea, there is a region marked by the presence of an elevated plateau from which several mountains emerge, thus constituting the Ethiopian highlands region. To the east of the latter, towards the Red Sea, there is a belt of semi-desert low plains, grassy formations of volcanic sands and shrubs-covered territories.

The climate is varied, as it goes from being temperate in the highlands to being hot in the low plains. The country is located in the tropical belt; however, its proximity to the Equator is mitigated by the altitude. Temperatures vary from 20 to 30º C, while rainfall can range from 200mm to 2000mm depending on the season. Addis Abeba, the capital, is located at an elevation of about 2400 meters at the foothills of Mount Entoto, thus experiences pleasant and fairly uniform temperatures year round.

Demographics

According to July 2012 estimate, Ethiopia has a population of 91,195,675 inhabitants of which only 16% lives in urban centers and almost 45% is under the age of 14. As indicated in the latest census of 2007, there are over eighty ethic groups in the country; the Oromo and Ahmara ethnicities are the two dominant ones, followed by the Somali and Tigray groups. Not surprisingly given the large number of ethnic groups, Ethiopia can also boast a vast linguistic heritage, characterized by about ninety regional languages and over two hundred dialects. These regional languages can be grouped into four main families that are the Semitic, Cushitic, Omotic, and Nilo-Saharan ones. All languages enjoy equal recognition by the state; however, only Amharic is recognized as the official working language of the government. English, instead, is the most widely spoken foreign language and it is used for instruction in secondary schools. According to the findings of the 2007 national census, 62% of the population are Christians, mainly Orthodox, whereas 34% are Muslim.

Political Context

When it came to power in 1995, the Ethiopian People’s Revolutionary Democratic Front (EPRDF) introduced democratic institutions and a new constitution. The EPRDF has remained the dominant party since then. The current head of state of Ethiopia, a federal republic composed of nine ethnically based states and two chartered cities, is President Girma Woldegeorgis, in power since October 2001. The president is elected by both chambers of Parliament for a renewable six-year term; elections were last held in October 2007 and will again be held in 2013. Following the elections, the head of government is designated by the winning party, while the Council of Ministers is elected by the prime minister and approved by the House of People’s Representatives. Meles Zenawi has been the Prime Minister of Ethiopia for seventeen years, until his death in September 2012 when he was substituted by Mr. Hailemariam Desalegn, former Minister of Foreign Affairs.

Macroeconomic Context

Notwithstanding Ethiopia’s rich history and its huge amount of unutilized resources, foreign investors have only recently begun to value the several investment opportunities in multiple sectors. The Agricultural Development Led Industrialization (ADLI), the Ethiopian government’s strategy aimed at launching industrialization through agricultural development, has promoted investment growth and sustainable development. The Country has successfully implemented the previous five-year plan, known as “Plan for Accelerated and Sustainable Development to End Poverty” (PASDEP), in force from 2005/6 to 2009/10.

The third five-year plan, know as “Growth and Transformation Plan” (GTP), is currently in force as it has been designed to cover the years between 2010/11 and 2014/2015. The GTP seeks to support the important successes achieved under the previous plans, as well as the poverty reduction strategies that have been implemented. Ethiopia has experience significant economic growth in the last eight years. The Country’s real GNP has registered double-digit growth, with an annual 11% growth. From 2003/04, Ethiopia’s economic performance has been higher than the one of a majority of African countries. Its economic growth rate is far greater than its population growth rate; moreover, it has been beyond that 7% required under the Millennium Development Goals (MDGs) to reduce poverty within 2015.

Furthermore, nominal GDP has experienced a six-fold growth in the last decade, reflecting a 55.6% annual growth rate, thanks largely to government and private sector investments. The government, through the GTP formulation, had been adopting concrete provisions aimed at encouraging greater investments in the coming years in order to prepare the economy for a yield that is even greater than the current one.

Despite the fact that the agricultural sector continues to provide the main stimulus to the economy, non-agricultural sectors, like the secondary and tertiary ones, have significantly contributed to growth. For instance, it is estimated that the industrial sector will grow at an average rate of 15.6% of GNP, while the agricultural sector will register a 38.8% growth by the end of 2015.

