GUIDE TO DOING BUSINESS AND INVESTING IN ETHIOPIA

SID This guide is intended to assist investors interested in doing business in Ethiopia. It does not exhaustively cover the subject, but is intended to serve as a synopsis of some of the important issues of concern for those planning to invest in Ethiopia.

The information in this booklet is based on investment proclamations, tax law, legislative proposals, government sources, United Nations reports and current practices. It intends to serve as a general and condensed guide on the subject matter.

Please note that in this document, the term “Ethiopia” is used in its simple form to refer to the Federal Democratic Republic of Ethiopia. FOREWORD

Since 1991, successive Ethiopian administrations have shown their commitment to transforming the country’s economy.

The early 2000s saw this commitment further strengthened and, since then, the country has sustained growth rates of about 11 per cent per year.

We are aware that past progress in Ethiopia is one indication of what the country and its people are capable of; but we also acknowledge that it is only a beginning - a good beginning. Manufacturing firms have grown over the last five years at almost 20 per cent annually. Both food and beverages industries, as well as apparel and footwear, grew in terms of number of exporters. Foreign direct investment inflows reached His Excellency Hailemariam Desalegn, Prime Minster close to USD 1 billion or 2 per cent of gross domestic product in of the Federal Democratic Republic of Ethiopia 2013, with players such as Ayka Textile and George Shoe expanding their operations, and new global giants like PVH entering the market.

We need to act now to enhance our efforts to attract more investment. We need to ensure we have a conducive climate for investment, with a supportive policy framework; lower transport and energy costs; reduced formal and informal barriers to trade; increased labour market flexibility; and effective competition policies.

With the industrial parks programme, the Government will create greater room for the private sector – both foreign direct and domestic investment – and address constraints related to access to land, infrastructure, trade logistics, customs regulations and skills. Such parks can thus help address both policy and infrastructure constraints, and can facilitate the agglomeration of benefits from industrial clustering, including the emergence of backward and forward linkages that will over time boost domestic enterprises.

3 CONTENTS

EXECUTIVE SUMMARY...... 6

ETHIOPIA IN BRIEF...... 6

INTRODUCTION...... 7

Ethiopia - A brief outline...... 7 Geography...... 7 Climate...... 7 Government...... 7

INFRASTRUCTURE...... 8 Railways...... 8 Roads...... 8 Air transport...... 8 Sea transport...... 9 Telecommunication...... 9 Energy supply...... 9 Financial sector...... 9 Bank loans...... 10 Foreign exchange...... 10

ECONOMIC STRUCTURE...... 10 Economic overview...... 10 Agriculture...... 10 Industry...... 11 Service sector...... 11 Macro-economic policy...... 11 Inflation...... 11 Labour force...... 11 Wage rate...... 11 Employing foreign nationals...... 12 Labour regulations...... 12

4 INVESTMENT CLIMATE AND OPPORTUNITIES...... 12 Investment attractiveness...... 12 Encouraging investment opportunities...... 13 Agriculture...... 13 Textiles and clothing...... 13 Leather and hides...... 13 Integrated agro-industrial parks...... 13 Investment incentives...... 15 Customs duty...... 15 Income tax exemption...... 15 Export incentives...... 16 Remittance of capital...... 16 Loss carried forward...... 17

TAXATION...... 17 Tax system...... 17 Corporate income tax...... 17 Taxable employment income...... 17 Transaction taxes...... 17 Value-added tax...... 17 Turnover tax...... 18 Excise tax...... 18 Deductible expenses...... 18

INVESTMENT LEGAL FRAMEWORK...... 18 Investment procedures...... 18 Licensing authorities...... 18 Post-licensing procedure...... 18 Acquisition of land...... 18 Rental and lease prices...... 19

MISCELLANEOUS...... 19 Intellectual property...... 19 International agreements...... 19 Contact points...... 20

