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The Agribusiness Innovation Initiative in Ethiopia:
Creating Jobs through Agribusiness Innovation
Enabl ing a c l imate smar t , competit ive,and susta inable agr ibusiness sec tor
AGRIBUSINESS INNOVATION IN ETHIOPIA
Enabling a Climate Smart, Competitive, and Sustainable Agribusiness Sector
EXECUTIVE SUMMARY
Prepared by infoDev
Contributing authors: Julia Brethenoux, Teklu Kidane Aleme, Ellen Olafsen, Jim Thaller, and Julian Webb
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Copyright
©2012 Information for Development Program (infoDev)/The World Bank
1818 H Street NW
Washington DC 20433
Internet: www.infoDev.org
Email: [email protected]
All rights reserved
Disclaimers
InfoDev/The World Bank: The findings, interpretations and conclusions expressed herein are entirely those of the author(s) and do not necessarily reflect the view of infoDev, the Donors of infoDev, the International Bank for Reconstruction and Development/The World Bank and its affiliated organizations, the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank any judgment of the legal status of any territory or the endorsement or acceptance of such boundaries.
Rights and Permissions
The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly.
To cite this publication:
The Agribusiness Innovation Initiative in Ethiopia: Enabling a Climate Smart, Competitive, and Sustainable Agribusiness Sector. 2012. InfoDev, Finance and Private Sector Development Department. Washington, DC: World Bank.
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About infoDev
This report was developed by infoDev, a global partnership program within the Financial and Private Sector Development Vice Presidency of the World Bank Group. Its mission is to enable innovative entrepreneurship for sustainable, inclusive growth and employment.
This study was made possible thanks to the support of the Ministry for Foreign Affairs of Finland.
For more information visit www.infodev.org or send an email to [email protected].
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Stakeholder Support
InfoDev would like to acknowledge the following stakeholders for their guidance, support, and input through the conceptualization and development of this assessment of the agribusiness market to be supported by the Climate Innovation Center (CIC) in Ethiopia.
ORGANIZATION NAME CONTACT PERSON LOCATION
PRIVATE SECTOR
Kaliti Food Complex Share Company Mr. GetuKebede Kaliti/Addis Ababa
Genesis Farms Mr. Getachew Debrezeit/Oromiya region
Jittu Horticulture Mr. Yan Prins/Semira Debrezeit and Hawassa
Alema Farms Mr. Alemayehu A. Mariam Debrezeit/Oromiya region
Green Logistics Mr. BefekaduTilahun Addis Ababa
Agro Prom International Mr. Elias Geneti Addis Ababa
Burayou Packaging Company Mr. FanuelFeleke Burayou/Oromiya region
Adama Spinning Mr. FanuelFeleke Adama/Oromiya region
SelamBaltina Mr. Daniel/Mr. Mekonen Addis Ababa
Mama Fresh Injera Mr. HailuTesema Addis Ababa
Ecological Products of Ethiopia (ECOPIA)
Dr. MitselalKifleyesus Addis Ababa and Arbaminch
Alem Honey Mr. Tariku Mekonnen Kombolcha/Oromiya region
Bezamar Agro-industry Mr. HailegiorgisDemissie Adama and Kaffa region
Apinec Agro-industry PLC/Honey Mr. WubishetAdugna Kaffa zone/Southern region
Tutu Honey Mr. EyobAssefa Keffa zone and Amhara region
Rut and Hirut Dairy Farm Ms. HirutYohannes Chacha/Oromoiya region
Astco Food Complex Mr. EsubalewKefale Akaki/Oromiya region
Fafa Food Complex Mr. Zeco Ebro/Haile W. Giorgis Saris/Addis Ababa
Piko Juice Factory Mr. ZiadChahwan/Berehe Addis Ababa
MuluMesob Bakery Mr. BekeleMekuria Addis Ababa
Upper Awash Agro-industry Enterprise Mr. BirhanemeskelMehari/MesfinSodo
Upper Awash (Merti)
