Foreign Direct Investment in the Agricultural Sector in Ethiopia
Summary of Main Findings
- Global Foreign Direct Investment (FDI) reached in 2007 the all-time maximum level of US$ 1,833 billion
- Despite the global financial crisis FDI inflows into developing countries (especially Africa) increased to their highest level ever
- Through the global crisis new motives for undertaking FDI have evolved. Next to efficiency-seeking and market-seeking (traditional motives of foreign investors) the objective of food security and secure financial returns have become major drivers for FDI flows
- Ethiopia is one of the developing countries that has arouse the attention of foreign investors as it is highly endowed with fertile land and has developed a very investor-friendly environment over the last 10 years through strong changes in their national policy framework
- Ethiopia´s poverty-stricken economy (more than 45% of the total population are food insecure) is based on agriculture – accounting for almost half of the GDP, 60% of exports and 80% of total employment. High investment flows into this sector leads to high impacts on the total Ethiopian economy
- Especially for the agricultural sector, regulations on investments have been relaxed significantly. No minimum capital is required anymore, foreign agricultural activities are exempted from the payment of custom duties and taxes on imports of capital goods, according to the export orientation of the foreign investor he is exempted from income tax for a certain time period and to all these incentives foreign investments are exempted from the payment of sales and excise taxes for export commodities.
- Investments in the agricultural sector of Ethiopia have increased from US$ 135 Mn in 2000 up to US$ 3500 Mn in 2008
- Main investor countries are: EU, India, Israel, Saudi Arabia and the US
Main agricultural sectors: flori/horticulture, meat production, biofuel and food production
Main regions of investment: Oromia (excellent climatic conditions for flower production), Amhara, SNNPR and multiregional
- Sectors like the flori/horticultural sector can lead to an increase in the economic and social development as it creates numerous job opportunities. At the same time, ecological development is not taken into account as no strong environmental framework exists
- Sectors like the meat and biofuel sector can cause negatives effects on food security and poverty as competition on fertile production land and water increases. The predicted objective of foreign investors is the food security in their own countries and the secure of financial returns.
- High investments in the agricultural sector are basically necessary for a sustainable development but only if a comprehensive policy framework is in place
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About the EcoFair Trade Dialogue:
The EcoFair Trade Dialogue is a project carried out by the Heinrich Boell Foundation and MISEREOR in cooperation with the Wuppertal Institute. It aims at promoting a framework to organize international agricultural trade in a socially and ecologically sustainable way. The main outcome of a two years first phase of the project was the report “Slow Trade – Sound Farming. A Multilateral Framework for Sustainable Markets in Agriculture” (2007), which emerged from an extensive consultation and exchange process that took place across all continents. This discussion paper is one out of several “implementation papers” that are based on the perspectives and proposals contained in the “Slow Trade – Sound Farming” report. www.ecofair-trade.org.