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July 02, 2008

Ethiopian incentives attract floriculture investors

Not many people seek their fortune in Ethiopia. Yet former computer consultant Bhanu Prasad took a friend's advice in 2002 and left home in Hyderabad, India, to try his luck at flower farming in the east African country.

He said, "It's a country coming up, it's safe, and the climate is good for flowers. We guessed the business would take off.''

Today Prasad's 10 hectares of greenhouses in the central Ethiopian town of Debre Zeit send 40,000 roses a day to the world's largest flower market in Amsterdam. He employs some 300 Ethiopians and is one of 70 commercial flower operations to open in the country since 2002.

Ethiopia, which suffered an estimated 1 million deaths during famines in the mid-1980s, is handing over arable land to entrepreneurs. As a result, flower exports have grown to $125 million from $159,000 six years ago, helping make the country Africa's second-largest flower exporter, after Kenya.

``We can catch up with Kenya in the next two to three years,'' said Fantaye Biftu, a senior adviser at Ethiopia's trade ministry. One day the flower industry may rival coffee, currently responsible for 36 percent of overseas earnings, as the country's leading export.

Ethiopia has some natural advantages in growing flowers. The country's main airport in the capital, Addis Ababa, is two hours closer to Europe by jet than Kenya's, which is important in an industry where air freight accounts for 40 percent of costs.

The country's central highlands -- 6,000 feet above sea level -- more moderate temperatures and reliable sunlight also make it easier to produce the large roses that make up 70 percent of exports. Producers say big-bulb roses are particularly popular in Russia, where sweethearts often prefer a single giant flower.

Persuading investors to come to Ethiopia in the first place wasn't easy. In the 1970s, most businesses were nationalized by Ethiopia's Communist Derg regime. Although it was toppled in 1991 by Eritrean rebels and a group headed by current Prime Minister Meles Zenawi, large-scale private enterprise is still rare.

In 2002, Zenawi's government began offering free land leases on former state-owned farms, government loans of 70 percent of start-up costs, and a five-year tax holiday for new enterprises. In addition, duties on greenhouse materials, seedlings and chemicals were waived for five years.

Over the past six years, the government has loaned more than 1 billion birr ($104 million) to flower farmers -- about half what the country spends annually on health care for its 78 million citizens, according to Ministry of Finance figures.

The tax breaks have been criticized by environmentalists who argue that they benefit few citizens and that the self-regulation of the industry use of pesticides leaves some workers at risk.

``There is little public debate on investments in general and who the beneficiaries of these luxury packages are,'' said Berhe Costantinos of the Center for the Human Environment, a nonprofit group for sustainable development.

That's disputed by government officials, who point out that chemical use is partially monitored by an umbrella group of local charities called the Forum for the Environment.

``If you put in place compulsory inspection, it will have a cost,'' said Dessalegn Mesfin, deputy director general of Ethiopia's Environmental Protection Authority. ``The market itself is a regulator.''

Frequent power outages, a result of Ethiopia's overstretched infrastructure, may hold back expansion of the flower industry. Following rolling blackouts for as many as three days a week this spring, the government agreed to guarantee power to flower farms even as other businesses -- including manufacturers of porridge and feeding paste for malnourished children -- ground to a halt.

The tax breaks have also lured Ethiopians like Yidnekachew Ayele, who returned home in 2003 after attending St. Cloud State University in Minnesota to start a 20-hectare rose farm with a government loan. Ayele produces an average of 85,000 stems a day, with 90 percent shipped to the Netherlands for distribution in Europe.

``We probably compete with someone in Ecuador or Holland,'' said Ayele, who brought in Dutch and Israeli consultants to plan the facility.

Just 40 percent of the flower farms are owned by Ethiopians. The locals who most benefit from the industry are workers earning less than a dollar a day.

Sinayta Tshoma, a former housewife who harvests roses for the equivalent of 83 cents a day on the farms, said she is grateful for the work. "There are no jobs for women other than this,'' she said. "The flower farms are benefiting the people.''

Foreigners are still banned from entering the banking and telecommunications industries or even owning land. Imported cars are taxed at more than 100 percent of the sticker price, and it is still impossible to use credit cards because no local bank is equipped to process international transactions.

Ayele said the fledgling flower industry gives his native land a chance to change its reputation as a famine-prone economic basket case. "The goal is to make a name for Ethiopia,'' he said.

Bloomberg

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