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Awassa Textiles Factory Mr. GirmaBeyene Hawassa/Southern region
Omo Valley Cotton Farm/Amibara Mr. BirhaneG.Yohannes Arbaminch
Luci Cotton Farm Mr. Hadis Arbaminch/Southern region
Arbaminch Textile Factory Mr. Mezgebe Arbaminch
Bahirdar Textile Factory Mr. AbayMelaku Bahirdar/Amhara region
Ada’a Milk Cooperative Mr. YeruksewFetene Debrezeit/Oromiya region
OLAM PLC Mr. Krishna Kumar Tigari region
Roha Pack PLC Mr. TeshomeKifle Lebu/Addis Ababa
Seka Agro-processing PLC Mr. Seifu W/Michael Kaffa zone
Ethiopian Tourist Trading Enterprise Ms. Afomiya Addis Ababa
PACTRA Mr. TadiosTsegaye Addis Ababa
EthioFibre Products Factory/G-Seven Mr. MelakuTilahun Akakai/Addis Ababa
Dima Honey Mekele/Tigray region
Peacock Shoe Factory Mr. Elias Bedada Addis Ababa
Kebire Enterprise/MAA Garment Mr. FasilTadesse Mekele/Tigray region
Addis Garment Factory Ms. GiulianaZuccato Addis Ababa
Mulat Garment Mr. AberaMulat Addis Ababa
Fortune Enterprise/Africa Bamboo Ms. Sarah Kohls/FasilEyasu Addis Ababa and Gambela region
Woira Oil PLC Mr. LammertNauta Mekele/Tigray region
Abreham Bamboo craft Mr. Abreham W. Sellasie Addis Ababa
Addis Mojo Edible Oil Processing Sco. Mr. AbrehamDagne Addis Ababa and Mojo town
Ethiopian Freight Forwarders Association
CDR TilahunMulugeta Addis Ababa
GUTS Agro-industry Mr. EngiduLegesse Hawassa/Southern region
Fire Edget Food Processing Cooperative
Mr. Million Addis Ababa
Ethiopian Spices Extraction PLC Mr. FelekeSebhatu Addis Ababa and Wolaita
Ethio-AgriCeft Addis Ababa
Ethiopian Cotton Growers Association Dr. ZerihunDesalegn Addis Ababa
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Horticulture and Floriculture Association
Mr. TsegayeAbebe Addis Ababa
Pulses, Spices and Oil Seeds Association
Mr. NigussieSime Addis Ababa
Honey and Bees Wax Association Mr. Tariku Mekonnen Addis Ababa
Dairy Association Mr. Fekadeselasse Addis Ababa
Leather Industries Association Mr. AbdissaAdugna Addis Ababa
Cotton, Textile and Garment Association
Mr. FasilTadesse Addis Ababa
Tsdey Mar/Honey Ms. BirtukanLiyeew Addis Ababa
Wossi Garment Ms. WosseneHailu Addis Ababa
ALMETA PLC Mr. YilkalKasa/Baharnesh Koka/Oromiya Region
ACOS Ethiopia PLC Mr. KassahunBekele Addis Ababa
Hibret Tailors Cooperative Mr. YimerMuhiye Addis Ababa
Africa Cottons Mr. Camillo Addis Ababa
Sabaharhar Handicraft/Silk weaving Ms. Kathy Marshal Addis Ababa
Fasika Spices Ms. Fasika Addis Ababa
Agricultural Machinery Supply Enterprise
Mr. Belay Tensay Kaliti/Addis Ababa
Raha Fruit/Strawberry Processing Company
Mr. NuredinHassen Adama
Rahel Food Processing Company Ms. Rahel Addis Ababa
Diredawa Food Complex Mr. Alazar Diredawa
Markel Spices Ms. Elizabeth Addis Ababa
Demerew Snacks Mr. Demerew Lafto/Addis Ababa
Genet Farm Ms. Genet Kidane Mekele/Tigray
TsegaBeles Fruits Ms. Tsega Mekele/Tigray
St. Michael Weaving Ms. AlmazBeyene Addis Ababa
Yhannes Bamboo Products Mr. YohannesTesfaye Addis Ababa
Green Focus Ethiopia Mr. G.D.Chaturvedi Ambo/Oromiya region
Nigist Ethiopia Weaving Mr. Sammy Abdella Addis Ababa
Memud Weaving Mr. MehamudHassen Addis Ababa
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Almeda Textiles Mr. Gebremedihin Adwa/Tigray region
Kombolcha Textiles Mr. Mutofa/Assefa Kombolcha/Oromoiya region
Addis Chamber – Merkato office Ms. FikrteLijalem Addis Ababa
Girum Spices Mr. MisganawAsmamaw Addis Ababa
Tsigereda Spices Women Cooperative Ms. Medihin G/Michael Addis Ababa
Nunusha Sweets Factory Ms. Lishan W/Gabriel Addis Ababa
Girum Spices/Awaze Ms. Beletu Addis Ababa
Africa Juice Dr. AbaynehEsayas Upper Awash (Merti)
SidamaFarmers Cooperative Ms. SimretSimano Hawassa
Omo Organic Banana Farm Arbaminch
Ethiopian Fruits and Vegetables Marketing Ent.
