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    

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: info@infoDev.org

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 infodev@worldbank.org.

 

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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

 

 

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Table of Contents  

Stakeholder Support ........................................................................................................................... iv List of Abbreviations and Acronyms...................................................................................................ix Table of Contents .................................................................................................................................xi List of Figures and Tables ................................................................................................................... xiii 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

2.0 Accelerating Agribusiness Sustainably through Innovation .................................................... 14 2.1 Accelerating Agribusiness Development through Innovation ........................................... 14 2.2 The Concept of Agribusiness Innovation Initiative (AII) ....................................................... 15

3.0 The AII Feasibility and Business Plan Process ............................................................................. 18 3.1 Theoretical Framework............................................................................................................ 18 3.2 The Process ............................................................................................................................... 20 3.3 Engaging Key Agribusiness Stakeholders in Ethiopia ........................................................... 22

4.0 Seizing the Opportunity ............................................................................................................... 25 4.1 Value Chains with Market Potential ...................................................................................... 26

4.1.1 Bamboo ............................................................................................................................. 29 4.1.2 Dairy ................................................................................................................................... 29 4.1.3 Honey................................................................................................................................. 29 4.1.4 Fruit and Vegetables........................................................................................................ 30 4.1.5 Cotton, Textiles, and Garments ...................................................................................... 31 4.1.6 Wheat ................................................................................................................................ 31 4.1.7 Spices ................................................................................................................................. 32

4.2 Ethiopian Agribusiness Entrepreneurs Landscape ............................................................... 32 4.3 Ethiopian Agribusiness SMEs Needs ....................................................................................... 33 4.4 The Focus of the AII.................................................................................................................. 37 4.5 Potential Deal Flow .................................................................................................................. 39

5.0 AII Business Model......................................................................................................................... 42 5.1 Strategic Objectives ................................................................................................................ 42 5.2 Securing Clients........................................................................................................................ 43 5.3 AII Service Offering .................................................................................................................. 44

5.3.1 Pillar 1: Market ................................................................................................................... 46

 

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5.3.2 Pillar 2: Business and Technical Advice .......................................................................... 47 5.3.3 Pillar 3: Finance ................................................................................................................. 48 5.3.4 Pillar 4: Facilities ................................................................................................................. 49

5.4 A Multi-stakeholder Approach............................................................................................... 50 5.4.1 Connecting to Farmers .................................................................................................... 50 5.4.2 Connecting to Buyers....................................................................................................... 53 5.4.3 Business Development Service Providers ....................................................................... 53 5.4.4 Financiers ........................................................................................................................... 53 5.4.5 Academia ......................................................................................................................... 53 5.4.6 Government...................................................................................................................... 54

6.0 AII Governance ............................................................................................................................ 60 7.0 Implementation Requirements ................................................................................................... 63

7.1 Staffing ...................................................................................................................................... 63 7.2 Facility and Infrastructure Requirements............................................................................... 64

7.2.1 Access to Testing Facilities............................................................................................... 64 7.2.2 Access to Relevant Technology ..................................................................................... 64 7.2.3 Access to Packaging ....................................................................................................... 64 7.2.4 Pre-Incubation .................................................................................................................. 64

7.3 Location .................................................................................................................................... 65 8.0 Financial Plan................................................................................................................................ 66

8.1 Budget....................................................................................................................................... 67 8.2 Sustainability ............................................................................................................................. 71

8.2.1 Royalty ............................................................................................................................... 72 8.2.2 Equity.................................................................................................................................. 73 8.2.3 Incubation Fee.................................................................................................................. 73 8.2.4 Finance Brokerage ........................................................................................................... 73

8.3 Fundraising Plan ....................................................................................................................... 74 9.0 Results and Impacts ..................................................................................................................... 75

9.1 Outcomes ................................................................................................................................. 75 9.2 Social and Economic Impact................................................................................................. 76 9.3 Climate Change Impact ........................................................................................................ 77 9.4 Monitoring and Evaluation ..................................................................................................... 78

10.0 Conclusions ................................................................................................................................. 79 Annexes ............................................................................................................................................... 81

Annex 1: Conclusions of InfoDev Global Good Practices Assessment on Agribusiness Incubation ...................................................................................................................................... 81 Annex 2: Ethiopian Agribusiness Donor Mapping ...................................................................... 84 Annex 3: Main Gaps Faced by Ethiopian Agribusiness SMEs.................................................... 90 Annex 4: Agribusiness Entrepreneur Survey Report.................................................................... 98 Annex 5: Agribusiness Survey Form ............................................................................................ 118 Annex 6: Entrepreneur Survey Frequencies .............................................................................. 127 Annex 7: Priority Value Chains Literature Review..................................................................... 135

Bamboo .................................................................................................................................... 137 Dairy Products .......................................................................................................................... 140 Honey Production.................................................................................................................... 144 Fruits and Vegetables ............................................................................................................. 146 Textiles and Garments............................................................................................................. 149 Wheat ....................................................................................................................................... 153 Spices ........................................................................................................................................ 156

Annex 8: AII and Finland’s Agro-BIG Program.......................................................................... 159 Annex 9: Phasing of Enterprise Support..................................................................................... 161 Annex 10: AII’s Prospective Clients ............................................................................................ 163 Annex 11: Setting a Royalty Fee................................................................................................. 168 Annex 12: The Possible Fit with the CIC Services ...................................................................... 170

 

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List of Figures and Tables

Figure 1 Ethiopian Agribusiness Stakeholders Consulted................................................................. 5 Figure 2 Ethiopian AII Service Offering............................................................................................... 9 Figure 3 AIC Service Offering ............................................................................................................ 15 Figure 4 Ethiopian Agribusiness Stakeholders Consulted............................................................... 20 Figure 5 Ethiopia AII Feasibility Assessment and Business Planning Methodology...................... 21 Figure 6 Ethiopian AII Feasibility Assessment Process Time Frame ................................................ 22 Figure 7 Ethiopia Agribusiness Stakeholder Mapping .................................................................... 24 Figure 8 The Importance of Food Processing in the Ethiopian Economy .................................... 25 Figure 9 Service Offering Gaps Reported by Ethiopian Agribusiness SMEs Surveyed ................ 35 Figure 10 Interest in Support Services Expressed by Ethiopian Agribusiness SMEs Surveyed ..... 36 Figure 11 Ranked Great and High Interest in Support Services Expressed by Ethiopian Agribusiness SMEs Surveyed .............................................................................................................. 37 Figure 12 Positioning Ethiopian Agribusiness SMEs for Growth ...................................................... 44 Figure 13 Ethiopia AII Service Offering ............................................................................................. 46 Figure 14 AII Hubs and Satellite Locations ....................................................................................... 65 Figure 15 Ethiopian AII Budget Requirements (first six years of implementation) ....................... 68 Figure 16 Ethiopian AII Total Budget per Category (first six years of implementation) .............. 69 Figure 17 Ethiopian AII Target Clients’ Preferred Way of Paying for Services.............................. 71 Figure 18 Age of Ethiopian Agribusiness SMEs Surveyed ............................................................... 99 Figure 19 Employment before Current Business for Ethiopian Agribusiness SMEs Surveyed ...... 99 Figure 20 Why Surveyed Ethiopian Agribusiness SMEs are in Business ........................................ 101 Figure 21 Age of Ethiopian Agribusiness SMEs Surveyed ............................................................. 107 Figure 22 Business Problems Reported by Ethiopian Agribusiness SMEs Surveyed.................... 113 Figure 23 Interest in Support Services expressed by Ethiopian Agribusiness SMEs Surveyed ... 116 Figure 24 Ranked Great and High Interest in Support Services Expressed by Ethiopian Agribusiness SMEs Surveyed ............................................................................................................ 116 Figure 25 Ethiopian AII Target Clients’ Preferred Way of Paying for Services............................ 117 Figure 26 Value of Imported Dairy Products by Ethiopia (in Birr) ................................................ 142 Figure 27 Phasing of Support to be Provided to AII Cilents ......................................................... 161 Figure 28 Ethiopian CIC Seervice Offering .................................................................................... 171 Table 1 Assessing the Potential for Value Addition .......................................................................... 4 Table 2 Ethiopian Agribusiness Stakeholder Mapping ................................................................... 23 Table 3 Assessing the Potential for Value Addition ........................................................................ 27 Table 4 Potential AII Market Size (based on survey sample)......................................................... 40 Table 5 Potential AII Client Numbers................................................................................................ 41 Table 6 Ethiopian Agribusiness Stakeholder Mapping by Value Chain of Focus ....................... 51 Table 7 Potential Collaborating Agencies, Projects and Programs for the Ethiopian AII .......... 55 Table 8 Ethiopian AII Staffing Requirement (at full capacity) ....................................................... 63 Table 9 Ethiopian AII Total Budget per Year (first six years of implementation) .......................... 70 Table 10 Ethiopian AII Annual Expenses for Operation.................................................................. 71 Table 11 Ethiopian AII Revenue Generation Scheme for the First SixYears of Implementation 72 Table 12 Ethiopian AII Financing Required (over a six-year period)............................................. 74 Table 13 Ethiopian AII 6 & 10 Year Outcome and Impact Indicators .......................................... 75 Table 14 Studied Agribusiness Incubators’ Quantifiable Outputs................................................. 82 Table 15 Agriculture Value Chain Support Donor Programs in Ethiopia...................................... 84

 

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Table 16 Categorization of Ethiopian Agribusiness SMEs Surveyed per Industry ...................... 104 Table 17 Categorization of Ethiopian Agribusiness SMEs Surveyed per Activities and Products............................................................................................................................................................ 105 Table 18 Location of Ethiopian Agribusiness SMEs Surveyed ...................................................... 106 Table 19 Business Structure of Ethiopian Agribusiness SMEs Surveyed........................................ 107 Table 20 Source of Funds Used by Ethiopian Agribusiness SMEs Surveyed to Start Up ............ 108 Table 21 Categorization of Ethiopian Agribusiness SMEs Surveyed per the Number of Full-time Paid Employees ................................................................................................................................ 109 Table 22 Categorization of Ethiopian Agribusiness SMEs Surveyed per Last Year’s Turnover.. 110 Table 23 Categorization of Ethiopian Agribusiness SMEs Surveyed per the Last Three Years Turnover Movement......................................................................................................................... 110 Table 24 Categorization of Ethiopian Agribusiness SMEs Surveyed per Sources of Business Growth............................................................................................................................................... 112 Table 25 Ethiopian Agribusiness SMEs Surveyed Understanding of Competitiveness .............. 112 Table 26 Business Problems Faced by Ethiopian Agribusiness SMEs Surveyed.......................... 114 Table 27 Ethiopian AII Target Clients Categorization ................................................................... 163 Table 28 Deal Flow of AII’s Enterprises............................................................................................ 164 Table 29 Combined Turnover of AII’s Client Enterprise ................................................................ 166

 

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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.

 

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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 1Ethiopian 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  insLtuLons/experts  

InternaLonal  organizaLons  

 

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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.

 

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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.

 

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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.  

 

 

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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.

1.9.5Potential 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.

 

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2.0 Accelerating Agribusiness Sustainably through Innovation

2.1 Accelerating Agribusiness Development through Innovation

According to the World Bank, “the potential of agricultural growth to reduce poverty is four times greater than the potential of growth from other sectors.” The 2008 World Development Report outlined how investments in agribusiness produce significant multiplier effects through their forward and backward linkages, generating demand for agricultural products and associated inputs and services and creating on and off-farm employment. Interventions that can unleash this potential can have a tremendous impact on poverty.

The fact is that many developing countries have not turned their vast comparative advantage in agriculture into a competitive advantage in value added processed products. They have subsequently lost out on income generation and job creation opportunities that this value addition opportunity offers. Tanzania for example, exports raw cashew nuts and imports processed cashew nuts. Senegal’s retailers stock only a handful of locally manufactured food products-preferring imported products – despite Senegal’s extensive horticulture industry and rich culinary traditions.

Reaching development goals such as job creation and inclusive growth in agriculture, will need more focus on supporting growth-oriented entrepreneurs engaged in downstream business activities (such as processing) to develop competitive enterprises to effectively link into productive value chains.

InfoDev seeks to advance new approaches to accelerating the growth of innovative, technology-enabled agro-processing enterprises, while creating powerful demonstration cases that illustrate how engagement of farmer associations, industry, financiers, and government in creating innovation and market-driven shared value, can catalyze the green growth of an inclusive and job creating, competitive agro-processing sector.

“The future of African development depends on the ability to accelerate innovation by capitalizing on the creativity of African farmers and agribusiness entrepreneurs… Innovation is under way in African value chains. It is not driven by research, but by entrepreneurs, networks and supportive policies.”

Dr Andy Hall, LINK Coordinator, United Nations University, MERIT, Maastricht

 

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2.2 The Concept of Agribusiness Innovation Initiative (AII)

InfoDev is piloting the concept of an AIC as a mechanism to increase the competitiveness and growth of pioneering innovative growth-oriented small or medium agro-processing enterprises that have the potential to become an industry leaders by advancing product, process and business model innovation translating into improved products and larger market share in existing markets or entry into new markets and development of new products for existing or new markets.

The AICs are unique from the perspective of their target clientele, their business model, and the holistic service offering, which – although tailored to the specific needs and characteristics of the target market – generally provide the following services:

Figure 3 AIC Service Offering

Over the past decade, infoDev has accumulated a range of lessons about enabling the start-up and growth of high growth potential enterprises in developing countries.

 

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Its recent global assessment: Growing Food, Products and Businesses6 revealed a number of critical success factors for an intervention similar to an AIC (the conclusions of the global study are available in Annex 1):

Help clients manage risk: Agribusiness is inherently risky because of its reliance on farming (which is susceptible to such environmental risks as flood, drought, and pests) and perishable products. Critical to the success of an AIC is to help agro-processors manage these risks above and beyond the business challenges that any enterprise faces in any industry.

Understand the characteristics of the value chain: The agribusiness value chain can be long with critical dependencies between each element in the chain. The AIC must understand the state and dynamics of the value chain to assist the agro-processing enterprise in being successful. Relatedly, the World Bank has found in its review of agribusiness investments that a strong focus on a few cross-cutting issues, locations, or value chains with an established comparative advantage and strong market prospects provides an opportunity to “pilot difficult reforms, demonstrate success, and learn from those efforts in scaling up the program.” InfoDev has therefore sought to pro-actively identify a few initial focus areas for each AIC.

Proactively identify and promote higher value market opportunities: The agribusiness sector is complex and plagued by information asymmetries that often prevent enterprises from recognizing high-value business opportunities. An important role of the AIC is to help the enterprise gain access to relevant market information.

Maintain a broader goal of demonstrating innovative business propositions: The desired catalytic effect of an intervention of an AIC does not necessarily happen without a deliberate, tangible effort. Specific programs must be designed for this purpose.

                                                                                                             6The  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.

Results from Agribusiness Incubation

Fundación Chile:

Initial investment: $50 million

Entrepreneurs’ sales: $425 million

IAA-IPB, Indonesia:

Initial investment: $300,000

Entrepreneurs’ sales: $8 million

 

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Design and operate business incubation in line with good practice.

Business incubation good practices include the following, regardless of sector:

• Ensuring a strong selection process that identifies and cultivates innovative, growth-oriented entrepreneurs

• Developing strong partnerships with the public and private sector

• Locating the AIC in a geographic location that is attractive to the target clientele. The World Bank’s review of agribusiness investments collaborates this lesson: “Locations with revealed competitive advantage and proven investor demand should be preferred over attempts to initiate new industries in new areas.”

• Ensuring that the AIC manager and service provider have entrepreneurial, and preferably industry, knowledge and that these staff members have incentives that align with the desired outcomes and impacts of the AIC

• Obtaining a strong capital structure

• Putting in place a governance framework that allows the management to operate the AIC in a business-like manner

• Continuously adapting the focus and business model of the incubator in line with evolving market conditions

InfoDev has sought to address each of these factors in the design of the AICs.

 

 

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3.0 The AII Feasibility and Business Plan Process

3.1 Theoretical Framework

Three schools of thought are leveraged in the approach to this study: 1) value chain; 2) innovation system; and 3) entrepreneurship (micro).

The value chain approach is a framework for understanding how inputs and services are brought together and then used to grow. This approach looks at the following: how to transform or manufacture a product; how the product then moves physically from the producer to the customer; and how value increases along the way.Value chains focus on value creation—typically via innovation in products or processes, as well as marketing—and on the allocation of the incremental value among the actors in the value chain.The value chain perspective thus helps us understand business-to-business relationships that connect the chain, mechanisms for increasing efficiency, and ways to enable businesses to increase productivity and add value. This perspective also provides a reference point for improvements in supporting services and the business environment7.

The innovation systems approach recognizes that the advancement of the agricultural sector (or of a specific value chain) requires a network of organizations, enterprises, and individuals (value-chain actors) focused on bringing new products, new processes and new forms of organizations into economic use. The network works together with the institutions and policies that affect their behavior and performance8.

Entrepreneurship theory predicts entrepreneurial activity, for example, by characterizing conditions that are likely to lead to new profit opportunities or to the formation of new enterprises. The micro view of entrepreneurship examines the factors that are specific to entrepreneurship and are part of the internal locus of control. Most commonly accepted among these theories is “the entrepreneurial trait school of thought,” which emphasizes that achievement, creativity, determination, and technical knowledge are four factors that successful entrepreneurs usually exhibit. When assessing how to enable the start-up and growth of innovative agribusiness enterprises, all three schools of thoughts are helpful frameworks to analyzing what the opportunities and constraints are advancing these enterprises and what solutions would most likely succeed.

                                                                                                             7World Bank, 2009.Building Competitiveness in Africa’s Agriculture: A Guide to Value Chain Concepts and Applications. 8World Bank.2012.Agricultural Innovation Systems: an Investment Sourcebook.

Putting Innovation and Entrepreneurship in Context:

Only about 18 percent of early stage entrepreneurs are growth oriented (expecting to create 20 or more jobs in the next five years).

Only about 18percent of early-stage enterprises are innovative.

Even in the United States almost 50 percent of new businesses discontinue within four years.

Global Entrepreneurship Monitor. 2011

 

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InfoDev also added to this theoretical framework: its practical experience in business incubation over the last decade and the insights gained from its recent study on agribusiness incubation, called “Growing Food, Products and Businesses: Applying Business Incubation to Agribusiness SMEs.”9

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 (such as dairy) or 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 assessing the potential for value addition. The model also depends on the similarities in the needs among the potential target enterprises. That is, 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. That is, if what the milk processor and the pineapple processer need help with are general topics (such as finances, good management, or general business coaching), a non-sector specific incubator could work well. However, if more specialized services are needed that provide market linkages, technology identification, acquisition, and other services, 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 allows 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 provides the incubator with this opportunity, along with the possibility of offering incubates peer-to-peer learning and exchange that is relevant to their businesses.

Location is critical decision point for all incubator-type initiatives. The following criteria were used to determine the most feasible location:

1. The location is within 50km. of a large number of the target clientele; 2. it is within an area that allows economical procurement of raw materials,

processing equipment, processing infrastructure, and packaging; 3. it is convenient from a logistics perspective; and 4. it is near sources of expertise (such as technical, business, or R&D).

                                                                                                             9The global assessment carried out by infoDev to understand the impact and lessons from agribusiness incubators and innovation centers is available at http://www.infodev.org/en/Article.800.html

 

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3.2 The Process

InfoDev maintains a strong commitment to lasting impact, sustainability, and local ownership. Therefore, infoDev always adopts a highly participatory approach to its feasibility assessment and business planning process. In Ethiopia, the methodology involved a combination of desk research to review the literature on agribusiness in the country, meetings with 118public and private stakeholders and entrepreneurs, and a formal survey of 75 agribusiness SMEs. InfoDev undertook the work in the first six months of 2012.The consultations focused on the area of Addis Ababa and up to 100 km around the capital city.

 

Figure 4Ethiopian Agribusiness Stakeholders Consulted

75%  

10%  

3%   12%  

Private  sector  

Government  

Research  insLtuLons/experts  

InternaLonal  organizaLons  

The feasibility assessment and business planning methodology is outlined in the diagram below.  

 

Figure 5 Ethiopia AII Feasibility Assessment and Business Planning Methodology

• Identification of value chains that offer high growth opportunities for the country

Value Chain Analysis

• Identification of stakeholders affecting the success of agribusiness entrepreneurs

Stakeholder Identification

•  Interviews to validate selection of value chains and identify barriers to SME start-up and growth

Stakeholder Consultation

• Interviews to map existing service offerings and planned initiatives

Gap Analysis • Data gathering to create business model, evaluate locations, principal partners/hosts,and others

Business Modeling

• Feedback from local stakeholders

•  Review and inputs from international expert group

Stakeholder Consultation

Partner Identification

The main government agencies most relevant to the AII include:

• Agricultural Transformation Agency

• Ministry of Agriculture and the Ethiopian Institute of Agricultural Research

• Ministry of Industry • Ministry of Finance and

Economic Development

The ATAis notably the main government counterpart for the implementation of the AII. The government of Ethiopia formed the ATA to serve as a catalyst for transformational and sustainable change. Agricultural Transformation Council governs the ATA, which is chaired by the Prime Minister.

The process of the AII feasibility assessment started with a literature review to identify agricultural subsectors (such as horticulture or cereals) and value chains (such as fruits or wheat) for which Ethiopia has a comparative advantage. The team then examined the market opportunities associated with these products and the quality of the products to narrow down the selection of the subsector and value chains of focus. Next, the needs of agribusiness entrepreneurs and the service offering available to them were examined to understand the gaps in the market place, derive a potential service offering, and map potential partners. Upon deriving a draft service offering, a business model was developed and verified.

The output of this process is a well-motivated business model for the AII and the identification of a range of offerings that are tailored to the needs and market opportunities of growth-oriented entrepreneurs in Ethiopia.

The timeline for the feasibility assessment process is depicted in the diagram below:

Figure 6 Ethiopian AII Feasibility Assessment Process Time Frame  

3.3Engaging Key Agribusiness Stakeholders in Ethiopia

A diverse set of stakeholders is involved in agribusiness in Ethiopia, coming from both the public and private sectors. Their interventions target different sectors, value chains, and segments of the value chain.

The AII implementation approach will be to engage all actors affecting the ability of its target clients to succeed and to partner with organizations that have key competencies required to serve these clients effectively. The AII will seek to complement existing initiatives and contribute to strengthening the innovation and entrepreneurship ecosystem required for innovative, growth-oriented enterprises to thrive.

A quick overview of the key agribusiness stakeholders in Ethiopia is provided in the table below and the interconnection between them is illustrated in the following graph. Further details on the existing agribusiness support initiatives in the country are provided in Annex 2.

Jan12: Stakeholder identification & sector mapping  

Feb 12: Mission 1: Value chains & needs, Addis

Ababa  

April-May12: Enterprise

Survey  

May 12: Mission2: Value chains & needs &

follow-up analysis  

Sept 12: Mission 3:

Model design  

Oct 12: Finalize

business model  

 

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Table 2 Ethiopian Agribusiness Stakeholder Mapping

RELATING TO AII VALUE CHAINS ORGANIZATIONS

Government – Customs Authority, Ethiopian Agricultural Transformation Agency, Ethiopian Investment Agency, Ethiopian Quality and Standards Agency, Ethiopian Competitiveness Facility, Ministry of Agriculture, Federal and Regional Micro and Small Enterprise Development Agencies, Ministry of Energy and Water, Ministry of Finance and Economic Development, Ministry of ICT, Ministry of Industry, Ministry of Infrastructure and Urban Development, Ministry of Trade, Ministry of Transport and Communications, Productivity Enhancement Centre

R&D Institutes – AAU-Technology Institute, Ethiopian Agricultural Research Institute

Donors African Development Bank (AfDB), BMGF, Canadian International Development Agency (CIDA), Embassy of the Kingdom of the Netherlands (EKN), EU, FAO, GTZ, USAID, World Bank Group (WBG)

Universities/Academia – University of Bahir Dar, Academy of Food Science

Business and Professional Communities

– Ethiopian Chamber of Commerce, Ethiopian Commodity Exchange (ECX), Ethiopian Freight Forwarders Association, Ethiopian Women Exporters Association

Finance organizations – Abay Bank, Addis International Bank (AdIB), Awsah International Bank (AIB), Bank of Abyssinia (BoA), Bunna Bank, Commercial Bank of Ethiopia (CBE), Cooperative Bank of Oromiya (CBO), Construction and Business Bank (CBB), Dashen Bank, Debub Bank, Development Bank of Ethiopia (DBE), Enat Bank, Nib Bank, Lion Bank, United Bank, Wegagen Bank, Zemen Bank, and 30 Microfinance Institutions (MFIs)

Multinationals/Corporate – DuPont, Pioneer, Proctor and Gamble, Olam

Entrepreneurship support – Addis Ababa Chambers of Commerce and Sectoral Associations, Ethiopian Chamber of Commerce and Sectoral Associations, Federal Micro and Small Enterprises Development Agency, Regional Micro and Small Enterprises Development Agencies, Selam Technology& Vocational Center, Technical and Vocational Training Institutes (TVETs), and several private business development service providers (BDSPs).

As illustrated in the diagram below, a vast range of stakeholders affect the ability of processing companies to succeed. The role of government, agencies, higher education and specialized institutes, and the private sector (including financiers) in creating a conducive enabling environment for agribusinesses can be summarized as follows.

 

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When drafting legislations and establishing procedures that impact agro processing SMEs operations, the relevant ministries can create enabling conditions for these to do business (for example, facilitating business registration, facilitating access to markets, and creating investment incentives). The agencies, which should ensure the implementation of legislations and procedures, can play an important role in disseminating the relevant information and creating a networking dynamic. Their role is complementary to the one played by chambers of commerce, private stakeholders’ associations, and private business development support organizations, which may provide business training. Higher education, research and specialized institutes can provide more specialized training and facilitate access to research facilities and outputs. Banks and micro finance institutions can provide access to finance.

Figure 7 Ethiopia Agribusiness Stakeholder Mapping

 

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4.0 Seizing the Opportunity

Agriculture accounts for more than 50 percent of Ethiopia’s GDP, more than 80 percent of its export revenue, and 85 percent of its jobs. Furthermore, an estimated 65 percent of employed women work in the agricultural sector. Ethiopia benefits from exceptional climatic conditions that make the production of a wide variety of agricultural products possible. These conditions include a large domestic market of 90 million people10 as well as proximity to the Middle East, which is in demand of Ethiopian agricultural products and which represents a market of more than 380 million potential customers. With only limited domestic agro-processing at the moment, many finished food products are imported and opportunities abound for import substitution, with products created by new and growing domestic processing companies.

Given the importance of the sector to the economy and people’s livelihoods, the GoE has made agriculture a key priority in the country’s GTP in which it gives priority to agro processing, SME growth, increasing the capacity of women, and job creation. The diagram below illustrates the importance of the food processing subsector in the Ethiopian economy.

 

Figure 8The Importance of Food Processing in the Ethiopian Economy11

In line with the GTP priorities, the AII has been designed to accelerate the growth of an indigenous agro processing sector. By enabling the start-up and growth of value

                                                                                                             10Last estimates from July 2011. 11 Source: Access Capital’s. “The Ethiopia Macroeconomic Handbook 2011/12”

0  

1000  

2000  

3000  

4000  

5000  

6000  

7000  

Food

 processing  

Cement  a

nd  Non

-­‐metallic  m

inerals    

Rubb

er  &  PlasAcs    

Fabricated

 Metal  

prod

ucts    

TexAles  &  Garments    

Chem

ical  Produ

cts  

Pape

r  &  PrinA

ng  

Woo

d  and  Furnitu

re  

Prod

ucts  

Iron

 &  Steel    

Leathe

r  &  Foo

twear  

Manufacturing    

Tobacco    

Vehicles  &  Trailers    

Pharmaceu

Acals    

Machine

ry  &  

Equipm

ent    

Employment  (%)  

No.  of  firms  

Private  Sector  Share  

Total    Value-­‐added  

 

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adding agribusinesses, it is expected that Ethiopia will move up the agricultural value chain, capturing a larger share of income for local businesses and small-holder farmers, and creating more jobs.

There is significant opportunity to 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.” Following this path helps to ensure that the nascent agro processing industry evolves along this same trajectory, thus enabling the development of a climate smart, competitive agribusiness sector.  

Given its prominence in the Ethiopian economy, agriculture is central to achieving the green economy objectives of the government. Agriculture is an intensive user of natural resources (such as land or water). If not well-managed, it contributes to depletion of these natural resources, biodiversity loss, and climate change causing emissions (for example, carbon dioxide or methane).

At the same time, a sustainable agriculture sector in Ethiopia will depend greatly on a green economy being achieved. Climate change and depletion of resources will have damaging effects on farmers’ ability to produce agricultural commodities. This threatens food supply, as well as the supply of inputs for agro processing.

Post-harvest agribusiness is likewise a sector of the Ethiopian economy that must develop in a sustainable manner. Better methods to ensure water conservation and quality, energy minimization, waste management, and logistical impacts must be inculcated for environmental sustainability, along with financial and product competitiveness.

Climate-smart agro-processing, SME growth, increasing the capacity of women, and job creation are four of the priorities of the GTP. InfoDev, with funding from FORMIN, therefore initiated a feasibility assessment to identify:

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 services most needed to accelerate the growth of Ethiopian agribusiness SMEs, thus contributing to the GTP targets

4.1 Value Chains with Market Potential

The tremendous diversity of ecological zones in Ethiopia allows production of a wide variety of crops. The first step in the feasibility assessment was to narrow down the scope

 

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from the vast agricultural sector into a subset that could be analyzed in some detail. InfoDev, therefore, examined the literature and engaged Ethiopian value chain and innovation system stakeholders in a discussion to identify the agricultural subsectors they felt have most potential for growth. InfoDev then proceeded to analyzing the Ethiopian market against the parameters outlined in the table below.