5 EXECUTIVE SUMMARY ETHIOPIA IN BRIEF

With one of the fastest growing economies in the world, Official name Federal Democratic Republic of Ethiopia is a country on the cusp of transformation. From Ethiopia 2003/04 to 2013/2014, real gross domestic product Political system Federal system with a multi-party growth averaged 10.9 per cent per year, compared to democracy the regional sub-Saharan average of 5.4 per cent (World Head of State President Mulatu Teshome Wirtu Bank). The World Bank and the International Monetary Head of Fund forecast continued average growth of approximately Government Prime Minister Hailemariam Desalegn 7 to 7.5 per cent over the next three years. Capital city Addis Ababa Strategically located at cross-roads between Africa, Mekele, Dire Dawa, Bahir Dar, the Middle East and Asia, Ethiopia is the second most Main cities/towns Gonder, Harar, Adama, Jimma, populous country in Africa and offers untapped resources, Hawassa a vast domestic market and a large, young workforce. The 2 Surface area 1,104,300 km , of which water country is also ideal for agricultural activity, with varied amounts to 104,300 km2 climatic conditions and abundant fertile land. Arable land 513,000 km2 (45%)

Recent government reforms and incentives are unlocking Population 96.6 million investment and business opportunities. More efficient Amharic is the working language of bureaucratic processes related to registration, logistics Language the Federal Government. English is and taxation are increasing the inflow of foreign direct widely spoken particularly in business investment, especially in the manufacturing sector. transactions Religion Major religions in the country are Some of the top investment opportunities are in export- Christianity and Islam oriented sectors. These include agro-food processing, GDP USD 55.61 billion, at purchasing textiles and garments and leather and leather products. power parity 145 billion (2014) The ambitious targets of the national Growth and GDP per capita USD 690.9 at purchasing power Transformation Plan II – which culminate in Ethiopia parity 1,374 (2015) achieving middle-income status by 2025 – are driving the Coffee, livestock products (skins and country’s growth and openness to foreign investment. Exports hides, leather), pulses, oil seeds, spices, cotton, fruits, vegetables, textiles, natural gum, mineral products, etc. Petroleum products, vehicles, spare parts, construction equipment, Imports pharmaceutical products, industrial equipment and machinery, agricultural and industrial chemicals, hybrid seed, fertilizers, consumer goods, etc. Currency The unit of currency is the Ethiopian Birr (ETB) Exchange rate ETB 1 = USD 0.0457695 (July 20, 2016)

6 INTRODUCTION There are three different climate zones according to elevation. Kolla (tropical zone) - is below 1830 meters in elevation and has an average annual temperature of Ethiopia – A brief outline about 27°C, with annual rainfall of about 510 millimeters. Woina dega (subtropical zone) - includes the highland Ethiopia is a country with a unique and rich history. areas of 1830 to 2440 meters in elevation and has an Located in the north-eastern part of Africa, Ethiopia is average annual temperature of about 22°C, with annual bordered by South Sudan and the Sudan to the west, rainfall between 510 and 1530 millimeters. Dega (Cool Eritrea to the north, Djibouti and Somalia to the east, zone) - is above 2440 meters in elevation with an average and Kenya to the south. After launching a political and annual temperature of about 16°C, with annual rainfall economic renewal campaign in the early 1990s, the between 1,270 and 1,280 millimeters. country began to open its doors to the world economy, heralding a new era of transformation and challenges. Ethiopia has four different seasons. Kiremt (summer) Today, Ethiopia is seen as an emerging market and one of is the rainy season covering June, July and August. Belg the most dynamic economies of the world. (spring) - March, April and May is the spring season with occasional showers. May is the hottest month in Ethiopia. Ethiopia is part of an ancient civilization and is one of the Tseday (autumn) – September, October and November only two African countries to maintain its independence is the autumn season, sometimes known as the harvest throughout history. Addis Ababa is not only the capital city season. Bega (winter) - December, January and February of Ethiopia, but also the political capital of Africa hosting is the dry season. the headquarters of the African Union and the United Nations Economic Commission for Africa. Mekele, Dire Dawa, Bahir Dar, Gonder, Harar, Adama, Dessie, Jimma Population and Hawassa are also large commercial cities. Ethiopia’s total population, according to Central Statistics Agency (CSA) estimates, amounts to 90 million (CSA, 2014) with an annual average population growth Geography rate of 2.49 per cent. It is the second most populous Ethiopia is the tenth largest country in Africa with a land country in sub-Saharan Africa, after Nigeria and ranked area of approximately 1.1 million km². This is about twice 13th in the world. Approximately 85 per cent of the the size of Kenya or five times the size of Britain. population resides in rural areas. Ethiopia has the largest working population in Africa with 41 per cent of the Ethiopia has immense geographical diversity; its population aged between 15 and 40 (UNDESA, 2015 topographic features range from the highest peak at and Indexmundi). Ras Dashen, 4,550 meters above sea level, down to the Afar Depression, 110 meters below sea level. The Great Rift Valley splits the plateau of Ethiopia diagonally. The Government western highlands get summer rainfall; the lowlands and eastern highlands are hot and dry. A diverse geographical Ethiopia is a decentralized federal state with nine topography, together with hills, highlands and rift valley administrative regions and two city administrations. It areas, is ideal for comprehensive economic zones. is a parliamentary republic with a bicameral house and dual executive. The Prime Minister, who is appointed by the lower house of the Parliament (House of Peoples’ Representatives), is the Head of Government, whereas Climate the president, elected by both chambers of Parliament Ethiopia is in the tropical zone, lying between the for a six-year term, is the Head of State. Equator and the Tropic of Cancer. There are considerable variations in climate and rainfall patterns throughout the country. The climate varies with the topography, from as high as 47°C in the Afar Depression, to as low as 10°C in the highlands.