Mr. MengistuKebede Addis Ababa
WubKollo Ms. Wubit Addis Ababa
ACACAS Logistics Mr. AkaluGeleta Addis Ababa
Bereket Foods Ms. Firewoini T. Mariam Addis Ababa
Government
Federal Ministry of Water and Energy Mr. GossayeMengiste Addis Ababa
Environmental Protection Agency Mr. DesalegnMesfin Addis Ababa
Federal Micro & Small Enterprises Agency
Mr. GebremeskelChalla Addis Ababa
Ethiopian Standards Agency Ms. AlmazKahsay Addis Ababa
Leather Industry Development Institute Mr. WonduLegesse Addis Ababa
Textile Industry Development Institute Mr. SileshiLema Addis Ababa
Ministry of Agriculture Mr. WondyradMandefro Addis Ababa
Ethiopian Agricultural Transformation Agency
Mr. Khalid Bomba Addis Ababa
Ethiopian Agricultural Research Institute
Dr. Solomon Assefa Addis Ababa
Ministry of Finance and Economic Development
Dr. AbrehamTekeste Addis Ababa
Ministry of Industry Mr. Dendena Addis Ababa
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Ethiopian Competitiveness Facility (ECF)
Mr. AbebeGirmay Addis Ababa
RESEARCH INSTITUTIONS/EXPERTS
Selam Technical and Vocational College
Mr. BiniamAsrat Addis Ababa
Addis Ababa Technology Institute Dr. AbebayehuAssefa Addis Ababa
Hope Food and Catering Training School
Mr. Getachew Addis Ababa
Bahirdar University Dr. BaylieDamte Bahirdar
INTERNATIONAL
USAID/Ethiopia Mr. Randy Chester Addis Ababa
Royal Norwegian Embassy Mr. SisayNune Addis Ababa
ACDI VOCA Ms. Katherine/Mr. Tim Addis Ababa
Finish Embassy Amb. Leo Olasvirta Addis Ababa
DFID Mr. Kerry Conway/Mr. Ngusu Addis Ababa
SNV/Ethiopia Mr. Piet Visser Addis Ababa
World Bank Group Ms. Agata E. Pawlowska Addis Ababa
African Development Bank Mr. Peter Mwanakatwe Addis Ababa
International Livestock Research Institute
Improving Productivity & Market Success (IPMS)
Dr. AzageTegegne Addis Ababa
Delegation of the European Union to Ethiopia
Arnaud DEMOOR Addis Ababa
IFC Mr. MamoEsmelealem M. Addis Ababa
FAO Calvin Miller Addis Ababa
IFAD Dr. Michael Hamp Addis Ababa
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List of Abbreviations and Acronyms
ABBREVIATION/ ACRONYM
FULL NAME
AC ACDI/VOCA AfDB AIC AII ATA BDSP BMGF CCI CDE CIC CIDA CRGE DfID EARI ECCSA ECX EFFA EHBPEA EHPEA EIA EKN ELIA EMPPA EPA EPOSPEA EQSA ETGAMA EU EWEA FAO FORMIN GDP GEM GIZ GoE GoF GTP ICT IFAD ILO M&E MFIs MoA MoFED MoI MoICT MoIUD
Advisory Committee Agricultural Cooperative Development International & Volunteers in Overseas Cooperative Assistance African Development Bank Agribusiness Innovation Center Agribusiness Innovation Initiative Agricultural Transformation Agency Business Development Service Provider Bill and Melinda Gates Foundation Chamber of Commerce and Industry Center for Development of Enterprise Climate innovation Center Canadian International Development Agency Climate Resilient Green Economy U.K. Department for International Development Ethiopian Agricultural Research Institute Ethiopian Chamber of Commerce and Sectoral Associations Ethiopian Commodity Exchange Ethiopian Freight Forwarders Association Ethiopian Honey and Beeswax Producers and Exporters Ethiopian Horticulture Producers and Exporters Association Ethiopian Investment Agency Embassy of the Kingdom of the Netherlands Ethiopian Leather Industries Association Ethiopian Milk Producers and Processors Association Environment Protection Authority Ethiopian Pulses, Spices and Oil Seeds Processors and Exporters Association Ethiopian Quality and Standards Agency Ethiopian Textile and Garments Manufacturers Association European Union Ethiopian Women Exporters Association Food and Agriculture Organization of the United Nations Ministry for Foreign Affairs of Finland Gross Domestic Product Global Entrepreneurship Monitor Deutsche GesellschaftfürInternationaleZusammenarbeit GmbH Government of Ethiopia Government of Finland Growth and Transformation Plan Information and Communication Technologies International Fund for Agricultural Development International Labour Organization Monitoring and Evaluation Microfinance Institutions Ministry of Agriculture Ministry of Finance and Economic Development Ministry of Industry Ministry of Information and Communication Technologies Ministry of Infrastructure and Urban Development
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MoT MoT&C MoWE MoYWSSIDA SIDA SME SNV TI TVC UNDP UNIDO USAID 3ADI
Ministry of Trade Ministry of Transport and Communication Ministry of Water and Industry Ministry of Youth Women and Sport Swedish International Development Agency Small- and Medium-size Enterprise Netherlands Development Organization Technology Institute Technology and Vocational Center United Nations Development Programme United Nations Industrial Development Organization U.S. Agency for International Development Accelerated Agribusiness and Agro-industries Development Initiative
Table of Contents
Stakeholder Support..................................................................................................................iv List of Abbreviations and Acronyms........................................................................................ix Table of Contents.......................................................................................................................x 1. Executive Summary ...............................................................................................................1
1.1 Project Objective..............................................................................................................1 1.2 Project Beneficiaries ........................................................................................................1 1.3 Geographical Coverage....................................................................................................1 1.4 Project Rationale..............................................................................................................1 1.5 The Feasibility Assessment Methodology .......................................................................3
1.5.1 Analytical Framework ..............................................................................................3 1.5.2 Process ......................................................................................................................4
1.6 Proposed Areas of Focus .................................................................................................5 1.6 The Services of the AII ....................................................................................................8 1.7 Limits of the AII ..............................................................................................................9 1.8 Critical Success Factors .................................................................................................10 1.9 Implementation of the AII .............................................................................................10
1.9.1 Institutional Framework..........................................................................................10 1.9.2 Location ..................................................................................................................11 1.9.3 Business Model.......................................................................................................11 1.9.4 Selecting Clients .....................................................................................................11 1.9.5 Potential Link with the Climate Innovation Center ................................................12
1.10 The Role of InfoDev ....................................................................................................13 1.11 Outcomes and Impacts.................................................................................................13 1.12 Budget Requirements...................................................................................................13
xi
List of Figures and Tables
Figure 1 Ethiopian Agribusiness Stakeholders Consulted......................................................... 5 Figure 2 Ethiopian AII Service Offering..................................................................................... 9
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1. Executive Summary
1.1. Project Objective
The Agribusiness Innovation Initiative (AII) seeks to contribute to advancing a climate-smart competitive agribusiness sector which will create more jobs and raise incomes for Ethiopians. The AII will contribute toward this objective by identifying innovative growth-oriented entrepreneurs who are pursuing business opportunities based on value addition of agricultural commodities and providing them with a holistic service offering that accelerates their growth and increases their sustainability. In the process of doing so, the AII will engage all stakeholders along the value chain, thus strengthening the innovation and entrepreneurship ecosystem affecting the start-up and growth of innovative agribusiness enterprises. Relatedly, the AII will strive to have a demonstration—or catalytic—effect, encouraging a new generation of entrepreneurs to enter, grow, and advance the industry.