Macro-Economy

Ethiopia has a total land area of about 1.2 million square kilometers and a population of 75 million people, of which roughly 85% are dependent on agriculture-related activities for their livelihoods. Ethiopia’s varies topography and climate make it an ideal country for agriculture, as it is endowed with plentiful land for cultivation, particularly in the less-densely populated lowland regions. Moreover, the country’s abundant water resources remain largely unexploited. These factors give Ethiopia a strong foundation upon which the country can develop its agricultural sector into a modern industrial-led and market-oriented cornerstone of the economy. Such a basis also allows Ethiopia to take better advantage of globalization and market liberalization. Through increased global interaction, the country has the potential to create additional economic growth through the expansion of production, adding further value to goods and increasing trade of agricultural commodities.

The government of Ethiopia has already undertaken important steps by highlighting product diversification and value addition to primary agricultural goods as vital elements to enhancing the country’s agricultural commercialization and competitiveness.

In terms of agricultural production, Ethiopia is already a major player on the world stage. Ethiopia is Africa’s largest producer of coffee and ranks fifth in the world. Its exports of coffee rank eighth in the world. Ethiopia is Africa’s largest producer of barley, in addition to being the world’s fifth producer of linseed and the sixth largest producer of sesame seeds. Ethiopia’s wheat production is second only to that of South Africa within Sub-Saharan Africa and its maize production is third in Eastern and Southern Africa. 

Ethiopia’s economy has been growing at an average of 11%; this performance can largely be attributed to an improved regulatory and investment climate for business. The government has put in place various incentive packages focused on encouraging both domestic and foreign investment. More recently, the government introduced a series of tax reforms and entered into various bilateral and multilateral agreements with a view to encouraging investment and foreign trade.

Overall, Ethiopia’s macro economy continues to be driven by agriculture, contributing to 46% of national GDP, 60% of exports and approximately 85% of employment.

The climate, the different types of land and access to water resources, make Ethiopia a favorable territory for the growth of fruit, vegetables, and flowers. The most exported types of fruit include orange, banana, mango, papaya, avocado, guava, grapes, pineapple, passion fruit, apple, and strawberries. Instead, among the exported vegetables, we can find potatoes, cabbage, cauliflower, okra, eggplant, tomatoes, celery, and cucumber. Ethiopia is currently using about 450.000 hectares to produce vegetables. Floriculture is the leading activity in the sector of non-traditional exports. The rose industry has successfully developed throughout the last ten years. Currently, Ethiopia is the second major exporter of flowers in Africa. The flower sub-sector is coming to the forefront with a total of 1.200 hectares cultivated by 80 local flower-growers, as well as others coming from other countries like The Netherlands, India, and Israel.

Agro-Industry Development

Despite Ethiopia’s natural endowments, its current international trade and its favorable business climate, its agricultural sector output remains far from its potential. Significant challenges remain in relation to transforming Ethiopia’s agro-industry sector into a more competitive and commercially oriented sector that contributes to skilled employment and higher wages in the formal sector.

A well developed agro-industrial sector will contribute much more to GDP than the current contribution of 3.8% to 4.8%. As of 2006, there were 23,000 large, medium and small agro-industry establishments, employing abut 130,000 people. These are mainly located in urban areas, where only 17% of Ethiopia’s total population resides, but where there is good infrastructure and easy access to urban markets.

At present, most of the agro-food industries are operating at less than 50% capacity such as meat, fruit and vegetable processing (41%), grain milling (36%), animal feeds processing (15%), and edible oils and fats processing (35%). The capacity utilization in the small-scale food and beverage industry is generally low. For instance, capacity utilization is estimated at 23% for grain milling.

While Ethiopia’s trade liberalization has resulted in the growth of international trade, the country’s international trade balance remains in deficit. Most of the reasons for this are to be found in the agro-industry sector, where the value of imports of prepared or processed foods greatly outweighs the value of unprocessed agricultural produce the country exports. The negative trade balance draws attention to the inefficiencies of domestic food processing industries.