7 INFRASTRUCTURE Figure1: The railway projects of Ethiopia

In recent years, Ethiopia has made significant progress in infrastructure development. Public investment rose from about 5 per cent in the early 1990s to 18.6 per cent of gross domestic product (GDP) in 2011, making it the third highest in the world (Moller and Konstantin, 2015). Its infrastructure indicators compare relatively well with other low-income countries. In an analysis of 124 countries over four decades, Ethiopia ranked among the fastest 20 per cent in terms of infrastructure growth (World Bank, 2015).

Railways The construction of a 34 km Addis Ababa Light Rail Transit project is complete and operations started Railway infrastructure development was one of in 2015. Railways will increase integration within the the priority programmes of the first Growth and country and within the region. Transformation Plan (GTP I) and the Addis Ababa- Djibouti corridor was given priority. A new 756 km electrified railway route eastward to Djibouti is being Roads constructed, the shortest distance from Addis Ababa As a land-locked country, Ethiopia is highly dependent to a seaport; it is expected to transport 11.2 million on road transport for the movement of passengers and metric tons of freight in 2016. Contracts were also freight. The Government has prioritized improving the awarded to start the construction of Mekele-Hara- road network and dedicated more than 5 per cent of Gebeya (Woldya) (268 km) and Hara-Gebeya-Semera GDP to road investments, one of the highest shares in Assayita (229 km) railway projects. Construction has Africa. As a result, the road network increased from already begun for the Awash-Kombolcha-Hara Gbeya 48,800 km in 2009/10 to 60,466 km in 2013/14. Under (Woldiya). Ethiopia is also actively developing a rail the Universal Rural Road Access Program, 39,070 km of industry to serve the broader region including South all-weather district roads were constructed. As a result, Sudan, Somalia (Puntland) and northern Kenya. the proportion of Kebeles (lowest administrative unit) In order to improve accessibility to the Djibouti port, connected by all-weather roads increased from 39 per the Government of Ethiopia (GoE) initiated the cent in 2009/10 to 68 per cent in 2013/14. At the same construction of a 5,000 km railway to connect the port time, road density increased from 44.5 km/1000 km2 to with major Ethiopian cities. 90.5 km/1000 km2 in the same year. Thus, the average time to reach the nearest all-weather road was reduced from 3.7 hours in 2009/10 to 1.8 hours by 2013/14 (National Planning Commission, 2015).

Air transport Ethiopia is a regional leader in air transport. Ethiopian Airlines is one of the three main sub-Saharan African airlines and Bole International Airport serves as a regional air transport hub for passenger and commodity transport. Ethiopian Airlines is the largest airline group in Africa, with an active fleet of almost 80 aircraft and a network of 92 international and 19 domestic destinations. The airline plans to expand its overall fleet to 150 aircraft by 2025.