1.2. Project Beneficiaries
The AII will have two groups of beneficiaries. The direct beneficiaries include high growth potential agribusiness entrepreneurs and small businesses. This group includes a high percentage of women. The indirect beneficiaries are the small-holder farmers that supply the raw materials to the enterprises, and the tangential service providers, such as truckers, packaging providers, and others that will benefit from the increased demand generated.
1.3. Geographical Coverage
As most of the intended clientele are situated within a 100 kilometer radius of Addis Ababa, it is recommended that the AII starts its base there, along with establishing a satellite office in Bahir Dar (Amhara). Outreach services can be provided from these bases to companies in Hawassa, Mekele, Diredawa, Adama, Arbaminch, and other areas where high potential entrepreneurs are identified.
1.4. Project Rationale
Ethiopia benefits from exceptional climatic conditions that make the production of a wide variety of agricultural products possible. Ethiopia also has a large addressable market for agricultural products. The domestic market alone constitutes 90 million people1and the nearby Middle Eastern market represents more than 380 million potential customers. However, many finished food products are imported and opportunities abound for import substitution, with products created by new and growing domestic processing companies. Today, agriculture accounts for more than 50 percent of Ethiopia’s gross domestic product (GDP), more than 80 percent of its export revenue and 85 percent of its jobs. Furthermore, an estimated 65 percent of
1Last estimates from July 2011.
2
employed women work in the agricultural sector. The agricultural sector, thus, represents a tremendous opportunity both from an economic growth and social development perspective.
Given the potential of agriculture and its importance to people’s livelihoods, the government of Ethiopia (GoE) has made agriculture a key priority in the country’s Growth and Transformation Plan (GTP).As part of executing this plan, the government has increased its investments in agriculture by expanding extension systems and large-scale infrastructure. It has also established the Ethiopian Agricultural Transformation Agency (ATA) to transform the agriculture sector and realize the interconnected goals of food security, poverty reduction, and human and economic development.
Responsible growth of the agricultural sector includes keen attention to climate change impacts, which can be far reaching and significant. For example, climate change impacts can destroy value on the farm and through small-holder supply chains, threatening the long-term sustainability of the sector. Public goods, such as drinking water, can also be affected by climate change and agricultural practices. The GoE’s Climate Resilient Green Economy strategy (CRGE) specifically states that Ethiopia’s ambition to “reach economic development targets in a resource–efficient way that overcomes the possible conflict between economic growth and fighting climate change.” The AII will make its contribution to ensuring that the nascent agro processing industry evolves along a green growth trajectory, thus enabling the development of a climate smart, competitive agribusiness sector.
Agro processing, small-and medium-size enterprise (SME) growth, increasing the capacity of women, and job creation are four of the priorities of GTP. InfoDev, with funding from the government of Finland (GoF) 2initiated a feasibility assessment to identify the following:
1. The most significant market opportunities for value addition in the agribusiness sector
2. The most significant barriers to enterprise start-up and growth in the specific market opportunities identified
3. The financial and business development services most needed to accelerate the growth of Ethiopian agribusiness SMEs
2Finland is a core donor to infoDev and Ethiopia is one of Finland’s key partner countries. In agribusiness specifically, Finland is supporting Ethiopia’s advancement of the sector through the “Programme for Agro-Business Induced Growth in the Amhara National Regional State” (Agro-BIG).
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1.5 The Feasibility Assessment Methodology
1.5.1 Analytical Framework
Three “schools of thought” are leveraged in the approach to this study:
1. The value chain approach; 2. the innovation systems approach; and 3. a micro entrepreneurship approach.
All three “schools of thought” are helpful frameworks to analyzing what the opportunities and constraints are for advancing innovative agribusiness enterprises in Ethiopia and what solutions would be most likely to have an impact. An important constraint imposed by infoDev was also that any proposed initiative should strive toward operational financial sustainability.
