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Ethiopia cut flower industry's success story

  • Ethiopia cut flower industry's success story(1)

    by Market Insider

    Friday, 03 Apr. 2015

    The Ethiopian flower industry represents an extraordinarily fast and successful diversification into a non-traditional export product.The Ethiopian flower industry emerged in the late 1990s, and despite being a late-comer, Ethiopia has become the second largest flower exporter in Africa (after Kenya). Projections are for even further future growth. Exports are expected to reach $550 million by the end of 2016. 

    Climate conditions have made Ethiopia a favourable cultivation site for such products as it is situated in the tropics, with its diverse range of altitudes. Additionally, the Federal Government, the Ethiopian Horticulture Producers and Exporters Association (EHPEA), and international investment played key roles in Ethiopia's floriculture industry development.

    Following recent ethnic violence and reduced labour force in Kenya, Africa's number one global flower exporter, investors and producers needed to diversify and invest in other countries.

    With good climate conditions and cheap transportation costs, Ethiopia was a favourable choice, especially for the cultivation of roses.

    State-owned land was made available for flower farms at affordable prices, especially near the airport. This reduced transportation cost facilitated market entry.

    The government also offered attractive incentives for investors. For example, a five-year corporate tax exemption for inputs, import duties were scrapped and investors were also given access to financing from banks. It became obvious that Ethiopia had a comparative advantage in the production of roses, especially with vast amount of labour. As the industry expanded, the unit cost of production decreased.

    The sequence of entry of firms in the Ethiopian flower industry shows that domestic entrepreneurs played a major role in the initial stages. With the exception of Golden Rose and Ethio Dream, the first movers and early imitators were domestic owned firms. Foreign firms (in the form of joint-venture or full ownership) started to enter mostly after 2003.

    A significant number of the foreign firms came from other African countries, including Kenya (for example Linsen, Abyssinia, Maranque, Karuturi, and Sher-Ethiopia), Uganda and Zimbabwe.

    The better investment climate in Ethiopia compared to these countries may have contributed to the increasing shift of foreign investment to Ethiopia.

    Through international investment, knowledge transfers and technological innovations can be introduced into the domestic market; for example, through improved agricultural methods. International investment is beneficial for the recipient country as it also promotes economic activity, therefore increasing employment.

    In the case of Ethiopia, the cut flower industry has experienced investment from a range of geographical and industrial backgrounds, from the Netherlands, United Kingdom Israel, and India, to more regional markets such as Nigeria, Sudan and Oman, thereby also encouraging South-South integration.

    Nevertheless, the biggest market for the Ethiopian rose is the Netherlands, as around 90% of rose exports go to Holland. Evidently, Ethiopia has emerged as a strong global cut flower market competitor.

    The floriculture industry has had a huge impact on Ethiopia's economy and society; most significantly on job creation, which is said to amount to over 100,000 new jobs in the last five years. Locals are being trained in business and management skills and most donors are giving back to society in one way or another.

    The industry has also had a major influence on gender perspectives, as more than 75% of workers are female. Through production diversification, Ethiopia can depend more on trade and less on aid. Although floriculture is a fairly new industry in Ethiopia, sales records of flower exports have shown how profitable diversification can be achieved through trade.

    Source: East African Business Week / Ethiopian Embassy in Kampala

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