8 Furthermore, the airline is planning a long-haul network capacity. The number of subscribers in the overall expansion in 2016 with new destinations to Asia and telecom services increased from 7.7 million in 2009/10 North America. Ethiopian Airlines was the first airline to 29.63 million in 2013/14. The number of mobile company outside of Japan to fly a Boeing 787 in August subscribers increased from 6.25 million in 2009/10 to 2012 and is the fastest growing and most profitable 28.3 million in 2013/14. Similarly, the percentage of the airline in Africa. Ethiopian Airlines has won the Airline rural population with access (within a 5 km radius) to Reliability Performance Award from Bombardier telephone services increased from 62.1 per cent in Aerospace five years in a row. It is the largest African 2009/10 to 96 per cent in 2013/14. carrier with revenue topping USD 2.3 billion in 2013, according to the airlines ranking of the International Air Transport Association (Ethiopian Airlines, 2014). Energy supply Ethiopia has also invested significantly in the development of its energy sector. Large investment Sea transport projects were initiated to support on-going efforts to The Government has established the Ethiopian Shipping ensure sustainable development. The Great Renaissance and Logistics Enterprise to ensure efficient, cost effective Hydro Electric Power Project (6000MW), Gilgel-gibe III and reliable import and export movement of cargo to (1,870MW) and Genale-Dawa III (254MW) and other and from the seaports of neighboring countries. The wind power projects (Adama and Ashegoda), were enterprise is currently operating two dry ports, which distinctive features of the first GTP. The projects are are located at Modjo and Semera, 73 kms and 588 kms all well in progress, with wind power projects such as from Addis Ababa respectively. The enterprise is also Ashegoda, Adama No. I and II already having begun operating another four sub-terminals, which are located generating electricity. The country offers the lowest at Dire Dawa, Mekele, Combolcha and Gelean, 515 price of electricity in the world as depicted below. kms, 783 kms, 376 kms, and 34 kms from Addis Ababa respectively. Table 1: Price of electricity Addis Ababa is linked by road and railway lines to Price of electricity (US cents per kWh) the Port of Djibouti (910 kms) at the Gulf of Aden. as of June 2015 The ports of Barbara (964 kms) in Somaliland and Ethiopia 5 Port Sudan (1881 kms) in Sudan are other external Sudan 5.6 trade routes that provide services for export-import Kenya 21.6 trades between the countries. Another potential port Egypt 11.5 accessible to Ethiopia (in the south) is Port Mombasa in South Africa 9.3 Kenya (2077 kms). Tanzania 16.7 Ethiopian Shipping Lines (ESL) also provide a sea Uganda 20.9 transport service using its own fleet. The main focus Djibouti 22.8 of the shipping sector of ESL is to provide coastal and Nigeria 26.7 international marine transport services to and from South Sudan 50.4 Djibouti Port, through the Ports of: Indonesia, Japan, Republic of China, Republic of Korea, Singapore and Source: http://www.doingbusiness.org/data/exploreeconomies/sudan/getting-electricity South Africa. The shipping sector provides uninterrupted sea transport services in and around the above ports with own ships, as well as through slot chartering of Financial sector major global carriers. The Ethiopian financial sector consists mainly of banks (three public and 16 private), insurance companies (one public and 15 private) and 31 micro-finance institutions. Telecommunication The banking system accounts for about 80 per cent Telecommunication is another area that has seen of total assets of the financial sector and is dominated major investment aimed at improving service quality, by state-owned banks, mainly the Commercial Bank of expanding service coverage and enhancing institutional Ethiopia. Currently, public banks account for 51.1 per

9 cent of bank branches (1,724), 54.6 per cent of total Table 2: Real GDP growth in Ethiopia capital, 68.4 per cent of total deposits and 63.5 per cent of outstanding bank loans, although their dominance is declining with the entry of more private banks, as well as the expansion of existing ones.

Bank loans The Development Bank of Ethiopia provides long- and Source: IMF World Economic Outlook, October 2014 medium- term loans for agricultural, agro-processing and manufacturing investment projects, mainly to projects Economic growth is largely driven by government-led focused on export. It also provides short-term working development policies, with a rapid expansion of public capital loans for its clients with an interest rate of 7.5 infrastructure and basic services. Increasing exports and per cent. The interest rate of the Commercial Bank foreign direct investment (FDI) have also fueled growth. of Ethiopia for short-, medium- and long term loans The Government of Ethiopia follows an integrated five- is 8.5 per cent. However, the bank may apply different year development plan, the Growth and Transformation interest rates based on customer classification, type and Plan (GTP I and II), which aims to achieve 11.2 to 14.9 nature of credit products, customer credit risk rates and per cent GDP growth annually, and attain middle-class collateral position. income status by 2025.

