Why agriculture is promising investment in Ethiopia

BY ANDUALEM SISAY GESSESSE –

As the saying goes, problem and shortage are opportunities for business and investment. The fact that Ethiopia has been known for long not been able to feed itself is an opportunity for those who invest in agriculture sector.

Like many African countries, Ethiopia at the moment spends billions of dollars every year to import food items including wheat, rice and processed foods. Changing this using the underutilized and favorable land and water resources of the country is a rewarding business venture for investors.



With the new home-grown economic reform that give emphasis to improve the country’s agriculture performance, the Government of Ethiopia has vowed to make food imports history in a few years period. Indeed, its abundance arable land, water resources, and good weather, makes the east African country the most favorable place in the world for agricultural production.

In Ethiopia the average share of agriculture in the gross domestic product is 34 percent. While its share for employment and foreign exchange earnings in 2018, is 65 percent and 77 percent, respectively.
The fact that the increase in the number of private farms in Ethiopia over the past few years, suggest that the government dedication to boost performance of agricultural sector.

The fact that regional governments such as, Oromia Region has been disseminating thousands of agricultural tractors to cooperatives and farmers unions, is also expected to boost agricultural output of Ethiopia in the near future by improving performance of smallholder farmers.

Demand & potential

Boosting investment in agriculture not only helps the country to end become food self-sufficient, but enables it boost it export to the neighboring Middle East countries as it has been exporting meat to the United Arab Emirates and Saudi Arabia, among others.

Globally, population growth is also expected to remain the dominant driver of total agricultural commodity demand over the coming ten years period, in particular for commodities that have high levels of per-capita consumption in regions with fast expanding populations, according to the latest FAO & OECD forecast for the coming ten years.

Such opportunities pave the way for countries like Ethiopia to standout as major agriculture investment destinations. That is why the vision set by the Ethiopian Government to boost its agricultural products becoming food self-sufficient and exporter of the surplus can be taken as a feasible plan.

In Ethiopia at the moment crops take the highest share in total production and area coverage which constituted on average 68 percent of the Ethiopian agricultural gross domestic product. Agricultural value-added products of the country has increased from $6.65 billion in 2000 to $20.367 billion in 2019. This signals the potential for the market to expand further with more of active participation of the private sector.

Finance, new directives

At the moment irrigation agriculture in Ethiopia represents about 6 percent. One of the major barriers was lack of finance. Though agriculture is one of the most lucrative business with high return on investment, it is also the most expensive business for investors.

Of the total lending of the banks in Ethiopia not more than 30 percent on average has been invested in agriculture. As result, farming in Ethiopia has remained to be dominated by smallholder farmers who are engaged primarily in rain-fed agriculture.

Why agriculture is promising investment in Ethiopia
Why agriculture is promising investment in Ethiopia

Meanwhile the latest trends like introduction of machinery leasing companies, that provide agricultural machineries such as, tractors, to farmers’ cooperatives and investors, is likely to reduce the amount of investment required to embark in farming business in Ethiopia.

The recent aggressive move by the government, which helped smallholder farmers to produce wheat in over 300 hectares of irrigated land, shows the potential of the country for developing irrigation further.

When supported with the right government policy intervention and implementation, which can fix the previous abuses of investment incentives provided by the government to the private sector, agriculture indeed can be one of the top economic growth drivers for Ethiopia in the coming years.

Investment opportunities

Other than crops production, vegetables such as onions, tomatoes and carrots production using irrigation system, has also been expanding in Ethiopia over the past several years.

In many parts of the country smallholder farmers have been partnering with people from urban areas who can invest to provide water pumps, fertilizers and pesticides, have been playing critical role in increasing the production of vegetables and stabilizing the prices of the produces.

Such venture, which is often mentioned as ‘telephone farming’ has been generating additional revenue for the investors twice a year with 50 to 100 percent return on investment) and helped the farmers to fetch half from the total profit.

Expanding such kind of investment in other agricultural produces with more of a structured ‘crowd funding agriculture’ format is likely to help the country fully utilize it potential and generate good revenue for the investors, while creating thousands of jobs for the youth.

Expanding investment in agriculture is not only about generating profit to the investors, increasing food production, stabilizing food prices, and increase export revenue for the country, it also helps in reducing rural to urban migration of youth in Ethiopia.

Such investments will result in fast rural development and wealth creation for the urban youth, who gradually venture into ago-processing in partnership with both local and foreign investors and loans from financial institutions.

In addition to major food crops such as, wheat, the gluten free teff, maize, barely, sorghum, cereals, pulses, oil seeds, vegetables, fruits, roots and tubers, Ethiopia is also endowed with huge number of livestock. The country has the largest population of livestock in Africa with 56.7 million cattle, including 12.65 million milking cows, 30 million sheep and 23 million goats, 57 million chicken, and huge potential for fishery development.



Meanwhile like that of crop production, the performance of the sector has not been satisfactory so far. Like that of crop production, one of the major challenges hindering the growth of the sector is lack of finance. Pastoralists and smallholder farmers haven’t been able to access enough finance from banks to invest more in animal husbandry.

But with the latest directive of the National Bank of Ethiopia that allows stallholder farmers and pastoralists to use their livestock as collateral to get loans from banks and microfinance institutions is likely to improve the performance of the sector.

The fact that the country has recently inaugurated a major animal medicine factory, is also expected to improve the productivity of livestock sector, while cutting animal medicine import bill of Ethiopia.
In addition, expansion of infrastructure in rural areas especially close to the pastoralists, who contribute about 12 percent of the total population of Ethiopia and major livestock suppliers, is also expected to boost investment in meat processing factories.

Why agriculture is promising investment in Ethiopia
Why agriculture is promising investment in Ethiopia

In addition fishery will be the biggest investment area as the country completes filling its mega hydro dam (Great Ethiopian Renaissance Dam) which created one of the biggest artificial lake in Africa. This also provides huge investment opportunity for both local and foreign investors to venture in meat, dairy and poultry production of Ethiopia, which ultimately will boost Ethiopia’s current hard currency earning from export of these products.

Investors can make good profit by satisfying the growing local and international demand for agricultural products as the demand for these products in developing countries is expected to double by 2030 from it was in 2015, according to the UN Food and Agriculture Organization (FAO).