COUNTRY IMPRESSION

ETHIOPIA

Value Chain Solutions (VCS) has had the opportunity to work extensively in Ethiopia since June 2018, analysing and developing various end-to-end value chains across the country.

Ethiopia, being slightly smaller in size than South Africa, is situated in the Horn of Africa and has a population in excess of 100 million people, double that of South Africa. Its proximity to the Middle East and Europe, together with its access to the major ports in the region, makes it very eligible for international trade. Covering an area of approximately 1.104 million m2, Ethiopia is bordered by Sudan to the west, Somalia to the south-east, Djibouti to the east, Eritrea to the north and Kenya to the south.

Official Name: Federal Democratic Republic of Ethiopia
Political System: Federal State with multiparty system.
Capital City: Addis Ababa, which is also the seat of the African Union (AU),
United Nations (UN) and the Economic Commission for Africa (ECA).
Area: 1.104 million m2
Arable Land: 513 000 m2 (45%)
Irrigated Land: 34 200 m2 (3%)

Due to the two distinct climate regions and varied topography, Ethiopia is suitable for the cultivation of various crops. The highlands have an average elevation of 2 200 m above sea level, while the lowlands elevation ranges from 400 m to 1 700 m. The top five crops by hectares are maize, teff, wheat, sorghum and barley. These agricultural value chains have traditionally been focused on subsistence and local markets due to the large-scale policy drive of the government and aid organisations to ensure food security.

However, this reality is evolving at a rapid pace with Ethiopia already being one of the largest exporters of high-value products (such as cut flowers) to European markets.

In most regions in Ethiopia, efforts to develop agricultural value chains are evident. The country finds itself at the critical junction of finding the balance between food security and market development. The regional diversity of Ethiopia is a critical factor when it comes to understanding and appreciating any development or investment initiative. The country is indeed the sum of its parts and no two regions are the same. Vast differences in culture, language and approach is a reality which must be clearly understood by any external party wishing to do business in or with Ethiopia. The benefit of this reality and the drive since the 1990s to ensure food security have resulted in an extremely well-organised system for agriculture. The production and value chain systems are organised according to regional states (provincial) and chartered cities, zones, woreda (districts) and kebele (wards/villages) across the country and typically two to three government extension officers can be found at the base level of farmer organisations. Although this results in one of the highest extension support to farmer ratios in Africa, the extension system skill set tends to be multicrop in nature and focused on ensuring primary agricultural productivity and compliance with government-led supply systems for inputs such as fertiliser, rather than market-led development of value chains. This characteristic is also evident in variety and seed development. Although research is well organised, variety and seed systems tend to be disconnected from market requirements. Issues such as these present many opportunities for private sector actors and the need for a truly market-led value chain development approach and effective private-public-donor partnerships, something which Value Chain Solutions really understands and holds as a central focus in everything we do.

The Ethiopian consumer is mostly based in small rural towns and although rapid urbanisation is evident, Addis Ababa represents the bulk of the consumer base with a higher average level of disposable income.

Per capita income across the country is generally very low, forcing consumers to typically produce their own food for consumption on small plots of land or to trade goods at village level. Discretionary type products such as clear beer are consumed mostly in urban areas, with most of the volume being consumed as products produced at home. In terms of value chain development, pricing and margin dynamics favour the farmer given the high demand for food and locally produced products – something quite unique in Africa. Where higher value products such as cut flowers or fish-based protein are produced for export, the value chains are much better developed and more efficient. Given the vast size and topography of the country and the decentralised nature of production areas as well as local markets, the need for fact-based value chain development is vital to the success of any investment.

The political economy of Ethiopia is highly dependent on maintaining cohesion between the central federal government and a strong regional demographic.

This can lead to instability and unrest at any time and hence strong partnerships with entities who understand the local reality remain vital to any foreign investor. Availability of foreign exchange to pay for imported services and goods and the balance between local reinvestment and the ability to extract profits are further issues to consider for any foreign investor.

Ethiopia represents a region with one of the highest investment potentials in Africa for any foreign investor willing to follow a fact-based and risk-return focused approach to business and value chain development.

The country offers a distinctive balance between high-value export-oriented market opportunities and a vast and fast-evolving domestic consumer market. Value Chain Solutions has gained a thorough understanding of the evolving giant which is Ethiopia.

Source: Ethiopian Embassy Country Profile