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ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE

ECONOMY WIDE IMPLICATIONS OF LARGE SCALE LAND INVESTMENTS IN ETHIOPIA:A Computable General Equilibrium (CGE)

Analysis

Seneshaw TamruIFPRI ESSP-II

Ethiopian Economic Association ConferenceJuly 19-21, 2012Addis Ababa

Objectives:

• To analyze economy wide impacts of large-scale agro-investments in Ethiopia

• Look at their impacts on poverty and household welfare

Introduction• Considerable economic growth over the

last seven years (11%) – Industry 10%, Service 14.6%, Agriculture 8.4%.– The GTP envisages this growth to continue at

the minimum.

• Food Security nevertheless remains a key challenge.

• Ethiopia is Africa’s biggest aid recipient,

and one of Africa’s most food-insecure nations. 3

Introduction• Heavy dependence on rain dependent

agriculture by small scale peasant farmers.

• Challenges of raising agricultural productivity

• Food prices rose above 2008 levels resulting food insecurity among poor people.

• Increasing agriculture production through extensive cultivation hence is considered central for the country’s food security problems.

• Large-scale agricultural investments and land deals have recently received considerable attention by the government.

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0

200

400

600

800

1,000

1,200

1,400

1,600

1,800White Wheat

Maize

White Teff

White Sorghum

Bir

r /

Qu

inta

l

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Status and Size of Licensed Large Scale Land Investments (Domestic + Foreign)

Status Land size

(Ha)Capital

('000 birr)

Job Creation (Expected)

Permanent

Temporary

Operational 1,352,111 3,476,839 20,561 127,114% of Foreign 40.8 63.9 41.9 27.7

Implemented 1,723,166

43,059,123 49,304 260,854

% of Foreign 71.6 44.5 66.1 19.2Pre-

Implemented

8,725,613

42,597,619

195,615

864,942

% of Foreign 44.3 83 66.1 38.1

Source: EIA        

• Huge potential for increased production, capital inflow, and job creation

Minimum and Maximum Rural land lease prices and duration by Region

Region Birr/ hectare/yearDuration of lease (Years)

Tigray 30-40 50 (maximum)*Oromiya 70-135 20-45Amhara 111-498 5-25Benishangul* 15-25 50 (maximum)Gambella* 20-30 50 (maximum)SNNP 38-117 25-45Somali 12-45 -Source: EIA, Factor Cost, *Rahmato (2011)

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Livestock Farming given shorter period (5-35); Rain-fed , and mixed agriculture medium (30-35); while Irrigated agriculture longer period (40-45); Perennial crops longer (35-45) as compared to Seasonal crops (30-40)

• Different types of incentives to further attract investment:– discount on initial

lease prices,– grace period of

payment, – provision of land for

free, etc.

Table 1: Licensed Land Size per Activity (Domestic and Foreign)

Type of agricultural activity

Area (Ha)Operational Implemente

dPre-

Implementation

Total

All activities 1,352,111 1,723,166 8,725,613 10,884,9521. Cash crops 54,300 74,455 879,440 1,008,195

2. Cereals 77,424 135,101 922,540 1,135,065

3. Cotton 23,158 90,635 457,543 571,3374. Bio-fuel plants 90,000 210,000 539,050 839,050

5. Sugar 47,000 50,000 173,750 270,7506. Other crops (rice, etc)

65,195 67,806 295,109 428,110

Total of the six sub-sectors

357,078 627,997 3,267,431 4,252,506

% (of all activities) 26.4 36.4 37.5 36.7Sources, Own calculation based on data from EIA, Regional Investment Offices, EBDD

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Caveats

• The study doesn’t include investments at pre-implementation stage (which is more than 74%) i.e., 8.7 million hectares

• The implementation + Operational account for about 26% – Looked at large-scale land

investments on the six agro-sub sectors on Implemented + operational (i.e., about 32%).