Table 3Assessing 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 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.

Using the methodology outlined above, seven key value chains (or value chain groupings) were identified as having good potential for growth at this time: bamboo;

 

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horticulture (fruits and vegetables); dairy; cotton, textiles, and garments; honey; wheat; and spices.1213All of them demonstrate the following:

• Increasing domestic and international market demand. • Supply side problems in terms of both quantity and quality; issues other

stakeholders are addressing and which processors are overcoming themselves. • Only a limited number of processors in any specific value chain and a need for

more to address the increasing market demand. • Poor marketing and management capabilities. • A priority for local stakeholders.

The comparative advantages of Ethiopia common to the seven value chains include the following:

Exceptional climatic conditions that make the production of a wide variety of agricultural crops possible.

Production by small-holder farmers, who by default use natural and organic farming methods, which causes supply constraints, but which can be an advantage for climate change impacts and as developed countries shift more and more to organic and clean food.

A large domestic market and labor force, with a population of 90million people, growing annually by 3percent.

A widely acknowledged trainable work force. Comparatively cheaper wages than in other countries. The average wage for

unskilled labor generally ranges from Birr 20-30 ($1.58 to 2.37) per day. Acknowledged as priority sectors by the government and hence supported by

favorable policy measures. Agreements with the United States, Middle East, and European countries that ensure

access to their markets for Ethiopian products.

A summary of the seven key value chains identified is presented below and additional information is at Annex 7, which also includes more details about the value chains studied and those outside the scope of the AII.

                                                                                                             12Value chains, such as coffee where a number of stakeholders are already operating, have been left outside the scope of the AII in order to focus on value chains where the AII initiative can have the biggest impact. Details are provided in Annex 7. 13The ATA, leading the drive for transformation and sustainability in agriculture, is focusing on cereal crops initially, which account for 80 percent of the crops grown by small-holder farmers and in particular teff, maize and wheat. Other priorities in the near term are pulses including chickpeas, oilseeds, rice, and livestock. The key value chains identified for the AII differ from the ATA priorities because of subtly different objectives. The AII is to focus on processors, not farmers per se, whereas the ATA’s overall priority is to focus on the value chains that have the greatest potential to achieve productivity growth for small-holder farmers and pastoralists.

 

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4.1.1 Bamboo

Ethiopia has the seventh largest bamboo resource in the world. Some 150 plus micro to small enterprises are engaged in low value addition of bamboo, producing such products as fences, toothpicks, and crafts. In response to the growing demand from international markets for industrial grade bamboo products, Ethiopian industrial production of high value panels and flooring is also emerging. 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.

Studies from China indicate that the poverty alleviation potential of industrial processing is higher than for the lower value adding products. Bamboo production also has environmental benefits, including rapid growth (bamboo can grow up to 1meter per day) and high water retention. The AII could advance this sector by strengthening the few industrial high value bamboo processors and fostering the transfer of knowledge and technology to smaller value adding bamboo processors.

4.1.2 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, the period from 2005–10 saw a subtle transition for the Ethiopian dairy sector. There was an increase in processing capacity, accompanied by an increase in dairy product lines. Improved breeds and extensions services are helping improve productivity and donors. In addition, stakeholders are working to remove supply chain impediments (such as transport, storage, and productivity).

The Ethiopian Milk Producers and Processors Association (EMPPA) recorded 21 members in 2010, including milk producers and processors, milk collectors and distributors, input suppliers, and consultancy services providers. With unmet demand for milk and milk products in growing urban areas, the growth potential is significant for the 18 identified processors (half of them are small to medium-size processors and the biggest one employs 380 people to process 33,000 liters per day). This potential builds on work of stakeholders to improve productivity of primary producers and other supply chain impediments.

4.1.3 Honey

Ethiopia is the largest honey producing country in Africa and the fourth-largest beeswax producing country in the world. The unique climatic conditions allow small-holders to produce different types of honey, depending on the region where they are located. It is estimated that small-holders produce more than 43,000 tons of honey and 3,000 tons

 

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of beeswax per year. Traditional beekeeping accounts for more than 90percent of the honey produced and nearly all the beeswax produced in the country. The adoption of more modern and sophisticated beekeeping systems of box and top bar hives is increasing, along with productivity. The Ethiopian Honey and Beeswax Producers and Exporters Association (EHBPEA), which was established in October 2005, currently count 19 members, including producers of honey bee products and exporters of processed honey products.

The current situation includes such limitations as a disorganized value chain and limited and inadequate packaging options. The potential for the AII is to support Ethiopia’s honey processors in the domestic and export market, by overcoming these limitations, improving productivity with modern hives and systems, and growing domestic and export market opportunities.

4.1.4 Fruit and Vegetables

Because of the unique climatic and natural resources, almost all types of fruits and vegetables can potentially be grown in Ethiopia. The number of small-scale producers involved in horticulture is estimated at 5.7 million farmers.14 It is estimated that the total fruit production is today at almost 500 thousand tons and the vegetable production is about 2.86 million tons. The strong support from the government, with incentives for foreign direct investment and exports, continues to encourage increased production of horticulture products.

Established in 2002, the Ethiopian Horticulture Producers and Exporters Association (EHPEA) currently records 39 members who focus on fresh fruits and vegetables. The processing industry is however nascent. The potential for the AII is to support the 15 fruit and vegetable processors identified to date in 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 advantage compared to their competitors from Egypt, Kenya, Morocco, and Tunisia. The five fruit and vegetable processing plants are producing a limited variety of products: mainly tomato paste, orange marmalade, vegetable soup, canned vegetables, and wine. Indeed, they are working below capacity because of the lack of sufficient and regular supply of fruits and vegetables. They are producing for both the domestic and export markets,

The fact that most production at the small-holder level is almost organic by default can be levered as demand for organic foods continue to increase in Europe and other markets. The AII could possibly work on this sector if another initiative was simultaneously working on the supply side.

                                                                                                             14WUR. February 2009. “Business opportunities in Fruit and Vegetable Sector.”

 

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4.1.5 Cotton, Textiles, and Garments

Ethiopia has a long tradition of producing cotton textiles. There is a complete local value chain in the cotton garment sector, which encompasses cotton growing, ginning, spinning, yarn dyeing, weaving, and knitting, as well as confection and garment finishing. Some of the factories in Ethiopia are even fully vertically integrated (for example, spinning to finish the garment or product). However, the number of operating factories and their capacity is comparably low and does not provide self-sufficiency for the demand by Ethiopian garment or home textile industry. (Currently, there are eight large scale textile factories and 13 garment enterprises)

Much cotton production in Ethiopia at the small-holder scale is organic. This offers a market opportunity to enter the organic market where prices for organic cotton increase internationally and an opportunity to link with Ethiopia’s growing design and fashion brands. The potential exists for the AII to support existing and new textile and garment processors through the Ethiopian Textile and Garments Manufacturers Association (ETGAMA) to enter the organic market. In so doing, the AIC needs to help processors to overcome the major challenge that cotton grown in Ethiopia does not meet international market standards (the international market needs cotton with 30-32mm length fibers to be competitive, whereas Ethiopian farmers produce 25-28mm).

4.1.6 Wheat

With growth in production over the past 10 years (namely, around 8.7percent annual increase because of area expansion and yield improvement), Ethiopia’s wheat production reached 3.147 million metric tons15 in 2011, securing its position as one of the largest wheat producers among the COMESA countries. None the less, Ethiopia imported in 1.2million metric tons of wheat16 in 2011. The annual volume of wheat handled by food processors is about 53percent of the total wheat supply to the domestic market, supplied to consumers in the form of flour, spaghetti, and bread. The remainder is distributed in the form of whole grain, which such consumers and retailers as small shops, bakeries, kiosks, restaurants, cafes, and supermarkets process.

With a growing population and urbanization, the demand for wheat and 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

                                                                                                             15 Source: US Department of Agriculture, available at: http://www.indexmundi.com/agriculture/?country=et&commodity=wheat&graph=production 16Idem.

 

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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.

4.1.7 Spices

Ethiopia has a long history of spice production. The unique environmental conditions of the country offer the opportunity to produce a wide variety of spices, primarily produced by small-holders. About 244,000 tons are produced annually. There is high domestic demand, 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, producing 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.

4.2 Ethiopian Agribusiness Entrepreneurs Landscape

Food processing is among the oldest of Ethiopia’s manufacturing industries. Bakeries, grain, and oil mills were in operation as early as 1906 and the first food factory, Kaliti, was established in 1938.Most recent combined statistics available for the agribusiness sector as a whole date back to FY2006/07. A record 330 large- and medium-scale firms are in the food processing industry, employing about 36,000 people, which amounted to26percent of all employees in the manufacturing sector. The food processing industry can be broken into eight major subsectors:

Sugar manufacturing is the leading subsector, accounting for 53percent of sales revenue and 57percent of employment in the food processing sector.

Meat processing and exporting is the leading export subsector. Processed meat products comprise canned and frozen meat. In FY2008/09, about$27 million was generated from the export of meat and meat products.

Wheat-based products manufacturing consists of flour, macaroni, spaghetti, and biscuit manufacturing, and involves about 200 firms.

Fruit and vegetable processing is dominated by a state-owned firm that produces orange marmalade, tomato paste, and tomato juice.

Edible oil production is carried out by mid-size and small-scale businesses that produce vegetable butter, edible oil, and cheese for the domestic market.

Dairy products in Ethiopia include yogurt, cheese, and butter, mostly produced by small-scale farmers and households.

Grain milling is practiced by numerous small-scale businesses located in villages throughout the country.

 

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Bakeries are mostly small-scale businesses and the subsector is the second largest in terms of employment, after sugar.17

The capacity of enterprises varies depending on their stage of development and the capabilities of the entrepreneur. The AII will adopt a case management approach tailoring the support to the specific needs of each entrepreneur and enterprise when selecting and working with innovative and growth-oriented enterprises, namely, those that can be role models and leaders in specific value chains. An extensive network of supported partnerships will be established to fill the AII pipeline with emerging and high-growth entrepreneurs, levering already existing and operating business development service providers and value chain development activities. Given the country’s low-level of existing entrepreneurship, a pre-incubation phase should focus on entrepreneurship awareness and development and be operated by one of the academic partners identified in Ethiopia (such role might be played by the Academy of Food Sciences from the University of Bahir Dar, for instance) and other training facilities (for example, Selam Technologic and Vocational Center might be able to play this role). The pre-incubation envisaged should target people with entrepreneurial, innovative, and leadership capacities, who may be existing traders wanting to enter food processing, or brand new start-up organizations not yet ready for participation in the AII.

Women entrepreneurs constitute more than half of the entrepreneurs, giving an important gender dimension to the industry. There are significant differences across regions in terms of the level of women’s empowerment in the agricultural sector. In Amhara, women have traditionally been excluded from formal processes and structures and lack access to market information, technologies, and productive inputs. Many women also lack the confidence to pursue a growth path. The AII will make a specific effort to reach women entrepreneurs and provide services in such a way that it meets their needs.

4.3 Ethiopian Agribusiness SMEs Needs18

In summary, agribusiness entrepreneurs in Ethiopia face many problems, the most significant of which are supply chain constraints, market development, and financing for growth. Such bodies as the Federal Micro and Small Enterprises agency assist with basic business support and many donors working with farmers and processors are helping overcome the supply chain constraints. There is a significant gap in market development for both the domestic and international markets, including poorly

                                                                                                             17John Sutton and NebilKellow. 2010. “An Enterprise Map of Ethiopia,” International Growth Center. 18The needs of agribusinesses in Ethiopia were assessed by way of consultations with stakeholders and agribusiness entrepreneurs, focus groups, workshops, and a formal survey of 75 agribusiness entrepreneurs. A summary of the main gaps faced by entrepreneurs is provided in Annex 3. The survey report is in Annex 4, the survey questionnaire in Annex 5, and frequencies for responses to each question is in Annex 6.

 

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developed distribution mechanisms, limited packaging and testing options and competitive strategies to address evident market needs. There is also gap for those entrepreneurs wanting to grow their businesses, for which suitable services do not exist.

Finance to grow a business is a similar gap, for which appropriate mechanisms and services that understand the needs, risk, and potential need to be put in place. One of the predominant gaps involves access to flexible, early-stage risk capital. The largest funding gap is faced by businesses requesting between $100,000 and $750,000. Available SME financing in the form of microloans is perceived as unsuitable for Semi terms of risk and return periods, while collateral requirements for bank loans are prohibitive.

The chart below summarizes the main gaps in the service offering currently available to Ethiopian agribusinesses—with lack of finance ranking first. The chart was developed on the basis of the responses to the entrepreneur survey.

 

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Figure 9Service Offering Gaps Reported by Ethiopian Agribusiness SMEs Surveyed

Similarly, finance, access to markets and customers, and access to technology rank first on the list of Ethiopian agribusiness SMEs when ranking businesses’ interest in support services.

0  

5  

10  

15  

20  

25  

30  

 

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Figure 10Interest in Support Services Expressed by Ethiopian Agribusiness SMEs Surveyed

Lack of finance tops the list, as a problem for 27 respondents (36percent of the sample), of whom 44percent are food manufacturers, 37percent involved in agriculture and forestry, and 51percent are more than five years old. Most respondents of this subset have a history of growth and none reported a decline. They span micro to large and, not surprising, all are interested in support to raise finance.

Surprisingly, given the supply side problems in most value chains, lack of raw materials or services is only a problem reported by 13percent, who are primarily food manufacturers. The majority of those reported problems with inadequate technology and a lack of space. However, it is the second highest problem reported, after finance. The lower than anticipated response may simply indicate entrepreneurs are putting in place solutions already, with donor and government agency support.

Only 9percent report a problem with demand (1percent) and access to customers (8percent) and only 3percent saw a problem with inadequate technical skills—this is somewhat surprisingly, given experience elsewhere and extensive consultations in Ethiopia. None of the sample noted lack of business skills as a problem, which in itself may indicate a lack of business skills and knowledge. However, the detailed questions about where respondents want help, summarized in Figure 11 above, indicates that management skills and access to customers and markets are significant problems.

From an entrepreneurship perspective, in which personal self-knowledge is important for success, no one reported problems in terms of family arrangements, lack of time, or personal self-imposed problems, which typically feature in a survey of this type. Successful entrepreneurs know their strengths and weaknesses and take personal responsibility, often acknowledging problems are self-imposed. Cultural differences may be the reason, but the point is worth taking into account in terms of the AII’s entrepreneurship development activity, which may warrant a personal development

0%  10%  20%  30%  40%  50%  60%  70%  80%  

Finance  

Networking  

New

 markets  

Techno

logy  

MarkeAn

g  TesAng  &  Cert.  

Packaging  

Bus.  Plann

ing  

Bus.  Training  

Mgt.  A

dvice  

Mentor  &  

Coach  

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gt.  

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Interest  in  Services  

No  Interest  

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Interest  

High  Interest  

Great  Interest  

 

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track to foster better entrepreneurial attitudes. Consultations with stakeholders also indicated a lack of an entrepreneurial culture and attitudes.

Analyzing the responses to the survey in more depth, only considering great interest and high interest responses, indicates that 1) the businesses have realistic needs about support, 2) they acknowledge problems that were not reported in the questions related to problems, and 3) there is a strong interest in support.

Figure 11Ranked Great and High Interest in Support Services Expressed by Ethiopian Agribusiness SMEs Surveyed

Finance still tops the list, closely followed by marketing. Broadly speaking, all the businesses wanting help with technology also want help with testing and certification and packaging.

Help with business licensing is probably of low interest to this group because they are existing businesses, many of whom have sorted this out already. However, it is hard to find a pattern considering those for whom this is a high priority. They are in various sectors, of various ages and structures. No doubt the support will be most useful for new start and informal businesses.

Of note is a disconnect between the number wanting help to secure finance and the significantly lower number wanting help with financial management. This situation possibly indicates management inexperience, given that good financial management is so important to becoming finance ready.

4.4 The Focus of the AII

From the analysis above, the following conclusions can be drawn:

0%  10%  20%  30%  40%  50%  60%  70%  80%  90%  

 

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g) 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 at this point in time. As evidenced by the survey conducted, there is strong interest in an agribusiness incubation service offering from agri-business entrepreneurs across sectors. 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.

h) While the market opportunities outlined in Box 1 are promising, even these

value chains face significant challenges that have been recognized. Many donors and Ethiopian government agencies are now working to overcome value chain bottlenecks. The timing may be opportune to complement this work by addressing the business-level impediments faced by agro processors.

i) Some interesting cross-cutting market opportunities were identified,

notably in the areas of packaging, recycling (of plant products for biogas or of packaging materials for re-use), cold chain innovation, dryer innovation (namely, using solar energy), traceability, and logistics. It is recommended that the AII also encourages and enables the start-up and growth of innovative enterprises in such areas.

j) 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.

k) 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 the outreach effort of the AII and to develop a service offering and a service delivery approach that meet their needs.

l) The agribusiness entrepreneurs interviewed who represent the intended

target client for the AII express a need for help with marketing, accessing new markets, and networking, along with finance. Across the dominant

 

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value chains of Ethiopia, one resonating challenge experienced by most existing entrepreneurs is the development of 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.

For entrepreneurs interested in pursuing a domestic market, the distribution choices are extremely limited. Apart from managing their own distribution, with their own trucks, sales team and regional warehouses, Ethiopian entrepreneurs are left with two options: the Merkato system or partnering with a large processor, such as ETFruit, and utilizing their distribution channels. The Merkato is a complex network of regional, informal markets (complete with an extensive infrastructure of traders, brokers, wholesalers, local and regional transportation companies). It is perhaps one of the most underutilized opportunities for Ethiopian value-added food processors. Most Ethiopian food processing entrepreneurs get too focused on the larger, international markets (most notably the U.S. and EU markets), while ignoring the domestic market opportunities. In Addis Ababa alone, it is estimated that there are more than one thousand points of distribution (albeit all independently owned) that could be suitable for many products discussed.

In international markets, Ethiopian entrepreneurs face stiff competition and simply cannot compete in many value chains because of the high cost of transportation. As a landlocked country, where exports have to go by road to Djibouti or by airfreight, entrepreneurs have few options, and encounter high transportation costs and significant, sometimes unpredictable, time-to-market delays. More easily addressable factors affecting the competitiveness of Ethiopian entrepreneurs at the moment are the lack of quality packaging (which must be imported), the lack of acceptable laboratory and standards analysis (products must be shipped internationally for analysis), and in conducive VAT policies.  

4.5 Potential Deal Flow

Successful business incubators usually need a critical mass of at least 20 growth-oriented entrepreneurs, either based on-site or off-site, to underpin a viable and self-sustainable business model and to foster peer-to-peer learning and exchange. Based on the analysis conducted, there appears to be adequate demand from growth-oriented agribusinesses to justify the development of the AII as a new model for promoting the growth of a competitive value adding agribusiness sector in Ethiopia.

It is impossible to quantify exactly all of the demand that may exist, but insights can be gained from the sample of 75 survey respondents. The sample itself clearly includes potential clients for the incubator. To estimate how many of the sample would be

 

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selected for incubation, a simple methodology is to start with all who expressed interest (all of the respondents in this case). Then one factors this for those businesses that appear to be run by opportunity entrepreneurs and for those who have a history of growth in turnover and then one applies typical benchmarks for the number of applicants that are selected for incubation. These conversion factors are often from 1 percent for the most selective to 20 percent, which is very common. The 75 respondents were not randomly selected, but were selected as likely prospects, which mean the conversion factor for this group is likely to be higher than for a group of typical applicants. Applying this methodology, as shown below and using the 20 percent and 30 percent conversion factors, indicates between 9 and 13 clients from this group alone. This estimate is very conservative, but it provides confidence that an intake of 10 enterprises annually is feasible.

Table 4 Potential AII Market Size (based on survey sample)

SIZE OF THE MARKET PERCENTOF RESPONDENTS

Interested 100% – 75

Opportunity Entrepreneurs (OE)Only

72% – 54

OEs With Growth History

80% – 43

Conversion Factor 1 30% – 13

Conversion Factor 2 20% – 9

Conversion Factor 3 10% – 4

Categorizing potential clients into four levels and taking into consideration their turnover (namely, in micro, small, medium and large businesses) helps predict client numbers per annum from the survey sample. All desire support and recognize that support needs change as a company develops. The following table estimates the number of clients over a three-year period in which the AII would take on 10 new clients per annum (that is,30 in three years and 50 in five years), after an initial preparatory period, that is, once the AII is up and running.

 

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Table 5 Potential AII Client Numbers

Turnover range, $ per annum

Percent of survey sample

Percent of micro, small, medium and

large businesses

Client numbers over three years

– 0 to 1,000 – 19% – 33% – Pre-incubation activity to

develop the deal flow pipeline

– 1,000 to 28,000 – 23% – 24% – 10

– 28,000 to 283,000 – 21% – 11% – 8

– 283,000 to 565,000 – 37% – 33% – 12

 

In Ethiopia, the small and medium-level enterprises are the ones looking most for financial and nonfinancial services. The small enterprises may be challenged by the capacity to pay for the services, whereas the medium-level enterprises are relatively capable of paying for services as far they believe in them. The large enterprises have the full capacity to pay, but they are very selective in purchasing services.

Reinforcing conclusions from stakeholder consultations, the demand is spread across many sectors and therefore a multi-sector approach within the agri-business arena is warranted, rather than focusing on a particular value chain. This levers the work of other donors, who focus on specific value chains.

Potential Client Example Genesis Farms: Ideal for incubation

program…needs upgraded processing for expansion

• Involved in vertically integrated poultry, dairy, and horticulture.

• 126 dairy out growers. • Provides artificial insemination and home

veterinary services, and has a plan to offer cows on loan (in-kind) in four regions around Addis.

• For vegetables, they sell quality seedlings with better varieties.

• For poultry, they sell day old chicks. • Partnered with training center next door,

offering vaccines, vet services and training.

• Services all hotels and supermarkets with vegetables, eggs, and others.

• Sets their own price because of lack of competition for quality.

• Pays 1,000,000 birr per month for milk from out growers.

• 7,000-9,000 milk pasteurization capacity. • Company is 11 years old, has partners

from United States and the Netherlands (3.3 million birr–combined investment) and has 30,000,000 birr in sales (with 25,000,000 in expenses).

• Uses coconut bark for exceptional water holder (available in Sri Lanka for 50 birr for 5kg (freight not included.

 

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5.0 AII Business Model

5.1 Strategic Objectives

The AII seeks to contribute toward advancing a climate-smart competitive agribusiness sector in Ethiopian that benefits Ethiopians with an increased number of jobs and raised incomes. 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. It will provide 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 and the value chains in which they operate. In summary, the AII will reduce risks faced by entrepreneurs by providing the required services to the most growth-oriented enterprises and helping them grow and thereby fostering the upgrading and up-scaling of value chains. Furthermore, the AII will aim to help create a service market for business and financial services targeted at agribusiness SMEs in Ethiopia, by working in close partnership with those people and organizations developing value chains and providing business development support services.

The AII is expected to lead to significant job creation in the processing sector and beyond—studies indicate that for every job created in processing, the multiplier effect in the economy is 2.85. It is also expected to help increase income at the processing and small-holder farmer levels. The projected impact of the AII is discussed in further detail in Section 9.

 

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5.2 Securing Clients

As discussed, the highest impact and the highest likelihood of sustainability of the AII can be achieved by targeting enterprises that at a minimum demonstrate some understanding of market demand, target the local and national markets, and have access to a minimum level of equipment. These enterprises, thus, have a foundation that positions them for growth into new markets or products.

A detailed selection process will need to be prepared in order to select the enterprises. While this will be the mandate of the management team during the start-up phase, 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.

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.

Potential Client Example Mama Fresh Injera: An indigenous product with great growth potential

• Producing 10,000 injera per day (35,000 capacity).

• 4,000,000 injera eaten in Addis Ababa each day.

• 65 percent of those buy “ready-made.” • Exports to United States, United

Kingdom, United Arab Emirates,and Saudi Arabia…mostly diaspora sales.

• Uses only teff (gluten free) (40,000kg per month).

• Pays out growers an extra 100 birr for quality teff.

• Has three brokers servicing farmers. • Wants to open own warehouse

(advised to go public) in United States.

 

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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 firms will become a more important target, 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.

5.3 AII Service Offering

The AII will provide clients with a comprehensive service offering designed to position them for growth into new markets and products, as depicted below.

NEW

MA

RKET

Support new

market access

Expand new

product markets

EXIS

TIN

G M

ARK

ET

Strengthen

product/market position

Encourage new products

EXISTING PRODUCT

NEW PRODUCT

Figure 12Positioning Ethiopian Agribusiness SMEs for Growth

 

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In this process, the AIC will assist the entrepreneur with identifying opportunities for innovation, developing that innovation, and monitoring its impact on the business.

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 comprised of four broad areas (pillars) as follows:

1. Market development 2. Business advice and capability development 3. Financing for growth and start up 4. Access to facilities

Cutting across these pillars will be intensive networking and engagement with value chain actors and business development service providers to both help find clients and support their growth and to capitalize upon developments in specific value chains.

As businesses grow, their needs and capabilities change. The AII will case manage each company with support services tailored to their stage of development, needs, and capabilities. A framework for detailed design of the services with three phases of support work is at Annex 9.

In the delivery of these service offerings, the AII will enable peer-to-peer support among entrepreneurs to sensitize men and women to the potential of women-led enterprises.

In addition, the AII will play an active role in promoting successful innovative and entrepreneurial businesses as role models, along with marketing, business model, and technology innovations, in order to stimulate broader take-up by other emerging agro processors in relevant value chains. It will also actively communicate policy and regulatory constraints faced by high-growth, potentially value-adding processors to government officials, financing constraints to the financial sector, and skills and research needs to academia and research institutes. Networking with value chain actors and business development service providers will embed the AII within existing activities and help develop networks, trust, and linkages. In this way, the AII will help strengthen the overall innovation and entrepreneurship ecosystem and value chain, affecting the ability of the entrepreneur to succeed in the marketplace.

 

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This service offering is depicted in the diagram below.

 

Figure 13 Ethiopia AII Service Offering

5.3.1 Pillar 1: Market

Any initiative focused on enabling the growth of agribusiness enterprises must adopt a market-driven approach. Interviews with enterprises and the survey found this was the main weakness of existing growth-oriented entrepreneurs in the high-opportunity value chains. Moreover, the analysis revealed that there is an apparent gap in such service offerings. Accordingly, this is where the AII will have to invest most in building up internal capacity, as opposed to being able to engage existing partners.

The AII will put a major emphasis on two activities: 1) expanding domestic and international market opportunities for companies operating in value chains with high potential, which could include establishing relationships in critical target markets, namely, the Middle East, Sudan, other ECOWAS countries, and even the EU; and 2) building the enterprises’ capacity to develop competitive, well-branded, compliant products. The Market Pillar of the service offering thus entails numerous aspects, including expanding the network of the entrepreneur, capitalizing on dynamic developments in the value chain as a whole, building business relationships, and enabling easier, more affordable access to relevant market information.

Market

Market research

• High value products • Suppliers

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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The AII will also assist entrepreneurs with supply chain linkages, addressing their input needs on a case-by-case basis. More generally it will assist by linking them with dynamic value chain developments and farmer linkage programs, along with facilitating access to packaging.  

Pillar 1: MARKET Description

Activities

Assist companies to identify, target, and test new markets and new products.  

Assist companies to exploit existing domestic markets, navigating the Merkato and putting in place distributions systems.  

Assist export ready companies to exploit international markets, navigating complex and limited export pathways.  

Facilitate access to available packaging and to address the deficiencies in the packaging options available, including co-packing arrangements for the international market.  

Assist companies with market research to assess opportunities and to position themselves in the market with current and new high value products. This could be provided in partnership with international and local consultants.  

Assist enterprises in the identification of and access to inputs and supplies, such as appropriate produce, consumables, logistics services, and equipment (for example, establishment of contracts between farmer and processor for adequate supply of appropriate quality at good pricing). This could be provided in partnership with local agents.  

Facilitate procurement of common commodities in bulk for resale to processors. Items such as jars, bottles, or bags can be resold in this manner, giving both AII and processor an advantage. This could be provided in partnership with local agents.  

Assist companies to identify, target, and conclude sales deals by walking with them in more lucrative markets.  

Potential services could also include the following: facilitation of trade show activities; “plan-o-gram” support for market positioning in new markets (for example, shelf depiction); and support for certification (for example, Fair-trade or organic). This could be provided in partnership with local existing organizations.  

 

5.3.2 Pillar 2: Business and Technical Advice

The Advice Pillar includes training, coaching, and advice on business, technical, and regulatory issues. Specific service offerings envisioned are outlined below. In this Pillar, existing organizations will be engaged for training, mentoring, and providing some

 

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business development services. To support the development of a dynamic business development services market, the AII will make use of existing business development service providers with demonstrated technical and financial capability. The AII will need to hire internal staff with demonstrated capabilities in areas where other existing business development service providers do not have the capability at this point in time, for instance, in the critical area of market development. Hence, the AII will be in a position to assist its partner business development service providers by allowing them to participate in advisory work to develop their own capacity over time. Accordingly, the AII will need to invest in creating a strong mentoring, training, coaching, and partner network.  

Pillar 2: ADVICE Description

Activities Provide focused support in accounting, business strategy, sales,

market development, and others. This support will be provided by internal staff and outsourced to specified experts, such as mentors, coaches, and business development service providers.  

