Ethiopia: Encouraging value-added production through institutional capacity building

ICARDA photo

By

Fanuel Lakew

Broadly speaking, economists define the value-addition process as an action which is important to increase the profit margin raising values of products. The US-based international organization, Agricultural Marketing Resource Centre, defines value-added products as a change in the physical state or form of the product (such as milling wheat into flour or making strawberries into jam). The centre also sees production of a product in a manner that enhances its value, as demonstrated through a business plan (such as organically produced products). “As a result of the change in physical state or the manner in which the agricultural commodity or product is produced and segregated, the customer base for the commodity or product is expanded and a greater portion of revenue derived from the marketing, processing or physical segregation is made available to the producer of the commodity or product.”

Ethiopia, the second most populous country in Africa, has an agrarian economy. It is also endowed with vast agricultural land and abundant labour. Most exported items are agricultural and related products. In return, it imports processed products from countries it exports to. According to the Ministry of Trade and Industry, Ethiopia has a trade deficit in the last fiscal year as it exports agricultural and unprocessed products and imports processed and machinery products. The question here is how at least the trade deficit gap can be narrowed.

Negash Simon, Logistic and Supply Chain Management Department Head at Hawassa University, said that it is important to give due attention to agricultural productivity in the first place. Then it would be easy to add value in quality products. Before doing a value-added process, it needs to work aggressively on the enhancement and quality of a product. “We cannot think of a value addition process without quality products. This is a crucial step for a country whose majority population is relied on the agrarian economy.” To be efficient and competitive in the global market, the government on its part has to focus on how to introduce modern agricultural technology to the farmers, he added. Exporting non-processed products to the global market can affect the county’s economy as it won’t be competitive for long and face trade deficit as well.

Negash pointed out that there are a number of hindrances to the efforts of adding value on products. The first one is lack of access to technology. Most farmers still plough with the help of cattle and produce once in a year. This is because a mechanized form of agriculture has not been introduced widely. He further noted that farmers or producers are not able to access modern agricultural technologies due to capital or financial constraint. This prevents producers from being competitive in the global market. In this regard, the government should tirelessly work to redress the challenge.

The other hindrance is lack of access to the internet. Negash underscored that farmers in South Korea do have access to the internet so they have available information about the market and what kind of quality products the market needs. This really enhances their efficiency and competitiveness in the global market. In this respect, the Ethiopian government has to strive to redress this challenge of information especially in this period of globalization. To this end, offering training to the farmers, forming basic education arrangements, supplying selected seeds and machinery at affordable prices are the way forward, according to Negash. In addition to this, local companies need to be assisted to be competitive at this time as the market in the country is flooded with imported products, he added.

Moreover, an Economist in the Ethiopian economy, who wishes to remain anonymous, noted that the economic culture in the country is not well established and strong. Viable policy measures are not applied in a sustainable manner. The process is not pragmatic because the economic leadership is not vibrant. Thus, we need strong economic leadership, according to him.

To increase and export value-added products, the economist argued that institutional capacity has to be strengthened which takes the agrarian economy of the country into consideration. The institutional building process should focus on, not only the physical, but skilled human forces.

Otherwise, the process would be like garbage in, garbage out, the economist added saying ‘if we produce using low-quality inputs, the output product will also be low quality.’ So, to produce value-added products and earn hard currencies, he underscored that the focus should be on enhancing productivity. To attain this effort, improving labour productivity is one of the most important tasks. As Ethiopia is endowed with abundant labour and vast agricultural land, it has a great opportunity for the agro-processing sector. In this regard, he noted that investors can be beneficial if they invest in the country. That is why investors are eyeing and flocking to the country in the agro-processing and manufacturing sector. Abundant labour and vast fertile land are natural incentives to the investors other than the incentives offered by the government.

Furthermore, the economist noted that in this period of time local companies can’t compete with international counterparts due to capacity limitation and the market which is flooded with exported products. The private sector needs to get due attention and support from the government. In this respect, the new administration of Prime Minister Abiy Ahmed has to create a lucrative and participatory ground for all stakeholders strengthening monitoring and evaluation tasks. Moreover, information should be available to all equally as it helps determine the market. The government also has to reach out abroad to attract huge international companies to invest here, he added.

The other important thing is that the government is supposed to create a platform that would enable local companies to partner with the foreign companies, he added, saying local companies can acquire skills and emulate technologies. The local companies on their part should cooperate with the government and other stakeholders to harness the opportunities the country has.

All in all, the Ethiopian Investment Commission, Ethiopian Development Bank, private companies, and other pertinent bodies should work hand in hand to attain the plan of increasing value-added products.

Fanuel Lakew

Fanuel Lakew is a reporter at the Ethiopian Herald Newspaper of the Ethiopian Press Agency. He did his B.A. degree in Political Science and International Relations from Addis Ababa University in 2012. He also served as the Secretary-General of the Ethiopian Political Science and International Relations. He as well studied M.A. in Politics and International Relations at the Central University of Gujarat, India. He can be reached at [email protected]