Development of the agro-industry sector is all the more important given its relationship to attainments in human development. It has been established that a high-agribusiness to agriculture ratio corresponds to high human development achievements as measured by the Human Development Index (HDI) of the UNDP. However, Ethiopia’s HDI remains relatively low.

Policy Strategies

The Government of Ethiopia is committed to promoting economic growth and development. As such, the Government has elaborated a comprehensive vision for economic development under the national “Plan for Accelerated and Sustainable Development to End Poverty” (PASDEP). The key element of this vision is the link between sustainable economic growth and the reduction of poverty through strategies designed to promote a market-led transformation of rural economy.

Subsidiary strategies to the PASDEP have been developed by the government to ensure the overall effectiveness of the strategy. These strategies include the Agricultural Development-Led Industrialization (ADLI) and the Industrial Development Strategy (IDS). These two strategies supplement each other and ultimately find operational expression in the Ethiopia Agro-Industry Strategy, whose focus is on commodities of socio-economic importance in the country.

The Agro-Industry Strategy seeks to address identified challenges and capitalize on opportunities in promoting agro-industrial development in Ethiopia. Within its focus on commodities of socio-economic importance, the Agro-Industry Strategy provides proposals on key initiatives and priority activities that have high potential for creating employment, especially for the small and medium producers, as well as other entrepreneurs in the food sector. It also examines improving competitiveness of the food agro-industry sector; responding to the growing domestic food demand, especially through value-addition; and promoting increased and diversified export products and value addition.

Plan for Accelerated and Sustained Development to End Poverty (PASDEP)
In the late 1990s, Ethiopia devised a medium-term poverty reduction program entitled Sustainable Development and Poverty Reduction Program (SDPRP). The program was implemented for a three year period covering parts of 2000 to 2004. Its successor became the PASDEP, introduced for a five year period covering 2005 to 2010. PASDEP carries forward important strategies for human development, rural development, food security and capability improvement. PASDEP’s innovative approach has introduced a number of bold and new directions that include: emphasis on the greater commercialization of agriculture and the role of the private sector; and an importance given to achieving the MDGs.

PASDEP reflects that overall economic growth performance over the years has not yielded expected poverty reduction results. In response, it lays out a more comprehensive action plan wherein: the commercialization and intensification of agriculture is given prominence; a geographically differentiated strategy is put in place; the dangers of volatile economic growth and rapid population growth are highlighted; and the importance of the urban sector (and most agro-industries) is given greater consideration.

Market-oriented Development Master Plan
The Market-oriented Development Master Plan was developed by Ministry of Agriculture and Rural Development (MoARD) and has been in action since July 2004. It is meant to enhance the production of marketable surpluses for priority crops and livestock

• Encourage the use of modern technologies to optimize production and yield (at least doubling national yields of major crops)
• Encourage selected Woredas to specialize and expand production of one or two export commodities
• Strengthen the capabilities of other Woredas to increase production and supply to local markets
• Make use of the best means of production methods such as water harvesting, irrigation, relay cropping, inter cropping to optimize productivity
• Encourage producers to improve local food security and, as appropriate, to explore trading in international markets

Trade/Competition Policy and Other Related Measures
The Trade Practice Proclamation No.329/2003 policy is being implemented by Ethiopia to promote free commercial competition or prohibit anti-competitive practices. It addresses: price fixing, collusive tendering, market or consumer segmentation, allocation of production and sales quotas, and consented refusal to deal or sell.

The Proclamation is primarily designed to discourage anti-competitive practices and to prohibit the formation of monopolies. However, under certain circumstances the Trade Proclamation provides for the authorization of anti-competitive agreements where these are deemed to be of significance to the development of the country. Other related measures in addition to the Trade Practice Proclamation have included:

• The Financial Sector Reform through which government is promoting the establishment of private banks and insurance companies. Moreover, initiatives have also been taken to facilitate private sector participation and reduce government monopoly in export trade.
• The introduction of foreign exchange retention, which allows exporter to retain a larger percentage of their foreign exchange earnings in foreign currency. At present, exporters are allowed to keep 10% of export proceeds without time limit and the remaining 90% for about 28 days to cover business related expenses.
• The Export Duty Incentive Scheme which is expected to assist exporters and to promote the export sector.