• Hence, the results could be very well understated 8

Operational Implemented Pre-Implementation0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

77,424135,101

922,540

90,000

210,000

539,050

65,195 67,806

295,109

Cash crop

Cereals

Cotton

Bio-fuel

Sugar

Other crops

Area

(Ha

)

Opportunities and Risks

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Expected Benefits Risks

Capital and technology inflow DeforestationEmployment opportunity to local people

Loss of land use right for Peasant Farmers

Overall increase in income especially to local people

Food outflow from food insecure areas

Rural infrastructure (i.e., health stations, schools, roads, electrcity etc)

Increasing inequality & social unrest

Better (Increased) food supply and food security Rent-seeking and corruption

• Given the benefits, many researchers (Rahemato, 2011) and International activists (e.g., Okland Institute, Green etc.) mainly link the risks with:• displacement of the local people and subsequent

effect of • denying them access to water, grazing, and hunting

area

DATA , MODEL, & SIMULATIONS

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Data:– Secondary data from EIA & Regional Inv

Authorities, MOA, EBDD, Journals, books, and – the updated version of the EDRI Ethiopia

2009/10 SAM

• The SAM is disaggregated into:– 118 activities (with 77 agri. activities by AEZ’s, 26

industry, 14 service), – 65 commodities, – 17 factors (by AEZ’s except capital), and – 13 institutions including 12 households. – The SAM also has accounts for various taxes, saving-

investment, and the Rest of the World.

Data and Methodology

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The Model: Dynamics

• The recursive dynamic version of the standard IFPRI CGE model (Dorosh, Robinson and Ahmed, 2010) is used for this study

• The model includes three macroeconomic balances: o Government balance:

• Flexible gov’t savings, and fixed direct tax rates ;

o External (current account) balance: • Flexible exchange rate with fixed foreign savings ;

o Savings-Investment balance: • Savings driven investment -fixed marginal propensities to

save for all non-government institutions

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• Skilled labor and Capital are assumed to be fully employed and activity-specific.

• Semi-skilled and Un-skilled labor are assumed to be unemployed and mobile across sectors.

• Total land supply of each type is exogenous; for each land type, land is fully employed and mobile across sectors.

Factor market closures

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The Simulations• Three Simulations:

– GTPL- • which is the lower case scenario of the Growth and

Transformation Plan (2009-14) as is found in Dorosh et.al (2011)

– LAND-INV-• The GTPL simulation PLUS land area expansion for the six

selected sub-sectors– Foreign Capital inflows are added to the calibration

in the form of increased FOREIGN SAVINGS

– LAND-NEGATIVE- • The LAND-INV simulation PLUS negative shock to existing

activities (i.e., Displacement effect)– Assumed that 25% of land area given is from local peoples’ crop

land– Reduced land area of the local people

RESULTS

• Large scale land investments on the six agro-sub sectors (i.e., about 32% of Implemented + operational investment) will increase GDP by about 0.7 percent over the next five years

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Changes in Macro Variables

VariablesINITIAL

(2009/10) in Billions Birr

Annual Growth Rate

GTPL LAND-INVLAND-NEGATIVE

Private Consumption 340.00 10.55 10.70 10.42Absorption 460.91 11.17 11.39 11.33Fixed Investment 85.93 13.24 13.77 14.47Real Ex.Rate 78.03 -14.63 -14.84 -14.26Exports 52.44 18.45 18.28 18.53Imports -126.66 14.73 14.98 15.09GDP at Factor Cost 357.43 11.08 11.21 11.14GDP Change     0.13 -0.07

Agriculture 176.72 7.47 7.59 7.31Industry 17.41 21.82 21.78 21.87Services 163.30 13.27 13.42 13.52

• Positive change in RURAL income of households under LAND-INV

• Considerable decline in rural and urban income under NEGATIVE Scenario

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• Rural and urban poor seem to benefit from large scale land investments

• Urban poor benefit while the NPr don’t

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%

12.5% Change in Household Income

GTPL LAND-INV LAND-NEGATIVE

Poverty Level

• Poverty level significantly declines at the end of 2014/15 under all the simulations.

• Considerable decline in urban poverty level

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Poverty Level (Head Count Ration): 2590 Birr/Year

Level Initial (2009/10)

Poverty Level at the End of 2014/15

GTPL LAND-INVLAND-NEGATIVE

NATIONAL 30.3 20.5 20.2 20.7RURAL 30.7 20.6 20.3 20.8URBAN 23.9 18.7 18.5 18.8

Conclusion

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• Large-scale land investments on the six agro-sub sectors (i.e., about 10% of total licensed investments) will increase GDP by about 0.7 percent over the GTP period;

• Displacement however, decreases the GDP by about 0.4 percent over the five year period

• High income to rural households, especially to the poor

• Has small positive effect on national, rural and urban poverty levels

Implications• Large scale land investments bring

considerable positive effects on the national economy

• However, results also indicate substantial negative effect on national and household level income in case of displacement

• Hence, proper care must be taken before leasing out large scale land investment deals and proper compensation if there is expropriation

• Follow up the implementation and operations of large scale investors and check if they live-up to their promise (i.e., school, jobs, infrastructure)

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