For the purposes of this study, infoDev defines agribusiness incubation as the provision of a holistic service offering to innovative, growth-potential SMEs. Agribusiness incubation can either focus on one or a few subsectors or value chains (that is, dairy). It can also focus on a broader model that assists any growth-potential agribusiness enterprises, regardless of subsector.
The choice of model depends in large part on the “maturity” of the respective value chains and local market conditions as assessed against the parameters outlined in the table below. In addition, it depends on the similarities in the needs among the potential target enterprises. Namely, if there is a clear market and enabling conditions in place for dried mango, pineapple, apple, and others, the incubator could probably effectively assist entrepreneurs across these value chains. However, if opportunities were identified in pasteurized milk and dried pineapple, the value chains and the markets for these would be vastly different and it would be more costly for the incubator to serve both effectively. This again depends on the depth of the business incubation services required. A non-sector specific incubator could work well, if what the milk processor and the pineapple processer need help with are general topics such as finances, good management, general business coaching, and others. However, if more specialized services are needed that provide market linkages, technology identification and acquisition, and others, it would be more costly for the incubator to cover both value chains.
Another constraint when selecting a focus for an agribusiness incubator is the potential “deal flow” or number of enterprises that can be identified as high-growth potential entrepreneurs. A “critical mass” of entrepreneurs enables the incubator to achieve economies of scale and decrease its “cost per enterprise” up to a certain point. As a general rule of thumb, around 20 incubatees at any given time provide the incubator with this opportunity.
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In designing the methodology and providing the recommended approach, infoDev leveraged these and other lessons learned from its decade long experience in business incubation, along with the insights and lessons learned from its recent study Growing Food, Products and Businesses.3This study examines the results and lessons from 10 agribusiness incubators in developing countries. A multidisciplinary group of professionals representing business incubation and economist backgrounds was engaged in the analysis leading to this study.
1.5.2. Process
The first step in the feasibility assessment was to narrow down the scope from the vast agricultural sector into a subset that could be analyzed in some detail. InfoDev examined the literature and engaged Ethiopian stakeholders in a discussion to identify the agricultural subsectors they felt have most potential for growth. InfoDev then analyzed the Ethiopian market against the parameters outlined in the table below.
Table 1 Assessing the Potential for Value Addition
What is the Scope for High Growth Value Addition in this Value Chain
Production Status Is there sufficient primary production of adequate quality to facilitate value addition?
Entrepreneurial Capacity
Do a sufficient number of growth-oriented entrepreneurs exist within the value chain or entrepreneurs who could be “recruited” from other value chains?
Availability of Funding What funding is available for product development, commercialization, and business expansion?
Clear, Ready Stakeholders
Are there strong stakeholders who are ready and able to affect change in the value chain?
Markets Can markets be identified that are accessible, feasible, and viable?
Seasonality Is there marked seasonality in supply and demand of raw materials that can impact negatively on the value-addition opportunity?
Industry Leverage Are there existing initiatives that can be leveraged that support the industry and that are likely to affect entry into and exit from the industry and hence have value addition potential?
Infrastructure &Regulatory Constraints
Is there sufficient infrastructure available and does the regulatory environment provide incentives for entrepreneurs to take advantage of the value addition opportunity?
3 Global assessment carried out by infoDev to understand the impact and lessons from agribusiness incubators and innovation centers, available at: http://www.infodev.org/en/Article.800.html
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In total, infoDev engaged more than 118 public and private stakeholders and entrepreneurs in the feasibility assessment (Figure 1 below illustrates the relative proportion of the stakeholders consulted), and conducted a formal survey of 75 agribusinesses in Ethiopia. InfoDev undertook the work in the first six months of 2012.
Figure 1 Ethiopian Agribusiness Stakeholders Consulted
1.6. Proposed Areas of Focus
The tremendous diversity of ecological zones in Ethiopia enables production of a wide variety of crops. Seven key value chains (or value chain groupings) were identified as having good potential for growth at this time: bamboo; horticulture (fruits and vegetables); dairy; cotton, textiles, and garments; honey; wheat; and spices. The analysis was done by using the methodology outlined above and cross-checking competitiveness and growth opportunities of commercial viability against those value chains that already receive assistance that can be leveraged. These opportunities are described briefly in Box 1 below (see Section 4 and Annex 7 of the full report for a more detailed discussion on the opportunities and challenges associated with each).
75%
10%
3% 12%
Private sector
Government
Research insQtuQons/experts
InternaQonal organizaQons
6
Box 1: Current Ethiopian Agribusiness Market Opportunities
Bamboo: In Ethiopia, some 150 plus micro to small enterprises are engaged in low-value addition industrial production of high value panels. Flooring is also emerging in response to market demand—less than five firms exist at the moment (one of them employs 150 full-time employees and has a $3million annual turnover) but this is expected to increase in the future. Analysis indicates that Ethiopia can be highly competitive in this market.
Dairy: Ethiopia has the largest stock of milk producing animals in Africa, but it imports milk products at a value of 114 billion Birr annually. None the less, between 2005 and 2010 there was an increase in processing capacity and in dairy product lines. With unmet demand for milk and milk products in growing urban areas, the growth potential is significant for the 18 producers (half of them are small to medium-size processors and the biggest one employs 380 people to process 33,000 liters per day).