Foreign exchange These developments are positive indicators for future private sector development, but rest on the flow Foreign exchange regulations of the National Bank of significant amounts of capital into public sector of Ethiopia allow expatriate employees to remit their infrastructure projects, which can provide important salaries subject to certain restrictions. The local currency, opportunities but can also limit capital available to the Ethiopian Birr, is not freely convertible. Since 2004, the private sector. In the fiscal year 2011-2012, public the National Bank has permitted non-resident Ethiopians infrastructure spending amounted to approximately 19 and non-resident foreign nationals of Ethiopian origin to per cent of Ethiopia’s total GDP (World Bank). establish and maintain foreign currency accounts up to USD 50,000. Buoyed by a growing economy, income per capita has doubled from USD 270 in 2006/7 to USD 573 in 2014. The percentage of people living below the national poverty line of USD 0.6 per day dropped from 38.9 in ECONOMIC STRUCTURE 2004 to 29.6 in 2011 (World Bank, 2015). Ethiopia is one of the most equal countries in the world and had a Gini coefficient of 33.6 in 2011.

Economic overview Agriculture Ethiopia is one of the fastest growing economies in Agriculture remains central to the Government’s the world. In 2013, the country’s GDP amounted to structural transformation and poverty reduction efforts. USD 46.87 billion, with a growth rate of 10.4 per cent It contributes 40 per cent of GDP and 90 per cent that same year. Ethiopia has maintained an average of exports, uses 80 per cent of the labour force and growth rate of 10.9 per cent since 2004. The World supplies 70 per cent of the raw materials used by local Bank and the International Monetary Fund forecast industries. The country’s overall economic growth has continued average growth of 8.5 per cent in 2015 and strong ties to the performance of the agriculture sector. approximately 7.5 to 8 per cent over the next five years The abundance of unused arable land (11.7 million (U.S. Department of State, 2015). of a total of 51.3 million hectares of arable land are currently cultivated) presents a substantial opportunity to increase agricultural output.

10 Cognizant of the fact that the vast majority of central bank lending. At the same time, the Government the Ethiopian population resides in rural areas has increased spending on efforts to reduce poverty, and derives its livelihoods from agriculture, the GoE including investment in physical infrastructure. has prioritized agriculture within its national policies. To ensure a more efficient utilization of land and labour Over the past few years, domestic revenue collection resources in rural areas, the GoE has invested heavily improved owing to vigorous tax reform measures, in the provision of rural public services, including rural improved tax administration and trade facilitation education and health, infrastructure, extension services, efforts. During 2013/14, tax revenue increased by 24.8 and public agricultural research. Between 13 and 17 per per cent and increased from 11.6 per cent in 2011/12 cent of government expenditure has been channeled to 12.7 per cent as a ratio of GDP (Ministry of Finance towards agriculture - far more than the average for sub- and Economic Development, 2014). As a result, the Saharan African countries. Government was able to finance 81 per cent of its expenditures from domestic sources. Public debt is on The Government has prioritized improving a declining trend, amounting to 35 per cent of GDP in infrastructure for agricultural development and initiated 2011/12, and the country is at low risk of experiencing several projects aimed at expanding the road network, external debt distress. power supply as well as agro-industrial zones. Inflation Industry Keeping inflation under control, while boosting economic Structural change – the shifting of resources, especially growth, is a key priority of the GoE. In February 2016, labour, from agriculture to industry – is an important Ethiopia registered a single digit inflation rate of 8.7 per aspect of Ethiopia’s economic development strategy. cent. The country’s industrial sector is still relatively small, accounting for 14 per cent of GDP in 2013/14, to which manufacturing contributed 31 per cent (or 4.4 per cent Labour force of the overall GDP). The contribution of manufactured The labour force is one of Ethiopia’s competitive products to total exports does not exceed 5 per cent advantages. The country has an abundant young and of GDP. Currently, there are more than 2610 medium- easy-to-train labour force. In 2014, Ethiopia’s workforce sized and large industrial enterprises in Ethiopia. amounted to 47 million, with around a million people added to the labour force every year. Youth literacy rates (15-24 years) were over 55 per cent in 2012. Service sector The service sector contributes more than 45.8 per cent Table 3: Tertiary school graduates in Ethiopia to Ethiopia’s GDP. According to GDP data released by the Ethiopian Ministry of Finance and Economic Graduates from Ethiopian schools Cooperation (MoFEC), the service sector grew by 14 and institutions, 2014/2015 per cent exceeding the growth of agriculture in 2015. Teachers’ education 45,566 This is a shift from 2010, when agriculture’s annual TVET 125,738 growth rate amounted to 16.9 per cent while the Graduate 8,021 service sector grew only by 6.3 per cent. Undergraduate 86,210 Source: Ministry of Education, Education Statistics Annual Abstract Macro-economic policy In 2012/13, the Government continued to pursue Wage rate prudent fiscal policy aimed at curbing inflation while At present, Ethiopia does not have a minimum wage. maintaining public spending on the development of Skilled wage rates range from USD 80 per month physical and social infrastructure. Fiscal policy has focused for entry level to USD 150 for experienced workers. on strengthening domestic resource mobilization Higher and lower numbers have also been reported (particularly tax collection) and reducing recourse to depending on location, sector and benefits.

