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Thursday, June 16, 2005

Ethiopia Sows the Seeds of Growth With Flower Power

Financial Times -- On a flat, 20 hectare site south-west of Addis Ababa, dozens of women in straw hats and men in baseball caps dig trenches, laying the groundwork for the latest entrant in a multi-million-dollar industry that is starting to bloom in the Horn of Africa.

In just a few months, orange and pink roses should be poking through the earth and another flower farm will be up and running, part of a horticultural sector emerging in a nation more often associated with famine than business.

Ethiopia's flower industry is a success but many more are needed, says a western diplomat. Just to "stop the boat sinking" will take 10 years, and billions of dollars of investment will be needed to bring the country to African standards, says Ishac Diwan, the World Bank's country director.

Twenty years after pictures of Ethiopian famine were beamed around the globe, the country still has much to do to shake off its image as a nation of starving children. Ethiopia is an extreme example of the development challenges facing Africa, with at least 5m people needing food aid to survive.

Donors also acknowledge that they have made mistakes, belatedly realising that simply giving food ignores the root causes of the problems, undermines domestic markets and often creates an environment of dependency.

But as Paul Wolfowitz, the new president of the World Bank, tours Africa for the first time, hopes are rising that Ethiopia and its poor neighbours may be at a turning point. At the weekend, the Group of Eight wealthy industrialised nations agreed to wipe out more than $40bn of the debt that 18 African countries, including Ethiopia, owe the World Bank, International Monetary Fund and African Development Bank.

But even with debt relief and recent increases in aid, billions more dollars will be needed to build infrastructure and generate sustainable growth. Equally important, the Ethiopian government needs to do more to stimulate the private sector and improve the investment climate.

Horticulture is one area where private sector reforms have succeeded. Three years ago there was only a handful of flower producers. Now the Ethiopian Horticulture Producers and Exporters Association has 32 members, 45 per cent of whom are foreign investors, says Tsegaye Abebe, the group's chairman.

He runs the flower farm in Sebeta, south-west of Addis

Ababa with a Dutch company. It is being set up with high-technology French greenhouses and an Israeli irrigation system. Flower producers can import goods duty-free, enjoy a five-year income tax exemption and lease land from the government at competitive rates.

Mr Tsegaye expects more foreign companies to take advantage of the good climate, cheap land and freight rates and, crucially, better investment conditions.

The government, in power since 1991, has been praised for reforms in a nation blighted by mass poverty, under-development and perennial drought. But it has also been criticised for being over-cautious, retaining too much economic control and refusing to shed the Marxist- Leninist ideology that surrounds many of its leaders, including Meles Zenawi, prime minister.

On most indicators, Ethiopia lags far behind the rest of the continent. It has a mere 50cm of road per head compared with the continent's average of five metres; water storage capacity is only 42 cubic metres a head against an African norm of 600.

Mr Diwan, the World Bank's country director, concedes the environment is difficult. "To have just good policies is not enough here ... you have to have very good policies," he says.

Donors have shown their willingness to support the reforms by lifting funding to $900m from $600m three years ago. The goal is to raise it to $2bn in three years, says Mr Diwan. But progress is slow, with average per capita income still $100 a year. The workers at the flower farm earn less than $1 a day.

In spite of serious questions about the government's human rights record, the assistance is still flowing. This year, under a $190m-a-year cash and food-for-work programme, about 5m people living in unsustainable areas will work on state projects in return for money or food.

Government officials acknowledge progress on development has been slow, blaming political divisions, the war with Eritrea and the magnitude of the task. They say the country is now on the right path but needs more support. Says Atu Mulugeta, spokesman for the agriculture ministry: "We have labour but it is illiterate. We have natural resources but they are not tapped. Do we have money? No."

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