Environmental Policy Strategy
The National Environmental Policy Strategy was introduced in 1997. Aspects related to agriculture include:

• Uninterrupted and continuous access for farmers to land and natural resources (for crop and livestock production)
• Increased agricultural production, while sustaining, improving, and intensifying existing farming systems. In addition to adopting technologies that are biologically stable and appropriate under prevailing environmental and socio-cultural conditions
• Promoting the use of appropriate organic matter and nutrient management for improved soil structure, nutrient status and microbiology in order to improve soil conservation and land husbandry.

Ethiopia has also implemented various preventive and recuperative measures with respect to sustainability of agriculture, forestry, biodiversity, water resources, energy resources and environmental health.

Food Security Strategy
The Ethiopian Food Security Strategy (FSS) was introduced in 1996. In 2002, it was reviewed with the aim of drawing and applying lessons learned as well as sharpening the overall strategy. The overall objective of the FSS is to ensure food security at household level and to help create conditions that will lead to national food self-sufficiency. Issues of water harvesting, the introduction of high value crops, livestock, agro-forestry development are included in the FSS. However, little attention has been given to the high potential agricultural areas. Central elements of the FSS include strengthening and enhancing the capability of agriculture-related institutions.

National Industrial Development Strategy
The NIDS aims to establish Ethiopia as a middle income country in the next ten years. Its starting point is the sustainable use of national resources and mobilizing low-cost labor available to drive the agricultural sector. It touches on virtually every aspect of the national economy and it relies primarily on what is termed the Initial Principles of the Strategy, seven of which directly support agriculture.

• Accept private capital as the engine of industrial development;
• Adhere to the guiding principles that provide the basis of the ADLI;
• Subscribe to and promote export-led industrialization;
• Focus on labor-intensive industries;
• Coordinate foreign and domestic investment;
• Provide strong state control as appropriate;
• Mobilize the entire society by forming strong coordination between government and private entrepreneurs, link industrial capitalists with small-scale farmers, and strengthen employer-employee cooperation.

Micro and Small Enterprises Development Strategy
This strategy focuses on the development of micro-and small scale enterprises (MSEs) in the portfolio of national agro-industries. Given reliance on low capital and labor intensive agriculture within the national economy,  MSEs could provide a strong basis for the rural economy. MSEs are mostly local resource-based and the number of people who depend on them is far greater than those dependent on medium and large-scale industrial units (most of which are urban-based). The overall objective of the strategy is to create a responsive environment for the development of MSEs in order to:
Facilitate economic growth (by streamlining and strengthening links between agriculture and industry)

• Stimulate equitable growth;
• Create long-term employment;
• Strengthen cooperation among MSEs;
• Provide the basis for medium and large-scale enterprises to develop;
• Promote export opportunities;
• Encourage synergy  between MSEs and other enterprises.

Furthermore, this strategy puts forth a number of principles for accomplishing these MSEs objectives. They include operating within the ADLI and the market economy (with support services from government provided on a cost sharing or free basis); advancement of women; and recognition by regional states of the diversity of legal and organizational structures required of a federal nation.

Opportunities for Agro-Industry Development

Ethiopia is in an ideal position to further develop its agro-industry given the following opportunities:

