Meles, M. 2016. Agro-industrial parks key for Ethiopia's industrial policy. GREAT Insights Magazine - Volume 5, Issue 5. October/November 2016
Ethiopia is one of the few African countries with an industrial policy. Several industrial parks have been created all over the country, and the government is now going one step further with the development of integrated agro-industrial parks, which will be at the centre of the first agro-industrial forum held this October in Addis Ababa in collaboration with UNIDO.
Industrialisation has become a national priority for Ethiopia for two reasons: first, Ethiopia is an agrarian country. In consequence, we need first to transform the raw materials of our agriculture to be processed and sell them on the global market. This process necessitates the growth of the whole economy, so this will be our focus for the upcoming ten years. Ethiopia is undergoing a massive socio-economic transformation. In the last 12 years, we have registered a double-digit growth, but we are still in the middle of our structural transformation process, from agriculture towards industry through the light manufacturing industry. A second reason for industrialisation is that at the moment, most of our exports are raw materials and commodities, such as coffee. We are the first exporters in Africa of premium quality Arabica. When it comes to our small and medium-sized enterprises (SMEs), we are leaders in Africa when it comes to livestock – a traditional activity that we are trying to modernise – as well as in fruits and vegetables. The surplus is processed and value-added. We have a base on which to build on and move forward.
In order to reach our industrialisation objective, the Second Growth and Transformation Plan (GTP II, 2016-2020) includes ambitious targets and programmes. We want to keep on massively investing in infrastructure. Our priority sectors are light-manufacturing, agro-processing, textile and leather. These sectors will be developed for export and will be the drivers of the economy. Beyond this objective of reaching the global market and moving up the global value chain, we also want to develop our internal market. At the moment, there is a deficit between imports and exports of about US$10 million in the country. This is why we are also moving to the chemical, metal and engineering and fabrication sectors, because as the GTP is getting bigger, our mega-infrastructure projects and industries demand more supplies, such as metal or plastic-based materials for packaging. So the shift to the chemical, metal industries and even the pharmaceutical sector is necessary and an opportunity to attract investment and to satisfy the domestic market.
The population is growing – Ethiopia is the second most-populous nation in Africa – and the population’s income is also increasing progressively. We expect a minimum of US$1050 per capita by 2025. So you can imagine that a 100 million people’s population with such income would be a huge market. We are also targeting the neighbouring markets, Middle-Eastern markets, China and Europe. Ethiopia is looking at strategic locations all over the planet, which makes it an interesting place for investors to locate. We are also focusing on emerging sectors, such as high-tech sectors and knowledge-based sectors like biotechnologies, ICT, petrochemicals and so on. We are currently laying the foundations and these sectors will become priorities in the next plans. To reach our objectives and make our agro-processing, textile and leather sectors internationally competitive, the GTP includes programmes such as the creation of industrial parks. We have built a big industrial park in Addis Ababa, Bole Lemi, which is almost fully occupied. We are in the process of building others. We are also developing new kind of parks called integrated agro-industry parks that will add value to agricultural products destined for export. They are going to be launched by next year, and an agro-industrial forum is going to be held in October 2016 in Addis Ababa.
These integrated agro-industrial parks, exclusively focused on agricultural raw materials, will link agriculture with industry. We have identified marketable surplus commodities for which we have carried out a detailed value-chain analysis. In the coming few months, we are going to do an environmental safeguard analysis and side-by-side, other programmes focused on productivity, on community integration, on investors, capacity-building, and resource mobilisation. Between now and October, we will make concrete offers to investors in four locations. The master plan for the clusters of industry is ready. There are also rural transformation centres and collection as well as aggregation centres, so that on the farm level on the way to the final processing, these commodities will pass through the proper process.
