Agriculture in Ethiopia: Opportunities, Incentives and Privileges

By Tesfalem Waldyes

Ethiopia’s economy is predominantly  agrarian. In 2011/12 alone, agriculture accounted for 41 percent of the Gross  Domestic Product (GDP) and contributed 90 percent of the foreign currency  earning. The sector also covered 85 percent of the country’s employment. Its  incontestable share in the overall economic growth of the country and potential  for further growth, therefore, makes it a worthwhile sector for many to  consider investing in. But broad facts and figures are not just enough for  business people to make informed decisions before they put their hard earned  fortunes into something. Hence, The Ethiopian American has identified  some of the paramount information and summarized them into 15 most important  points you should know – including opportunities, incentives and duty-free  privileges tied to investment in agriculture – before you make any decision.

1. Of Ethiopia’s about 111.5  million hectares total landmass, 74.3 million hectares is considered suitable  for crop production. An estimated 4.3 million hectares of land has irrigation  potential. Currently, only 15 million hectares is utilized.
2. The federal government  delineated around 3.7 million hectares of land for agriculture investment.  Close to 1.6 million hectares with  information about their agro-ecological, soil, water potential and other  details, is deposited in the federal land bank. The designated plots of land  located in Gambella, Benishangul Gumuz and Southern regional states are  suitable for growing food crops, oil seeds, coffee and tea, cotton, palm oil,  biofuel plants and livestock husbandry.
3. Investors shall have the right  to acquire and develop plots of land either leasing from the government or  reaching agreement with a landholder to transfer permanently his/her holding  rights. Any investor can rent rural land on contractual basis after fulfilling  a lease agreement. One can secure a mortgage right to use his land or an asset  produced on it, or both for agreed lease period.
4. Investors can mobilize laborers  from region to region without any restriction. They are also allowed to  introduce or employ scientists and technicians in cases of local  unavailability.
5. The livestock population of  Ethiopia, which stands first in Africa and 10th in the world, is considered to  be the next big thing on the agricultural transformation of Ethiopia. This  segment of the agricultural sector has large resources: 50.8 million cattle,  25.9 million sheep, 21.8 million goats and 42 million poultry. The government  encourages investors to venture in rearing, breeding, fattening and exporting  of livestock. Those who are interested on meat processing have a great  opportunity for export due to the proximity of high demand markets of North  Africa and the Middle East.
6. Ethiopia is estimated to have  some 10 million bee colonies and has a potential of producing over 500,000 tons  of honey per year. This puts the country to be Africa’s leading producer of  honey and beeswax. Globally, the country also has got a fourth and tenth  position in the production of beeswax and honey, respectively. Despite the  country’s potential and an aged tradition of beekeeping, the current  productivity is far less than what it is expected. Current productivity is  estimated to be 20 – 30kg/hive/year. The production of honey and beeswax  remains untapped and investors who are interested on processing are likely  benefit from the country’s long history of exporting honey and bee products,  besides marketing locally.
7. Ethiopia’s diversified  agro-climatic weather conditions, the long production season and the  availability of irrigation, makes it suitable for the production of a broad  range of fruits, vegetables and flowers. The country has a potential to produce  12.8 million quintals of fruits and vegetables. Currently, the production of  fruits and vegetables is undertaken on around 152,600 hectares of land. Fruits  and vegetables export is  among the fast  growing business in the country with 9,000 tons of fruits and vegetables and 10  tons of flowers exported in 2011/12 production year. With such potential and  the government’s priority of expanding and supporting the manufacturing sector,  there is a big opportunity for investors to venture on agro-processing of  fruits and vegetables.
8. Any investor will get an income  tax exemption extending from two to five years depending upon the area of  investment, the volume of export and the location where the investment is  undertaken. Companies that suffer losses during the tax holiday period can  carry forward such losses for half of the income tax exemption period, after  the expiry of such period.
9. Income derived from an expansion  or upgrading of an existing agricultural company is exempted from income tax  for a period of two years. The government has also totally exempted the payment  of import customs duty and other taxes levied on imports for goods and  construction materials necessary to establish new companies or for the  expansion or upgrading of existing ones. The privilege extends to spare parts  worth up to 15 percent of the value of the imported capital goods. These  incentives can be transferred to investors enjoying similar privileges.
10. The government also granted two  to five years land rent payment grace period based on the commercial crop  harvest period.
11. Raw materials and packing  materials necessary for the production of export goods are exempted from  customs duties or other taxes levied on imports. Taxes and duties paid are  drawn back at the time of exports of finished products.
12. Most areas in agriculture  investments are worthy for credit policy of the government. When such projects  are accepted by the state owned Development Bank of Ethiopia (DBE), investors  are requested to deposit 30 percent of the project investment in cash and the  bank advances up to 70 percent loan. Projects that involve horticulture and  floriculture, cotton, livestock and others that are considered to have  potential to generate foreign currency are automatically considered  credit-worthy.
13. Borrowers who seek financing  for expansion are required to provide an initial equity contribution. The  demanded amount, which can be in the form of cash or in assets, should be  equivalent to 30 percent of the total capital of the expansion. Banks give a  maximum grace period of three years for clients.
14. The Ethiopian Investment  Proclamation guaranteed capital repatriation and remittance of dividends and  interest to foreign investors.
15. The ongoing privatization  program offers opportunities to both local and foreign investors. Agriculture  is one of the top three sectors that with a number of state owned enterprises  ready to be privatized. In addition to buying state owned enterprises through  competitive bidding, investors can also use various modalities like provide  equity finance, joint venture, lease and management contract to privatize.

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