1. Infrastructure improvements coupled with Ethiopia’s regional positioning creates an opportunity of expanding local markets as well as facilitating transnational corporations working with Ethiopian partners to access the large markets of regional blocks such as COMESA.
2. Large amounts of raw materials in Ethiopia create an enormous potential for agro-industrial development. For example, Ethiopia’s various agro-climatic zones enable the country to be highly competitive in both variety and crop production and yields within the Eastern Africa sub-region.
3. Domestic market demand for grain mill products, malt, edible oils are not being met, creating huge opportunities for increased domestic production and processing of these crops. Ethiopia currently imports about 30% of its wheat requirements, 80% of the malt required by breweries as well as about half of its edible oils.
4. The labor-intensive nature of food industries in Ethiopia allows for supply of relatively cheap labor and therefore creates opportunities for low skill employment. However, the upgrading and modernization of the food processing industry will inevitably eliminate some of this low level employment, but will – at the same time – create new and more skilled employment opportunities with corresponding higher wages.
5. An enabling environment for investment provided through incentives such as tax exemptions, including customs import duty exemption and tax holidays; a special loan fund for businesses; privileges in repatriation of capital and profits and a guarantee against expropriation; and land availability for investors in agricultural-related investments. In addition, Ethiopia is a stable and secure country that enjoys peaceful labor relationships for industrial development.
6. Population growth, increased income and urbanization will all contribute to higher domestic demand and demand for more sophisticated goods. This situation will create opportunities for further growth of the agro-industry

Three main agricultural sub-sectors

Coffee Sub-sector
Ethiopia is one of the major coffee producing countries in the world with a world supply share of nearly three percent. Coffee is the country’s largest export commodities and the estimated size of the Ethiopian population dependent on coffee production and marketing for its livelihood is about 15 million. Ethiopia is the fifth largest coffee producer in the world and by far the largest producer in Africa. The majority of Ethiopian coffee is produced by smallholder farmers under very labor-intensive conditions. Currently, forest coffee accounts for about 10% of Ethiopia’s total coffee production, semi-forest coffee for about 35%, as well as garden coffee.

Furthermore, it must be mentioned that the use of manure as the main source of fertilizer means that Ethiopian coffee production can be defined as organic; therefore, it can command premium prices in the international coffee market. The share of certified organic coffee is still relatively low, but Ethiopia is now the second largest coffee exporter in the world, mainly to Saudi Arabia, USA, Germany, and Japan. Also, because coffee has a competitive advantage as an export commodity and contributes significantly to lift up farmers from subsistence agriculture, it is one of the priority commodities under the PASDEP development strategy.

However, one of the problems of this sector is that, due to the tradition of roasting and grinding coffee at home, commercially packaged coffee is not common in the country. In fact, a large portion of coffee produced in Ethiopia is consumed domestically, where the distribution process is unfortunately marked by poor quality controls. Cooperatives have assumed a growing role in coffee exporting activity. Some of the cooperatives have begun to take advantage of organic certification and fair trade coffee, which commands higher prices. Direct export revenue of specialty coffee has increased recently, following the promotion of farmers’ cooperatives by the Government. This new direct marketing channel for farmers appears to have had positive effect on the quality of the coffee, as they consider long-term business partners as opposed to the collectors and traders.

Cereals Sub-sector
Cereals are the most important field crops in Ethiopia, with more than 10.9 million smallholder farmers involved in their production. The principal cereals are teff, wheat, barley, maize, sorghum, and millet. Almost all cereals are grown under rain fed conditions; as a result, the yield of maize and barley are low compared to the rest of the Africa. Instead, sorghum is compared to world average  yields, even in rain fed conditions. Ethiopia is the second largest producer of wheat in Sub-Saharan Africa, after South Africa.

Due to the subsistence nature of Ethiopian farming, about 73% of grain production is consumed by smallholder farmers. The remaining 27% of the grain is marketed and only 4% of total cereal production  is industrially processed in flour mills. The traditional storage system and multiple handling lead to significant post-harvest losses. Cereals are freely traded and marketed in Ethiopia through different marketing channels, with the farmer-trader-consumer channel being the major one. Price discovery in cereal markets is mostly based on individual negotiation processes in an open and unorganized market. Such a mechanism disadvantages most of the small-scale cereal producing farmers who generally do not have timely market information. An initial step toward improving the performance and efficiency of the Ethiopian grain marketing system is through the newly commissioned Ethiopian Commodity Exchange (ECX). Maize and wheat were among the first five selected products to be traded through the ECX, while sorghum, barley and teff are being gradually added.

Out of 381 businesses in the food sector, 275 were involved in cereals processing. However, the Ethiopian medium and large-scale cereals processing industry is very small compared to other countries of the same development stage. The most critical problems that hamper the development of the cereal production sector include: dominance of subsistence farming on fragmented land, poor linkages between producers and agro-processing industries, high pre and post-harvest losses, poor quality of products, low level of technical knowledge of farmers, and lack of access to capital.  
 