Facilitate processing technology improvements, hygiene improvements, standardization, testing, and access to the latest processing knowledge. This will be provided by a limited internal staff and outsourced to specific experts, delivering technical training.  

Create a network of support organizations that will be able to support entrepreneurs in such areas such as registration, regulatory compliance, sector development, advocacy, or R&D.

Work with local institutions to identify and meet local standards and with local consumers to identify standards that must be met.

Provide consulting services on how to make the business “climate smart”.

 

5.3.3 Pillar 3: Finance

As discussed above, finance is a key constraint for growth. It is, therefore, critical that the AII can offer financial services to its clients. The largest funding gap faced by Ethiopian SMEs has been identified between $100,000 and $750,000 targeted at financing equipment, production, supplies, and working capital. This is a significant gap that needs to be surmounted for enterprises to scale and grow. Accordingly, a dedicated investment fund is proposed to invest in businesses where due diligence indicates the following:

1. A viable market exists that is accessible to the entrepreneur.

 

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2. The business assessment indicates that the business has the potential for growth and for existing enterprises a history of growth in revenue.

3. The entrepreneur has a high entrepreneurial quotient.

4. The entrepreneur and their business are accepted for support by the AII.

In further consideration of a fund, flexible equity and or collateral free loans should be considered, with the rationale that selecting growth entrepreneurs with good businesses and that the ongoing deep support from the AII mitigates the risk. This underlies the very premise of the AII—an organization that can identify growth entrepreneurs and support them to expand their businesses.

The goal of the fund is not to replace banks, of which the Development Bank of Ethiopia is the main one providing finance to SMEs, or other financial institutions, which in Ethiopia are quite risk averse. Instead, it is aimed at demonstrating that deep ongoing support and financing can combine to develop growth businesses. As such, the Development Bank of Ethiopia, other banks and financiers will be asked to join the initiative as co financiers, thereby reducing their own exposure, while reaping the benefits of having clients supported on a day-to-day basis. It is hoped that this will encourage greater SME lending over time.

5.3.4 Pillar 4: Facilities

Investing in facilities and equipment is costly and risky. The stakeholder consultation process considered the establishment of a physical processing facility, but the preferred approach, initially at least, is to support processors expanding and developing their own facilities. This is in line with the strategy of focusing on existing processors initially, who already have processing facilities of one form or another, which may be improved and expanded with business support and financing. In the future, facilities for new start businesses may be considered. None the less, to support entrepreneurs with market development, a facility in the Merkato will be established to showcase innovative products and technologies and as a base to help entrepreneurs navigate the complicated Merkato systems, which many entrepreneurs do not understand, for both marketing of products and sourcing supplies. The AII will broker and facilitate access to testing and certification facilities, as well as packaging facilities, both in Ethiopia and internationally, levering partners and networks. For instance, co-packing arrangements will be facilitated offshore, so producers can export in bulk and have their products packed under their own label in existing co-packing facilities. The AII will facilitate access to partners, testing laboratories

 

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in Ethiopia, and where they are not available, follow facilitate international access (for instance, to South African facilities) until such a time as they are available in Ethiopia. Business center services and associated facilities will be available for clients in the AII’s office facilities, separate from the Merkato facility. On this basis, the AII will at the initial stages provide facilities—or access to them—as follows:  

Pillar 4: FACILITIES Description

Activities The AII will negotiate and facilitate access to specialized

equipment for new product development and testing. This could be provided in partnership with research/universities.  

The AII will assess packaging facilities, standards, and labeling for both local and international markets.  

An innovation demonstration center will be made available at the AII’s Merkato premises.

The AII will link with local institutions to facilitate access to testing and laboratory facilities (for example, microbiological tests or pH tests), and where these are not available in Ethiopia, internationally.

The AII will offer a limited number of meeting rooms and shared office equipment for entrepreneurs.

5.4 A Multi-stakeholder Approach

The AII aims to support growth enterprises to expand and accordingly needs to support entrepreneurs in value chains with the best potential and help them surmount the challenges they face. This requires cooperation with a range of actors across the innovation system and value chains: farms; transporters; storage providers; packaging providers; and buyers; business development service providers; financiers, such as banks and grants programs; academic institutions; and government.

5.4.1 Connecting to Farmers

Many stakeholders, including donors and government agencies, are undertaking important work to improve value chains and are helping value adding entrepreneurs with their input and supply problems (see Table 6 below). Indeed, most donor-funded programs in Ethiopia focus exclusively on value-chain development, and, more specifically, on inputs such as irrigation, intercropping, dairy insemination, seed quality, and others—many of which are producing solid results. Annex 2 provides more details.

 

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Table 6Ethiopian Agribusiness Stakeholder Mapping by Value Chain of Focus

Value Chain Specific

Dairy Textiles Garments

Honey Fruits and Vegetables

Oil seeds Bamboo Wheat Leather

Government – ATA – ATA

R&D Institutes

– International Livestock Research Institute (ILRI)

– Ethiopian Textile Development Institute

– Holeta Research Institute

– Ethiopian Agricultural Research Institute

– Ethiopian Leather Industries Development Institute

Donors

– SNV, USAID/Land O’Lakes, ACDI/VOCA

– DFID, GIZ – SNV,

Finnish (Agro BIG)

– SNV,

– Finnish (AgroBIG),

– DFID

– SNV – GIZ,

UNIDO

– DFID

Universities/ Academia

– Debrezeit Veterinary School

– Haromaya University

– Bahir Dar University

Business and Professional Communities

– Ethiopian Milk Producers and Processors Association (EMPPA)/Dairy Board

– Ethiopian Textile and Garment Manufacturers Association (ETGAMA), Ethiopian Cotton Association

– Ethiopian Honey and Bee wax Processors and Exporters Association (EHPEA)/Honey Board

– Ethiopian Horticulture and Floriculture Producers and Exporters Association

– Ethiopian Pulses, Spices and Oil Seeds Processors and Exporters Association (EPOSPEA)

– Ethiopian Leather Industries Association (ELIA)

Finance organizations

– Development Bank of Ethiopia

– Commercial Bank of Ethiopia

– 15 Private Commercial Banks

– Microfinance Institutions

Multinationals/ – Corporate

– Land O’Lakes, Holland Dairy

– Ayka Addis Textiles

– Dima Textiles

– Et Fruit – Olam

Entrepreneurship support

– Bahir Dar

University

– TVET

– TVET schools

 

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schools

The AII will coordinate closely with the numerous donor programs to ensure a solid supply of quality raw materials to the value adding entrepreneurs, thus connecting growers with processors with markets. It will do this while ensuring quality inputs are being used to produce competitive, legally compliant finished products and developing the market for such products.

5.4.2 Connecting to Buyers

The AII will invest in developing extensive networks and lever existing ones, engaging sector associations and business development service providers involved in different value chains. These networks, within which the necessary trust and relationships will take time to develop, will be crucial channels to markets and buyers. The location in the Merkato will give a physical presence and profile that will be an asset in developing relationships, essentially with buyers.

5.4.3 Business Development Service Providers

Private Business Development Service Providers (BDSP) are key partners for implementation, especially those active in value chain and SME development. The AII will particularly emphasize networking, engaging, and working collaboratively with those in order to not only identify, but also select and support AII client enterprises.

5.4.4 Financiers

The AII aims to facilitate the relationship between agribusiness SMEs and financiers from both perspectives: 1) by supporting the enterprises so they are investment ready and 2) by building strong relationships with financiers based on trust. Acknowledging the evident gaps in the finance market, the AII will network extensively with banks and other finance providers, so that they consider referrals from the AII, hence, levering the relationships between SMEs and finance providers for the benefit of its clients. The fund proposed will play a crucial role as a first loss facility, reducing investment risks and thereby attracting risk-averse finance providers to co-invest in AII clients.

5.4.5Academia

According to Bahir Dar University, most graduates choose to seek out government jobs, rather than pursuing entrepreneur opportunities. The challenges of getting quality education, information, access to facilities, and financing are most often too daunting for recent graduates. Despite this, there has been a recent surge of entrepreneurs in the food service sector, with new restaurants popping up all over such major metropolis areas as Addis Ababa, Nazareth, and Bahir Dar. However, food processing entrepreneurs are still few and far between in Ethiopia. It is important for AII’s sustainability to implement pre-incubation programs via strong partnerships for entrepreneur development, for which funds have been allocated for the first five years of AII operations to institute and refine appropriate programs.

 

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University programs in Addis Ababa, Bahir Dar, and other regions all offer entrepreneurship programs, although these programs have had limited success. It is recommended that the AII conduct a streamlined outreach program with each of these facilities to ensure a smooth transition from the business idea to the formalized company, and consequently, fill the pipeline of the incubator with new and emerging entrepreneurs. In addition, trade schools, including Selam Technical & Vocational College and Hope Food & Catering Training School, offer technical training in the food industry. Supporting these organizations with an outreached educational program, augmenting what training is already available, would again help to fuel the pipeline of entrepreneur development in Ethiopia. It is expected that these programs will continue after the first five-year period in which they are funded and in this time a critical mass of new entrepreneurs will have been generated.

5.4.6 Government

The AII will maintain strong relationship with the ATA and other government agencies in the ecosystem, working with them as opportunities arise to improve the regulatory environment and to remove bottlenecks to the efficient operation of markets in the agribusiness arena.

Below follows an overview of some of the organizations that could be approached to become AII partners.

 

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Table 7 Potential Collaborating Agencies, Projects and Programs for the Ethiopian AII

INSTITUTION ACTIVITIES AND POSSIBLE COLLABORATION

University of Bahir Dar, Academy of Food Science (AFS)

– Activities • Academy of Food Science offers a five-year program (three-year

externship) focused on quality controls, post-harvest handling and processing.

• Externships provided at no cost to companies. • Most graduates (95 percent) go to work in government sector. • Has a curriculum on entrepreneurship—no record of success. • Works with Ethiopian Competition Fund (a World Bank funded

program)—business plan competition where the winner gets 150,000 Birr

• Claims their equipment development services are the “best in the country”—although they have never approached the private sector to address processing challenges.

• AFS has 400 students and graduates 40 students per year. • Has their own laboratory—not certified—lacks chemicals. • Wants to focus on the fish industry in Bahir Dar—supply is blacklisted

from Addis markets for lack of proper storage. Need cold storage and air freight—although, no one has done any work on this, as both are readily available in Bahir Dar.

– Possible Collaboration

• Practical training options on entrepreneurship • Laboratory access, if deficiencies are addressed • Training for agro-dealers • Local seed programs and marketing

Et Fruit

– Activities • Established in 1992, ET Fruit is a government-owned fresh fruit and

vegetable distribution company—one of the largest companies in Ethiopia.

• Mission: “to work with private, government and small holders to buy and distribute fresh fruits and vegetables.”

• Exports directly to the EU and the Middle East. • Does not own any of their farms—100 percent out grower. • Operates five wholesale markets in Addis—13 in the regions. • Operates 60 retail stores in Addis. • Has 35 trucks distributing products—18 refers (refrigerated). • Currently has 350 employees and 500 casual workers. • Works mostly with citrus fruits, banana, mango, and papaya. • Upper Awash Agro Industry is leading supplier of citrus. • World Vision is working with ET Fruit to coordinate cooperatives. • SNV also has value chain projects.

 

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• Et Fruit is the exclusive importer of Pro Seed (Dutch, high quality seed supplier).

• Also distributes sugar, oil, tomato paste, juices, and other finished products (all from government-owned companies).

• Transports cut flowers from farmer group to airport. • Planning on outsourcing some distribution needs. • Also looking at expanding value-added offerings and catering

services into textile companies. • All sales done on a consignment basis—5 to10 percent mark-up. • Currently sells imported products such as coffee, tea, seasonings, and

others. • Services “most” supermarkets in Ethiopia. • 480M Birr in annual sales 2011—more than Merkato.

– Possible Collaboration

• ET is a logical partner as it services most supermarkets in Ethiopia and

seeks amemorandum of understanding (MOU) with infoDev to partner on projects.

• May be able to help address cool storage problems.

Olam

– Activities • Multinational-based in Singapore. • Works in coffee, sesame, groundnuts, and spices. • Has coffee estate of 4,200ha (producing 1-ton per HA). • Looking at expanding spices, but needs local partner. • 250,000 tons of sesame total in country (three to four month

production). • Organizing farmer group for sesame. • They only work with products not used for local consumption. • Coffee (West & South), sesame (North & West), spices (West & South) .

. . spices have high value per hectare. • Programs in Ethiopia, Mozambique, Senegal, and Tanzania (among

others) . . . logical value chain partner (and interested).

– Possible Collaboration

• Proposes that infoDev helps establish a center for collection, storage, cleaning, and hulling of sesame (both Humera and Wollega varieties).

• Good business model, in terms of good opportunity for income generation for the AII, although they not really focused on entrepreneur development (in the value-added sense of the term) or fostering local innovation and value adding, other than cleaning, grading, and hulling for the global sesame market.

• Submitting a business proposal for this partnership.

 

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Selam Technology and Vocational Center

– Activities • Local NGO training facility with attached charities and income-

generating services. • Provides training in mechanics, equipment design and engineering

and culinary arts. • R&D unit focuses on post-harvest agro-processing equipment,

although there is no curriculum for students in this track. • Currently has over 500 students in two facilities. • Only women are enrolled in the culinary arts program. • Training is a three-year, accredited program in metal work, wood

working, machinery, and culinary arts. • Highlights graduates as “many micro-enterprises – few entrepreneurs.” • Also operates an edible oil program and renewable energy program.

– Possible Collaboration

• Possible opportunities to link with Selam for potential processing equipment sales, although others have called Selam’s equipment “more expensive than imports and low quality.”

Addis Ababa Chamber of Commerce—met with the branch office of COC in the Merkato, sponsored by the Dutch Embassy

– Activities • Provides capacity building, business training, accounting, business

plans, and start-up training. • Has an awareness program for government laws and programs. • Promotion of market access services. • Focuses on SME development—particularly women-owned

companies. • Sponsors Merkato handicraft festival, as well as radio ads, television

ads, and the publication of Merkato Magazine —3,000 distribution. • Stated that “few value-added products” are using the Merkato—no

explanation why. • The manager was “not familiar with how the Merkato works,” even

though he is based in Merkato.

– Possible Collaboration

• The Chamber is developing a Chamber Academy, which may be very beneficial for the AII clients for business capacity building and training.

Ethiopian Freight Forwarders Association

Activities • Established in 2004, targeting government organizations and private

sector. • Has 50 members (100 total in Ethiopia) and is a member of FIATA. • Challenges: Awareness of freight forwarding and organization. • Authored a training program for industry about freight forwarding and

customs. • Will offer training for approximately 10,000 birr. Annual membership is

 

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10,000. • This is a diploma course sanctioned by Department of Education. • Stresses the need for policy reform regarding imports and exports.

– Possible Collaboration

• Good opportunity to partner on training programs (raise awareness for them . . . services for incubatees).

Synovia Network – Activities

• SYNVOIA is a platform that brings together the providers of business development services (supply side) and the consumers (demand side) of the same in order to do the following:

o Create an efficient market for BDS services o Improve the quality of existing services o Help develop new services

SYNOVIA aims to do the following:

• Develop a network of high quality BDSPs to help power a private sector led growth in Ethiopia

• Foster and incentivize innovation in the sector as per the demand situation in Ethiopia

• Allow for the most efficient and effective use of resources of BDSP service users (deliver better value for their money)

• Save foreign currency by reclaiming market currently served by foreign consultants and eventually exporting services abroad

• Build the capacity of BDSPs

– Possible Collaboration

• The AII needs to work with and through private BDSPs to both identify and support selected firms

• Participation in the SYNOVIA network • Capacity building for BDS service providers

Ethiopian BDS Network – Activities

• To establish a close contact among the various MSME promotional agencies, chambers, business associations, and others that have a stake in MSE promotion to achieve a meaningful success in assisting MSMEs.

• To share experience and knowledge as experienced in the daily activities of the various regions and organizations, which will strengthen the promotion of the sector.

• Eliminate duplication of efforts and there by create better resource utilization in the promotion of the MSE sector.

• Help the member organizations to concentrate and specialize in giving specific services, in which they are better, so that the operators

 

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will be better served. • To create linkage and better information exchange among the

various MSE stakeholders, which facilitates the promotion of the sector.

– Possible collaboration • The AII needs to work with and through private business service

providers to both identify and support selected firms. • Participation in the EBDS Network. • Capacity building for BDS service providers.

 

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6.0 AII Governance

InfoDev’s experience in its network of over 400 business and technology incubators indicates a) that the governance framework is critical and b) that a public-private partnership offers the highest likelihood for success. In a public-private model, government (who has a public good role), academia (which has a teaching, research, and often a commercialization focus), and the private sector (which has a profit motive) all work together to advance each of their own interests and collectively contribute to growth.

The AII model, unlike many others, is designed for near cost recovery and so it must be driven in a “Public Mission/Private Management” model. To operate as a trusted, transparent business in its own right and to achieve financial sustainability, the AII must be governed with arrangements that do the following: allow private salaries to be paid; allow fast management decision-making to capture business opportunities; have flexible systems to accommodate changes in the business environment; and minimize public sector bureaucracy and maximize the ability to develop trust with the entrepreneurs supported.

It is recommended that the AII be housed in a local organization selected through a competitive bidding process. To foster the necessary public-private partnership arrangements, a consortium is desirable, led by the anchor organization and comprising of the following:

• Relevant players form the public sector, whose focus should largely be facilitative and policy-related, and improve the overall business and value chain ecosystems.

• One or more universities or institutes, whose focus should be on entrepreneurship education and access to testing and other facilities.

• Leading private business development service providers and entrepreneurs, whose role should be to focus on business support, market development, and helping clients develop innovative and competitive business models. To bring to bear the necessary market development expertise and linkages internationally, an international organization might complement local service providers.

The selected organization and associated consortium partners will be responsible for all aspects of the AII establishment and operations, including securing appropriate facilities, identifying a world-class management team, providing the services and programs described in the current document, and ensuring effective monitoring and evaluation (M&E) of programs. The AII should also set up an Advisory Committee (AC)

 

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to gather extensive agribusiness knowledge and experience that the AII management can call on to ensure successful implementation of the AII (details on the AC follow below). The host will report to infoDev to ensure effective and successful execution of the program in accordance with required fiduciary and financial management practices.

With this arrangement the details about selection of the local host institution and the advisory committee are important to ensure adequate agribusiness experience and relevant linkages. The host evaluation criteria are listed below:

Capabilities to build and manage complex organizations, including strong internal governance frameworks and a track record of fiduciary responsibility and accountability, at the core of more fluid networks of business service providers, value chain actors, and financiers.

Proven ability to attract and build a strong team of individuals for project implementation.

Understanding of the needs of agribusiness SMEs in Ethiopia or similar contexts, including experience evaluating agribusiness technologies and incubating early-stage businesses.

Strong local and international links with potential partners, including agribusiness firms, investors, technical and business experts, policy experts, and leading research and development organizations.

Ability to leverage existing and additional sources of funding, both cash and in-kind, such as space, equipment, and staff.

Ability to implement and maintain procurement and financial management processes and a comprehensive M&E strategy.

Ability to network purposefully with value chain actors and business development service providers in Ethiopia and knowledge of these networks, the organizations, and individuals concerned.

As mentioned earlier, there are many linkages specific to agribusiness development that needs to be nurtured, including with the ATA, recommended as the key government counterpart for the AII. This study recommends the ATA be appointed as a key member of the AII AC. The role of the AC will be to advise the host on technical elements related to planning, strategy, and business development. The AC will include up to seven members, to be composed of relevant private sector (for example, individuals with agribusiness experience) and government representation (for example, ATA) and will be nominated by the AII in collaboration with infoDev and founding

 

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partners. It will assist the AII with forming linkages with various external partners to help achieve its mandate. The AII will consult infoDev and funding partners on changes in the committee’s structure over the duration of the program. The AC, once established, will set up separate bodies that, over time, may be grouped into specialties based on technology sectors. For example, the AII may have an advisory subcommittee on honey.

 

 

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7.0 Implementation Requirements

Below follows a quick outline of the key human and physical resources required to implement the AII successfully.  

7.1 Staffing

The overall staffing requirement for the AII when at full capacity is the following:

Table 8 Ethiopian AII Staffing Requirement (at full capacity)

CEO also Market Development Manager - International 1

Market Analyst 1

Market Development Manager - Domestic 1

Financial Manager 1 Admin Assistant 1 Business Advisor 1 Personnel Administrator 1 PR Liaison Officer 1 IT Expert 1 Bookkeeper 1 Cleaners (if not outsourced) 4 Guards 2

The two critical staff for the AII are experienced and senior people with solid agri-business market development experience: one with international experience, perspectives, and linkages; and the other with local experience perspectives and linkages. The international agribusiness market development expert can also serve as the CEO and would need to be hired internationally, as it is unlikely that this expertise currently resides in Ethiopia. This person needs support from administrative, analytic, communications and back office personnel, along with a business advisor for lower-level business development work.

With 30 clients at full capacity, this will achieve a good client to staff ratio to provide the intensive support required, in particular from the CEO, two market development staff, and business advisor.

Staffs need to be supported by a flexible consulting and mentoring budget, to bring in specialist experts and mentors to work with the entrepreneurs. A budget for consulting

 

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and mentoring of $3,500 per client per annum has been allotted. This budget includes processing and packaging expertise to help clients.  

7.2 Facility and Infrastructure Requirements

7.2.1 Access to Testing Facilities

Agribusiness entrepreneurs need access to testing facilities and laboratories, through brokering relationships rather than setting up dedicated facilities. Generally, companies have testing done in South Africa or Europe in the absence of local facilities and services.

7.2.2Access to Relevant Technology

Technology information, development, and transfer are another important element of the AII. In implementing this track, the AII will need to address the needs of food manufacturing and processing companies in any databases and services that broker access to appropriate technology.

7.2.3Access to Packaging

Access to packaging in Ethiopia is an impediment for food processors, who have limited, if any, options in Ethiopia. Developing the packaging industry and brokering relationships in Ethiopia and abroad need to be advocated. Establishing and working with a solid network of co-packers, who will package a manufacturer's product in the manufacturer's brand, is a priority as a part of implementation. The specialist staff referred to earlier, especially the one with international experience, should have adequate knowledge as to what is required, if not all the networks that can come by way of specialist consultants, if needed.

7.2.4 Pre-Incubation

The AII needs to develop pre-incubation programs with universities and other training institutions, enhancing existing entrepreneurship development activity to develop a pipeline of future clients.

 

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7.3 Location

The AII needs two locations in Addis Ababa. It needs offices, ideally close to the Chamber of Commerce or market. Moreover, the AII needs a point of distribution and presence in the “Merkato.” This maximizes reach to agribusinesses, which are concentrated in and around Addis and to wholesalers in the Merkato. It is also recommended to set up a satellite center in Bahir Dar (Amhara). Virtual services can be provided to companies in Hawassa, Mekele, Diredawa, Adama, Arbaminch, and other regions, for which communications and travel have been budgeted.  

 

Figure 14 AII Hubs and Satellite Locations

 

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8.0 Financial Plan

The AII is designed 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. In terms of cash flow, 90 percent of cash expenses would be covered. A flexible revenue model is proposed in which sustainability may be enhanced once various revenue options are tested. An initial investment of $10.35.9 million would be needed as start-up capital in order to achieve this objective. This investment would be comprised of $5.53million for nonfinancial services and capital expenditure; $3 million for financial services and $1.82 million for implementation costs that include technical assistance and trust fund and program management. The fund as proposed and detailed in Section 5.3.3, should accommodate $600,000 in soft loans/equity per annum.

The income generating component for the initiative is a mix of royalty fees on turnover, equity, pay-as-you-go fees (incubation fee,) and finance-raising fees. This accommodates a mixed portfolio of clients at varying stages of development. The model involves the following:

• Royalty of 6 percent fee on turnover per annum, anticipating that 60 percent of clients will choose this option. The royalty fee is set against income needs of the AII and the ability of the clients to pay. Modeling an increase in turnover of 30 percent, a decrease in the cost of sales of 10 percent, and a decrease in overheads of 10 percent, as a result of the intensive support provided, indicate the net profit exceeds net profits after payment of a 6 percent fee. The rationale is that support will improve financial well-being while the client is in the AII (even with a royalty fee) and that upon leaving, the client will reap full benefits.

• Equity of 5 percent, anticipating 20 percent of clients choose this option. Along similar lines to the royalty rationale, improved revenues and profitability will lead to growing company value.

• Incubation fee of $20,058per annum,19 anticipating 20 percent of clients choose this option, which is applicable mostly to larger firms. The fee is commensurate with the average royalty paid by the firms choosing the royalty option.

• Finance brokerage of between 5 percent and 2.5 percent on finance raised, anticipating 50 percent of clients are assisted with securing finance from $50,000 to $500,000.

The agribusiness entrepreneur survey respondents acknowledged the need to pay for services, with 48 percent preferring a royalty arrangement, 20 percent equity, and 28

                                                                                                             19Based on the average royalty paid for the first year.

 

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percent pay as you go at full cost. None the less, payment for services is not the norm and benefits will need to be shown, as part of changing the paradigm and taking clients on a learning curve.

By offering payment options, the model is flexible and adaptable. The income figures factor in that only 90 percent of the funds will be collected given that failures and improper activities will occur.

The calculations detailed in Annex 10 are based on conservative assumptions outlined in Annex 11.

The figures provided below are all expressed in U.S. dollars and depend upon successful negotiation of funding and partnership arrangements.

8.1 Budget

A Year 0 is foreseen. This year will be the planning year during which no revenue is anticipated. However, a limited number of carefully selected clients should be worked with during this year, to both inform the planning and to demonstrate the tangible value of the AII to other entrepreneurs. During Y0, expenses will be incurred. For example, salaries of six staff members (a CEO and international market development expert, domestic market development expert, a financial manager, a business advisor, an IT expert, and an administration assistant) are necessary to do the preparatory work, to implement pre-incubation programs, and to work with the initial demonstration clients, in advance of enrolling other clients in the AII program.

The number of staff will increase progressively with the number of clients supported, starting with five staff in Y0 to reach 10 staff from Y3, which will mean working on a standard of one professional staff member for seven to eight clients. The core of the budget for staff is allocated to client services (mentoring and advisory) with the remainder allotted to administrative personnel and overheads.

An allocation for communications and marketing expenses is required, because of infoDev’s commitment to a demonstration effect. A monitoring and evaluation scheme is critical to ensure the success of such an initiative. Hence, an allocation for communications and marketing, as well as for monitoring and evaluation activities, has been budgeted within the main budget lines presented below.

In the budget overview provided below, “Overheads” are defined as the following: phone, Internet, ICT support and website development, postage, photocopying, stationery, printing, outreach motor vehicle expenses, advertising and public relations, accounting, audit and legal, insurances, functions and launch, staff training, travel, subscriptions and library, and implementation support for a five-year period.

 

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Figure 15Ethiopian AII Budget Requirements (first six years of implementation)

 

0    

100,000    

200,000    

300,000    

400,000    

500,000    

600,000    

700,000    

800,000    

900,000    

1,000,000    

1,100,000    

1,200,000    

1,300,000    

1,400,000    

1,500,000    

1,600,000    

1,700,000    

1,800,000    

1,900,000    

2,000,000    

Staffing  and  overheads  

Capex  

Seed  Capital  

DepreciaAon  &  Provisions  

Building  rent  and  services  

Mentoring  &  Advisory  

 

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Figure 16Ethiopian AII Total Budget per Category (first six years of implementation)

 

 

 

16%  

26%  

12%  8%  

35%  

3%  

Staffing  and  overheads  

Mentoring  &  Advisory  

Building  rent  and  services  

DepreciaAon  &  Provisions  

Seed  Capital  

Capex  

 

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Table 9Ethiopian AII Total Budget per Year (first six years of implementation)20

 

Category Yr0 Yr1 Yr2 Yr3 Yr4 Yr5 Total Staffing and overheads 154,952 235,000 240,000 240,000 240,000 240,000 1,349,952 Mentoring & Advisory 315,154 345,154 385,154 420,154 420,154 320,154 2,205,924

Building rent and services 167,799 167,799 167,799 167,799 167,799 167,799 1,006,793 Depreciation & Provisions 0 83,109 83,109 83,109 83,109 333,987 666,423

Seed Capital 0 615,000 597,000 597,000 597,000 597,000 3,003,000 Capex 297,000 297,000

Totals by Year 934,905 1,446,062 1,473,062 1,508,062 1,508,062 1,658,940 8,529,092

Funds are allocated to the pre-incubation program for the first five years only ($100,000 per annum), with the expectation that the university and other partners will continue the entrepreneurship development programs and that after this period a critical mass of new entrepreneurs has been generated.

                                                                                                             20 Figures rounded up to the closest $1,000.

 

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8.2 Sustainability

The model seeks to achieve better than 75 percent financial sustainability within six years. After the initial ramp up period, costs are in the order of $880,000 per annum, in the following categories:

Table 10 Ethiopian AII Annual Expenses for Operation

Expenses Personnel - Administrative 59,000 Client Services 320,000 - 420,000 Overheads 176,000 - 181,000 Building Services 168,000 Provision for Doubtful Debt 69,000 Depreciation 83,000 Total Expenses 875,000 – 980,000

The cost recovery model is justified by the capacity and willingness of the target enterprises to pay for AII’s services.

The agribusiness entrepreneur survey found that some survey respondents prefer to pay at full cost. Others preferred payment by way of either a small percentage of equity, or with a royalty levied on the increase in their sales for a period.