11 Table 4: Construction sector skilled and Labour regulations unskilled labour wages The principal legislations on employment relationships Wage/ Rate/ include the Ethiopian Civil Code of 1960, Labour No Labour type day hour Proclamation No. 377/2003 (as amended), and the 1 Assistant electrician 60.00 7.50 Private Organization Employees Social Security 2 Assistant plumber 60.00 7.50 Proclamation No. 715/2011. The Labour Proclamation applies to employment relations based on a contract 3 Assistant mason 60.00 7.50 of employment that exists between a worker and an 4 Assistant bar bender 60.00 7.50 employer. However, it does not apply to managerial 5 Assistant carpenter 60.00 7.50 employees (defined as employees vested with a power 6 Assistant painter 60.00 7.50 to formulate and execute management policies, to hire, 7 Assistant plasterer 60.00 7.50 transfer, suspend, assign or take disciplinary measures 8 Bar bender 80.00 10.00 against other employees). Relevant provisions of the Civil Code apply to managerial employees. 9 Carpenter 80.00 10.00 10 Chiseler 80.00 10.00 11 Daily labourers 40.00 5.00 12 Electrician 120.00 15.00 13 Forman 200.00 25.00 INVESTMENT CLIMATE AND 14 Gang leader 50.00 6.25 OPPORTUNITIES Grinder/compactor 15 50.00 6.25 operator 16 Mason 80.00 10.00 17 Mechanic for mixer 80.00 10.00 Investment attractiveness 18 Painter 80.00 10.00 Ethiopia is becoming one of the prime destinations for 19 Plasterer 80.00 10.00 foreign investment. The country is attracting investors 20 Plumber 100.00 12.50 with tax incentives, low-cost labour, strategic location for trade, and improved transport infrastructure. 21 Tiller 100.00 12.50 22 Welder 80.00 10.00 In recent years, the Government of Ethiopia has made 23 Assistant welder 60.00 7.50 considerable effort to improve the country’s business 23 Glazer 80.00 10.00 and investment climate though the issuance of targeted 24 Assistant glazer 60.00 7.50 legislative measures. The revised Investment Code of 1996, as well as the Investment Proclamation, provide Source: Ethiopian Investment Commission, 2015 incentives for development-related investments and have gradually removed most of the sectorial restrictions on investment. Furthermore, the 2012 Employing foreign nationals amendment to Ethiopia’s Investment Proclamation Investors can employ duly qualified expatriates required introduced provisions for the establishment of industrial for business operations. A foreign investor can employ development zones, both state-run and private, with expatriates for top management positions without any favourable investment, tax and infrastructure incentives. restrictions. A foreign investor or a domestic investor Other measures include the revision of regulations who wishes to employ an expatriate for non-top for potential investors, standardization of appropriate management positions must prove that the required accounting practices (to more accurately assess tax expertise is not available in the domestic labour market. and other operating liabilities), increased protection for If the local labour market can supply the required shareholders, provisions for bankruptcy filings, and the profiles and expertise, the law gives priority to the modernization of trade and registration processes. employment of Ethiopian nationals. In addition, the These measures have paved the way for increased right to employ expatriates for non-top management FDI flows to the country. Ethiopia ranked as the third positions is limited by the legal requirement that foreign largest FDI recipient in Africa in 2013, a 240 per cent investors should replace, within a limited period, such increase from 2012 (UNCTAD, 2015). The country expatriate personnel by Ethiopians by arranging the also registered a significant increase in FDI stock – the necessary training thereof.