Oilseeds Sub-sector
Ethiopia is one of the largest producers and exporters of oilseeds. Despite this, imports account for roughly half of the country’s edible oil consumed domestically. Oilseeds are the third major crop after cereals and pulses in the country, both in terms of the harvested area and production. Ethiopia is one of the top six producing countries of sesame, niger, and linseeds, 98% of which comes from the work of smallholder farmers. Thanks to a significant increase in the land put under sesame cultivation, Ethiopia is now the sixth largest producer and the second larger exporter of sesame seed in the world, while being the fifth largest producer of linseed.

The most significant challenges facing oilseeds production are the limited area devoted to the their cultivation, as well as the few links between smallholder farmers and oilseed processors, which lead to poor market orientation for the farmers. In addition to this, the fact that varieties of seeds developed by research institutions don’t often reach the broad mass of smallholders hampers a substantial increase in yields. Furthermore, it must be mentioned that half of the market share is accounted for by imported edible oil, largely as a result of poor technical and managerial skills, severely compounded by high production costs and low quality, leaving domestically produced oils unable to compete with cheaper and better quality imported oils. A majority of oil micro-processors operate in unhygienic conditions, using outdated technology, in the complete absence of modern packaging material - a series of conditions that makes the marketing of oil very difficult.

About 50% of all seeds are exported and the major export earner is sesame seed, pushing oilseeds up to the second best export earning crop. Major export markets are China, Israel, and Turkey; niger seed, the second most important oilseed export, goes mainly to the United States. Ethiopia already has a solid market share in the Middle East and Asia; however, there are considerable opportunities for exporting edible oil in the region. With high per capita consumption and low production, Kenya represents a very lucrative for exporting palm market, in addition to Egypt and Tanzania.

According to the proposed strategy for Ethiopia, expansion in this sector should occur through the introduction of additional cultivable land, better producer-processor links, improved seeds, better farmer practices and new oil sources in order to help Ethiopia substantially increase its productivity. As far as marketing goes, future activities should focus on the establishment of a market information collection and delivery system to all oilseed businesses. Finally, for processing, the efficiency of existing oil companies should be improved, while new businesses with modern technologies should be opened so as to meet self-sufficiency in edible oils.

Macro-Economy

Ethiopia has a long tradition in processing and export of leather and leather products. However, the modern leather industry dates back to the time when the modern tanning industry was established, in the mid-1920s. It was initially developed as part of an import substitution program and was highly protected from import competition to produce footwear products for the domestic market.

Ethiopia boasts the largest livestock production in Africa, and the tenth largest in the world. It annually produces 2.7 million hides, 8.1 million sheepskins and 7.5 million goatskins. This comparative advantage is further underlined by the fact that the costs of raw hides and skins constitute on average 55-60% of the production of semi-processed leather. According to the Statistical Abstract of the Central Statistical Authority, there are about 45 footwear-manufacturing industries in the country, two of which are owned by the state. Also, there are 14 medium and small private leather manufacturing enterprises.

Ethiopia offers a wide range of processed and semi-processed hides and skins to the world market. The cattle population consists of Zebu type species and small number of exotic breeds. The sheep are mainly of the hairy type producing skins highly valued internationally for the production of high quality leather for gloves. Ethiopian hide and skin exports include finished garment leather, finished glove leather, lining/upper leather, suede leather, full grain leather, embossed leather and patent leather. The high fiber structure of the highland sheepskin and goatskin has given products a high acceptability on the world leather market and, largely as a result of this, “Bati genuine” goatskin and “Salalie sheepskin” are values at premium.

However, the extent to which the available resource is exploited depends on the off-take rate, which is in turn a result of the level of economic development of a country. The annual off-take rate for the country’s cattle is estimated at 7%, while for sheep and goats it is 33% and 38% respectively. As a result, to increase the level of value added retained in Ethiopia, the government encourages the processing of hides and skins to finished goods and proceeding to the leather products industry, without being limited to semi-processing for export.