 

Figure 17Ethiopian AII Target Clients’ Preferred Way of Paying for Services

Small  %  of  Equity  (5-­‐7%)    20%  

Royality  on  Increase  in  Gross  Sales  (3-­‐7%)  for  3  

or  4  years  48%  

Pay  as  You  Go  at  Full  Cost  28%  

None  of  the  above  4%  

 

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The responses from the survey imply the AII should offer options. Businesses at different stages will have different capacity and potential. For instance, an existing business may find it very complicated to give up equity, but may be prepared to pay for services at full cost at the time, or enter into a royalty agreement. A newer business may be in a position to give up some equity, but may not have the funds to pay for support.

Noting further refinement of the flexible model, the revenue projected for the first six years (excluding grants) is summarized in the table below.

Table 11 Ethiopian AII Revenue Generation Scheme for the First SixYears of Implementation

Income Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6

Incubation Fee

0 40,117 80,234 120,351 120,351 120,351 120,351

Royalty 0 120,351 293,318 482,121 482,121 482,121 482,121

Finance Brokerage

0 22,350 22,350 22,350 22,350 22,350 22,350

Notional 10percent Return on Equity Portfolio

0 1,000 4,800 8,600 16,600 24,600 32,600

With four main revenue options, the model has flexibility for review and adaptation, as the AII is implemented. Despite positive responses in the agribusiness entrepreneur survey, payment for services is not the norm and paradigms need to change. Benefits may need to be demonstrated first while taking clients on a learning journey. The model can accommodate this, in that no revenue is anticipated in the first year of establishment, during which carefully selected clients should be supported to demonstrate the benefits. Furthermore, all costs are grant funded for the first five years, when revenues will be banked. This situation will give time to progressively refine the model, based on annual reviews of performance.

8.2.1 Royalty

The model is very sensitive to the royalty rate. If all clients pay with 6 percent of their monthly turnover then the AII would be 92 percent self-sustainable by the end of Year 6, with annual royalty revenues in the order of $803,000 per annum. If the royalty is set at 5 percent then the AII would be 79 percent self-sustainable. In implementing the model varying rates for companies at different stages should be considered, with smaller and newer companies possibly paying a higher rate than larger and older companies.

 

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8.2.2 Equity

If all clients pay with 6 percent of their equity then the AII would only be 22 percent self-sustainable by the end of year 6, because it takes far longer to realize returns, which would grow to more than $500,000 per annum after 8 years. For equity to deliver 100 percent self-sustainability then a small number of outlier clients would need to be astoundingly successful.

8.2.3 Incubation Fee

Only a small percentage of the larger and more established clients would have the capacity and interest in paying for support with fees at the time. In the entrepreneur survey, 28 percent preferred this option and modeling assumes 20 percent, generating annual revenue of $120,351. As the fee is set according to the average royalty paid ($ 20,058 or $1,672 per month in the first year of operations), to cover the same level of support as for other clients, the sensitivity is the same as for the royalty option. Given the need for holistic support, an incubation fee is preferable to charging consulting fees for each component of assistance, although this may be another option, albeit more complicated.

8.2.4 Finance Brokerage

Brokering finance of between $50,000 and $500,000 with fees of between 5 percent and 2.5 percent on its own generates only $22,000 of revenue per annum, assuming the AII helps 50 percent of clients succeed with finance raising.

The following other revenue possibilities exist but have not been modeled at this stage:

• Training, for which revenue potential largely depends on how much is outsourced to other providers, in which case margins are likely to be low. Strategically outsourcing may be an important way to lever and involve partners.

• Sponsorship, from corporations interested in supporting the agribusiness sector as a part of their corporate social responsibility programs.

• Rental of hot desk services, meeting rooms, and other facilities in the AII premises.

 

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8.3 Fundraising Plan

The financing required over a 6 year period for establishing the AII is a total of $5,526million.

Table 12 Ethiopian AII Financing Required (over a six-year period)

Subsidy Required—Total $5,53m

Subsidy Required—Capital $0,297m Subsidy Required—Operational $5,229,000

The financing required to initiate the AII will be provided for the first five years, with income generated during this period being banked. The front-loading of the external investment allows the management to focus on developing the AII. It also allows the model to be changed, if it becomes clear after two years that the income generation targets are not likely to be met, or that one revenue options is preferred to another, or a flexible combination is required. Changes can be made before the AII needs to rely on its own income generating streams in later years.

 

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9.0 Results and Impacts

The raison d’être of the AII is to advance the competitiveness of agribusinesses, so as to increase their growth, and thereby increase jobs and incomes.

A detailed monitoring and evaluation framework will be developed to measure performance (for instance, in relation to “progress made toward the financial sustainability of the AII”), outcomes (for instance, “the number of women entrepreneurs who have benefited from the AII”), and impacts, such as job creation and increases in incomes. This will be done as a part of a comprehensive monitoring and evaluation plan.

The key targets over the 10-year project period are summarized in the table below and elaborated upon in Section 9.

Table 13 Ethiopian AII 6 & 10 Year Outcome and Impact Indicators

6 Year Impact 10 Year Impact

50 growth-oriented businesses supported

100 growth-oriented business supported

CLIENT BUSINESSES

Additional $11.9 million turnover generated

Additional $ 27.3 million turnover generated

1,698 jobs created 3,744 jobs created EMPLOYMENT 1,103 jobs created for women

2,433 jobs created for women

9.1 Outcomes

As discussed, over 6 years, more than 50 enterprises will directly benefit from the services offered by the AII. These entrepreneurs will increase productivity dramatically by cutting waste, implementing quality controls, and maximizing processing times with the availability of modernized processing equipment. Working with the various institutional partners, innovations will be made to adopt new processing equipment that suits the needs of entrepreneurs.

The AII will promote the success of its clients broadly so they can generate a catalytic effect more broadly, serving as role models for others to emulate. Innovations will also be made with regard to the distribution models used by the entrepreneurs involved. During infoDev’s interactions with them, most companies agreed that while production and efficiency were major issues, so too were the distribution models, which were often inadequate for the entrepreneurs to service their customer base. From small-scale, localized distribution to partnering with large national and international distribution firms,

 

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the innovations put forth in this area will have a tremendous impact on the entrepreneurs and their ability to increase local, domestic, and international markets.

Finally, the public-private partnership model proposed will increase the dialogue and contribute to concrete common initiatives to further the agribusiness sector in Ethiopia.

9.2 Social and Economic Impact

The social impact of AII interventions will be felt across the agribusiness sector, including farming, ancillary, and supportive services, including for BDS. The impacts will be felt with women, youth, and the unemployed/underemployed. Technical skills will make managerial staff more marketable. Improved quality control training will open new markets to farmers and suppliers.

Employment creation is the most direct, and easily recognized, impact. With the growth forecasts listed above, companies within the AII program are expected to double within the first three years of participation. The potential direct impact in terms of job, enterprise, and wealth creation has been captured in the tables available in Annex 11. Over a six-year period, it can be expected that the AII will have created close to 1,700 jobs. It is expected that out of these new jobs, more than 1,100 will be created for women.

Women mostly run micro and small food manufacturing businesses (60 percent). They are expected to constitute a significant proportion of clients—although only a percentage of existing micro and small manufacturing businesses will want to grow.

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 over this same time period.

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. These products and services include the following: glass, plastic and cardboard packaging; graphic design services; printing; transportation services; animal health services; and laboratory analysis. An increase in demand for these products and services will directly impact the unemployment and underemployment of personnel in each sector.

Federal taxation gains are another critical area of economic impact. It is estimated that tax revenue would increase federal revenue by approximately $1.3 million in the first six years. If one includes the tax revenues created from other enterprises that take up the

 

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technology and marketing innovations demonstrated by the AII, the impact on tax revenues will be even greater.

9.3 Climate Change Impact

At a general level, more sustainable, environmentally friendly and efficient agribusiness will indirectly achieve its own climate impacts, in terms of improved productivity and retention of carbon and water in soil, as well as resilience to climate shocks. Food production is a major contributor to climate change. Estimates range from 44 percent to 57 percent of greenhouse gas emissions come from food production, especially with modern industrial farming practices, which are not yet the norm in Ethiopia.

As noted by GRAIN, an international nonprofit organization that works to support small farmers and social movements in their struggles for community-controlled and biodiversity-based food systems, “Food is a key driver of climate change. How our food gets produced and how it ends up on our tables accounts for around half of all human-generated greenhouse gas emissions. Chemical fertilizers, heavy machinery and other petroleum-dependent farm technologies contribute significantly. The impact of the food industry as a whole is even greater: destroying forests and savannahs to produce animal feed and generating climate-damaging waste through excess packaging, processing, refrigeration and the transport of food over long distances, despite leaving millions of people hungry.”21

To address the problem, changed agricultural practices are called for that retain soil fertility and at the same time trap carbon. Ethiopia’s small-scale farmers already use these sorts of practices already. As GRAIN goes on to note, “To be able to do it, we would need to build on the skills and experience of the world's small farmers, rather than undermining them and forcing them off their lands, as is now the case.”22  

Should the AII be integrated within the CIC, sustainable practices can be instituted with the processors as they grow their businesses, many of whom already use or aspire to use environmentally sustainable practices. By necessity, with only limited use of pesticides and artificial fertilizers, much primary production at the small-holder level is organic already, which flows through to the processors. Opportunities also lie with the farmers for better integrated use of wastes for fertilizer, rather than for fuel, and to institute new environmentally friendly farming practices, such as low-till agriculture, which some developed countries, for instance Australian wheat growers, have already adopted.

At a company level, this assessment of the market for incubation of agribusinesses, uncovered a number of specific opportunities, including the following:

                                                                                                             21http://www.grain.org/article/entries/4357-food-and-climate-change-the-forgotten-link 22I bid

 

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There is a spice extraction company that has a struggling solar drier program. The briquettes factory in Awassa could be expanded to use coffee/sugar rinds

and for which the Addis Glass Company could take ash residue for glass production.

There are biogas opportunities with, for example, horticulture processing companies that currently dump all their waste.

The only PET supplier in Ethiopia is interested in and sees opportunity for public/private PET recycling program.

Arguably, a main benefit of agribusinesses being part of the CIC will be the opportunity to institute competitive climate-friendly production and processing systems, including reuse of waste, while indirectly supporting small-scale farmers whose practices have many climate-friendly features (namely, limited use of artificial fertilizers and pesticides).A social and environmental checklist will be integrated as part of the selection criteria to enter the CIC and benefit from the service offering, which would include the AII services.

9.4 Monitoring and Evaluation

The AII will be developing a comprehensive monitoring and evaluation framework, which will track technology and climate change impacts, enterprise creation and growth (including investment, employment, gender, and growth rates) and capacity building, import substitution and ecosystem impacts. In developing indicators, the following standard indicators should be incorporated to track client performance over time:

Turnover per annum Export revenues per annum Investment per annum Direct and indirect jobs created Company value

Comparing one year to another will allow growth to be tracked.

 

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10.0 Conclusions

The tremendous diversity of ecological zones in Ethiopia enables production of a wide variety of crops. Market opportunities exist for Ethiopian agricultural products: 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. However, significant challenges remain. One resonating challenge experienced by most existing entrepreneurs is the development of both domestic and international markets enabling entrepreneurs to potentially reach 380 million customers.

Many donors and Ethiopian government agencies are now working to overcome value chain bottlenecks. The timing may be opportune to complement this work by addressing the business level impediments faced by agro processors. The AII seeks to contribute toward advancing a climate-smart, competitive and sustainable agribusiness sector in Ethiopia. It will provide high-growth potential small enterprises with a holistic service offering, seeking to enable product, process, and business model innovation, thereby accelerating their growth and job creation. The AII will—in partnership with relevant stakeholders—provide entrepreneurs with a comprehensive service offering that will facilitate the access of Ethiopian agribusiness SMEs supported to markets, advice, finance, and facilities.

Given that women mainly undertake food processing activity in Ethiopia, the AII will be an efficient tool to succeed in impacting women entrepreneurs.

The AII is designed 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. In terms of cash flow, 90 percent of cash expenses would be covered. A flexible revenue model is proposed in which sustainability may be enhanced once various revenue options are tested. An initial investment of $10.35 million ($8.53 for operations and capex and $1.82 for implementation support and management) will be needed in order to achieve this objective. After the initial ramp up period, it will cost about $880,000 per annum to implement the AII.

The stakeholder engagement process has already built a strong coalition of partners and identified a pipeline of potential incubatees that will allow the AII to hit the ground and produce tangible impacts over the first six years. Pending the success and outcomes of the AII’s programs, its direction, scope, and scale (and business plan) will evolve over time with the guidance from a strong management team and board.

 

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Agribusiness-led growth has great potential to contribute to sustained economic development by enabling the development of sustainable innovative small- and medium-scale enterprises. The complementarities with donors and government’s existing programs are significant. The suggested business model is ideal to develop a leading and world-class business incubation program from which lessons learned will be applied globally.

 

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Annexes

Annex 1: Conclusions of InfoDev Global Good Practices Assessment on Agribusiness Incubation

In 2011, infoDev conducted a study of 10 agribusiness incubation programs in eight countries. The full study can be found at http://www.infodev.org/en/Article.800.html—as well as video documentaries of incubation programs in the mountainside of Java, Indonesia, and rural South Africa, along with rural areas of Brazil, Chile, and Mexico.

Examples of the results generated by these programs include the following:

• Fundación Chile has spearheaded the development of the salmon industry that in a span of just slightly more than 10 years has been able to grow by a factor of 1,000 and contributed to $2.2 billion exports and more than 35,000 jobs.

• The efforts of Technoserve in Mozambique and Fundación Jalisco in Mexico have led to the upgrading of entire subsectors, such as poultry, cashew nuts, and blueberries.

• CENTEV-UFV in Brazil has developed a new model for commercialization of agricultural research in Brazil. It has cultivated such successes as a biotechnology business specializing in a fungus that protects plants from parasitic nematodes, a product that could help reduce the yearly $100 billion losses in world agriculture.

• Timbali Industrial Incubator in South Africa has transformed the life of poor women into assertive entrepreneurs in the highly competitive flower business.

• ABI-ICRISAT in India has supported the growth of successful biotech companies. • IAA-IPB in Indonesia has promoted the growth of zero-stage enterprises owned

by women into successful, competitive, and growing medium enterprises.

The table below provides a snapshot of the quantifiable outputs of these incubators vis-à-vis the public investment in them. The age of the incubators and the vastly different scale of investments must be taken into account when reviewing these results. It should also be noted that the rate of interest (ROI) calculation does not take into account backward linkages—that is, while the calculations would include a processor who increased his/her sales by x, the increased income of the farmer who was able to sell more produce to the processor has not been taken into account. ROI calculation also does not take into account the impact on “copycats,” which adopted the production practices that were demonstrated and started or scaled their own businesses. Nevertheless, the calculations provide some indication of what results are achievable.

 

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Table 14Studied Agribusiness Incubators’ Quantifiable Outputs

Incubator Graduates Average Sales of

Enterprises

($ million)

Nr. Of Years the

Incubator Has

Operated

Initial Investment

in Incubator ($ million)

Total Sales of

Graduated Enterprises ($ million)

“ROI”

Enterprise Sales/ Initial

Investment in Incubator

Fundación Chile

85 5 30 50 425 2.3

CENTEV 24 2.5 16 0.7 60 60.4

Fundación Jalisco

4 1.25 5 4 5 1.2

IAA-IPB 38 0.21 16 0.3 7.98 18.7

Timbali 140 0.03 8 2.8 4.2 1.3

Not all the programs reviewed have been equally successful. In one case, an incubator focused on commercialization of domestic R&D had not yet achieved successful market entry. The review of the 10 programs, therefore, provided powerful insights into models that can be adopted, as well as factors that are critical to success.

It became evident that many viable models exist for agribusiness incubation. Selection of a model depends on the stakeholders’ core objectives, combined with the unique characteristics of the local business environment, and the amount and nature of the funding available to initiate the incubation activity. A commonality of the case studies assessed in this report was that most were structured as public-private partnerships. Beyond that, there were significant differences. The report identifies three types of agribusiness incubators: (i) agribusiness sector/value chain incubators; (ii) agricultural research commercialization incubators; and (iii) technology transfer incubators. Within each type, there are significant differences in terms of public-private partnerships, affiliations, target clients, business models, and organizational design.

 

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Based on the literature review and the case studies conducted, it appears that the success of agribusiness incubators in creating sustainable and competitive enterprises relies upon six factors. These factors include the ability of the business incubator to effectively—

1. Help the entrepreneur manage the risks associated with an agribusiness enterprise through a combination of technology, institutional, and networking strategies

2. Understand the value chain affecting the success of the enterprise and assisting the enterprise with positioning itself in the value chain by linking farmers and enterprises to meet the demand of consumers for stable, quality, and affordable products

3. Identify and demonstrate innovative business propositions so as to catalyze broader sectoral take-up

4. Adapt the focus and business model of the incubator, and strategically scaling it up in response to market opportunities and market failures

5. Promote pro-active business orientation that actively identifies market opportunities

6. Support incubation design basics: leadership with a business mindset and excellent agricultural market knowledge (preferably with agribusiness experience), a lean staff complemented by strong partnerships, an institutional framework that provides sufficient flexibility allowing for learning by doing, strong capital structure, and dense networks—including effective linkages with sector leaders.

Annex 2: Ethiopian Agribusiness Donor Mapping

As the following table shows, many donors have been addressing agriculture and agribusiness value chain impediments in Ethiopia.

Table 15Agriculture Value Chain Support Donor Programs in Ethiopia

NAME OF INSTITUTE FOCUS AREA

World Bank

– Used value chain approach to boost exports, competitiveness, and incomes growth. Targeted value chains included the following: fresh fruits and vegetables, cut flowers (roses), cotton garments and textiles, and leather (shoes). Currently uses value chain approach to support the GoE's plan to develop an industrial cluster development strategy.

USAID

– Used value chain approach to develop a market-driven, private sector-led Ethiopian dairy industry built on private investment that does the following: generates employment and income for small-holder families; provides comprehensive support package to improve Ethiopia's animal health and phytosanitary systems; introduces and adapts modern processing technology in meat industries; identifies major policy issues that discourage private sector involvement and provide alternative policy options to promote the sector; identifies market opportunities and stimulates market-led agro-enterprise and cooperative linkages with domestic, regional and international markets; and increases growth in investment, private sector employment, and incomes in the value chains of coffee, sesame, hides/skins/leather, and other horticulture crops.

ACDI/VOCA – Uses value chain approach to strengthen the agriculture sector, enhance access to finance, and

stimulate innovation and private sector investment. Targeted value chains include the following: chick peas, coffee, honey, maize, sesame, and wheat.

CIDA

– Uses value chain approach to ensure sustainable long-term economic growth by developing entrepreneurs, in particular women entrepreneurs (move from the informal to the formal sector) and Increase the productivity and sustainability of businesses, based on realistic market potential, which will result in increased long-term formal employment opportunities. Targeted value chains include the following: livestock, fruits, oilseeds, and eventually honey, and new value chains such as pulses, spices, and vegetables.

Finland Embassy – Uses value chain approach to contribute to poverty reduction through agriculture-based economic growth. Targeted value chains include onion and honey.

 

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DFID – Uses value chain approach to develop the private sector. Targeted value chains include horticulture, leather, and textiles.

Italian Development Cooperation

– Used value chain approach to promote economic growth in the Arsi zone through commercialization of small farm crops with market potential in the value chains of horticulture, vegetables, and livestock. Used this approach to increase the economic productivity of traditional agricultural products, namely the durum wheat of Bale and the wild coffee of Harenna forest, through the strengthening of key institutions involved in the value chains, and the support to farmers and their organizations in the implementation of enhanced cropping and post-harvest practices toward a full recognition of their quality products by national and international final users. Used this approach to increase food security, reduce poverty, diversify agriculture, and promote soil and land conservation for fruit and cactus pear production. Funder of the Crop Diversification and Marketing Development Project (CDMDP).

– The Italian development cooperation has been recently focusing its support on the development of the leather value chain.

FAO

– Used Value Chain Approach to raise subsistent small-holder production to commercial level in the dairy value chain, to promote economic growth in rural areas through strengthening commercialization of small scale-farmers in areas with recognized market potential through the Crop Diversification and Marketing Development Project (CDMDP) funded by the Italian Cooperation and which focused on wheat and barley. Collaborates with UNIDO in the framework of the Edible Oil Value Chain Enhancement Programme (see below).

– The FAO has been focusing its activities toward the implementation of the warehouse receipt system and has been acting as a purchaser of raw and processed agricultural products from private companies in the framework of its aid programs in the regions.

CDE/EU

– Uses value chain approach to develop the capacity of private companies, private sector intermediary organizations, and public service bodies in order to enhance the business and export growth opportunities in selected sectors. Uses approach to add value to livestock commodity production chains by integrating strengthened animal health, advisory, and regulatory services, supported by effective dialogue between and mutually agreed actions by stakeholders in the public and private sectors. Uses approach to contribute towards increased income and reduced poverty of small-holder farmers through enhanced integration into agricultural commodity markets. Targeted value chains include fruits and leather.

Bill and Melinda Gates Foundation

– Uses value chain approach to boost agricultural productivity growth. Targeted value chains include staple crops (cereals, oilseeds) and livestock (meat).

 

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SNV Ethiopia – Uses value chain approach to increase production, income, and employment opportunities for small

farmers by enhancing their inclusion in local, national, and global value chains. Targeted value chains include oilseeds, honey, fruits, and dairy.

UNIDO

Uses Value Chain Approach in preparing an agro-industrial master plan for Ethiopia, by prioritizing commodities to identify those offering the highest prospects for growth. Twenty-two commodities were assessed, 12 were selected including four priorities: cereals (wheat, maize, teff, and barley); oilseeds (sesame, Niger seed, linseed and rapeseed); coffee and sugar; and design strategies to support commercialization and agro industrial development. The Edible Oil Value Chain Enhancement Programme (funded by the Spanish Government and jointly implemented by UNIDO, International Labour Organization (ILO), and the FAO) in the Amhara and Oromiya regions aims to increase the productivity and competitiveness of Ethiopia’s oilseed producers, to boost the capacity for processing oilseeds, and improve access to local and international markets by integrating the private sector into the edible oil seed production value chain.

Dutch Embassy/EKN

– Used value chain approach to contribute significantly to more efficient agricultural value chains by supporting private sector actors and improve the efficiency and effectiveness of farmers' organizations in agricultural marketing of milk and milk products, honey and beeswax, edible oils and oilseeds, and pineapple.

SIDA – Used value chain approach in the Amhara region to help poor farmers manage long-term sustainable production and improve small farmers’ rights and economic possibilities.

UNDP

– In collaboration with the East Africa Community (EAC), uses value chain approach in the framework of a new initiative—East Africa Project Facilitation Platform (PFP)—to boost food production, job and income opportunities for farmers through advancing agriculture value chains in East Africa. Targeted value chains include sorghum, soy and dairy.

GIZ

– Uses value chain approach to upgrade the areas of agro processing of bamboo, leather, textiles, and pharmaceuticals and to ensure that through value chain interventions the competitiveness of the local industry is strengthened in the framework of the Engineering Capacity Building Program, which involves KfW.

Spanish cooperation – Funder of the Edible Oil Value Chain Enhancement Programme. Chinese Cooperation – Special economic zone, construction, TVET, and Import-Export Bank.

 

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The following donor programs currently being implemented have special relevance for the AII:

1. Finnish Embassy—Agro-BIG is dedicated to agribusiness induced growth in the Amhara National Regional State. The four-year program supported by both governments of Ethiopia and Finland aims to contribute to poverty reduction through agriculture-based economic growth in the program area by establishing efficient and profitable value chains of selected crops or products (during the first phase, the value chains of focus will be onion and honey), benefitting the involved actors and stakeholders along the chain (farmers, processing industries, traders, and buyers). Agro-BIG will have three vertical components: value chain development, service delivery development, and access to funds and financial services. Finland views infoDev as a key implementing partner for Agro–BIG and supports the integration of the AII with the CIC. Annex 6 summarizes how the AII and Agro-BIG Program can work together as an example for how the AII can complement the work of other donors.

2. DFID—Private Enterprise Program Ethiopia (PEPE) and the Government for Growth (G4G) program, which is under design and which aims to take over the Ethiopian Competitiveness Facility (ECF) focusing on horticulture, leather, and textiles—both of which could have intersects with the CIC. DFID is infoDev’s core donor partner for funding the CIC in Ethiopia.

3. European Commission—Two EC-funded initiatives could be explored for intersects with the CIC: a business incubator to be set up at the University of Addis Ababa that will focus on leather, pharmaceuticals, and chemicals (in line with the GTP); and the €30million transformation instrument designed to accompany the implementation of the GTP.

4. USAID—The FABS program will be launched in June or July of this year. This is a five-year program focused on expansion of financial services, business development services, and trade facilitation. Once the implementer has been selected, it has been agreed that USAID colleagues will link this entity with infoDev to explore collaboration opportunities with regard to the sustainable agribusiness

5. SNV—The BOAM program launched in 2005, focused on four “neglected value chains”: apiculture (honey), fruits, dairy, and oil seeds. The next phase of the program still under development foresees a €10 million grant support in dairy for the development of public-private partnerships and a €9 million grant support toward enhancing investment in commercial finance and innovation supply in the honey sector. Other sectors to be supported will include fruits.

6. African Development Bank—Their focus is on facilitating access to microfinance, notably through a rural finance program implemented with IFAD and which the second phase is currently being designed. The aim is to facilitate access to markets of value added products by collaborating with private sector

 

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stakeholders and facilitating their access to adequate infrastructure and credit. The AfDB has offered to link the infoDev team with the relevant contact person in the AfDB headquarters so that collaboration opportunities can be explored.

7. SIDA—SIDA promotes private sector development through projects at the macro level (supporting ministries, for example), at the meso-level (such as developing chambers of commerce), and at the micro level (through training small-scale farmers, for example). The efforts that are prioritized in different countries and regions depend on each country’s particular conditions and requirements. In Ethiopia, SIDA has been supporting a major project in the Amhara region for some time. This program helps poor farmers manage long-term sustainable production. By promoting self-determination locally, the project has improved small farmers’ rights and economic possibilities.

8. UNIDO—In 2007, UNIDO carried out an agribusiness sector study on the basis of which it has developed with the government the Agro-industry Development Strategy, which focuses on 12 value chains. Out of the 12, it prioritized five for critical intervention for each of which it has developed or is currently developing a dedicated strategy. To date, it has developed the strategies for coffee and oilseeds and is still developing the strategy for fruits and vegetables and dairy. The oilseeds value chain project mentioned earlier is currently being implemented in partnership with two agencies: FAO and ILO.

a. The FAO focuses on agriculture and production—helping farmers and cooperatives to work organized in business associations focusing on access to inputs and marketing. Small-scale processors are organized in geographic clusters moving to industrial zones where they receive support with raw material supply agreements facilitation, technology, and marketing. The project enables farmers to produce better and processors to get better and consistent raw material, namely, the raw material supply issue (identified as the first issue by agribusinesses in Ethiopia) is sorted out.

b. The ILO focuses on the policy and enabling environment—providing support to research institutes, BSD providers, universities, and professional associations.

UNIDO is coordinating the overall project that intends to link small-holder farmers to the industry, including SMEs by intervening all along the value chain. It has been agreed that once the AII business model is finalized, the team will go back to UNIDO to explore potential collaboration opportunities on value chains of common interest.

9. IFAD—IFAD’s strategy in Ethiopia is well aligned with the government’s GTP strategy. It focuses on supporting investment programs with the greatest potential impact on sustainable household food security and the incomes of poor people. IFAD’s strategy is to improve poor rural people’s access to natural

 

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resources (such as land and water), improve agriculture and livestock production technologies and support services, and develop reliable financial services. The projects particularly target women, small-scale farmers, and herders. IFAD has taken the lead role, together with their partners, in the development and expansion of rural finance, small-scale irrigation, and support systems for pastoral communities. IFAD also works with governments and communities in the Eastern Africa region to introduce appropriate measures and adaptive technologies that reduce the vulnerability of poor rural communities to climate variability and longer-term climate change. A main focus is restoring ecosystems and their services as a means of bolstering the resilience of agricultural livelihoods. IFAD is also pioneering and testing payment for environmental services, income diversification, and more sustainable and profitable management systems, which promise to become a major factor in encouraging rural communities to protect the resources they depend on and to help them become active players in reducing global greenhouse gas emissions. No specific action has been rolled out in Ethiopia, yet.

 

 

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Annex 3: Main Gaps Faced by Ethiopian Agribusiness SMEs

Using a combination of workshop outputs, agribusiness entrepreneur survey results, stakeholder interviews and desk research, infoDev identified the specific gaps and needs of the agribusiness sector in Ethiopia. There are clear opportunities for agribusiness activities in Ethiopia, but a number of general gaps hinder development of a competitive agribusiness sector:

Input Supply Problems and Low Utilization of Installed Capacity

Consistency, quality, price, and the quantity of agricultural produce are limiting problems for just about all agro processors. Interviews with entrepreneurs and the literature review highlighted the problem. Even though the response was lower than expected in the entrepreneur survey, it was still the second largest problem reported. This reflects the state of development, where most production is done at the subsistence level with small-holder farmers and state-owned enterprises still dominate in some sectors and commercial production is only new and emerging. Processors and traders generally have to put in place grower schemes, with small-holder subsistence farmers, as well as sourcing from state-owned enterprises and the growing number of commercial farms. This is not easy and the problems were summarized by a textile factory, “farmers do not understand quality, and do not check quality or grade.”