12 amount of investment from abroad held within the spices and herbs, coffee, livestock, and horticulture. The economy. FDI inflows reached USD 1.2 billion in 2014, growing demand of agricultural output both locally and up from USD 279 million in 2012. As a share of GDP, internationally makes the agriculture sector particularly FDI rose from 0.4 per cent in 2008 to 2 per cent in attractive to investors. Ethiopia is the second largest 2013. flower exporting country in Africa and the fourth in the world. It is also an ideal location for the cultivation of highland and lowland world class flowers. In fact, the Figure 2: FDI stock and inflow flower industry is one of the fastest growing sub-sectors FDI, Ethiopia in the country. Ethiopia is also Africa’s leading producer of coffea arabica. 8000

6000 4000 Textiles and clothing 2000 Million USD Ethiopia has a comparative advantage in the production 0 2011 2012 2013 2014 and processing of textile fabrics and garments. This includes the spinning, weaving and finishing of textile FDI stock FDI inflow fabrics and, with regards to garments, the manufacture Source: United Nations Conference on Trade and Development, World of knitted and crocheted fabrics, carpets, sport wears, Investment Report, 2015 etc. An abundance of raw materials, low wages and low energy costs give it a comparative advantage over Ethiopia’s FDI inward stock also reached close to USD other countries and regions. Ethiopia also grows some 7.2 billion in 2014, up from USD 4.8 billion in 2011. The of the world’s finest cotton and has a rich spinning and sectors that have attracted the most FDI are floriculture, weaving history. horticulture, textiles and leather. Recently, commercial farming has attracted Indian, Saudi, European, and U.S. Leather and hides investors. With an annual production of 5 million tons of hides, The private sector and foreign investors are playing 8.1 million tons of sheepskins and 7.5 million tons of an increasingly important role in the economy. goatskins, Ethiopia has a comparative advantage in Through regular business meetings and dialogues, the the leather industry (MoFA, 2015). There are ample Government, the private sector and foreign investors can opportunities for investment in tanning, up to the exchange views on legislative issues. The Government finishing and manufacturing of luggage items, handbags, is also implementing measures to further privatize and saddlery and harness items, footwear, garments and liberalize the trade regime and, in turn, create a safer other leather goods. and more attractive investment environment. Integrated agro-industrial parks Encouraging investment opportunities The GoE, together with stakeholders such as UNIDO, the The Government of Ethiopia is trying to increase Food and Agricultural Organization, the United Nations investment in a wide array of sectors. Among others, Development Programme and the Italian Development the country has comparative advantages in agriculture, Cooperation, is currently piloting cluster-based agri- agro-processing, leather and leather products, and development through integrated agro-industrial parks textiles and garments. (IAIPs). The IAIPs aim to coordinate and integrate dispersed value chain components by clustering and creating linkages between farmers, processors and Agriculture consumers. The IAIPs will be spread across the country With diverse agro-climatic zones, a long growing season and linked to each other through agro-industry growth and water availability for irrigation and arable land, corridors (AIGCs). A total of 17 AIGCs were selected Ethiopia is ideal for farming. Agricultural crops with in different parts of the country, from which four areas government incentives include: tea, sugarcane, cotton, were identified for pilot projects.

13 Figure 3: Agro industrial growth corridor, Ethiopia

s Federal Democratic Republic of Ethiopia - Project Sites Figure 4: Location and key information for selected Integrated Agro-Industrial Parks (IAIPs)

Crop and livestock Sorghum and sesame, fruits and vegetables, dairy, meat and other animal products. Total Area of IAIP 258.62 Ha Population 4.3 million Grand total cost US$ 232.83 Initial Investment US$ 72.67 million Investment over 4 yearsUS$ 181.18 million Crop and livestock Sorghum and sesame, Year 1: US$ 122.48 million fruits and vegetables, dairy, Year 2: US$ 54.49 million meat and other animal products. Year 3: US$ 6.04 million Total Area of IAIP 260.35 Ha Internal Rate of Return 17.09 % (13 years of operation) Population 17.2 million Payback period 3 years Grand total cost US$ 227.58 Initial Investment US$ 69.71 million Investment over 4 yearsUS$ 173.81 million Year 1: US$ 84.7 million Year 2: US$ 53.8 million Year 3: US$ 5.9 million Internal Rate of Return 18.23% (13 years operation period) Payback period 3 years