Honey: Ethiopia is the largest honey-producing country in Africa and the fourth-largest beeswax-producing country in the world. Both domestic and export market are growing. The potential for honey processors is significant.
Fruit and Vegetables: The processing industry is quite nascent. Fifteen fruit and vegetable processors and five fruit and vegetable processing plants are working below capacity because of the lack of sufficient and regular supply of fruits and vegetables. These processors and plants are producing for both the domestic and export markets, replacing imports of fruit juices and addressing the growing demand for catering products from the Middle East, nearby countries, and Europe. Ethiopian processors have a demonstrated comparative advantage compared to their competitors from Egypt, Tunisia, Morocco, and Kenya.
Cotton, Textiles, and Garments: Although the number of operating factories and their capacity is comparably low (currently eight large scale textile factories and 13 garment enterprises) and does not provide self-sufficiency for the demand by Ethiopian garment or home textile industry, much cotton production in Ethiopia at the small holder scale is organic. This offers an opportunity to enter the organic market where prices for organic cotton increase internationally and the market could be linked with Ethiopia’s growing design and fashion brands.
Wheat: Although Ethiopia is one of the largest wheat producers among the Common Market for Eastern and Southern Africa (COMESA) countries, it still imported in 1.2million metric tons of wheat4 in 2011. With a growing population and urbanization, the demand for wheat and particularly for processed food in the form of bread, flour, macaroni, and pasta is expected to increase, offering a real market opportunity for the 180 manufacturers of bakery products and nine manufacturers of spaghetti and macaroni. Export of macaroni and spaghetti started in 2007/2008, generating $ 50,000 export revenues, which reached $ 121,000 in 2008/2009 and is expected to continue to grow in the following years.
Spices: About 244,000 tons of spices are produced annually. There is high domestic demand for spices and 50 percent of Ethiopian spices are exported to Sudan, while other major export destinations include India, Morocco, Saudi Arabia, United Arab Emirates, and Yemen. While the GTP now envisages substantial investment in the sector, the potential of spices has been largely overlooked in the past. Only two spice extraction plants exist, which produce for the export market, although not at full capacity because of equipment and production problems. The market potential for new processors is high, especially for the growing export markets.
4Idem.
7
In assessing these value chains in further detail, the following was discovered:
a) No one value chain represents a sufficient quantity of growth potential
entrepreneurs to warrant a focused incubation model. It is, therefore, proposed to adopt a broader model that works across subsectors. As evidenced by the survey conducted, there is strong interest in an agribusiness incubation service offering from agribusiness entrepreneurs across sectors, and the analysis indicates that a sufficient pipeline of growth-oriented/growth-potential enterprises can be secured to enable a cost-effective implementation using an agribusiness incubation model that targets enterprises from a broader selection of value chains. Over time, as the respective value chains mature, a more focused approach could be adopted.
b) While the market opportunities outlined in Box 1 are promising, even
these value chains face significant challenges that have been recognized, and many donors and Ethiopian government agencies are now working to overcome value chain bottlenecks. The timing may, therefore, be opportune to complement this work by addressing the business-level impediments faced by agro processors.
c) Some interesting cross-cutting market opportunities were identified,
notably in the areas of packaging facilities, testing and certification facilities, recycling (of plant products for biogas or of packaging materials for reuse), cold chain innovation, dryer innovation (that is, using solar energy), traceability, and logistics. It is, therefore, recommended that the AII also encourages and enables the start-up and growth of innovative enterprises in such areas.
d) Because of the challenging operating environment, it is recommended
to target primarily existing enterprises with growth potential, while leaving room for some start-up support also.
e) In addition to having 65 percent of employed women working in the
agriculture sector, it is estimated that more than 60 percent of micro and small-size businesses in Ethiopia are food processing enterprises that are all run by women entrepreneurs. Because of the potential impact on women entrepreneurship and employment, it is recommended to target women specifically in AII’s outreach effort and to develop a service offering and a service delivery approach that meet their needs.
8
f) The agribusiness entrepreneurs interviewed who represent the intended target client for the AII expressed a need for help with marketing, accessing new markets, and networking, along with finance. Most existing entrepreneurs across the dominant value chains of Ethiopia experience the challenge of developing both domestic and international markets. Entrepreneurs struggle to understand the opportunities for both domestic and international distribution, the industry standards associated with each target demographic, and the logistical constraints that require addressing.
1.6 The Services of the AII
The expressed needs of the entrepreneurs, along with the value chain analysis conducted, indicates that the appropriate service offering for the AII would be a comprehensive service offering that will facilitate entrepreneurs access to markets, advice, finance, and facilities(primarily for lab testing and packaging)as outlined in the diagram below.