The right inputs are not always available. For example, the international market needs cotton with 30to 32mm. length fibers to be competitive, whereas Ethiopian farmers produce 25 to 28mm.,traditional zebu cows are nowhere near as productive as introduced breeds and new grain varieties can both increase production and help adapt to climate change. Accordingly, much can and is being done by donors and the government to improve seed and livestock breeds. Moreover, government policies sometimes constrain inputs, even though government is allowing the private sector more room to move. For instance, private artificial insemination has a far high success rate and is far more efficient and responsive than the government service.

Supply chains are only now starting to formalize. Without formalization, the many brokers who take produce from small farmers do not always help. As one person complained “they just show up” and can interfere with out-grower schemes, by tempting contracted out growers to sell to them rather than under their contract. Inadequate information on industries, let alone plans for particular industries, leads to asymmetries and further complication.

Consequently many firms operate below capacity (for example, 20 percent, 60 percent, and 50 percent) because of a combination of factors: good quality raw

 

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material, small quantities produced by individual farmers, inadequate storage, handling facilities, and long distances from production areas to processing plants. While this is serious problem that will take time to improve nationally with improved seeds and other inputs and better linkages and infrastructure, it has not stopped entrepreneurs, who are developing their businesses and business models, working around the constraints and putting in place their own solutions. There are a few exceptions, for example, in the ginger production sector one of the companies interviewed is operating at 100 percent capacity and looking to expand.

As Table 15illustrates, some donors and local stakeholders, such as the ATA, are currently addressing this gap to improve the supply of inputs and to foster the utilization of existing capacity.

Market Development

Across the dominant value chains of Ethiopia, the resonating challenge experienced by most existing entrepreneurs is the development of both domestic and international markets. In the entrepreneur survey, 83 percent of respondents expressed either very high or great interest in marketing support.

 

Gaps – Needs

Limited or lack of market information local, regional, and international demand situation

Access to consistently updated market information relating to demand situation

Lack of awareness of quality standards in local, regional, and international markets

Periodical training on grades and standards prevalent in local, regional, and international markets. Instituting standards and associated systems

Lack of well-defined quality management systems (including good manufacturing practices)

Training on QMS and the creation/adaptation of QMS

Poor agro produce packaging and underdeveloped packaging industry

Facilitated linkages with packaging firms and promotion of a local packaging industry

Lack of marketing capability Extensive training, coaching and on the job support

Export infrastructure and services, either via Djibouti or airfreight

Better export infrastructure and services and helping entrepreneurs to develop their capabilities to better navigate through the complications

Very poor domestic distribution services

Strategies and business models to improve distribution

Market Access Creating new and expanding existing local through to global markets

 

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Food processing entrepreneurs struggle to understand the following: opportunities for both domestic and international distribution, the industry standards associated with each target demographic, and the logistical constraints that require addressing. Unlike many neighboring countries in East Africa, Ethiopia boasts no domestic or international supermarket chains, and the distribution industry is extremely informal. For entrepreneurs interested in pursuing a domestic market, the distribution choices are extremely limited.

Apart from managing their own distribution with their own trucks, sales team, and regional warehouses, Ethiopian entrepreneurs are left with two options: the Merkato system or partnering with a large processor, such as ET Fruit and using their distribution channels. Et Fruit, one of the largest food distribution companies (focused on fresh fruits and vegetables), is a government-owned entity who has expressed an interest in distributing domestically produced, value-added products, although it has never done so in the past. This opportunity is extremely tangible, although there is a question about how one of the largest, public entities will entertain the idea of supporting small-scale processors of value-added, "specialty" products.

The Merkato, a complex network of regional, informal markets (complete with an extensive infrastructure of traders, brokers, wholesalers, local, and regional transportation companies) is perhaps one of the most underutilized opportunities for Ethiopian value-added food processors. The main Merkato is located in Addis Ababa, and is nothing short of a vast array of manufacturers, wholesalers, brokers, traders, sales agents, and small-scale distribution companies. From the Merkato in Addis Ababa, products are sent throughout the city, and to virtually every region of Ethiopia, where they are often consolidated in the merkatos of other regions (such as Nazareth, Arbaminch, or others). Despite being a confusing and complicated process, the Merkato does offer one of the most seamless paths to national distribution. There are even a few companies who export. During the interviews, most manufacturers were unaware of how the Merkato worked, or simply lacked the resources to engage this distribution system. Most Ethiopian food processing entrepreneurs get too focused on the larger, international markets, most notably the U.S. and E.U. markets, while ignoring the domestic market opportunities. In Addis Ababa alone, it is estimated that there are more than 1,000 points of distribution (albeit all independently owned), which could be suitable for many products discussed.

For international markets, Ethiopia must face the reality that they are not competitive in many value chains (for finished products), simply because of the lack of quality packaging (which must be imported), the lack of acceptable laboratory and standards analysis (products must be shipped internationally for analysis), the high cost of transportation, and unhelpful VAT policies. As a landlocked country, where exports

 

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have to go by road to Djibouti or by airfreight, entrepreneurs have few options and higher transportation costs. Consequently, most Ethiopian manufacturers must resort to unbranded, commodity bulk trading—losing out on the branding recognition that they need to create sustainable business linkages. Establishing and working with a solid network of co-packers, who will package a manufacturer's product in the manufacturer's brand, is one clear opportunity to develop. Relationships can be established in critical, target markets, including Sudan, the Middle East, other ECOWAS countries, and even the EU to develop competitive, well-branded, compliant food products. Only then can Ethiopia shift from a commodity trade focus to a value-added food processing one.

The Ethiopia Commodity Exchange (ECX) was established in April 2008 as a private company owned by a partnership of the market actors, members of the exchange, and the Ethiopian government. It is the first in Africa to have streamlined payment transfers down to "T+1" (next day payment after a trade) from its clearinghouse to its partner commercial banks. "Push" price date is transmitted in real time to outdoor electronic ticker boards in 32 rural sites, to the ECX website, 256,000 mobile subscribers via instant messaging, the radio, TV, and print media. Noting its progress and promise, numbers of entrepreneurs reported problems dealing with the ECX, its prices, and government control in some commodities. Problems are to be expected with any new transformative initiative and the ECX is still a relatively new institution. Although the ECX may still be a source of supply of agro processors, the AII aims to help agro processors add value to products, moving away from commodity trading, as noted earlier.

Business Management Capability

As well as market development weaknesses, agribusinesses in Ethiopia suffer from other business level gaps related to poor management strategy and execution, which are summarized below.

 

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 Gaps – Needs

Lack of practical business training On-site and in-business advice from experienced professionals

Lack of ongoing access to business advice

Availability of local advisors with broad knowledge to advise on business matters

Weak business planning and execution

Organized, tailor-made hands-on coaching in business planning and implementation

Skills gaps in marketing, especially broadening marketing channels and identifying strategic outlets, both domestically and for export

Exposure sessions to a diverse range of marketing strategies

Skilled consulting assistance to help develop competitive market entry and development strategies

Lack of knowledge in establishing raw material supply deals and efficient supply chains

Facilitating contract and out-grower farms deals and helping companies to improve the efficiency of their supply chains

The entrepreneurs surveyed desire support from the AII to address these weaknesses, for which marketing (marketing and new markets combined) and financing top the list, followed by training, business planning, and management advice and mentoring.

Finance

Finance was the biggest problem and the priority service need reported in the entrepreneur survey, especially for food processors, reinforced by interviews with entrepreneurs and stakeholders and in the CIC business plan. The entrepreneur survey indicates that finance for growth is possibly more of a gap than for start-up. Responses showed that the 53 percent of respondents started their business using finance from savings, family, and friends; whereas, in response to questions about the support they required now finance topped the list, with 67 percent of respondents expressing great interest in this service. Only 16 percent of survey respondents noted great interest in financial management advice as a service, indicating they are not aware of the importance of good management and accounting practices to secure finance. This was reinforced by interviews with entrepreneurs, who mostly did not show highly developed management capabilities. Accordingly, finance needs to be addressed both in terms of the supply of finance and finance readiness with the entrepreneurs on the demand side.

Business Level Gaps: Building a pipeline of business skills, capacity, capability, and sustainability

 

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Gaps – Needs

Access to finance limited by risk aversion, collateral and personal equity requirements, and high interest rates

Access to risk capital

Limited finance options Access to risk capital and development of viable options for debt

Weaknesses in preparing fundable business proposals

Exposure and coaching on business write-ups and also linkages with business service providers

Micro finance is too small for agri-business companies on a growth path, although may be involved further down the chain

Finance for growth

Some examples of the finance sought from the individual consultations include the following:

A ginger processing company is at 100 percent capacity, processing five tons of raw ginger a day and is seeking $3,000,000 to expand production to 50 tons a day.

A large textile company with old machinery and spare parts problems is seeking $5 million.

A new dairy company producing milk, cheese, and butter is seeking $56,000 for working capital to assist their growth.

A three-year old fast food company is planning on selling shares to raise $1.1million to fund their planned growth.

A poultry company selling chickens, pullets, eggs and pork needs $1.1 million to double production.

Equipment and Technology Gaps

Primarily for food manufacturers and processors, the greatest technology gaps include access to appropriate technology, post-harvest and cool storage facilities, after sales service and spare parts, access to approved laboratories for food health and safety testing, and new product development, as well as associated certification services.

Finance

Ensuring access to risk capital

 

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 Gaps – Needs

Lack of knowledge of latest processing technology

Ongoing education of technology advances

Equipment is outdated or inappropriate

Access to new and improved equipment

Insufficient equipment to increase production

Facilitation of finance to acquire new and more equipment

Lack of after sale services and spare parts

Facilitating better equipment supply deals with after sale deals.

Underdeveloped local manufacturers and equipment maintenance services

Exposure of local manufactures to dealership with international providers

Grossly inadequate post-harvest storage and cool storage in rural areas, limiting the ability of producers to store and market their produce efficiently while reducing post-harvest losses

Facilitation of access to facilities and support for enterprises in these areas

Insufficient food health and safety laboratories and certification services

Better access to existing institute and university laboratories and laboratory improvement, along with improved certification services and understanding international links to appropriate laboratories

 

In the entrepreneur survey, 72 percent of the survey respondents expressed very high or great interest in technology services, 60 percent in help with packaging, and 73 percent in testing and certification. Broadly speaking, all the businesses wanting help with technology also want assistance with testing and certification and packaging.

Cool storage and post-harvest handling processes are significant problems, which will in the end as the problems are addressed, become opportunities for service providers.

Linkages and Networking

The stakeholder feedback reveals poor linkages and networking among tertiary institutions, government, and industry—leading to policies, R&D, and training that does not always address industry needs.

Equipment and Technology:

Supporting acquisition of equipment and technology for competitiveness

 

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Gaps – Needs

Research and development knowledge not reaching processors

Facilitating linkages between research and development and processors

Government policies do not always assist processors

Advocating behalf of processors to improve support

Higher education, vocational training, and research not meeting the demands of the agro processing industry

Facilitating curriculum review, training methodologies, and research to address local industry challenges

Improving access to laboratories and other facilities

Promoting internship and entrepreneurship programs to foster a pipeline of new agribusiness entrepreneurs

No enforced national standards, for example, for honey and organic certification

Introducing standards, associated services, and training

Consultations with stakeholders and businesses identified a range of areas in which government policies and services need to improve:

Only government can import wheat, causing problems for wheat processors who cannot always get the type and quality of wheat they need.

Far better industry statistics and evaluation are needed, with data that can be trusted by industry.

Having customs and duty charges on packaging material are unnecessary and arguably unfair impediments, since no domestic companies are producing the material. Because TetraPak is insulated with aluminum, it attracts a 30 percent import duty.

Linkages

Connecting, informing, leveraging, and transforming relationships

 

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Annex 4: Agribusiness Entrepreneur Survey Report

To improve understanding of the market for the AII and the needs of these entrepreneurs, 75 selected businesses were surveyed with an in depth interview, in April and May 2012. The sampling methodology relied on referrals from stakeholders and use of networks to find suitable businesses. Qualitative information gathered by the interview team was used to help interpret the survey data.

The survey was in three parts. The first sought to understand the background and motivation of the entrepreneur. The second sought to understand the business and the problems it faces. The third and final part sought to understand the support desired and payment options.

Profile of the Sample

The Entrepreneurs

The majority of the entrepreneurs in the sample fit the profile of the people who own and grow businesses. Most are opportunity entrepreneurs who have gone into business after employment and for whom the business is a full-time undertaking and the sole personal income source.

Slightly more than 75 percent were aged between 31 and 50, with only 7 percent between 20 and 30.

 

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Figure 18 Age of Ethiopian Agribusiness SMEs Surveyed

This situation is not unusual working with growth-oriented businesses, where maturity and experience are important, confirmed by the fact that 57 percent of respondents were formally employed before starting the business.

 

Figure 19 Employment before Current Business for Ethiopian Agribusiness SMEs Surveyed

In the vast majority of countries, whether developed or developing, micro and small enterprises comprise more than 90 percent of all businesses (typically 96to 98 percent), many of which are family-owned and informal. Many of these businesses either do not

 <20  0%  

20-­‐30  7%  

31-­‐40  37%  

41-­‐50  40%  

51-­‐60  15%  

>60  1%  

Not  formaly  employed  

17%  

Study  13%  

Employed  (pvt  sector)  

34%  

Employed  (public  sector)  23%  

Other    13%  

 

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want to grow, or do not have the capacity for growth. Typically it is only 10 to 20 percent of businesses that are growth oriented, let alone are “growth ready” and only a very small minority are dynamic high-growth companies (3 percent according to Global Entrepreneurship Monitor [GEM]).23 A number of questions were asked to explore the commitment of the respondents to their business and its growth and to ensure the sample is one that is suitable from which to draw conclusions about business incubation, which is clearly targeted at supporting growth-oriented entrepreneurs.

The GEM developed a useful distinction between necessity entrepreneurs (NE), defined as those people who start a business because they “(have) no better choices for work” and opportunity entrepreneurs (OE) who start a business “to take advantage of a business opportunity.” The distinction is important because it determines the primary motive for participating in the start-up, whether they are willing volunteers (OE) or feel they are “forced’ into creating a new business”(NE). Given the intention to grow a long-term business is implicit in the definition of an opportunity entrepreneur and is fundamental to business incubation, questions were asked to enable categorization between necessity and opportunity entrepreneurs in the sample, noting the two categories can and do overlap.

Of the 75 respondents, 72 percent stated they are in business to seize a market opportunity and long-term growth and on this basis appear to be opportunity entrepreneurs. One respondent did not know why they were in business, 16 percent nominated no other option, and 11 percent indicated to supplement other income, which shows 27 percent may only be necessity entrepreneurs.

                                                                                                             23 Global Entrepreneurship Monitor. 2004 Executive Report.  

 

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Figure 20 Why Surveyed Ethiopian Agribusiness SMEs are in Business

Responses to other questions clearly show the majority of respondents are serious about their business. Business is only a part time activity for a few and 88 percent work for more than 35 hours per week in the business and 59 percent work more than 51 hours. For 79 percent of the respondents, their business is their only employment and for 73 percent the business provides 95 to 100 percent of their personal income.

The respondents are mostly a skilled and qualified group, of whom 59percent have a bachelor degree or higher and 13percent a trade qualification. The remainder of respondents have mostly completed high school, although 8percent had only completed primary school education.

No  opFon  16%  

To  supplement  

other  income  11%  

To  seize  a  maket  

opportunity  and  long  

term  growth  72%  

 D/K  1%  

 

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The Businesses

Reflecting a desire to focus on value adding, the majority of businesses are food manufacturers, with the remainder classified as agriculture or forestry, or in related industries, such as transportation and storage. The majority of the businesses are more than five-years old. Although with 14 percent from three to five years old, 23 percent from one to three years old and only 7 percent less than one year old, the sample has a useful range of experience from which to learn. It must be noted that the sort of incubation under consideration is not restricted to new start businesses, but potentially for any age of business that warrants and needs the intensive support offered to help them on a growth path. Almost all exhibit a history of growth in turnover—an important criteria when seeking growth-oriented businesses with which to work to achieve more growth.

Addis Ababa, being the capital city of the country, hosts a wide range of entrepreneurs, mainly concentrated in a natural cluster locally known as Merkato, which is one of the biggest open markets in Africa. The majority of the people in the Addis Ababa region predominantly practice agriculture, with some trading activities, which is closely linked to the market in the capital. Merkato is a common market place where all kinds of agricultural products are traded (a natural cluster for the commodity market). Furthermore, the majority of the manufactured goods required by semi urban and rural communities are distributed from this central market, mainly by wholesalers and multiple layers of middle people. Because of the presence of this market, Addis Ababa is a trade hub for regional states. It makes sense for the AII to be based initially in and around Addis Ababa.

Through time, however, regional AIIs can be proposed in other emerging towns, such as Awassa (Southern Nations and Nationalities Regional State), Adama/Nazareth (Oromiya Regional State), Diredawa (Self-administered city), Mekele (Tigray Regional State), and Bahir Dar (Amhara Regional State). Indeed, 39percent of the agribusiness operators reported in this survey are located out of Addis Ababa (at 100 kilometers or more) and they represent entrepreneurs working in Awassa, Adama, and Bahir Dar. The 2007 national survey of the Ethiopian Statistical Agency (CSA) indicted that manufacture of food products and beverages accounted for 26 percent of the major

Business Sample

Large, medium, and small scale enterprises, as well as micro enterprises, organized into cooperatives.

The majority were engaged in processing of raw material to add value, with some companies engaged in commercial farming, logistics, packaging, training and research, and technology development.

As with most agro-processors in Ethiopia, 95 percent were from Addis Ababa, while the rest were from other towns, such as Dukem, Debrezeit, Koka, Adama, Merti, Hawassa, Arbaminch, Kombolcha, Bahirdar, Mekele, and North shoa (Chacha).

 

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industrial groups for medium and large enterprises; and out of 381 food manufacturing companies, 190 were in Addis Ababa, 71 in Oromiya, 38 in Amhara, 31 in southern region, 26 in Tigray, and 16 in Diredawa.24

For these reasons and based on consultations with stakeholders and entrepreneurs, the AII should establish an office in Addis Ababa, ideally close to the Chamber of Commerce, as well as a point of distribution in the “Merkato.” Virtual services can be provided to companies in the regions of Adama (also to cover Debrezeit), Awassa, Diredawa, Mekele, and Bahir Dar, to be followed by other emerging towns. Over time satellite facilities may be established in some of these locations.

Most of the sample relies upon the domestic market; from which 59 percent generate 100 percent of their sales, although 5 percent generate 100 percent of their sales from export. The remainder are somewhere in between.

Furthermore, 80 percent of the respondents show a history of growth over the past three years. This is relevant because experience shows that those people who have already grown their business to some extent are often the best businesses to help achieve further growth.

The entire sample wanted to grow their business, but answers to questions about intention to grow a business can be misleading in any culture. It appears that only few had concrete plans as to how they were going to do this. Interviewers usually drew a blank when they asked “how are you planning to do this?” Only those respondents who approached banks and microfinance institutions possessed business plans. It is difficult to confirm whether an enterprise owner is fully dedicated towards growing his or her business in its strictest sense. Those who said they really strive to grow their businesses sometimes put conditions around this, such as “if I get finance, why not?”

It is important to note that the micro and small enterprise owners often showed their courage and motivation in explaining their desire to grow business. Several of them told the interviewer the ups and downs they encountered to get to the level where they are today. The general answer of “yes” to this question thus reflects a desire for business growth more than an actual plan to make it happen. An encouraging sign is that the majority of respondents want to grow by increasing sales and customers, either domestically or by export, a consequence of which is increased direct or indirect employment.

To grow businesses need to be competitive and in a competitive global market, which often involves differentiation and completion on the basis of value. This appears to be

                                                                                                             24CSA. 2007.Annual Large and Medium Scale Manufacturing Industries Survey.

 

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understood by almost 50 percent of the respondents, who believe they are competitive in terms of quality and uniqueness.

The following table categorizes the businesses in the sample according to standard industry classifications.

Table 16Categorization of Ethiopian Agribusiness SMEs Surveyed per Industry

Business Category

Agriculture, Forestry 22 29%

Manufacturing (food, juice, milk, honey, spices) 43 57%

Wholesale, Retail, Repair 1 1%

Transportation, Storage 3 4%

Accommodation, Food Service 5 7%

Professional, Scientific, Technical Activities 1 1%

Total 75 100%

Looking at the activities and products of the respondents gives a slightly richer picture, as summarized in the table below, in which categories with no respondents are reported to show what is not included. Through this lens at last 56 percent are manufacturers and the value chains represented in the sample include fruit and vegetables, oil seeds, poultry and dairy, spices, cotton and silk, wheat, honey, apiculture, bamboo, and beverages. This is a good range, although with only a few respondents in most categories, it is not possible to drill down into any particular sector with any statistical validity.

 

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Table 17Categorization of Ethiopian Agribusiness SMEs Surveyed per Activities and Products

Activities and Products

1. Agriculture—fruits and vegetables farming 10 13%

2. Agriculture—cotton farming 2 3%

3. Agriculture—cereals and grains farming 0 0%

4. Agriculture—oil plants and oil seeds farming 3 4%

5. Agriculture—dairy and poultry farming 3 4%

6. Agriculture—cattle fattening and meat processing 0 0%

7. Agriculture—research and training 0 0%

8. Agriculture—packaging 1 1%

9. Agriculture—technology and equipment 1 1%

10. Manufacturing—fruits and vegetables processing 4 5%

11. Manufacturing—spices processing 8 11%

12. Manufacturing—cotton and silk processing, textile, and garment making

16 21%

13. Manufacturing—packaging materials 0 0%

14. Manufacturing—testing and standardization services 0 0%

15. Manufacturing—transportation and logistics 0 0%

16. General Training 1 1%

17. Accommodation and Food Service Activities 7 9%

18. Transportation and Storage 2 3%

19. Agriculture—honey and bees wax 3 4%

20. Manufacturing—wheat flour, pasta, macaroni, bread 7 9%

21. Manufacturing—edible oil and animal feed 1 1%

22. Manufacturing—wood and bamboo 3 4%

 

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23. Manufacturing—local drinks—wine 2 3%

24. Agriculture—marketing services 1 1%

75 100%

The businesses are mostly based in and around Addis Ababa, where the AII is to be based.

Table 18Location of Ethiopian Agribusiness SMEs Surveyed

Business Location

1. In Addis 42 56%

2. Oromoiya—25kms out of Addis 0 0%

3. Oromiya—45kms out of Addis 2 3%

4. 100 kms out of Addis 2 3%

5. >100kms out of Addis 29 39%

6. In Addis and one of the regions 0 0%

75 100%

The majority of the businesses are more than five years old. Although with 14 percent from three to five years old, 23 percent from 1 to 3 years old and only 7 percent less than one year old, the sample has a useful range of experience from which to learn. It must be noted that the sort of incubation under consideration is not restricted to new start-up businesses, but potentially for any age of business that warrants and needs the intensive support offered to help them on a growth path.

 

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Figure 21 Age of Ethiopian Agribusiness SMEs Surveyed

Not surprisingly given the sample of existing businesses, most businesses are already registered (79 percent) and most are structured as a company (55 percent), or a cooperative (20 percent). This situation reinforces the perception that this sample is relevant for incubation, as opposed to informal and micro businesses that only rarely grow.

Table 19Business Structure of Ethiopian Agribusiness SMEs Surveyed

Business Structure

1. Sole Trader 11 15%

2. Company 41 55%

3. Cooperative 15 20%

4. Partnership 3 4%

5. Other 5 7%

75 100%

Years  in  OperaFon  

0%  

1.  Less    than  1  year  7%  

2.  1to  under  3  years  23%  

3.  3  to  under  5  years  14%  

5  and  above  56%  

 

108  

As is the case the world over, the majority of this sample used their own, family, or friends funds to start their business (53 percent). However, a relatively high proportion made use of micro credit or a bank loan (21 percent), or were backed by an investor (24 percent).

Table 20 Source of Funds Used by Ethiopian Agribusiness SMEs Surveyed to Start Up

Source of Money when Business Began

1. Did not Need 1 1%

2. Personal Savings 32 43%

3. Friends and family 7 9%

4. Money from Friends Overseas 1 1%

5. Micro Credit, Bank Loan 16 21%

6. Investor 18 24%

7. Other—specify 0 0%

75 100%

 

109  

Scoping for the AII indicated the spectrum for this sort of incubation is to take businesses on a path from micro to small and small to medium and medium to large. The sample includes a spectrum from micro to large with33percent micro businesses, 23percent small businesses, 11 percent medium businesses, and 33 percent large businesses, according to Ethiopian definitions.25    

Table 21 Categorization of Ethiopian Agribusiness SMEs Surveyed per the Number of Full-time Paid Employees

Number of Full-time Paid Employees Including Self, Family

1. 1 6 8%

2. 2-5 12 16%

3. 6-10 7 9%

4. 11-20 7 9%

5. 21-50 10 13%

6. 51-100 8 11%

7. 101-500 16 21%

8. 501-1000 3 4%

9. 1001-2000 2 3%

10.>2000 4 5%

11. N/A 0 0%

75 100%

                                                                                                             25Micro enterprises are business activities that are independently owned and operated, have small share of the market, are managed by the owner, and employ five or less employees. This has recently been revised to include employment until 10 workers and capital reaching up to 20,000 birr. Small businesses are those enterprises that employ 6 to 49 employees. They share the same characteristics with micro enterprises in other aspects. • Medium-scale enterprises are those enterprises that have a relatively higher share of the market, are independently or jointly owned or managed by the owner or by appointed executives, and employ 50 to 99 persons. • Those enterprises that employ more than 100 persons could be considered as large enterprises.

 

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The businesses in the sample are of varied sizes, as reflected by their turnover last year, which is shown in the table below. Again this spans the range from micro to large, but only one business in the sample had a turnover of between 3 and 5 million ETB.

Table 22Categorization of Ethiopian Agribusiness SMEs Surveyed per Last Year’s Turnover

Sales Turnover (ETB)—Last Year

1. Under 20,000 14 19%

2. 20,001-500,000 17 23%

3. 500,001-1 million 15 20%

4. 3-5 million 1 1%

5. Over 5 million 28 37%

75 100%

Most of the sample relies upon the domestic market; from which 59 percent generate 100 percent of their sales, although 5 percent generate 100 percent of their sales from export. The remainder are somewhere in between.

What is important is that 80 percent of the respondents show a history of growth over the past three years. This is relevant because experience shows that those people who have already grown their business to some extent are often the best businesses to help achieve further growth.

Table 23Categorization of Ethiopian Agribusiness SMEs Surveyed per the Last Three Years Turnover Movement

Trend in Turnover Movement Last Three Years

1. Higher than Before 60 80%

2. About the Same as Previous 12 16%

3. Lower than Previous 3 4%

4. N/A 0 0%

75 100%

 

111  

The entire sample wanted to grow their business, but answers to questions about intention to grow a business can be misleading in any culture. It appears that only few had concrete plans as to how they were going to do this. Interviewers usually drew a blank when they asked “how are you planning to do this?”The general answer of “yes “to this question thus reflects a desire for business growth more than an actual plan to make it happen. Typically, in Australia, for example, around 70 percent of small businesses say they want to grow, but the reality is that only around 20 percent have serious intentions; most simply want to make more money from the same effort.

Encouragingly it appears that the majority of the survey’s respondents want to grow by increasing sales and customers, either domestically or by export, a consequence of which is increased direct or indirect employment.

 

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Table 24Categorization of Ethiopian Agribusiness SMEs Surveyed per Sources of Business Growth

Source of Business Growth

1. Increase in Sales and Customers 36 48%

2. Export 27 36%

3. Increase in Profit 6 8%

4. Increase in Employees 6 8%

75 100%

To grow businesses need to be competitive and in a competitive global market this often involves differentiation and completion on the basis of value. Almost 50 percent of the respondents appear to understand this.

Table 25Ethiopian Agribusiness SMEs Surveyed Understanding of Competitiveness

Reasons for Competitiveness

1. Cost Efficiency 6 8%

2. Price Competitiveness 12 16%

3. Product, Service Quality 25 33%

4. Scale of Economies 21 28%

5. Uniqueness/Differentiation 11 15%

75 100%

Problems Faced and Interest in Support Services

Before looking at the problems that businesses face and the support services they desire, which are important ingredients to the AII’s design, it is worth summarizing the validity of the sample as indicative of the market for an agribusiness innovation center.

 

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Looking at the entrepreneurs, it appears that 70 to 80 percent are opportunity entrepreneurs with the right motivation and commitment. The businesses are in the right sectors and 80 percent have a history of growth, which is an important indicator, but not one to deter new starters. Accordingly the sample is deemed appropriate and therefore their responses about the problems they face and the support they require is backed by relevance and experience.

Respondents reported the problems they face in business, summarized in the charts below, although insights can be made equally from the areas that were not reported as problems.

.  

