Africa Rising: Ethiopia moves to diversify exports

About three hours south of the Ethiopian capital, Addis Ababa, lays a sprawling, 120-hectare field planted with hundreds of thousands of grape vines in tightly packed rows. Workers in blue coveralls cultivate the vines, looking for pesky diseases, while men stand atop ladders with slingshots in tow to fend off hungry birds.

It’s a scene more commonly associated with France’s Bordeaux region or America’s Napa Valley than Ethiopia, which typically conjures notions of famine, poverty, and repression.

The vineyard is owned by French beverage company Castel, which plans to export half of its 750,000-thousand bottle production this year, making it Ethiopia’s first major wine exporter.

Wine is the newest in a series of premium exports bolstering Ethiopia’s economy, one of the fastest-growing in Africa, according to the African Economic Outlook Report. From leather and textiles to coffee, the diversification of Ethiopia’s economy is boosting development and transforming the country into an economic powerhouse.

“This is one of the first times that we’ve actually started adding value to our natural resources,” says Addis Alemayehou, former director of a USAID-funded project to boost value-added exports. “We’re a pioneer in regards with what we’ve been able to do.”

Evidence of booming industry is hard to ignore: textile and leather manufacturing factories are popping up across the country, the roads leading out of the capital are lined with large-scale plantations growing roses or strawberries for export, and advertisements for trade shows are more ubiquitous than ever before. And the numbers don’t lie: According to the Ministry of Industry, exports of leather and textiles, increasingly processed, have increased by 50 percent in the last decade.

In 2010, Ethiopia boasted an 11.4 percent overall growth rate (a number disputed by the International Monetary Fund, which estimates growth to be closer to 7.5 percent). The boost is part of an ambitious government-led strategy to achieve middle-income status by 2015.

Bolstering the export economy is a major part of the target, specifically increasing value-added exports to Ethiopia’s main markets – the Middle East, America, and Europe – that attract foreign currency, create jobs and encourage investment in public infrastructure, according to State Minister for Industry, Tadesse Haile.

“It’s a chain effect,” he says. “Value addition will give you capital and capital will give you growth.”

To attract investment for the production of premium commodities, the government offers a bevy of incentives, including five-year tax holidays, duty-free privileges, and a “70/30” scheme, where the government agrees to loan 70 percent of startup costs for companies looking to invest in the export sector.

“I don’t think there’s any government giving the kind of incentives that this government is giving in regards to encouraging firms, be it foreign or local, to get into the export sector,” says Addis.

These lures, along with a massive cheap labor pool (Ethiopia is Africa’s second-largest country with a population of 82 million, according to the World Bank) have boosted investment and caused exports to soar by 25 percent each year since 2002, says Mr. Tadesse.

“In the last 10 years, overall exports have been steadily growing,” says Tadesse. “It’s one of the bright futures for this country.”

Tough to communicate and get places

But it’s not all bright. Investors complain of unreliable telecommunications, spotty electricity, and inadequate transportation networks. Beyond that, overbearing bureaucracy and government intervention can be paralyzing and Ethiopia, a landlocked country, has no easy access to a port.

“Telecommunications is a difficulty [and] the electricity issue is quite serious,” says Jan Prins, general manager of Jittu Horticulture, an Ethiopian-owned company that exports 80,000 kilograms of fresh produce from Ethiopia weekly. As a result of these challenges, he’s had to remind himself to remain deeply optimistic conditions will improve. “Working here without hope is impossible.” (The original version of this story misstated the ownership of the company.)

Though growth and diversification numbers have grown, the trend shouldn’t be overblown, according to Oxford University development economist Stefan Dercon.

“This is still one of the least diversified economies in the world, with 85 percent of people involved in agriculture,” he said, adding that Ethiopia has a long way to go before it reaches export diversification that rivals Kenyan or Nigerian levels.

Nonetheless, the impacts on overall development can’t be ignored: job creation, investment in education and public infrastructure, and a growing per capita income are all offshoots off the booming export economy, according to Tadesse.

But some say this economic growth comes at a steep cost. Swaths of land have been handed over to foreign companies, causing widespread displacement and environmental destruction, according to Frederic Mousseau, policy director for the California-based think tank Oakland Institute.

“This is the worst we’ve seen in Africa. In most countries, there’s still at least some level of consultation, some level of [informing about] what’s going to happen, some compensation,” he says. “In Ethiopia it seems people really have no say.”

The Oakland Institute reports 200,000 people are at risk of resettlement and loss of livelihood in one southern region alone, where thousands of hectares of land have been leased for sugar production.

Mousseau says foreign investment should support small-scale farmers and agro-pastoralists instead of marginalizing them to benefit the few. 

The government adamantly denies forced displacement and the loss of livelihood, however, and insists communities stand to benefit from the establishment of large-scale farms and factories.

“I don’t think they are adversely affected, in fact it’s an opportunity for the people around there,” Tadesse said. “It’s for the benefit of the region, it’s part of the development program.”

Apart from simply boosting the economy, the move to diversify exports and focus on value-added goods is also transforming Ethiopia’s image on the world stage. Too often associated with emaciated babies and parched landscapes, Ethiopia is starting to be seen as a mover-and-a-shaker in the region, with high quality products to offer foreign markets.

“The view has completely changed,” says Prins. “From a backward country where people are hungry and where there is lack of food, people are starting to understand now that this is a country with a lot of potential.”

For Alemeyahou, the only direction from here is up. He expects the export of premium products to continue to soar in the coming years. And after conquering wine, textiles, leather, and processed agriculture, he predicts the next major export from Ethiopia is software.

“We’re like a plane on a runway about to take off, so either get on now or watch us take off,” he says with a smile.