In the clusters, industries will supply different inputs to agriculture. Agriculture itself is going to transform from subsistence agriculture into modern agriculture. Therefore, there are also investment opportunities in harvesting technologies, in agro-mechanisation, and in different input to agriculture. In this way, agriculture will supply the raw material and industry will supply agriculture with different inputs. This will result in a ‘spiral growth’ that will be the epicentre of the transformation process. There is a huge opportunity, starting from the small farmers, cooperatives, small as well and medium industries, domestic and international investors. When we identified the locations, we also fully considered the infrastructure: road, railway, proximity to ports, airports, so that the corridors will be efficient for the incoming and outgoing of goods from these parks.
Our park development policy considers incentives. In general, investments in Ethiopia benefit from attractive incentives packages. However, given the nature of these parks, there might be additional incentives to be considered by the government. For me, the biggest incentives are the market itself, the raw materials, the environment and the very supportive government. However, to make the industries competitive, we are going to look into those areas which should be incentivised. Ethiopia is becoming a destination for investment, the interest is growing from year to year by about 25%. This is primarily due to the political and macro-economic stability of the country, which was rated by Moody and Fitch at B and B+ levels. We also raised bonds from the international capital for the industrial park development.
Besides that, the government is investing heavily in infrastructure of all types. In terms of railway for example, the Djibouti-Addis line is completed. Operations are going to start on this line, which will reduce the transport cost by almost 50%. Cheap, clean power is also a factor. Electricity costs about 5 cents per KWh. Labour is attractive since it is trainable and very cheap. More importantly, the government is pro-investment, very committed and open. Of course, our investments in health and education also help a lot. We are very open to go alongside the investors, to pave the way so that the investors will be attracted and remain competitive in the country. Generally, the incentives for the country are under constant improvement.
Even though the investment flow is sharply growing, most of the investments are coming from Asia, namely China, India, Turkey. European investors are not as numerous. As H.E. Prime Minister Hailemariam mentioned, we don’t want to put all our eggs into one basket, and we also want to create the basis for competition. Europe is known for its quality; which is why we expect quality investors to come from Europe. In this regard, I am advising most of the European companies to come to invest to Ethiopia. The next growth pole is Africa because Africa is least developed. The battlefield is in Africa. Countries like China have an African strategy, they have already been investing and working for a long time because this is about global positioning. I am sure that Europeans will also think along this line and use this opportunity not only to come to Ethiopia but to the whole of Africa. Of course, when they think about Africa, Ethiopia is at the forefront. It is a gateway. We are in many ways regional stabilisers, not only in peacekeeping but also in infrastructure. In this regard, we have the responsibility to develop industrial parks and to show a road to other African countries also, to scale it up with other African countries.
This is a clear demonstration that Ethiopia is conducive for business. Ethiopia is committed to economic development. We are not alone; the international community is also behind us. Ethiopia is one of the few countries which almost reached the MDGs. The SDGs are also in line with our ambitious targets. In fact, our own goals are even more ambitious than the SDGs. We are working on industrialisation with the United Nations Industrial Development Organization (UNIDO) through these integrated agro-industrial parks, and I am sure the other sectoral ministers in the country are also working on the other goals and have started implementation of their master plans. Among European countries, the Dutch are the leading investors in the floriculture industry, and now they want also to go into food and vegetables. We are calling all EU countries to follow the good example of the Netherlands and we hope that the European Union will work closely with us to promote investment and to address the issues of jobs, poverty, migration, etc. What we are demanding here is not aid but to achieve this on the base of economic development. We have resources, we have the market, we have labour and we have the energy. Therefore, it’s good for the investors to come and to visit and invest in Ethiopia.
This is in short what is going on in Ethiopia. The most important event here is the Investment Forum on 5-7 October. Investors are welcome. They can get in contact with the Ministry of Industry of the Federal Democratic Republic of Ethiopia for further information and with the embassies, and with UNIDO.
About the author:
Dr Mebrahtu Meles is the Ethiopian State Minister for Industry. He earned a PhD in Research Private Sector Development and a Master of Science Degree in Economics and Management in the Agro-Industrial Complex.
This article was published in GREAT Insights Volume 5, Issue 5 (October/November 2016).