Figure 22Business Problems Reported by Ethiopian Agribusiness SMEs Surveyed

 

0  

5  

10  

15  

20  

25  

30  

Lack  of  fi

nance,  Capita

l  

Lack  of  raw

 material  or  

services  

Lack  of  space  

Poor  access  to  

custom

ers  

Governm

ent  

restricFon

s,  re

gulaFo

ns  

Lack  of  techn

ology,  

equipm

ent  

Lack  of  skilled  staff

 

UFlity

 problem

s,  water,  

power,  road,  transport  

Need  for  be

[er  

technical  skills  

Lack  of  d

emand  

Health

,  stress  

Tax  and  compliance  

difficulFes  

 

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Table 26Business Problems Faced by Ethiopian Agribusiness SMEs Surveyed

Business Problems

Lack of Finance, Capital 27 36%

Lack of Raw Material or Services 10 13%

Lack of Space 9 12%

Poor Access to Customers 6 8%

Government Restrictions, Regulations 6 8%

Lack of Technology, Equipment 6 8%

Lack of Skilled Staff 3 4%

Utility Problems, Water, Power, Road, Transport 3 4%

Need for Better Technical Skills 2 3%

Lack of Demand 1 1%

Health, Stress 1 1%

Tax and Compliance Difficulties 1 1%

Copy Cats (Competition) 0 0%

Lack of Business Skills 0 0%

Lack of Time 0 0%

Family Arrangements 0 0%

Self-imposed (personal) 0 0%

Other 0 0%

1,2&3 0 0%

Two or More 0 0%

75 100%

 

115  

Lack of finance tops the list as a problem for 27 respondents (36 percent of the sample), of whom 44 percent are food manufacturers, 37 percent involved in agriculture and forestry, and 51 percent are more than five years old. Most of this subset has a history of growth and none reported a decline. They span micro to large and, not surprisingly, all are interested in support to raise finance. However, only slightly less than 50 percent are interested in financial management advice, which may indicate poor management capability.

Surprisingly given the supply side problems in most value chains, only 13 percent of respondents reported a lack of raw materials or services as a problem. These respondents are primarily food manufacturers and not surprisingly, they reported problems with inadequate technology and a lack of space.

Somewhat surprisingly, given experience elsewhere and extensive consultations in Ethiopia, is the fact that only 9 percent of respondents report a problem with demand and access to customers and only 3 percent saw a problem with inadequate technical skills. None of the sample noted lack of business skills as a problem, which in itself may indicate a lack of business skills and knowledge. However, the detailed questions about where respondents want help indicates that management skills and access to customers and markets are significant problems.

From an entrepreneurship perspective, in which personal self-knowledge is important for success, no one reported problems in terms of family arrangements, lack of time, or personal self-imposed problems, which typically feature in a survey of this type. Cultural differences may be the reason, but the point is worth taking into account in terms of the AII’s entrepreneurship development activity, which may warrant a personal development track to foster better entrepreneurial attitudes. Consultations with stakeholders also indicated a lack of an entrepreneurial culture and attitudes.

The other side of the problems that the business face is the support they seek. All of the respondents stated they are interested in support.

Questions regarding support services asked respondents to rate their interest from no interest to great interest, as shown in the chart below.

 

116  

 

Figure 23Interest in Support Services expressed by Ethiopian Agribusiness SMEs Surveyed

Considering great interest and high interest responses only, indicates that the businesses have realistic needs about support and problems that were not reported in the questions about problems, as well as strong interest in support.

 

Figure 24Ranked Great and High Interest in Support Services Expressed by Ethiopian Agribusiness SMEs Surveyed

Finance still tops the list, closely followed by marketing. Broadly speaking, all the businesses wanting help with technology also want help with testing and certification and packaging.

0%  

10%  

20%  

30%  

40%  

50%  

60%  

70%  

80%  

No  Interest  

Some  Interest  

Interest  

High  Interest  

Great  Interest  

0%  10%  20%  30%  40%  50%  60%  70%  80%  90%  

 

117  

Help with business licensing is probably of low interest to this group because they are existing businesses, many of whom have already sorted out this issue. However, it is hard to find a pattern considering those for whom this is a high priority. They are in different sectors and of various ages and structures. No doubt the support will be most useful for new start and informal businesses.

As noted earlier, there is a disconnect between the number wanting help to secure finance and the significantly lower number wanting help with financial management, possibly indicating management inexperience, given good financial management is so important to become finance ready.

When it comes to paying for support services, some respondents prefer to pay at full cost and others preferred payment by way of either a small percentage of equity or with a royalty levied on the increase in their sales for a period.

 

Figure 25Ethiopian AII Target Clients’ Preferred Way of Paying for Services

This implies the AII should offer options. Businesses at different stages will have different capacity and potential. For instance, an existing business may find it very complicated to give up equity, but be prepared to pay for services at full cost at the time or enter into a royalty agreement. A newer business, though, may be in a position to give up some equity, but may not have the funds to pay for support.

Small  %  of  Equity  (5-­‐7%)    20%  

Royality  on  Increase  in  Gross  Sales  (3-­‐7%)  for  3  

or  4  years  48%  

Pay  as  You  Go  at  Full  Cost  28%  

None  of  the  above  4%  

 

118  

Annex 5: Agribusiness Survey Form

Introduction  

Business   incubation   is   a   unique   and   highly   flexible  combination   of   business   development   processes,  infrastructure  and  people,  designed  to  nurture  and  grow  new  and  small  businesses,  products  and  ideas  by  supporting  them  through  the  early  stages  of  development  and  change.    

Interviewer  Script  

We’re  undertaking  a  survey  of  businesses  in  Ethiopia  to  determine  if  there  is  a  need  for  an  agri-­‐business   innovation  centre  as  a  part  of  a  broader  Climate   Innovation  Centre   in  Ethiopia.    The  work  is  being  undertaken  for  InfoDev/World  Bank.    

Are  you  able  to  spare  several  minutes  to  take  part  in  the  survey?  

Your  actual  responses  will  only  be  viewed  by  the  interviewer  and  the  consultants  working  with  for  infoDev.  All  your  responses  will  be  treated  as  strictly  confidential  and  will  be  grouped  with  other  people's  responses  for  reporting.  The  survey  is  anonymous  and  you  will  not  be  identified  in  any  way.  

We  appreciate  your  co-­‐operation  in  this  study.      

Thank  you  –  we  will  commence  the  survey  now.  

Form  Number:    

 

 

119  

Name  of  interviewee  (optional)  ___________________________________  

1. ABOUT  YOU  –  THE  BUSINESS  OWNER    

1.1 What  is  your  age  group?  

1¨   Under  20   3¨   30  to  40   5¨   50  to  60  

2¨   – 20  to  30   – 4¨   – 40  to  50   – 6¨   – Over  60  

 

1.2 Why  are  you  in  business?  (Please  tick  one  box  only  –  the  main  reason)  

– Because  you  have  no  other  option  for  employment       1¨  

To  supplement  other  income     – 2¨  

To  seize  a  market  opportunity  and  grow  a  long  term  business  creating  employment  for  yourself  and  others  (necessitates  full  time  involvement)  And  /  or  I  want  to  be  my  own  boss  

– 3¨  

Don’t  know   – 4¨  

 

1.3  How  many  hours  do  you  work  in  your  business  each  week?  

– 1¨   Under  10  hours     3¨   21  to  34  hours   5¨   51  to  75  hours  

2¨   – 11  to  20  hours     – 4¨   – 35  to  50  hours   – 6¨   – Over  75  

 

1.4  Do  you  have  other  employment?   ¨Yes     ¨No  

1.5  What  proportion  of  your  personal  income  does  your  business  provide?  

1¨   Less  than  25%   3¨   50%  to  74%   5¨   95%  to  100%  

2¨  – 25%   to  

49%   – 4¨   – 75%  to  94%      

 

 

120  

 

1.6  Before  starting  or  buying  this  business,  were  you:    

– 1¨  

Not  formally  employed   3¨   Employed  (private  sector)   5¨   Other  

2¨   – Studying   – 4¨  – Employed   (public  

sector)      

 

1.7  What  formal  qualifications  do  you  have?  

– 1¨  

Postgraduate  University  Degree     3¨  

Trade  or  other  Technical  certificate   5¨  

Primary  School  completion    

2¨  – Bachelors  level  

university  degree     – 4¨    – High  school  

completion     – 6¨   – None  

        – 7¨   – Other  

 

2. SECTION  2  –  ABOUT  YOUR  BUSINESS  

2.1  Which  category  best  describes  the  activities  of  your  business?  (Please  tick  one  box  only  and  only  ask  if  you  don’t  know)  

Agriculture,  Forestry   1¨   Financial  and  Insurance  activities   11¨  

Mining  and  Quarrying  – 2

¨   – Real  estate  activities  – 1

2¨  

Manufacturing  (food,  juice,  milk,  honey,  spices)  – 3

¨  – Professional,  scientific  and  

technical  activities  

– 13¨  

Electricity,  gas,  steam  and  air  conditioning  supply  – 4

¨  – Administrative  and  support  

service  activities  

– 14¨  

Water  Supply,  Sewerage,  waste  management  – 5

¨   – Education  – 1

5¨  

Construction  – 6

¨  – Human  health  and  social  

work  activities  

– 16¨  

 

121  

Wholesale  and  retail  trade,  repair  – 7

¨  – Arts,  entertainment  and  

recreation  

– 17¨  

Transportation  and  storage  – 8

¨   – Other  service  activities  – 1

8¨  

Accommodation  and  food  service  activities  – 9

¨  – Activities  of  households  as  

employers  

– 19¨  

Information  and  Communication  – 1

0¨  

– Other  (specify)    

 

2.2  Please  describe  in  a  few  words  the  activities  and  products  of  your  business:  

 

 

 

 

2.3  Where  is  your  business  based?  

– In  Addis    Ababa     1¨  

In  ______________region(25kms  out  of  Addis  Ababa)  – 2

¨  

In  ______________region  (45kms  out  of  Addis  Ababa)  – 3

¨  

In  ______________region  (100kms  out  of  Addis  Ababa)  – 4

¨  

In  ______________region  (>100kms  out  of  Addis  Ababa)  – 5

¨  

Other  (please  specify  by  region  and  distance  from  Addis  Ababa)  – 6

¨  

 

 

122  

2.4 How  long  has  your  main  business  been  running?  (Either  part  time  or  full  time).  

– 1¨  

Less  than  1  year   2¨   1  to  under  3  years  

3¨  – 3  to  under  5  

years  

– 4¨    

– 5  years  or  more  

 

2.5  Is  your  business  registered  or  not?   1¨  Yes     2  ¨No  

2.5a.  If  so  what  is  the  structure?  

1¨   Sole  trader   2¨   Company  

3¨   – Cooperative  – 4

¨   – Partnership  (e.g.  husband  and  wife)  

– 5¨  

– Other  (please  specify)    

 

 

2.6  Where  did  the  money  come  from  to  start  the  business?    

– Did  not  need  any   1¨  

Personal  savings   – 2¨  

Friends  and  family   – 3¨  

If  yes  to  friends  and  family  (above),  were  any  of  the  friends  and  family  located  overseas  and  did  they  send  the  money  to  you?  

– 4¨  

Micro  credit  or  bank  loan   – 5¨  

Investor   – 6¨  

Other  –  be  specific  if  possible   – 7¨  

 

 

123  

 

2.7  How  many  people,  including  yourself,  other  family  members,  other  owners  and  employees  currently  work  in  your  business?  

  PAID   UNPAID  

  Full-­‐time   Part-­‐time   Full-­‐time   Part-­‐time  

#  =     #  =   #  =   #  =  

1¨1     1¨0   1¨0   1¨0  

2¨2-­‐5     2¨1-­‐5   2¨1-­‐5   2¨1-­‐5  

3¨6-­‐10     3¨6-­‐10  

4¨11-­‐20     4¨11-­‐20  

5¨21-­‐50     5¨21-­‐50  

6¨51-­‐100     6¨51-­‐100  

7¨101-­‐500     7¨101-­‐500  

8¨501-­‐1000     8¨N/A  

9¨1001-­‐20009¨D/K  

10¨>2000  

11¨N/A  

2.8  What  were  your  sales  (turnover)  last  year  in  ETB?  Don’t  force  people  to  answer  if  it  is  too  confidential  

Under  20,000   1¨   1  million  to  5  million   4¨  

20,001  to  500,000  – 2

¨  – over  5  million   – 5¨  

500,000  to  1,000,000  – 3

¨      

 

2.9  Please  describe  in  broad  terms  the  turnover  movements  of  your  business  over  the  last  three  years.  Tick  the  appropriate  box  

     YEAR  

1  ¨  Higher  than  previous  financial  year    estimate  the  %  change  

2  ¨  About  the  same  as  previous  financial  year  –  Tick  

3  ¨  Lower  than  previous  financial  year–  estimate  the  %  change  

2011   – %   – ¨   – %  

2010   – %   – ¨   – %  

2009   – %   – ¨   – %  

  1¨0%                 1¨1-­‐5%     2¨1-­‐5%               2¨6-­‐10%     3¨6-­‐10%               3¨11-­‐15     4¨11-­‐15               4¨16-­‐20  

 

124  

  5¨16-­‐20               5¨21-­‐30     6¨21-­‐30               6¨31-­‐40     7¨31-­‐40               7¨>40     8¨>40                 8  ¨N/A     9¨D/K     10¨N/A  

 

2.10  Sales  by  location  

Domestic/Export  (%)  

1¨100%  Domestic  

2¨100%  Export  

3¨25%  Domestic;  75%  Export  

4¨30%  Domestic;  70%  Export  

5¨70%  Domestic;  30%  Export  

6¨50%  Each  

7¨40%  Domestic;  60  Export  

8¨60%  Domestic;  40%  Export  

9¨90%  Domestic;  10%  Export  

10¨10%  Domestic;  90%  Export  

11¨20%  Domestic;  80%  Export  

12¨80%  Domestic;  20%  Export  

13¨Sales  not  yet  started.  

2.11  Are  you  intending  to  grow  your  business  over  the  next  12  months?  Tick  as  many  boxes  as  appropriate  

  1  ¨  Yes     2¨  No    If  Yes:    

By  increasing  sales  and  customer  numbers?   Yes   1¨      

By  exporting  – Y

es  

– 2¨      

By  increasing  profit?  – Y

es  

– 3¨      

By  employing  more  people?  – Y

es  

– 4¨      

 2.12  What  makes  your  business  competitive?  

– Cost  efficiency   1¨  

Price  competitiveness   – 2¨  

Product/service  quality   – 3¨  

 

125  

Scale  of  economies   – 4¨  

Uniqueness/differentiation   – 5¨  

Other    

2.13  What  problems  do  you  face  in  growing  your  business?  – 1

¨  Lack  of  demand  

7¨  Lack  of  business  skills  

13¨  Self-­‐imposed  (personal)  

2¨   – Poor  access  to  customers  

– 8¨  

– Need  better  technical  skills  

– 14¨  

– Tax  &  compliance  difficulties  

3¨   – Copy  cats  (competition)  

– 9¨   – Lack  of  space  

– 15¨  

– Government  restrictions  or  regulations  (which  ones?)  

 4¨   – Lack  of  raw  

materials    or  services  

– 10¨  

– Lack  of  time  

– 16¨  

 

– Lack  of  technology/equipment  

5¨  – Lack  of  skilled  staff

   

– 11¨  

– Family  arrangements  

–  17¨  

– Utility  problems  (water,  power,  road,  transport  

6¨   – Lack  of  finance/capital  

– 12¨  

– Health  /  stress  – 1

8¨  

– Other  (specify)  

 

2.14  Would  you  be  interested  in  receiving  support  to  help  your  business  grow?  

– Yes  

1¨   Proceed  to  SECTION  3  

No   – 2¨   – Thank  you  for  your  time  and  assistance.    

 

3. SECTION  3  –  SUPPORT  SERVICE  INTEREST  

Please  rate  the  priority  to  your  business  of  each  of  the  following  business  support  services  that  could  be  provided  by  a  business  support  service.  

  Low  interest                              High  interest  3.1  Business  support  services   1     2  3   4   5   N/A   D/K*  

a.   Business  mentoring  and  coaching   .............   1   2   3   4   5   6   7  

b.   Business  management  advice ....................   1   2   3   4   5   6   7  

c.   Business  training  workshops ......................   1   2   3   4   5   6   7  

d.   Business  planning  advice............................   1   2   3   4   5   6   9  

e.   Networking  opportunities ..........................   1   2   3   4   5   6   7  

f.   Market  research  and  marketing  advice        1 2  3   4   5   6   7  

g.   Help  finding  new  markets ..........................   1   2   3   4   5   6   7  

 

126  

h.   Help  with  sales ...........................................   1   2   3   4   5   6   7  

i.   Help  raising  finance ....................................   1   2   3   4   5   6   7  

  How  much?.........................................  

  For  what  purpose?..................................................................................................  

j.   Financial  management  advice....................   1   2   3   4   5   6   7  

k.   Help  testing/certification ...........................    1   2   3   4   5   6   7  

l.   Help  sourcing  (identify)  technology ...........    1   2   3   4   5   6   7  

m.   Advice  on  business  licensing ......................    1   2   3   4   5   6   7  

n.   Help  in  accessing  packaging  services..........    1   2   3   4   5   6   7  

o.   Others  (specify).....................................................................................................................  

*      N/A  =  Not  Applicable,  D/K  =  Don’t  Know  

3.2  How  would  you  like  to  pay  for  the  support  services  –  success  sharing  or  pay  as  you  use?  

Small  %  of  equity  (shares  or  equivalent)  in  your  business  i.e.  5%  –  7%   1¨  

Royalty  on  increase  in  gross  sales  e.g.  3%  –  7%  for  a  3  or  4  year  period   – 2¨  

Pay  as  you  go  at  full  cost  (rent,  advice,  secretarial,  phone,  fax,  internet  etc)   – 3¨  

None  of  the  above   – 4¨    

– 3.3  Any  other  points  you  would  like  to  make:    

 

THANK  YOU  FOR  YOUR  TIME  AND  ASSISTANCE.  

 

127  

Annex 6: Entrepreneur Survey Frequencies

  Statistics  Years  in  Operation    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– Less  than  1  year   – 3   – 5.9   – 5.9   – 5.9  – 1  to  under  3  

years  – 9   – 17.6   – 17.6   – 23.5  

– 3  to  under  5  years  

– 10   – 19.6   – 19.6   – 43.1  

– 5  and  above   – 29   – 56.9   – 56.9   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

 Why  in  Business    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– No  option   – 8   – 15.7   – 15.7   – 15.7  – To  supplement  

other  income   – 4   – 7.8   – 7.8   – 23.5  

– To  seize  a  market  opportunity  and  long  term  growth  

– 39   – 76.5   – 76.5   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

     Number  of  Work  Hours/Week    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– up  to  10  hours  

– 2   – 3.9   – 3.9   – 3.9  

– 11-­‐20  hours  

– 1   – 2.0   – 2.0   – 5.9  

– 21-­‐34  hours  

– 1   – 2.0   – 2.0   – 7.8  

– 35-­‐50  hours  

– 15   – 29.4   – 29.4   – 37.3  

– 51-­‐75  hours  

– 12   – 23.5   – 23.5   – 60.8  

– over  75  hours  

– 20   – 39.2   – 39.2   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

 

 

128  

 

Other  Employment    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– Yes  

– 10   – 19.6   – 19.6   – 19.6  

– No  

– 41   – 80.4   – 80.4   – 100.0  

Valid  

– Total  

– 51   – 100.0   – 100.0    

 Proportion  of  Personal  Income  from  Business    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– Less  than  25%  

– 3   – 5.9   – 5.9   – 5.9  

– 25-­‐49%   – 2   – 3.9   – 3.9   – 9.8  – 50-­‐74%   – 3   – 5.9   – 5.9   – 15.7  – 75-­‐94%   – 4   – 7.8   – 7.8   – 23.5  – 95-­‐100%   – 39   – 76.5   – 76.5   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

   Employment  before  Current  Business    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– Not  formally  employed  

– 7   – 13.7   – 13.7   – 13.7  

– Studying   – 8   – 15.7   – 15.7   – 29.4  – Employed  (Pvt  

Sector)  – 19   – 37.3   – 37.3   – 66.7  

– Employed  (pub  sector)  

– 11   – 21.6   – 21.6   – 88.2  

– Other   – 6   – 11.8   – 11.8   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

     Source  of  Money  when  Business  Began    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– Did  not  need   – 1   – 2.0   – 2.0   – 2.0  – Personal  savings   – 24   – 47.1   – 47.1   – 49.0  – Friends  and  family   – 3   – 5.9   – 5.9   – 54.9  – Money  from  friends  

overseas   – 1   – 2.0   – 2.0   – 56.9  

– Micro  credit,  Bank  loan  

– 10   – 19.6   – 19.6   – 76.5  

Valid  

– Investor   – 12   – 23.5   – 23.5   – 100.0  

 

129  

  – Total   – 51   – 100.0   – 100.0    

Number  of  Full-­‐time  Paid  Employees,  Including  Self  and  Family    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– 1   – 4   – 7.8   – 7.8   – 7.8  – 2-­‐5   – 9   – 17.6   – 17.6   – 25.5  – 6-­‐10   – 5   – 9.8   – 9.8   – 35.3  – 11-­‐20   – 4   – 7.8   – 7.8   – 43.1  – 21-­‐50   – 9   – 17.6   – 17.6   – 60.8  – 51-­‐100   – 6   – 11.8   – 11.8   – 72.5  – 100-­‐500   – 10   – 19.6   – 19.6   – 92.2  – 500-­‐

1000  – 1   – 2.0   – 2.0   – 94.1  

– 1001-­‐2000  

– 2   – 3.9   – 3.9   – 98.0  

– >2000   – 1   – 2.0   – 2.0   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

 Sales  Turnover—Last  Year    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– Under  20,000   – 10   – 19.6   – 19.6   – 19.6  – 20,001  -­‐  

500,000  – 12   – 23.5   – 23.5   – 43.1  

– 500,001-­‐1  million  

– 10   – 19.6   – 19.6   – 62.7  

– 3-­‐5  million   – 1   – 2.0   – 2.0   – 64.7  – Over  5  million   – 18   – 35.3   – 35.3   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

 Increase  in  TO  (%  previous)    

  Frequency   Percent   Valid  Percent   Cumulative  Percent  – 0%   – 2   – 3.9   – 3.9   – 3.9  – 1-­‐5%   – 8   – 15.7   – 15.7   – 19.6  – 6-­‐

10%  – 16   – 31.4   – 31.4   – 51.0  

– 11-­‐15%  

– 4   – 7.8   – 7.8   – 58.8  

– 16-­‐20%  

– 1   – 2.0   – 2.0   – 60.8  

– 21-­‐30%  

– 5   – 9.8   – 9.8   – 70.6  

– 31-­‐40%  

– 1   – 2.0   – 2.0   – 72.5  

– >40%  

– 6   – 11.8   – 11.8   – 84.3  

– N/A   – 1   – 2.0   – 2.0   – 86.3  

Valid  

– 10.00  

– 7   – 13.7   – 13.7   – 100.0  

 

130  

  – Total   – 51   – 100.0   – 100.0    

 Sales  by  Location    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– 100%  Domestic   – 30   – 58.8   – 58.8   – 58.8  – 100%  Export   – 4   – 7.8   – 7.8   – 66.7  – 30%  Domestic,  70  

export  – 3   – 5.9   – 5.9   – 72.5  

– 70%  Domestic,  30%export   – 5   – 9.8   – 9.8   – 82.4  

– 50%  Each   – 1   – 2.0   – 2.0   – 84.3  – 40%Domestic,  60%  

export   – 1   – 2.0   – 2.0   – 86.3  

– 90%  Domestic,  10%  export   – 3   – 5.9   – 5.9   – 92.2  

– 10%Local,  90%  export   – 1   – 2.0   – 2.0   – 94.1  – 20%  Domestic,  80%  

export   – 2   – 3.9   – 3.9   – 98.0  

– 80%  Domestic;20%  export   – 1   – 2.0   – 2.0   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

 Business  Problems    

  Frequency   Percent   Valid  Percent   Cumulative  Percent  Valid   – Poor  access  to  

customers   – 2   – 3.9   – 3.9   – 3.9  

  – Lack  of  raw  material  or  services   – 8   – 15.7   – 15.7   – 19.6  

  – Lack  of  skilled  staff   – 1   – 2.0   – 2.0   – 21.6     – Lack  of  finance,  capital   – 20   – 39.2   – 39.2   – 60.8     – Lack  of  space   – 6   – 11.8   – 11.8   – 72.5     – Health,  stress   – 1   – 2.0   – 2.0   – 74.5     – Tax  and  compliance  

difficulties   – 1   – 2.0   – 2.0   – 76.5  

  – Government  restrictions,  regulations  

– 5   – 9.8   – 9.8   – 86.3  

  – Lack  of  technology,  equipment   – 4   – 7.8   – 7.8   – 94.1  

  – Utility  problems,  water,  power,  road,  transport  

– 3   – 5.9   – 5.9   – 100.0  

  – Total   – 51   – 100.0   – 100.0    

 

 

131  

 

Preferred  Way  of  Paying  for  Support  Service    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– Small  %  of  equity  (5-­‐7%)  of  share/equivalent   – 10   – 19.6   – 19.6   – 19.6  

– Royalty  on  Increase  in  gross  sales  (3-­‐7%)  for  3  or  4  years  

– 28   – 54.9   – 54.9   – 74.5  

– Pay  as  you  go  at  full  cost  (rent,  advice,  secretarial,  phone,  fax,  Internet)  

– 11   – 21.6   – 21.6   – 96.1  

– None  of  the  above   – 2   – 3.9   – 3.9   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

 Interest  for  Business  Mentoring  and  Coaching    

  Frequency   Percent   Valid  Percent   Cumulative  Percent  – Not  Interested   – 9   – 17.6   – 17.6   – 17.6  – Somewhat  

interested  – 3   – 5.9   – 5.9   – 23.5  

– Interested   – 6   – 11.8   – 11.8   – 35.3  – Highly  interested   – 11   – 21.6   – 21.6   – 56.9  – Greatly  interested   – 22   – 43.1   – 43.1   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

 Interest  for  Business  Management  Advice    

  Frequency   Percent   Valid  Percent   Cumulative  Percent  – Not  interested   – 6   – 11.8   – 11.8   – 11.8  – Somewhat  

interested  – 2   – 3.9   – 3.9   – 15.7  

– Interested   – 9   – 17.6   – 17.6   – 33.3  – Highly  interested   – 13   – 25.5   – 25.5   – 58.8  – Greatly  interested   – 21   – 41.2   – 41.2   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

 Interest  for  Business  Training  Workshops    

  Frequency   Percent   Valid  Percent   Cumulative  Percent  – Not  interested   – 6   – 11.8   – 11.8   – 11.8  – Somewhat  

interested  – 3   – 5.9   – 5.9   – 17.6  

– Interested   – 4   – 7.8   – 7.8   – 25.5  – Highly  interested   – 18   – 35.3   – 35.3   – 60.8  – Greatly  interested   – 20   – 39.2   – 39.2   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

 

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     Interest  for  Business  Planning  Advice    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– Not  Interested   – 2   – 3.9   – 3.9   – 3.9  – Somewhat  

interested  – 5   – 9.8   – 9.8   – 13.7  

– Interested   – 6   – 11.8   – 11.8   – 25.5  – Highly  interested   – 13   – 25.5   – 25.5   – 51.0  – Greatly  interested   – 24   – 47.1   – 47.1   – 98.0  – 9.00   – 1   – 2.0   – 2.0   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

 Interest  for  Business  Networking  Opportunities    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– Not  interested   – 2   – 3.9   – 3.9   – 3.9  – Somewhat  

interested  – 3   – 5.9   – 5.9   – 9.8  

– Interested   – 8   – 15.7   – 15.7   – 25.5  – Highly  interested   – 12   – 23.5   – 23.5   – 49.0  – Greatly  interested   – 26   – 51.0   – 51.0   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

 Interest  for  Market  Research  and  Marketing  Advice    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– Not  interested   – 1   – 2.0   – 2.0   – 2.0  – Somewhat  

interested  – 2   – 3.9   – 3.9   – 5.9  

– Interested   – 5   – 9.8   – 9.8   – 15.7  – Highly  interested   – 12   – 23.5   – 23.5   – 39.2  – Greatly  interested   – 31   – 60.8   – 60.8   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

 Help  in  Finding  New  Markets    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– Not  interested   – 2   – 3.9   – 3.9   – 3.9  – Somewhat  

interested  – 6   – 11.8   – 11.8   – 15.7  

– Interested   – 7   – 13.7   – 13.7   – 29.4  – Highly  interested   – 9   – 17.6   – 17.6   – 47.1  – Greatly  interested   – 27   – 52.9   – 52.9   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

 

 

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 Help  with  Sales    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– Not  interested   – 2   – 3.9   – 3.9   – 3.9  – Somewhat  

interested  – 13   – 25.5   – 25.5   – 29.4  

– Interested   – 11   – 21.6   – 21.6   – 51.0  – Highly  interested   – 13   – 25.5   – 25.5   – 76.5  – Greatly  interested   – 12   – 23.5   – 23.5   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

 Help  with  Raising  Finance    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– Not  interested   – 2   – 3.9   – 3.9   – 3.9  – Somewhat  

interested  – 2   – 3.9   – 3.9   – 7.8  

– Interested   – 5   – 9.8   – 9.8   – 17.6  – Highly  interested   – 7   – 13.7   – 13.7   – 31.4  – Greatly  interested   – 35   – 68.6   – 68.6   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

 Help  with  Testing,  Certification    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– Not  interested   – 10   – 19.6   – 19.6   – 19.6  – Somewhat  

interested  – 2   – 3.9   – 3.9   – 23.5  

– Interested   – 4   – 7.8   – 7.8   – 31.4  – Highly  interested   – 12   – 23.5   – 23.5   – 54.9  – Greatly  interested   – 23   – 45.1   – 45.1   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

 Help  with  Sourcing  Technology    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– Not  interested   – 3   – 5.9   – 5.9   – 5.9  – Somewhat  

interested  – 5   – 9.8   – 9.8   – 15.7  

– Interested   – 5   – 9.8   – 9.8   – 25.5  – Highly  interested   – 10   – 19.6   – 19.6   – 45.1  – Greatly  interested   – 28   – 54.9   – 54.9   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

     

 

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Help  with  Accessing  Packaging  Services    

  Frequency   Percent   Valid  Percent  Cumulative  Percent  

– Not  interested   – 10   – 19.6   – 19.6   – 19.6  – Somewhat  In  

retested  – 7   – 13.7   – 13.7   – 33.3  

– Interested   – 3   – 5.9   – 5.9   – 39.2  – Highly  interested   – 6   – 11.8   – 11.8   – 51.0  – Greatly  interested   – 25   – 49.0   – 49.0   – 100.0  

Valid  

– Total   – 51   – 100.0   – 100.0    

 

 

 

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Annex 7: Priority Value Chains Literature Review

Following a literature review and stakeholder consultations, infoDev explored the potentiality of the following value chains:

Bamboo Cereals, including maize and wheat Coffee Cotton, including organic and for textiles and garments Dairy Honey Horticulture, including fruits, vegetables, and cut flowers Livestock for leather Oil seeds, including sesame Pulses, including chickpeas Spices, including ginger Tea Teff

The key objectives were to improve understanding about following questions:

1. What are the biggest market opportunities for value addition in the agribusiness sector?

2. What are the most significant barriers to enterprise start-up and growth in the specific market opportunities identified?