There is significant opportunity to also leverage the GoE’s Climate Resilient Green Economy strategy (CRGE), which outlines Ethiopia’s ambition to “reach economic development targets in a resource–efficient way that overcomes the possible conflict between economic growth and fighting climate change,” to ensure that the nascent agro processing industry evolves along this same trajectory, thus enabling the development of a climate smart, competitive agribusiness sector. The post-harvest agribusiness sector must develop in a sustainable manner. Better methods to ensure water conservation and quality, energy minimization, waste management, and logistical impacts must be inculcated not only for environmental sustainability, but for financial and product competitiveness. The AII will emphasize these considerations when delivering its service offering.
9
Figure 2 Ethiopian AII Service Offering
Market knowledge, broadly defined, was found to be one of the main weaknesses of existing growth-oriented entrepreneurs in the high opportunity value chains. The AII will emphasize two activities: 1) expanding domestic and international market opportunities for companies operating in value chains with high potential. This could include establishing relationships in critical target markets, namely, the Middle East, Sudan, other East African Economic Community (EAEC) countries and even the
European Union (EU). It will also emphasize2) building the enterprises’ capacity to develop competitive, well-branded, compliant food products.
1.7 Limits of the AII
Important barriers to growth of agribusiness enterprises that will not be met by the AII include the development of primary agriculture, a system of cold chain facilities, storage of raw materials, processed products, and transport logistics, as well as investments in reliable energy supply. The AII will also not be involved in developing or amending regulations or policies that may affect the prospects of agribusiness entrepreneurs in Ethiopia.
The AII will seek to contribute to addressing these particular challenges by working with allied organizations, such as the ATA, relevant government agencies, and donor programs that are focused specifically on addressing value-chain bottlenecks.
Market
Market research
• High value products
• Suppliers
Market
Market linkages to customers and
suppliers
• Local • National
• Export
Advice
Business training & mentoring
Product and brand development
Technology identification
Quality, safety, and regulations
"How to be climate smart" consulting
Finance
Proof of concept fund (for innovation & demonstration)
Growth finance
• Working capital • Asset financing
Facilities
Product and technology showcase
Processing and packaging equipment
Lab and testing facilities
Business center
Promoting and Catalyzing Innovation through Outreach to Private Sector, Academia, and Government
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1.8 Critical Success Factors
As revealed in Growing Food, Products and Businesses5, there are a number of critical success factors for an intervention of this kind: 1) help clients manage risk; 2) understand the details of the value chain; 3) maintain a broader goal of demonstrating innovative business propositions so as to stimulate broader sector take-up; 4) continuously adapt the focus and business model of the incubator; 5) proactively identify and promote higher value market opportunities; and 6) design and operate the business incubator in line with good practice. Good practices include the following: ensuring a strong selection process that identifies and cultivates innovative, growth oriented entrepreneurs; developing strong partnerships with the public and private sector; locating the AII in a geographic location that is attractive to the target clientele; ensuring that the manager of the AII and the service provider has entrepreneurial, and preferably industry, knowledge, and that these staff have incentives that align with the desired outcomes and impacts of the AII; obtaining a strong capital structure; and putting in place a governance framework that allows the management to operate the AII in a business-like manner.
1.9 Implementation of the AII
1.9.1 Institutional Framework
While infoDev will help provide its knowledge and lessons from similar initiatives elsewhere to provide guidance to local implementers, the AII is intended to be locally owned and operated. As implied by the service offering outlined above, it is by necessity a partnership-based, highly networked initiative that required buy-in and leadership from a range of value chain and innovation systems stakeholders. Ideally, therefore, a consortium of partners would be formed to implement the initiative. A broader advisory committee comprising key actors from the public and private sectors that are critical to advancing the growth of climate-smart agro processors is also recommended. Key government partners would include the Agricultural Transformation Agency (ATA), the Ministry of Finance and Economic Development (MoFED), the Ministry of Industry (MoI), and the Ministry of Agriculture (MoA). Some examples of potential implementation partners of the AII include the following: private business development service providers members of the Synovia and Ethiopian BDS networks; the Ethiopian Chamber of Commerce and Sectoral Associations (ECCSA); official representative of the private sector; the Ethiopian Freight and Forwarders Association; the Addis Ababa Chamber of Commerce and Industry; BDS associations and networks; Et Fruit, one of the largest food distribution companies in Ethiopia; Olam, a global leader in the supply chain management of agricultural products and food ingredients; Selam Technology and Vocational Training Center; and the Academy of Food Sciences from the University of Bahir Dar.
5The global assessment carried out by infoDev to understand the impact and lessons from agribusiness incubators and innovation center is available at: http://www.infodev.org/en/Article.800.html
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As indicated above, while representation from all value chain and innovation system stakeholders are critical to the success of the target clientele, lessons from similar initiative elsewhere indicate that professionals with business background should manage an incubation initiative. These professionals would operate within a governance framework that enables constant adaptation and entrepreneurial thinking.
1.9.2 Location
The AII must be based in an area that 1) is within close proximity to a critical mass of its target clientele, 2) allows economical procurement of raw materials and processing infrastructure and packaging, 3) is convenient from a logistics perspective, and 4) is near the required sources of expertise (for example, technical, business, or research and development[R&D]). On the basis of these criteria, the most feasible location appears to be in the broader Addis Ababa area, with potential satellite centers or outreach activities targeting entrepreneurs in Bahir Dar (Amhara), Adama/Nazareth (Oromiya), Awassa (Southern Nations and Nationalities Regional State), Mekele (Tigray), and Diredawa (self-administered city).It would be recommended to start the AII with a base in Addis Ababa and one regional city, expanding from that basis once the AII model has been tested and has gained traction.