The export of finished leather and leather products (such as leather garments, footwear, gloves, bags and other leather articles) has therefore been increasing, leading to more and more promising results. Ethiopian products have, in fact, been exported to markets in Europe (especially Italy and the UK), America, Canada, China, Japan and other far eastern counties including Nigeria and Uganda.

Challenges

In dealing with the leather sector, the Ethiopian government has adopted a more pro-active approach, where the main challenge is to absorb already existing standards of technological knowledge, to disseminate it in a sub-sector consisting of many small and medium sized firms, and – in the absence of a private value chain lead firm – to ensure coordination of upgrading activities throughout the value chain.
The lack of coordination has placed Ethiopia in a “low-quality trap,” where problems at all levels of the value chain are mutually reinforcing. Inappropriate techniques at the stages of livestock management, tanning, and transport undermine competitiveness in high-value leather product markets, and low quality of final products translates into low prices and under-investment at all stages of the value chain. In some circumstances this problem could be solved through the intervention of large private sector lead firms. Indeed, large leather processing companies can take care of upgrading their own supply chains, and they are usually much more efficient in doing so than governments. But no such firms yet exist in Ethiopia, as large firms can emerge only when the local market has a certain critical size or when the country is attractive for large scale manufacturing for global value chains.
In other words, large corporations played important roles in upgrading the quality and productivity of their respective supply chains; however, this has not been the case in Ethiopia, thus justifying pro-active public engagement.

Investment Incentives

To encourage private investment, the Ethiopian government has developed a package of incentives under Regulations No. 84/2003, for investors engaged in new enterprises and expansions, across a range of areas of interest. These incentives are equally available to both foreign and domestic investors. Some of the incentives available are:

Customs Duty Exemption

• A 100% exception from the payment of import customs duty and other taxes is granted to investment capital goods and construction materials necessary got the establishment of new enterprises, as well as for the upgrade or expansion of existing ones. 
• Investment capital goods imported without the payment of import customs duties and other import taxes may be transferred to investors enjoying similar privileges.
• Exemptions from customs duties or other taxes are levied on imports are granted for raw material and packaging materials necessary for the production of export goods.
• All goods and services destined for export are exempted from any export duties and other taxes levied on exports.

Income Tax Exemption
Any income derived from an approved new manufacturing. Agro-industrial or agricultural investment is exempted from the payment of income tax ranging from 2 to 8 years, depending on the area of investment and the volume of export.

Remittance Funds
Foreign investors are entitled to make the following remittances out of Ethiopia in convertible foreign currency, at the prevailing rate of exchange on the date of the remittance:

• Profits and dividends accruing from investments;
• Principal interest payment on transfer loans;
• Payments related to a technology transfer agreement;
• Proceeds from the sale or liquidation of an enterprise;
• Proceeds from the transfer of shares or of practical ownership of an enterprise to a domestic investor.

Customs Duty Exemption
In Ethiopia, both the Constitution and the investment code protect private property. Ethiopia is also a member of MIGA, which issues guarantees against non-commercial risks to enterprises that invest in signatory countries. Besides, the Country has signed bilateral investment promotion and protection treaties with a number of countries. Foreign investors also obtain pre- and post-approval services from the Ethiopian Investment Agency (EIA), in addition to facilitation and promotional ones offered under the one-stop shop arrangement.

In addition to the scheme of included incentives, the government has implemented a program that offers a coverage to investors equal to 70%, through loans made to the Development Bank of Ethiopia. Investors in the leather sector can have access to these incentives.

Moreover, what needs to be mentioned is that efforts were made to upgrade the capacity of tanneries to produce finished leather products for export, contributing to the export earnings of the sub-sector. With regard to competition in the international market, several companies merged with Italian firms committing significantly towards foreign exchange earning and the prospect for the remaining is expected to be encouraging.

Hence, the availability of adequate raw material and its high quality, the existence of abundant and cheap labor force, the growing world and domestic demand for leather garments and articles and the favorable investment climate existing in the country provide an opportunity for the establishment of manufacturing industries for leather garments and other articles.