3. What additional services or fine tuning of CIC services is needed to satisfy the agribusiness market?

The following value chains have not been included as a focus for the AII for the following reasons:

Cereals: Maize. Wheat offers many opportunities for value addition, for example, by processing pasta, floor, and bread, but maize does not have this potential. Traditionally processing is for human consumption at household level, but it is being overtaken by use of soya beans, and there are few value adding processing enterprises and opportunities. The supply is also highly seasonal and limited in quantity because of low-farm level productivity of maize (it is estimated that only 25 percent of Ethiopian small-holders are net sellers of

 

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maize26).Currently only 6 percent of the marketable maize is processed and distributed in flour form.

Coffee. Value could potentially be added by roasting the beans. However, this is not done in Ethiopia; namely, the green beans are exported as raw material to other countries where the roasting can be done in a more competitive way than in Ethiopia. Green coffee beans can be stored for several years, whereas roasted beans essentially expire in less than 18 months. Additionally, most major coffee suppliers prefer to blend high-quality Ethiopian coffee with lesser varieties found around the world, hence always preferring to buy green coffee beans. There is already extensive stakeholder activity in the coffee value chain.

Flowers. Flowers do not offer a lot of value addition potential. Processing of flowers is limited to cut flowers. Following the government’s focus on this sector, a substantial number of investors have started to get involved in the sector, impacting directly on the level of exportations of cut flowers and the number of jobs created in the value chain, which have been growing steadily and significantly since 2001.The industry of cut flowers has managed to position itself as a competitive and performing industry in Ethiopia over the past decade.

Leather. The Leather Institute has identified numerous issues in every single aspect of the supply chain of leather, starting with the absence of a formalized leather (hides) industry. The industry is mainly composed of small-scale farmers, who have limited understanding of hide removal or quality and pricing.

Oil Seeds. The number of oil seeds processing companies is limited and the approach of the Edible Oil Value Chain Enhancement Program in this value chain seems relevant. The Edible Oil Value Chain Enhancement Program—which the Spanish government funds—is a three-year initiative jointly implemented by UNIDO, ILO, and FAO in the Amhara and Oromiya regions in Ethiopia. The program aims to increase the productivity and competitiveness of Ethiopia’s oilseed producers, boost the capacity for processing oilseeds, and improve access to local and international markets by integrating the private sector into the edible oil seed production value chain. Most oil seeds are traded as commodities. Although Olam is interested, the value adding Olam seeks is limited to cleaning and hulling of sesame seeds for the export market.

Pulses. The main potentiality is with chickpeas, which the ATA is currently exploring through a program with PEPSI Co. The ATA’s Pulses and Oilseeds Program is developing a strategic roadmap to address systemic issues in the chickpea value chain, while also recommending a set of immediate interventions. The program is focused on strengthening access to markets through capacity building that supports the efforts of selected cooperative unions to secure forward contracts with large local and international chickpea buyers. Current activities include Cooperative Contracts with external partners in

                                                                                                             26UNIDO data. 2011.

 

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the Middle East, Europe, and Southeast Asia—supplying over 6,000 tons of chickpea from Ethiopia. Meanwhile, chickpea focused cooperatives will be strengthened to supply the domestic markets, and at least two Unions will start exporting chickpea by early 2013.Inputs access includes the following:2,160 quintals of improved seed and 4,320 liters of chemical inputs will be provided to cooperatives in Becho, Dembia, and Lume. The ATA’s activities are also gearing up to introduce improved agronomic practices to 48,000 farmers in Becho and Dembia, beginning with the training of Development Agents who will pass the knowledge on at the Farmer Training Center level.27

Tea. Tea does not involve small- and medium-size processors. These processors would actually struggle to compete with neighboring countries’ processors, such as in Kenya. Given the limited SME involvement and the lack of competitiveness in the sector, the potential to add value in this value chain is very limited.

Teff. The processing potential of teff is limited to injera. The distribution of teff in the country—albeit informal—is already very good. Given the specificity of injera to the Ethiopian diet, teff has limited use outside of Ethiopia. The opportunities to add value in this value chain are hence very limited.

Bamboo

State of Bamboo Production

Ethiopia has immense untapped bamboo resources. It possesses the seventh largest bamboo resource in the world with over one million hectares—an estimated 67 percent of Africa’s entire bamboo production. Bamboo resources of highland bamboo (15 percent) and lowland bamboo (85 percent) are largely found in four regions in Ethiopia, namely, Benishangul, Gumuz, Amhara, Oromiya, and Southern Nations. It is estimated that half of the bamboo resource is exploited for industrial production by several thousand farmers.

Bamboo’s positive environmental impacts are significant: bamboo can grow up to 1 meter per day. With its dense network of roots, bamboo has extremely high water retention properties and minimizes soil erosion (it can bind up to 6m3 of soil). Given that the forest coverage in Ethiopia is only 3 percent, bamboo is a viable alternative for increasing forest coverage, because of its extremely high growth rates, which makes it one of the most sustainable flooring materials. It is more sustainable than using trees, as it is harder and longer lasting than timber.

                                                                                                             27 For more information, please visit: www.ata.gov.et/programs/value-chain-programs/pulses/

 

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Size of the Domestic Bamboo Market

The bamboo sector is still in its initial stages of development. Currently a large part of consumption is limited to the household level for fences, utensils, mats, and others, or cottage industries involved in informal manufacturing. No recent and reliable data are currently available.

Bamboo Market Trends

Traditional markets for bamboo products include furniture, toothpicks, and others. New bamboo product markets are emerging: for instance, as a substitute for steel (scaffolding); for indoor and outdoor flooring; and the waste from processing can be used to produce charcoal and tars. Bamboo can potentially be used in more than 1,500 ways. There is a large and growing international market for industrial bamboo products, namely laminated furniture, panels, and flooring. It is estimated that the current demand for wood flooring is higher than the supply. The main actors in the market are processors from China and Malaysia.

The technical report on “Bamboo Market Study in Ethiopia” carried out by UNIDO in 200728 records that “data on export and import of forest products is scarce. The value of imports of products is minuscule compared to total imports. . . .the last data available is for 1985 and then, including pulp and rubber products, import of forest products was only 1 percent of total import. . . . It is also reported that Ethiopia did not export bamboo or rattan products between 1989 and 2000, except for a surprisingly large $1.5 million worth in 1998, all of which went to other East African Nations.”

The export potential for Ethiopian bamboo remains unexplored, given the growing international market for industrial bamboo products (worth $10 billion in 2006, expected to reach $20 billion in 201629) and the increasing penetration of bamboo into the wood market. Ethiopia has the untapped resources and manpower to enter into this competitive yet very viable international market. The potential competitiveness is indicated by the following facts: a) the Ethiopian raw material price represents one fifth of the Chinese price; 2) the work force is cheaper than in China; 3) Ethiopia offers interesting tax incentives on imports and exports; and 4) the quality of Ethiopian bamboo is very high.

                                                                                                             28UNIDO. January 20, 2007.“Bamboo Market Study in Ethiopia,”available at: http://www.eabp.org.et/Publications/StudyP/Bamboo_market_study_in_ethiopia.pdf 29MelakuTadesse. April 8, 2011.“The Potential of Ethiopian Bamboo Development and Future Cooperation with Other Development Partners,” Nile BDC workshop, Addis Ababa, available at: http://www.slideshare.net/CPWF/the-potential-of-ethiopian-bamboo-development-and-future-cooperation-with-other-development-partners

 

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The GIZ Engineering Capacity Building Program (ECBP) recommends that the strategy for the bamboo sector should focus on export markets with industrial products, in parallel to the domestic market and the production of handicrafts and furniture, which will be promoted throughout the bamboo growing regions to have a large impact on employment creation. The figure below is based on the experience of China and illustrates that industrial processing of bamboo has the highest impact on poverty reduction in terms of job creation and financial impact, than lower value added products.

 

Value Adding Bamboo Enterprises

In addition to the traditional basket weavers operating in rural areas, it is estimated that 500 urban micro entrepreneurs currently produce furniture and handicrafts for the domestic market, although their designs and quality are modest.

There are currently only a few recent (less than 10 years) medium-size enterprises focusing on the production of industrial goods in Ethiopia. One of them employs 150 full time employees and has a $3million annual turnover and has transferred Chinese knowledge and technology to their processing.

Barriers to growth faced by value adding bamboo enterprises can be summarized as follows:

There is limited public awareness of bamboo products. Bamboo does not have a very positive image mainly because of the fact that some small processors lack skills, product ideas, access to processing units in urban areas, proper technology, and equipment to produce high-quality, value-added bamboo

 

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products, so customers tend to prefer timber products. There is very limited access to finance to acquire adequate technology and

machinery to manufacture a wider range of quality products in substantial quantity and to finance working capital.

There is limited coordination with bamboo growers to make sure the processors can source from them the raw material at the quality and in the quantity required for processing purposes.

There are limited market linkages to stimulate the growth of the sector.

Dairy Products

State of Dairy Production

Total milk production in Ethiopia increased from 1961-2000 at an average annual rate of 1.55 percent, although per capita production declined, as a result of the high population growth rate. However, during the last decade production grew at a higher rate of 3 percent, reaching approximately 3.2 billion liters per year, from 10 million milking cows (estimated farm level value of 16 billion Birr). Although milk production varies regionally, Oromiya being the leading milk producing region followed by SNNP, Amhara, and Tigray, the increased coverage of extension services (fostering better management skills), increased use of improved inputs (improved breeds and feed), and policy changes promoting dairy production have contributed to faster growth of the sector overall. The projected urban-market for liquid milk in 2015 is estimated at 60 million liters. Supplying this quantity of fluid milk from domestic production in Ethiopia by 2015will require an increase in production of over 35 million liters.

The global dairy industry has been developing new ways to reduce greenhouse gas emissions and produce dairy products in a more sustainable way. A “Green Paper”30 illustrating improvements to date has been created to provide evidence of the industry’s commitment and offers an opportunity to apply good practices and lessons learned from the world in Ethiopia.

Size of the Domestic Dairy Market

Even though Ethiopia has the largest inventory of milk-producing animals (cattle, sheep, goats, and camels), Ethiopia has a lower level of milk consumption than other countries in the region (Kenya has 90 lt./cap; Uganda has 50 lt./cap) and the African wide average in per capita consumption. The national per capita consumption of milk and milk products is estimated at 17 liters per capita. Human consumption of milk accounts for 68 percent of national production, that is, close to 2.2 billion liters are used for milk, butter, cheese, and yogurt. Out of these, households consume approximately 85 percent of the milk collected, 8 percent of the milk is processed into products with                                                                                                              30 Available at: http://www.dairy-sustainability-initiative.org/Public/Menu.php?ID=109

 

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longer shelf life, and 7 percent is sold. However, even at these levels of consumption, the domestic demand is not met and high levels of imports are required (see below). The low level of milk consumption is partly due to the price of the product (the imported milk can be less expensive than the milk processed locally), but mainly is due to the absence of a proper and efficient distribution, in particular, the lack of refrigerated trucks makes milk distribution almost impossible, which is why the price of local milk is relatively high.

Because of the important nutritional value of milk, increasing consumption of milk either directly, or through fortified foods, is often a priority of national health and nutrition programs. Demand for milk, particularly for processed, namely, pasteurized milk, and other dairy products are growing in urban areas. Fasting by Orthodox Christians, who constitute nearly half the population and who abstain from milk and other dairy products for more than 200 days a year, is a challenge for producers. None the less a younger generation that consumes more milk is emerging, complementing traditional consumption by children and the sick. A study conducted by the Addis Ababa Urban Agriculture Office indicated that the aggregate annual supply in Addis Ababa is 65.5 million liters per year, while the demand for milk is five times higher (namely, 321.7 million liters per year). Because of population growth and increase in per capita consumption, demand for milk is expected to increase, even more, in future years.

Dairy Products Market Trends

Raw and pasteurized milk are the dominant milk products in and around Addis Ababa markets, powdered milk is the third most consumed milk products, and UHT milk has been introduced recently. The trend of processed dairy products (butter, ayib, and some cheese varieties) is increasing. Over the last decade the dependency of Ethiopia on imports of milk and milk products has increased. To bridge the gap between supply and demand, dairy imports increased significantly partly because of increased food aid (WFP), primarily milk powder. Imports reached a peak of 994,657 kg in 2008, as illustrated in the figure below.

 

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Figure 26 Value of Imported Dairy Products by Ethiopia (in Birr)31

The value of imports of milk products, primarily powdered milk and cream, more than doubled during this five year period, from Birr 48 billion in 2005 to more than Birr 114 billion in 2010 (partial year). The imports of milk products are a drain on the foreign exchange reserves, which could be replaced with domestic production. Without improvements in domestic production and marketing of milk, the amount and value of dairy imports will continue to rise. The projection for demand for milk and milk products to 2020 is for a steady increase based on the growth of the urban population, increases in disposable income, and changes in tastes and preferences.

Value Adding Dairy Enterprises.

Dairy processing and marketing is performed at various levels. The parastatal sector (DDE) dominated the dairy industry until the late 1990s, when the private and cooperative sectors started to play significant roles in collecting and processing milk. Under the current market-oriented economic system, private sector involvement in milk marketing is emerging alongside cooperative marketing organizations. The privatization of DDE in 2007 marked the end of the parastatal dairy production system in Ethiopia. But private dairy products processors are struggling against competition from the informal sector and imported similar dairy commodities.

Informal marketing systems dominate urban, periurban, and rural milk production systems. In general, only 2.5 to 3.0 percent of milk is processed and channeled into the formal market. This is very low compared to the milk produced in the country and the

                                                                                                             31Ethiopian Customs Authority.November 2010.“The next stage in dairy development for Ethiopia, ”Land O’Lakes.

0  

20,000,000  

40,000,000  

60,000,000  

80,000,000  

100,000,000  

120,000,000  

140,000,000  

2005   2006   2007   2008   2009   2010  

Cheese  

Bu[er  

Yoghurt  and  other  bu[er  milk  

Milk  and  Cream  

Total  

 

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demand in urban areas. Obstacles are the collection of good quality milk, as well as storage and delivery.

Quality assurance systems are weak and competition from imports is mainly on the basis of quality, rather than price.

There are 18 registered milk processors in the greater Addis area, processing approximately 150,000 liters of milk per day. The milk plants operate at full capacity in very few cases. With the exception of the former state-owned enterprise, Lame/Shola Dairy, and Mama Dairy, all of the other dairy processing facilities are less than 10 years old and many of those competing for market share in Addis Ababa are less than five years old.

The period from 2005–10 has been a time of subtle transition for the Ethiopian dairy sector. There has been an increase in processing capacity, accompanied by an increase in dairy product lines. In 2000, the Ethiopian dairy product line consisted of pasteurized milk and butter. In 2010, consumers could find a wider variety of domestic dairy products, including yogurt, fruit-flavored yogurt, UHT milk, ice cream, cultured milk, and cheeses, such as mozzarella, provolone, and gouda. MAMA Dairy offered 32 dairy products to its customers in 2010 compared to 12 products in 2006. This reflects a dairy sector that can adjust to consumer and market demands.

The dairy processors are quite competitive in their purchasing practices for raw milk. Prices generally range from ETB 4.50 to 5.00 per liter. The further the farm or collection center is located from the point of processing, the price decreases to account for additional transportation costs. Fasting periods are a challenge as processors report a decline in processing output of 25 percent during the August and March/April fasting periods. However, some processors are managing fasting periods by producing inventories of UHT milk and cheese, although this can create cash flow problems.

An interesting characteristic of Ethiopian dairy processing is that operations tend to be vertically integrated. Some processors have their own dairy farms, collection centers, transport, and retail shops, as well as outsourcing these services. The key expenses for the dairy processors are purchase of milk, labor, and transport. One processor of 33,000 liters per day, fully integrated from farm to retail, has a total work force of 380 people. In detailed surveys of six milk processors, five processors had a fixed workforce, regardless of the amount of milk being processed. During periods of milk shortages, when milk supplies decrease by 25 percent, this increases the price per liter dramatically.

All firms do some portion of milk collection and transport, along with outsourcing collection and distribution to “specialized” firms. None of the surveyed firms have done a detailed analysis into the cost effectiveness of collection and distribution systems. A number of existing small- and medium-scale dairy processors have limited capacity in terms of financial capital, equipment, technology, or expertise.

 

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Barriers to growth faced by value-adding dairy enterprises can be summarized as follows:

• Poor animal health and management are major constraints to dairy development in Ethiopia, which cause poor performance across the whole dairy production value chain, starting with low levels of productivity.

Lack of coordination along the value chain does not allow efficient sourcing of raw material from producers to processors, or efficient production and distribution of processed products.

There is limited access to finance to invest in new technology and equipment (for example, pasteurization and testing equipment).

Cold storage, pasteurization equipment, and refrigerated transport options for domestic markets are all lacking.

Information and standards for regional export markets are lacking. Domestic distribution capabilities range from poor to nonexistent.

Honey Production

State of Honey Production

Ethiopia is the largest honey-producing country in Africa and the fourth largest beeswax-producing country in the world. The unique climatic conditions allow small-holders to produce different types of honey, depending on the region where they are located. It is estimated that over 10 million honeybee colonies currently exist, enabling small-holders to produce 43,000 tons of honey and 3,000 tons of beeswax per year. The potential production could reach over 500 tons of honey and 50,000 tons of beeswax on an annual basis.32 The traditional beekeeping accounts for more than 90 percent of the honey produced and nearly all the beeswax produced in the country. The adoption of more modern and sophisticated beekeeping systems of box and top bar hives is increasing, along with the productivity.

Apiculture is known for its positive interaction with other farm activities through pollination of various planted crops, which increase fruit and seed setting.

Size of the Domestic Honey Market

The domestic market remains quite unstructured. Over 97 percent of the total honey produced is marketed. The remaining percentage is stored for medicinal and other purposes. More than 70 percent of the marketed honey is goes to the local production of the very popular beverage of “tej”, that is, honey wine. The remaining 30 percent is used for table honey.

                                                                                                             32 “Status of the Ethiopian Apiculture Sector,”Apitrade Africa Apiexpo and Conference, 26-29 October 2010 in Lusaka, MulufirdAshagrie, available at: http://www.apitradeafrica.org/publications/cat_view/52-apiexpo-africa-2010-country-presentations.html?start=5

 

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Household income from apiculture is estimated at $62 million.33

Honey Market Trends

Apiculture provides not only honey and beeswax, but also other valuable products such as propolis, pollen, bee venom, and royal jelly from which the farmers can obtain additional cash income. Ethiopian honey processors currently market honey, beeswax, and to a lesser extent propolis.

The majority of processors process table honey, for both domestic and international markets. Beeswax is one of the major agricultural exports in Ethiopia, and supports the national economy through foreign exchange earnings. Exports of honey to countries, such as Sudan, Yemen, United Arab Emirates, United Kingdom, Norway, and Saudi Arabia, have progressively increased over the last decade, reaching 629 tons in 2010, worth $1,889,000.34

Value Adding Honey Enterprises

There are a minimum of 11 honey processing companies that formed the Association of Ethiopian Honey and Beeswax Processors and Exporters. No detailed recent and reliable data are available on value-adding honey processing enterprises to be able to specify how many exist and their size. However, from the interactions with the few honey processing enterprises met, the following main challenges faced by honey processors can be summarized as follows:

There is very limited capacity to trace the products and ensure quality because of the lack of standards that would enable enforcement of ethical business practices. This is of particular importance for exports to the EU and U.S. markets. The absence of laboratories within the country affects companies engaged in export who need to send their product samples to Uganda (a competitor country) or elsewhere for quality testing.

The disorganized value chain and absence of labeling and packaging services makes the whole value addition process very challenging.

Very limited access to medium to long term credit negatively impacts the capacity of processors to upgrade their processing capacity by adopting learning from training sessions training sessions, acquiring material, obtaining internationally accepted quality certifications, and others.

There is a lack of quality packaging options and the manufacturers are unfamiliar with co-packing options in targeted export markets.

Distribution capabilities to key domestic markets are lacking.

                                                                                                             33Idem. 34Idem.

 

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Fruits and Vegetables

State of Horticulture Production

Because of the unique climatic and natural resources, potentially almost all types of fruits and vegetables can be grown in Ethiopia. The number of small-scale producers involved in horticulture is estimated at 5.7 million farmers.35 The strong support from the government, with incentives for foreign direct investment and exports, continues to encourage increased production of horticulture products.

Small-scale farmers produce 2.1 million tons of vegetables from 260 thousand hectares, while the state farms produce 18 thousand tons from 880 hectares. Private companies are undertaking an increasing numbers of investments and experiments to produce peas, mange touts, cherry tomatoes, and asparagus for export to the EU market. Growers in Southern Ethiopia have successfully started herb production, partly in greenhouses.

Total fruit production is almost 500 thousand tons, of which the state farms account for approximately 10 percent of production. Foreign investors have also come to Ethiopia to start avocado and passion fruit production and processing, mainly on former state owned plantations. In addition, a Dutch grower has a few years’ experience growing a wide range of vegetables of excellent quality in greenhouses.

Food safety and environmentally friendly production standards are high already, thanks to the nature of production (almost organic by default at the small-holder level) and are expected to increase further. Therefore, sophisticated technical and organizational skills are essential. Recently supermarkets in Europe have become stricter on MRL’s (Maximum Residue Levels of pesticide residues). It is foreseen that norms will become stricter and evolve toward “zero tolerance.” The impacts of climate change are expected to receive more public and political attention in the coming years, for instance U.K. supermarkets already provide information on “food miles” on the product label. This market trend is increasingly important for medium- and long-term business strategies.

Size of the Domestic Horticulture Market

The size of the domestic market for fruit and vegetables is limited and not very diverse. Fruits in the markets of Addis Ababa are restricted to bananas, papaya, and mango. Potatoes, onions, peppers, and tomatoes are the main vegetables sold. Although the offer is larger in rural markets, it is to be noted that other fruit and vegetables are not common in the Ethiopian diet.

                                                                                                             35WUR. February 2009. “Business Opportunities in Fruit and Vegetable Sector.”

 

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Despite the various opportunities to process fruits and vegetables, most of the products are consumed as they are without further processing. For example, fruit juices are manually processed from mango, pineapple, oranges, banana, and papaya. Unfortunately, no detailed recent and reliable data are currently available on the market.

Horticulture Market Trends

In the short-term, there is a potential for import substitution of processed fruits, mainly soft drink concentrates and fruit juices. The available processing plants have the potential to produce high-quality products for the top market segments in Ethiopia, but the current level of organization of the value chain does not allow processors to source raw materials locally; for example, some processors import the pulp of fruits to process fruit juices.

The government of Ethiopia has given a policy priority for the production of fresh vegetables, fruits, and herbs. Ethiopia produces and exports green beans, snow peas, broccoli, zucchini, okra, asparagus, cherry, tomatoes, green chili, chives, parsley, rosemary, dill, basil, Roccola, strawberries, and table grapes. The export performance of the sector had been limited, with a low volume of exports to neighboring countries and European market. However, the export status is changing as more modern farms and processing enterprises are expanding.

Export of fruit and vegetables from Ethiopia can be categorized into three types: 1) export of relatively high value perishable produce to Europe (including fresh beans, strawberries, grapes, tomatoes, zucchini, peppers, and fresh herbs); 2) the export of conventional products cultivated predominantly in Eastern Ethiopia around Dire Dawa, to regional markets (mostly Djibouti); and 3) some processed and fresh produce to Middle East countries. Export of fruit and vegetables has been limited, but is now growing strongly with exports of vegetable products from Ethiopia increasing from 25,300 tons in 2002/03 to 63,140 tons in 2009/10. The value of the fruit and vegetable exports increased by an average of 18 percent during this period, from less than $10million to $30million.36

Both in Europe and the Middle East, there is growing demand for products from Ethiopia, for instance, the demand for tomato concentrate in the Middle East and Sudan. Saudi Arabia now imports processed products from China, a real competitor for Ethiopia because of its low costs of production. Successful companies in the Ethiopian fruits and vegetables sector most commonly produce directly for wholesalers or even

                                                                                                             36Ethiopian Horticultural Development Agency and Ethiopian Horticultural Producers and Exporters Association.March15, 2011.“Exporting fruit and vegetables from Ethiopia—assessment of development potentials and investment options in the export-oriented fruit and vegetable sector, ”available at: http://www.ehpea.org/index.php?option=com_content&view=article&id=147&Itemid=272 .

 

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directly to supermarkets, or have their own processing plants. This appears to be the preferred strategy in Ethiopia. Issues that are addressed in these market arrangements include volumes, varieties, and seasonality and quality requirements. The competitive advantage of Ethiopia compared to countries such as Egypt, Kenya, Morocco, and Tunisia is crucial in this.

Value Adding Horticulture Enterprises

The government of Ethiopia gives high priority to the development of the horticulture sector. In 2008, the Horticultural Development Agency was established with a specific focus to promote and support the further development of the horticulture sector. The past few years have seen a major change in government policies toward the horticulture sector, reflecting efforts to redirect the economy away from centralized planning to a more liberalized economy. The government of Ethiopia increasingly considers the private sector as the engine for economic growth and the catalyst for employment creation and export expansion. As a result, private companies were allowed and facilitated with an array of incentives to engage in the sector. Et Fruit, the largest government-owned company, is currently looking at developing value added products and seems to be willing to support the AII initiative by helping develop brands and supporting domestic distribution.

In Ethiopia, the number of fruits and vegetables processing industries is limited. Most recent data refer to 15 fruit and vegetable processors and five fruit and vegetable processing plants in the country. These plants presently process a limited variety of products: tomato paste, orange marmalade, vegetable soup, frozen vegetables, and wine. Currently most processed products are geared to the domestic market. Existing processing plants are working below capacity because of the lack of sufficient and regular supply of fruits and vegetables.

Fruits and vegetables processors face the following barriers to growth:

Processing equipment, know how, packaging, and storage do not meet quality standards, hence a high rate of product spoilage and hygiene problems.

There is a lack of understanding about product options (that is, what value-added products can be produced with the raw materials available).

Packaging options are poor and no distribution options are available. Poorly organized and highly fragmented supply chain and distribution

mechanisms make the whole process of adding value quite challenging, for example the shortage of supply of raw materials can be inconsistent and make prices escalate.

Access to information about export markets is limited.

 

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Textiles and Garments

State of Cotton Production

The current production areas of cotton cover more than 90,000 hectares of lowlands, both rain fed and irrigated, and are cultivated mainly by small-holders, aside from public and private farms. The total volume of production varies from year to year, with an estimated average of 110,000 tons of raw cotton. Some 2.6millionhectares of land are suitable for cotton production, which is equivalent to that of Pakistan, the fourth largest producer of cotton in the world. The climatic conditions and land resources of Ethiopia favor cotton growing.

Cotton can be produced in three different ways: 1) certified organic, 2) conventionally grown, and 3) supervised integrated pest management (IPM). Studies comparing the three conclude that organic fields tend to have significantly fewer western tarnish plant bug nymphs (Lygus Hesperus, a key pest) and more generalist predators than conventional fields. No significant treatment differences in plant development, density, or lint quality appear. Lower quantities of insecticide are obviously used in organic and IPM fields (average 0.30 lb. of active ingredient insecticide per acre), 83 percent less than in conventional fields (1.78 lb.AI/acre). The costs of production per bale are usually 35 percent higher for organic than for conventional cotton, primarily because of greater hand-weeding costs and lower yields in organic cotton (that is, yields are 2.1, 2.7, and 2.8 bales/acre, for organic, IPM and conventional treatments, respectively), but the overall production cost is generally 13 to 15 percent lower in organic cotton fields, because of 40 percent lower cost for inputs (seeds, manures, and organic pest management Items).

Although the initial yield may be low when compared to conventional cotton, it has been observed that after two years, there is an increase in the yield of 4 to 6 percent. Because of slightly higher cotton yields, the 20 percent higher price for organic cotton products and lower production costs, gross margins in organic cotton fields are usually 30 to 40 percent higher than with conventional cotton. Organic production presents an untapped opportunity for Ethiopia. According to the fourth annual Organic Exchange Farm and Fiber Report 2009, organic cotton production grew an impressive 20 percent over 2007/08 to 175,113 metric tons (802,599 bales) grown on 625,000 acres (253,000 hectares). Organic cotton now represents 0.76 percent of global cotton production.37

A major challenge from Ethiopia is that the cotton grown does not meet international market standards. The international market needs cotton with 30-32mm length fibers to be competitive, whereas Ethiopian farmers produce 25-28mm.                                                                                                              37http://www.ota.com/organic/mt/organic_cotton.html .