1.9.3 Business Model
To address the preferences of agribusinesses at different stages of development, the AII should offer a number of payment options, including payment at full cost at the time, a small percentage of equity, or a royalty levied on the increase in their sales for a period. The proposed model seeks to achieve better than 63 percent financial sustainability within six years, which is detailed in Section 8 of the full report. The remainder of the funds would then need to be secured from public or corporate donors.
1.9.4 Selecting Clients
The AII will emphasize networking, engaging, and working collaboratively with chambers of commerce, private stakeholders’ associations, and private business development service providers in order to not only identify, but also select and support AII client enterprises.
A detailed selection process will need to be prepared in order to select the enterprises. A number of points are pertinent:
1. Enterprises will need to have a growth focus. 2. Entrepreneurs will need to demonstrate strong entrepreneurial traits,
including for leadership and innovation that can be assessed through psychological testing.
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3. Enterprises will have a track record indicating success and will demonstrate competitive advantages in some ways.
4. The market potential of enterprises will need to be good to allow growth activities.
5. The enterprise should be fundable either via direct commercial loan or through a seed fund raised to support selected enterprises.
6. The business should be climate neutral or the entrepreneur should be committed to taking steps to reduce its climate impact.
Selection will follow a process of application, assessment, review, and capacity building. Finally, a selection panel will assess the merits of each enterprise. This panel will include representation from a financial institution, as well as a professional with sufficient market knowledge in the specific product market to assess the market potential of the product.
Successful enterprises will be required to formally and legally commit to the conditions of service, including payment regimes and conditions.
The initial focus of the selection will be on existing firms to help them grow, although not to the exclusion of new businesses. In future years, new businesses will become a more important target, working on the back of pre-incubation programs to help people develop competitive and viable business propositions. This approach will enable the AII to more quickly create a set of “demonstration clients,” to show the tangible benefits to other future clients and that payment for services is worthwhile for the entrepreneur.
The AII will invest specifically in attracting women-led enterprises to apply, but it will not have a specific quota for the number of women-led versus male-led enterprises so as to ensure selection based on merit only.
1.9.5 Potential Link with the Climate Innovation Center
In 2011, infoDev prepared for the establishment of a Climate Innovation Center (CIC) in Ethiopia with funding from U.K. Department for International Development. The conclusion of the CIC business planning process recommended that the CIC should focus on enabling a climate smart, competitive and sustainable agribusiness sector, in addition to focusing on water and renewable energies. The implementation approach to the CIC is similar to that outlined above for the AII, and the selection process to identify an implementing consortium was launched in June 2012.
A few specific needs have been identified for agribusiness entrepreneurs, namely, agribusiness market development advice, access to packaging, and testing services. Section 4 of the full report describes these requirements in further detail. None the less, most of the services needed by agribusiness entrepreneurs are already foreseen in the CIC’s service offering. From a practical perspective, it could make sense to develop and implement the AII under the umbrella of the CIC.
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1.10 The Role of InfoDev
At the planning and implementation stage, infoDev views its role as providing the technical guidance to plan, resource, and operate the AII successfully. With a strong commitment to building local institutional capacity, infoDev would harness its decade-long experience with setting up business incubators and innovation centers, its agribusiness incubation training program, and its international network of innovation and entrepreneurship professionals across 107 countries to guide the board and the AII manager through such important milestones as developing a governance framework, client selection process, service design and execution, marketing, and monitoring and evaluation. InfoDev could also manage single or multi-donor trust funds to be disbursed to the AII. To ensure sustainability and adequate local capacity, infoDev typically remains engaged for a three to five year period, gradually scaling down its support as the capacity of the local team and partners increases.
1.11 Outcomes and Impacts
Over a six-year period, the AII will directly support 50 sustainable growth-oriented enterprises. It is to be expected that these enterprises will generate an additional $11,923,276 in turnover and $1,326,235 in tax revenues over this same time period. It can also be expected that these enterprises will create close to 1,700 jobs. It is expected that out of these new jobs, more than 1,100 will be created for women.
By more than doubling the output of SME producers, their input purchases should double as well, thus having a significant impact on farmers’ incomes.
An additional increase in the demand for ancillary products and supportive services is also expected. An increase in demand for these products and services will directly impact the unemployment and underemployment of personnel in each sector.
1.12 Budget Requirements
The AII is conservatively projected to become 75 percent financially sustainable after six years—which is defined as covering the ongoing operating expenses of the AII, including depreciation, through earned revenues. An initial investment of $10.35 million (comprising $5.53million for nonfinancial services; $3million for financial services and $1.82 million for technical assistance and program management costs) would be needed as start-up capital in order to achieve this objective. After the initial ramp up period, costs are in the order of $880,000 per annum to operate the AII, thus requiring public or corporate subsidies of $220,000 per annum after six years. This being said, a flexible revenue model is proposed in which sustainability may be enhanced once various revenue options are tested.
