Ethiopia: African Lion in the Making
15/06/2017 – Country Focus / Ethiopia / Food Processing / COMESA
Over the past decade, a country once perceived as the epitome of deprivation has seen consistently high growth, embracing foreign investment and pouring money into infrastructure. In particular, Ethiopia’s food processing sector is booming, as the country strives to become a middle-income economy by 2025. Gemma Kent reports on the myriad agri-food opportunities available in Africa’s oldest independent country, and the challenges it must overcome in order to realise its ambitions.
According to statistics from the World Bank, Ethiopia’s GDP has grown at around 10 per cent per annum for the past 10 years, and that trend shows no indication of slowing down. Such impressive growth and relative internal stability has even earned it the nickname of ‘the African Lion’ – a parallel to the swift development of several East Asian ‘tiger’ economies between the 1960s and early ‘90s.
There are many driving factors behind Ethiopia’s boom, although analysts attribute part of the growth to the idea of “the developmental state,” advocated by former Prime Minister Meles Zenawi in his writings, as the framework in which the current economy operates. “The idea is a state with a sense of mission,” according to Dereje Feyissa Dori, Africa Research Director at the Addis Ababa-based International Law and Policy Institute. “It is building capitalism from above.”
Key to this strategy has been implementation of Ethiopia’s five-year Growth and Transformation Plans (GTP), the first of which focused on economic improvement from 2010 to 2015. GTP II, from 2015 to 2020, places emphasis on pushing the economy from agriculture to industrial development, while Ethiopia has also set itself the aim of becoming a middle-income economy by 2025.
Given the dominance of the agro-processing segment – it contributes around 40 per cent of the country’s GDP, with about 80 per cent of Ethiopia’s estimated 97 million people dependent on it – its should come as little surprise that the government is keen to promote investment in adding value to the country’s substantial breadbasket. Food processing is already Ethiopia’s largest manufacturing sector, and the country has huge potential for the further development of emerging segments such as cereals, oilseeds, fruit and vegetables, spices, coffee, livestock, meat and dairy, while prospects exist for chain development and value addition in new sectors, such as commercial intensive-scale aquaculture and potatoes, where processing remains non-existent.
Ethiopia is already Africa’s leading producer of many agricultural products, including sesame and livestock, which indicates significant potential for the development of food products from crop and animal sources, while the country’s sizeable population offers an enormous domestic market for processed food products. In addition, Ethiopia has a long history and experience in exporting food products such as oilseeds, spices, coffee and tea, but in most cases such products are exported raw to destinations like the EU, US and Asia, leaving plenty of room for investment in food processing and value addition. Potential also exists for import substitution, while the government offers competitive incentive packages for investment in high-priority export sectors, and an enabling policy for a private-sector role in nutrition and food security – including plans to tackle malnutrition through the production of fortified food.
One local firm that is helping alleviate the problem of child malnutrition in Ethiopia is Faffa Food Share Company, an Ethiopian-Swedish joint venture that has grown over the decades to become the country’s top supplier of highly nutritious baby food and relief products. Its Corn Soya Blend and Famix lines are the go-to products relied upon by NGOs in times of acute need – the company currently supplies such high-profile players as Save the Children, the World Food Program and the UN High Commissioner for Refugees.
Gateway to COMESA
The huge potential for investment in Ethiopia’s agri-food processing segment, and many others, is abundantly clear – and with its sizeable, young population, Ethiopia also serves as an effective gateway to the Common Market for Eastern and Southern Africa (COMESA), a union of 19 countries with over 400 million people. The government has made commendable efforts in legislative and procedural reforms to attract foreign direct investment, revising its laws three times since 1992, and has invited Korean companies to take advantage of its fast-growing economy, offering a wide array of incentives.
Monies from the substantial Ethiopian diaspora and private investment from countries like China, India, Turkey, Sweden and the UK have also provided funds to the growing economy. “We are beginning a programme of massive infrastructure construction and special economic zone building so that we have the parts in place to attract these investments,” Ethiopia’s Foreign Minister, Tedros Adhanom Ghebreyesus, told the Financial Times in January. “We have strong commitment from the Chinese government, and from Chinese companies.” Another major investor in the country is Sheikh Mohammed Hussein Ali Al Amoudi, the world’s second-wealthiest black billionaire, the second-wealthiest Saudi and the single largest investor in Ethiopia, according to Forbes. The son of a Saudi father and an Ethiopian mother, Mr Al Amoudi is the owner of MIDROC Ethiopia, a private investment company with around 70 group and affiliate companies engaged in multi-faceted business sectors across the country, including agriculture, cement production and gold mining.
Of course, Ethiopia’s past problems have not simply disappeared overnight. After the failure of three successive rainy seasons, the country is currently struggling with its worst drought for 50 years resulting in some 5.6 million Ethiopians requiring emergency food aid. Environmental degradation, driven by increased human use of land and unsustainable agricultural practices, has contributed to the problem, and Ethiopia recently confirmed its commitment to restore its degraded lands to improve security and biodiversity. Last year, the country agreed to join the African Forest Landscape Restoration Initiative (AFR100) – a country-led effort to bring 100 million hectares of land in Africa into restoration by 2030. Ethiopia has already restored more than one million hectares of degraded land through community reforestation programmes and improved irrigation – and now, by joining the AFR100, the country is committing to scaling up its existing efforts in order to restore 15 million hectares of degraded land.
Moreover, despite the pace of economic growth, Ethiopia remains one of the world’s poorest countries, with an average annual income of just US$550, according to the World Bank – substantially lower than the regional average. The recent boom has, however, brought with it positive trends in poverty reduction: the Bank reports that while 38.7 per cent of Ethiopians lived in extreme poverty in 2004–05, five years later this was 29.6 per cent, and by 2015 the figure had been reduced even further, to 22 per cent.
Indeed, the main challenge for Ethiopia is to continue and accelerate the progress made in recent years and to address the causes of poverty among its population. The government is already devoting a very high share of its budget to pro-poor programmes and investments, while large-scale donor support will continue to provide a vital contribution in the near term to finance the levels of spending needed to meet these challenges and help achieve equitable growth for the African Lion economy.