 

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Size of the Domestic Textile and Garment Market

The production of textile goods is the largest formal manufacturing activity in the country. During the first quarter of 2011, the largest share of production value was contributed by the manufacturing of textile products reaching 8.6billion Birr, representing 38.4 percent of the overall manufacturing production in the country.38 Textile manufacturers believe the local demand will increase in the next few months.

Textile and Garment Market Trends

Ethiopia exports textiles and garments to Asia (67 percent), Africa (23 percent), and Europe (10 percent). In 2011, the country earned over $14.6 million from the export of textiles and the garment sector. Major importers from Ethiopia included France, Germany, the Netherlands, and United States.39As competition on the major international textile and garment markets (EU and United States) continues to increase, Ethiopia as a “newcomer” has to face not only the requirements of potential customers, but performance of competitors and trends in markets as well. The future potential and development chances of the textile and garment sector in Ethiopia will strongly depend on appropriate steps by local manufacturers, organizations, and institutions, as well as government strategies and support (developing competitive advantages for manufacturers and suppliers in Ethiopia). The following chart shows a comparison of the production value chain for a basic polo shirt in Ethiopia, China, and India (Figures approximately in percent based upon FOB value).

                                                                                                             38Central Statistical Agency.December 2011.“Report on the 1st quarter of the 2004 EFY Manufacturing Business Survey.” 39http://www.ethiopiantextileexpo.com/index.php?option=com_content&view=section&layout=blog&id=2&Itemid=3

 

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The table shows that in the knitwear sector there is potential for value addition in Ethiopia especially concerning knitting and confection, which again depends on and requires an efficient production and increased qualification of production staff. It underlines the importance of a respective investment into know-how transfer and improvement in the garment field, as well as strategic investment in knitting, spinning, and weaving equipment, as well as staff qualification in these sectors.

However, Ethiopian imports of textiles and clothing are increasing. While in 2007 the total Ethiopian imports of textile and clothing were $142.6 million, it increased to $239.8 million in 2008, showing a significant increase of 68 percent. In 2007, the increase was 4.2 percent over 2006. China, Indonesia, India, and United Arab Emirates are the major countries exporting textile and clothing to Ethiopia, with their market share totaling approximately 70 percent (China 53.3 percent, Indonesia 5.8 percent, India 5.6 percent and United Arab Emirates5.3 percent). The other major exporting countries to Ethiopia include Thailand, Taiwan, Turkey, United Kingdom, Pakistan, and the Republic of Korea in order of their market share.40Right now, U.A.E can only be an intermediary.

As a result of consumer interest, organic cotton fiber is used in everything from personal care items (sanitary products, make-up removal pads, cotton puffs, and ear swabs), to home furnishings (towels, bathrobes, sheets, blankets, and bedding), children's products (toys and diapers), clothes of all kinds and styles (whether for lounging, sports, or the workplace), and even stationery and note cards. In addition, organic cottonseed is used for animal feed and organic cottonseed oil is used in a variety of food products, including cookies and chips. According to the Organic Cotton Market Report 2009 released by Organic Exchange in May 2010, global sales of organic cotton apparel and home textile products reached an estimated $4.3 billion in 2009. This reflects a 35 percent increase from the $3.2 billion market recorded in 2008. Companies reported significant growth of their organic cotton programs, and increased adoption of standards addressing organic product traceability and sustainable textile processing.41

The country does not produce competitive cotton. The fibers are too short because of poor growing practices, lack of irrigation, and poor post-harvest practices. Low world cotton prices and the lack of premium prices for organic cotton are additional obstacles to adopting organic cotton production.

Value Adding Textile and Garment Enterprises

Ethiopia has a long tradition of producing cotton textiles. The textile, garment, and home textile industry in Ethiopia shows a complete value chain only in the cotton garment sector (cotton growing, ginning, spinning, yarn dyeing, weaving, and knitting,

                                                                                                             40Idem. 41http://www.ota.com/organic/mt/organic_cotton.html .

 

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as well as confection and garment finishing); some of the factories in Ethiopia are even fully vertically integrated (for example, spinning to finished garment or product). However, the number of operating factories and their capacity is comparably low and does not provide self-sufficiency for the demand by Ethiopian garment or home textile industry, neither regarding the domestic market nor potential future export orders.

Ethiopia currently has eight large scale textile factories (out of which seven are publicly owned) and 13 garment enterprises (four of them are public enterprises). Many of the Ethiopian companies have very good or even partly excellent technical equipment, but lack proper use and handling (low productivity and a lack of qualification). The basic quality of workmanship is broadly acceptable for export markets, however in case of ready to use products, including yarn or fabric supply by the Ethiopian manufacturer, the quality of finishing (yarn and garment finishing) needs generally to be improved. Most of the Ethiopian manufacturers are not yet ready for independent and proactive export marketing, as they lack basic know-how and experience, for example, regarding product and company presentation, customer requirements, and acquisition, as well as customer service. The financial situation in most of the companies is not a problem, even though an increase in export earnings could generate a further boost in company development. Ethiopia’s fashion design industry is extremely viable, which represents a significant opportunity for cotton and garments. The status of Ethiopian textile companies can be summarized as the following:

• There are very good technical equipment and very low production costs, but very low productivity against a high price pressure inhibit companies from earning profits.

• There is limited availability of ready to use fabric, accessories and trim (need to be imported) and value adding elements, such as prints and embroideries, are rarely done following international standards.

• There are poor marketing, sales, and management skills. • A reasonable financial basis exists, but there is limited access to finance for

working capital. • Qualified staff (for example, production and marketing) and intense export

promotion and acquisition of export customers are needed to generate and benefit from competitive advantages.

Wheat

State of Wheat Production

With growth in production over the past decade (namely, around 8.7 percent annual increase because of area expansion and yield improvement), Ethiopia’s wheat

 

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production reached 3.147 million metric tons42 in 2011, securing its position as one of the largest wheat producers among the COMESA countries. In terms of area cultivated and annual wheat production, wheat is the third most important cereal crop in Ethiopia, following maize and teff. The average annual area under wheat and wheat production during the period 2004-09 was 1.51 million hectares and 2.29 million metric tons, respectively. Small-holders produce nearly 98 percent of the wheat.

According to Ethiopian Institute of Agricultural Research (EIAR), now there are many improved varieties of bread and durum wheat. In 2004-09 alone, 13 improved varieties of bread wheat and 13 improved varieties of durum wheat have been released by different research centers and institutions. These varieties are high yielding and suitable for industrial processing. However, the utilization of these improved seed varieties by producers is extremely weak. At present only 3 percent of the country’s wheat area is covered with improved seed varieties and only 79,400 metric tons of chemical fertilizer was used on 446,709hectares of wheat. This clearly shows that there is immense potential for increasing domestic wheat production, but there are many constraints that hinder the intensification of wheat production. These constraints include the following:

• Weak seed production and distribution, lack of participation by private firms and farmers’ organizations in the production and distribution of improved wheat varieties

• High seed cost because of high transport and handling costs • Inadequate coordination between research, seed production, and extension

services • Lack of market information for traders, producers, and farmers’ organizations • Lack of access to appropriate storage and marketing facilities and infrastructure • Lack of contractual agreements between producers and millers • Lack of access to bank credit • Inadequate road infrastructure and high cost of transferring wheat from surplus

areas to consumption centers

With climate change, higher temperatures negatively affect the growth of wheat and decrease productivity. Appropriate adaptive and mitigative techniques are needed, including changed cultivation practices, better irrigation systems, new technology, and use of new drought resistant varieties.

Size of Wheat Domestic Market

The annual volume of wheat handled by food processors is about 53 percent of the total wheat supply to the domestic market. It is supplied to consumers in the form of                                                                                                              42 Source: US Department of Agriculture, available at: http://www.indexmundi.com/agriculture/?country=et&commodity=wheat&graph=production

 

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flour, spaghetti, and bread. The remainder is distributed in the form of whole grain, which is processed by consumers and retailers, including small shops, bakeries, kiosks, restaurants, cafes, and supermarkets.

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.

Wheat Market Trends

Ethiopia imported in 1.2million metric tons of wheat43 in 2011.Some pasta producing companies import hard wheat, because it is more uniform than that grown domestically. These companies are concerned about maintaining the quality of their product. The majority, however, produce the lower-quality flour, biscuits, and pasta. Although indigenous to Ethiopia, durum wheat production has dwindled over the past decades. The pasta factories in Ethiopia mostly do not use durum wheat for the production of their pasta and instead opt for hard bread wheat. Durum wheat is relatively low yielding compared to bread wheat and the indigenous varieties known to the pasta processing companies are very low yielding. As a result, these companies think that it is not possible to use durum wheat and instead rely on hard bread wheat, either imported or produced domestically.

Value Adding Wheat Enterprises

Wheat is used as an input for the country’s modern food processing factories, which makes it the most important crop used as an industrial input for food processors. Food processors that use wheat as an input include 86 large and medium flour mills, 180 manufacturers of bakery products, and 9 manufacturers of spaghetti and macaroni. These enterprises employ about 11,000 people. Food processors normally operate below their capacity. For example, the capacity utilization of flour mills, bakeries, and manufacturers of pasta and macaroni44 operated at 36 percent, 67 percent, and 58 percent of their capacity in 2006/07. The main reason for this is the shortage of raw materials, because of the lack of coordination between the stakeholders of the wheat value chains that does not allow processors to source the wheat they need locally.

The value added by the different actors in the wheat-bread value chain is about $393.24/metric ton. The share of the different actors in the total value chain is as follows: wheat growers (44.7 percent), wholesale traders (5.5 percent), flourmills (19.8 percent), and bakeries (30.0 percent).This is may be due to the presence of large international community in Addis Ababa. For ordinary citizens, consumption of pasta becomes

                                                                                                             43Idem. 44CSA. 2008

 

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necessary whenever there is shortage in supply of staple foods and during fasting seasons.

Adding value wheat processors face the following challenges: The value chain is not organized. Producers and processors do not

communicate their differing needs to growers to ensure production is optimum for their processing needs, which impacts negatively the quality of the wheat products.

Capacity to market wheat products is very limited.

Spices

State of Spices Production

Ethiopia has a long history of spices production. The unique environmental conditions of the country offer the opportunity to produce a wide variety of spices, including korarima (Aframonum Korarima), long pepper, black cumin, Bishops weed (‘Nechazmud’), and coriander. Spices are mainly produced by small-holders. Data from 2010 indicate that spices production cover 222,700ha of land, enabling the production of 244,000 ton per annum.

It seems that most of the production of spices is organic, although it is not certified as such.

Size of Spices Domestic Market

Spices have always been part of Ethiopian people’s diet. Therefore, the domestic demand for spices is large, mainly for whole pepper and ground ginger, fenugreek, cinnamon, chilies, long pepper, and mixed spices.

Spices Market Trends

Despite its acknowledged potential, the spices industry has long been underexploited.

Export of spices from Ethiopia is very limited, currently contributing only about 1 percent of the country’s total agricultural export. Under its five year Growth and Transformation Plan (GTP), the government of Ethiopia envisages investing$7.5million in order to boost the revenues from the spices sector, expected to generate $50million annually from 2016 by notably supplying over 34,000 tons of spices to the export market, which would represent a significant increase compared to the 15,500 tons of spices exported in 2009/10 generating $33.2million.

Exports of spices have been steadily growing over the past few years. More than 50 percent of Ethiopian spices are exported to Sudan, which absorbs up to 75 percent of Ethiopia’s ginger export. The other main export destinations for Ethiopian spices include

 

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India, Morocco, Saudi Arabia, United Arab Emirates, and Yemen. Recently, the substantive shift towards] natural products in developed countries has stimulated the demand for spices in parallel with demand for organic spices in Europe, Japan, and United States. Although the size of this market is small (around 1 percent of the total market), the annual growth rate is 25 to 30 percent. Hence, there is a large and growing world demand for unprocessed and ground spices, as well as spice extracts, such as essential oils and oleoresins.

Customs data record that the imports of spices increased from 863 tons in 2005 to 1,534 tons in 2009, while import value of spices increased from $7.7million in 2005 to $18.1 million in 2009.45

Value Adding Spices Enterprises

There are two spice processing plants in the country, one public and one private. The public spice extraction plant, the Ethiopian Spice Extraction Factory, has a processing capacity of 180 tons per year, 85 percent of which is paprika, but it can process ginger from locally grown ginger root, capsicum oleoresin from red pepper, and turmeric. The privately owned spice extraction plant—Kassk Spices and Herbs Extraction PLC—has a processing capacity of 120 tons per annum. All of the extracted spices are exported overseas for food coloring, flavoring, and other purposes to Europe: mainly Germany, Italy, and Spain.

The two spice extraction plants in Ethiopia are presently not operating at full capacity because of machinery obsolescence and shortage of raw materials. To date, the adding value practices have been limited to storing spices in bulks and jars and drying spices. There is an increasing number of small enterprises processing spices products, but the level of processing and packaging equipment of these processors is very limited.

Spices value adding processors face the following challenges: There is very limited storage space. High quality spices are adulterated by selling low quality varieties as high

quality.

The spices are of poor quality because of poor pre- and post-harvest handling practices. There are no enforceable quality standards so the product is altered by adding water, which changes the weight, color, and appearance.

Capacity and know-how of existing processors are both limited.

Access to market information is limited.

Organization of the stakeholders along the value chain is limited.                                                                                                              45MasreshaYimer. November 2010. “Market profile on spices: Ethiopia”, UNCTAD ITC.

 

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Annex 8: AII and Finland’s Agro-BIG Program

Agro-BIG is dedicated to agribusiness induced growth in the Amhara National Regional State. The four-year program supported by both governments of Ethiopia and Finland aims to contribute to poverty reduction through agriculture-based economic growth in the program area by establishing efficient and profitable value chains of selected crops or products (during the first phase, the value chains of focus will be onion and honey), benefitting the involved actors and stakeholders along the chain (farmers, processing industries, traders, and buyers). Agro-BIG will have three vertical components: 1. value chain development, 2. service delivery development, and 3. access to funds and financial services. Finland views infoDev as a key implementing partner for Agro–BIG and supports the integration of the AII with the CIC.

The AII can assist Agro-BIG in it service delivery and access to funds and financial services components, building upon the value chain development work and levering the AII’s focus and capability with market development, business management, and financing.

The service delivery component will develop private and public service provision to the value chain actors. The component is about human resource development—accessing services that can facilitate group formation (including associations and cooperatives), input supply, action planning, quality control, standardization, market information and market intelligence, accounting, auditing, business development planning, and applications to gain assistance from funds and financial services. All these services may potentially be identified as needs by the value chain actors. Services can also be developed within the private or public sectors—and development of new services can be done with the assistance of the Innovation Demonstration and Research Fund.46

The AII can assist by helping with market information and intelligence, for both the domestic and international markets, by linking local producers with larger processors and by providing intensive market development, business management, and financing support to suitable growth-oriented agribusiness entrepreneurs coming through the Agro-BIG program. Financing support will start by ensuring the chosen agribusinesses are finance ready, with the necessary management and accounting practices and competitive business models that are important to secure finance.

The Access to Funds and Financial Services component will strengthen the link to saving and credit facilities for participants along the value chain and make funds available for value chain development through existing private and public institutions. It will set up process and procedures round the Innovation, Demonstration and Research Fund (BoFED will manage) that can be used by actors in component 1 and 2. A minimum of                                                                                                              46Program document 2011.

 

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50percent of the funds should go to private sector actors, and all access will be based upon sound applications. The fund will only respond to private and public initiatives around the needs identified in the Value Chain Development Strategy of the chosen value chains. Agro-BIG will coordinate with other donors in identifying ways to support access to credit via private and public banks and microfinance institutions. The possibilities of a guarantee scheme should be investigated. A Value Chain Fund is to be set up with the Amhara Credit and Saving institution, which can top up on savings made by such groups as coops, farmers associations, and irrigation groups. A Matching Grant Fund for larger private investments is to be set up (Amhara Credit and Saving Institution or the Development Bank) to serve micro, small, and medium enterprises.47

The AII can assist as a financier of growth-oriented agribusinesses resulting from the Agro-BIG Program, which is co investing alongside other financiers. As a part of the CIC, the AII will benefit from CIC investment activities, with proof of concept grants up to $100,000 and seed funding up to $750,000. Ongoing support from staff, mentors, and consultants will be provided to investee companies to mitigate the risk and maximize success.

The AII will have its main location in Addis Ababa, with facilities in the main Merkato and offices with the CIC. Clients not located in Addis Ababa will be supported by visiting and remote services. The location in the main Merkato in Addis Ababa will help clients from across Ethiopia navigate its complicated and confusing systems, which are nonetheless crucial for distributing products to the domestic market.

As a part of implementation, the AII should agree with Agro-BIG exactly where AII services can best benefit and complement Agro-BIG services, maybe leading to an MOU. For this, monitoring and evaluation will be important. Working with clients remotely is a feature of the AII and a growing trend with business incubation, but it is not always easy. Service delivery mechanisms instituted with Agro-BIG can serve as examples for work with other donor programs and learning will need to be captured.

                                                                                                             47 Ibid.

 

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Annex 9: Phasing of Enterprise Support

Different types of support will be required, depending on the stage and targets of the client enterprises. Below provides an overview of how support could be phased.

Phase 1

Phase 1 support will strengthen current activities with existing products in existing markets. Incremental improvements, both technical and managerial, will be the key focus in Phase 1. Improvements in procurement, processing technology, packaging, and sales approaches could reduce costs, improve quality, and expand existing markets and strengthen these enterprises for later phases.

Phase 1 support is seen as a “means to an end” in preparing Level 2 enterprises for accelerated growth.

Phase 2 - New Markets

Phase 2 would use the advances made in better procurement, additional equipment availability, more hygienic and advanced processing, better quality packaging and branding, and improved managerial capability to access new markets.

Phase 2 may progress very fast for some enterprises, but the test of competitiveness (as a proxy for market acceptance of a good quality, available, and well-priced product) will be measured by the consistency of

N

EW

MA

RKET

EXIS

TIN

G

MA

RKET

– EXISTING PRODUCT

– NEW PRODUCT

Figure 27Phasing of Support to be Provided to AII Cilents

PHASE  2:  Encourage  new  products  

PHASE  1:  Strengthen  product/market  

position  

 

PHASE  2:  Support  new  market  access  

 

PHASE  3:  Expand  new  product  markets  

1  

1  

 

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demand over time. Hence, this phase may also run concurrently with Phase 1 in some enterprise contexts.

Phase 2 - New Products

Phase 2 will mark the product expansion phase and will signal a stable enterprise with adequate and constant income and with the resources and managerial skill to venture into new products. New products will require investment in product development; test marketing, packaging, and sales and this will be encouraged and supported in enterprises that have the capability to do this. the AII will facilitate access to packaging services both in Ethiopia and internationally, because new product development and testing requires a focus on both product and packaging, and because there is a definite lack of good packaging options, and because consumer perception is a critical decider of purchase interest. Phase 2 activities may require a year of support to test reliability of test market outcomes. From a managerial and business expansion perspective, this represents adequate time for scale adjustment (for example, developing accounting or distribution changes that keep pace with growth).

Phase 3

Phase 3 activities represent the pinnacle of new growth with new products expanding into new markets. While these can be export markets, national distribution of new products offers significant potential in Ethiopia in all the sectors under consideration by the AII. Market expansion is a complex process, especially with new products as it taxes general management and finance, logistics, and marketing in particular. It can be a significant drain on resources and must be well managed. The AII will offer support in collaboration with partners, such as export promotion agencies, financiers, and logistics linkages. Phase 3 will begin in the third year for most companies and will be supported for at least a year.

 

 

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Annex 10: AII’s Prospective Clients

The financial plan was built on an expected 30 companies supported per year (from year 3). The first two years of the AII program will be dedicated to building the pipeline of enterprises to be supported.

Three levels of client are anticipated as shown in this table.

Table 27Ethiopian AII Target Clients Categorization

Level Business Category by Size Current Turnover Range

AII Support

1 – New start and very small micro businesses

– $0 to $1,200 per annum

– Pre-incubation

2 – Small and medium businesses

– $1,200 to $283,000 per annum

– Incubation

3 – Large businesses – $283,000 to $565,000 per annum

– Incubation

The levels may be segregated further as a part of the implementation in Year 0 when further planning and refinement will take place, learning from selected clients. Initially, Level 2 and 3 clients will be the focus in order to hone the model and drive for revenues.

The deal flow of level 2 and 3 enterprises is captured in the table below, which incorporates phases of support also, three for level 2 clients and two for level 3 clients (which have been described further in Annex 7).

 

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Table 28Deal Flow of AII’s Enterprises

CLIENT CUMULATIVE CLIENTS LEVEL PHASE Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

2 1 0 6 6 6 6 6 6 6 6 6 6 2 2 0 6 6 6 6 6 6 6 6 6 2 3 0 0 0 6 6 6 6 6 6 6 6 3 2 0 4 4 4 4 4 4 4 4 4 4 3 3 0 4 8 8 8 8 8 8 8 8

TOTAL 0 10 20 30 30 30 30 30 30 30 30 NEW 0 10 10 10 10 10 10 10 10 10 10

CUMULATIVE 0 10 20 30 40 50 60 70 80 90 100

 

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Companies enter the AII for an average of three years, noting that services will be tailored to the unique needs of each and every company with a case management approach. Inevitably some companies will grow and progress faster than others.

The table below captures the combine turnover of the supported enterprises, on the assumption that Level 2 turnover increases by 1.5x in Phases 1 and 2 (combined), 1.5x in Phase 3, and Level 3 turnover increases by 1.5x.

 

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Table 29Combined Turnover of AII’s Client Enterprise

CLIENT COMBINED ENTERPRISE TURNOVER

LEVEL PHASE Year

0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 2 1 0 1127880 1127880 1127880 1127880 1127880 1127880 1127880 1127880 1127880 1127880

2 0 0 1466244 1466244 1466244 1466244 1466244 1466244 1466244 1466244 1466244 3 0 0 0 1906117 1906117 1906117 1906117 1906117 1906117 1906117 1906117 3 2 0 2215200 2215200 2215200 2215200 2215200 2215200 2215200 2215200 2215200 2215200 3 0 0 3338400 6676800 6676800 6676800 6676800 6676800 6676800 6676800 6676800

TOTAL 0 3343080 8147724 13392241 13392241 13392241 13392241 13392241 13392241 13392241 13392241

 

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Clients will only agree to pay a royalty on their turnover if the AII confers tangible benefit in terms of profit to the entrepreneur, by way of increasing turnover and by improving gross profit margins and efficiency.

This is depicted in a simple example below with two scenarios. This calculator highlights the benefit of agreeing to pay a percent of turnover and demonstrates just how far the AII can go with the percent before it turns negative for the entrepreneur. A percent royalty and with an increase in turnover means the entrepreneur pays a certain amount. Then with an assumed gross profit and overhead margin, one can see whether the entrepreneur gains or loses with the profit or loss they make. It appears gross profits are around 50 percent and overheads 18 percent, which are used as the basic assumptions.

With Scenario 1, assuming a turnover of $100, a 30 percent increase in turnover improves the profit by $9.60, but incurs a royalty payment of $7.80 with a net gain to the entrepreneur of only $1.80. This may not be enough to secure entrepreneur engagement.

Scenario 2 assumes the AII will improve both the gross profit margin and the overhead percentage resulting in a changed operating profit, because it is assumed that not only will the AII intervention increase turnover, but also help the entrepreneur compete on value and improve internal efficiencies. In this example, the net gain to the entrepreneur is $8.40. This demonstrates how the AII can charge what may seem to be a high percent of operating profit without damaging the business.

Annex 11: Setting a Royalty Fee

  SETTING  A  ROYALTY  FEE                                                   – Royalty   – 6.00%                         – Growth  in  turnover   – 30.00%                         – COS%  of  turnover   – 50.00%                      

 – Overhead  %  of  

turnover   – 18.00%                                                                                                    – SCENARIO  1.  AN  INCREASE  IN  TURNOVER  WITH  NO  CHANGE  IN  GP  or  OPAS  A  PERCENT  OF  TURNOVER  (that  is,  increased  turnover  with  no  efficiency  gain  from  

intervention)                                   –     – BEFORE   – AFTER     – Royalty  fee                   –     – $   – $     – $                

  – Turnover   – 100.00   – 130.00     – 7.80                   – Cost  of  Sales   – 50.00   – 65.00                       – GP     – 50.00   – 65.00                       – Overhead   – 18.00   – 23.40                       – OP     – 32.00   – 41.60                       – OP%  of  turnover   – 32.00%   – 32.00%                       – Royalty  %  of  OP     – 0.19                                                 – Gain  in  OP  ($)   – 9.60                      

  – Payment    ($)   – 7.80                      

  – Nett  gain  ($)   – 1.80                      

                         

  – Royalty  of   – 6.00%

– and growth of – 30.00% – confers additional income of – $1.80        

                         

 

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                         – SCENARIO  2.  AN  INCREASE  IN  TURNOVER  WITH  AN  INCREASE  IN  GP  and  OP  (that  is,  some  efficiency  gain  from  

intervention)                                           –     – BEFORE   – AFTER     – Royalty  fee   –     –     –               –     – $   – $     – $       –            

  – Turnover   – 100.00   – 130.00     – 7.80       –            

  – Cost  of  Sales   – 50.00   – 58.50    – COS  

decreased  by     – 10%   – due  to  intervention          

  – GP     – 50.00   – 71.50    – Overheads  

decreased  by   – 10%   – due  to  intervention           – Overhead   – 18.00   – 23.30     –     –       –               – OP     – 32.00   – 48.20                       – OP%  of  turnover   – 32.00%   – 37.08%     –     –       –               – Royalty  %  of  OP     – 0.16     –     –     –     –                                         – Gain  in  OP  ($)   – 16.20                         – Payment    ($)   – 7.80                         – Nett  gain  ($)   – 8.40                      

                         

  – Royalty  of   – 6.00%

– and growth of – 30.00% – with a – 10%

– decrease in COS and – 10%

– decline in overheads confers additional – $8.40 – profit

 

Annex 12. The Possible Fit with the CIC Services

The AII will dedicate a highly qualified and knowledgeable staff with solid experience and networks in the agribusiness sector to foster the growth of a climate-smart, competitive agribusiness sector in Ethiopia. By working in partnership with strong agribusiness stakeholders, the AII will offer tailor-made services to agribusinesses, enabling them to innovate on both the technology and marketing sides, with the purpose of having a demonstration effect that can catalyze take-up of these innovations across the agricultural processing industry.

By reviewing the requirements (detailed further later in the current document) for the proposed AII, designed in response to the three questions outlined above, it could make sense to include the AII under the CIC. If this option was selected, the aim would be to have an agribusiness service line integrated to the CIC. It would add to the CIC service offering by addressing the specific needs of Ethiopian value adding agribusinesses toward accelerating their growth and competitiveness.

The AII will, together with the CIC, form a strong green growth program, positioning Ethiopia to harness its comparative advantage in agriculture for economic growth, competitiveness, and job creation, while protecting that advantage through climate technologies.

Agribusiness is an important sector for the CIC. Should the AII be integrated within the CIC, the AII Business Line should add to the CIC service offering.

The services of the Ethiopian CIC are summarized in the following figure.

 

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Figure 28Ethiopian CIC Seervice Offering

Finance is an important pillar for both the CIC and the AII. The Innovation Catalyst Fund is what is required to help existing firms to scale and grow and the proof of concept grants are important for future new start businesses. The strong need expressed by survey respondents for investment to help companies grow indicates a strong fit with the CIC.

Market development is not noted as a pillar for the CIC, but is addressed under mentoring and access to information. However, as a core service for the AII, relying on external networks to help clients with market development is not sufficient. External providers and mentors in Ethiopia do not necessarily have the expertise. To generate trust and credibility with entrepreneurs, this critical service needs experienced staff at the core of the AII, who can then lever and efficiently use external specialist consultants, mentors, and the financing mechanisms.

Advice, including mentoring and access to specialist consultants, is a core pillar for the AII and is very similar to the mentoring pillar of the CIC. The notable difference relates to market development, for which the AII needs core staff with both domestic and international market development expertise in value-added agro-processing businesses. For the same reasons, the AII will need at least one business development staff person. A management staff to client ration of 1: 6 is desirable to provide the intensive incubation required.

 

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The CIC will have office facilities in Addis Ababa, although it is not noted as a pillar. The additionally for the AII is that a second facility is required in the Merkato to showcase products and technology and as a base from which to help entrepreneurs understand and lever the complex Merkato systems and networks.

Policy support is an important pillar for the CIC, for which regulation in some sectors is needed to create competitive markets. It is a necessary service for the AII in terms of advocacy for quality standards, certification, and enforcement and to remove regulatory bottlenecks to make supply chains more efficient. Indeed, advocacy for certification and standards is an important pillar of the CIC, recognizing that regulation helps create new markets in the climate change arena, especially in the absence of a price on carbon globally. The situation is very similar for agro processors for whom standards regarding health, safety, and quality (including organic) are important in developing competitive and valuable brands and who often rely upon international services in South Africa and Europe. Detailed planning for the CIC will need to address the specific certification needs of agribusiness.

Helping entrepreneurs overcome the deficiencies in packaging options in Ethiopia is a need specific to food processors, which is not as important in other climate innovation sectors. This requires staff and consultants who understand the needs, what is available in Ethiopia, and overseas options, so they can provide valuable advice and facilitation to entrepreneurs.

In summary the AII Business Line will add to the CIC, offering the following specific services:

1. Market development staff. The AII needs two senior experienced people, one with international experience and the other with domestic experience and networks.

2. Staff who understand packaging possibilities needs and options. 3. Facilities in the Merkato.

 

 

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