Crop and livestock Wheat, barley, haricots bean, fava bean, tomato, potato, fruits and vegetables, dairy, meat and other animal products. Total Area of IAIP 263.09 Ha Crop and livestock dairy, meat and other animal Population 27.16 million products. Grand total cost US$ 233.12 million Total Area of IAIP 214.86 Ha Initial Investment US$ 72.1 million Population 15.04 million Investment over 4 yearsUS$ 179.88 million Grand total cost US$ 176.21 Year 1: US$ 84.4 million Initial Investment US$ 51.55 million Year 2: US$ 53.9 million Investment over 4 yearsUS$ 128.53 million Internal Rate of Return Year 3: US$ 5.96 million Year 1: US$ 61.42 million Payback period 18.23% (13 years operation period) Year 2: US$ 39.17 million 3 years Year 3: US$ 4.53 million Internal Rate of Return 17.03% (13 years of operation) Payback period 3 years

14 Investment incentives o Investment capital goods imported without the payment of custom duties and other taxes levied The current Investment Proclamation offers various on imports may be transferred to another investor incentives to investors with projects in the preferential enjoying similar privileges. investment sectors and/or areas as follows: Income tax exemption Customs duty Investors engaged in manufacturing and agro- The Council of Ministers Regulations No.270/2012 processing, the production of agricultural products, specifies the areas eligible for investment incentives. the generation, transmission and supply of electrical energy, and information and communication technology o The Government of Ethiopia grants customs duty exemption provided for investors engaged in eligible development will be entitled to income tax exemption new enterprises or expansion projects, such as (Invest In Ethiopia, 2016): manufacturing, agriculture, agro-industries and other o Foreign investors who establish a new enterprise sectors. in selected areas of Ethiopia (such as Gambella; o 100 per cent exemption from the payment of Benishangul-Gumuz; Afar, Somali, Guji and Borena customs duties and other taxes levied on imports is Zones in Oromia and other regions) will be entitled granted to all capital goods, such as plant, machinery to an income tax deduction of 30 per cent for three and equipment and construction materials. consecutive years after the expiry of the income tax o Spare parts worth up to 15 per cent of the total exemption period. value of imported investment capital goods, provided o An investor who expands or upgrades his existing that the goods are also exempt from the payment of enterprise and increases in volume by at least 50 per customs duties. cent is entitled to income tax exemption. An investor granted with a customs duty exemption o o Investors that export at least 60 per cent of products will be allowed to import capital goods duty free or services, or supply the same to an exporter as indefinitely if his investment is in manufacturing and production of service input, will be exempt from agriculture, and for five years if his investment is in income tax for an additional two years. other eligible areas. o An investor entitled to a duty-free privilege that buys capital goods or construction materials from local manufacturing industries will be refunded the customs duty paid for raw materials or components used as inputs for the production of such goods.

15 Table 5: Tax exemption Areas of investment eligible for income tax exemption Addis Ababa and specialized Sectors zone of Oromia surrounding Other areas Addis Ababa 1. Manufacturing Food industry 1 up to 5 years 2 up to 6 years Beverage industry 1 up to 3 years 2 up to 4 years Textiles and textile products industry 2 up to 5 years 3 up to 6 years Leather and leather products industry (Except tanning of hides 2 up to 5 years 3 up to 6 years and skins below finished level) Wood products industry 2 years 3 years Paper and paper products industry 1 up to 5 years 2 up to 6 years Chemical and chemical products industry 2 up to 5 years 3 up to 6 years Basic pharmaceutical products and pharmaceutical preparations 4 and 5 years 5 and 6 years industry Integrated manufacturing with agriculture 4 years 5 years 2. Agriculture Crop production (except growing of fiber crops, medium- term spices, aromatic or medicinal crops, perennial fruits, 2 and 3 years 3 up to 6 years beverage crops and other perennial crops in Addis Ababa and its surroundings) Animal production ( except farming of wild animals and production of milk, eggs and similar products in Addis Ababa and 2 and 3 years 3 and 4 years its surroundings) Mixed (crop and animal) farming 3 years 4 years Forestry 8 years 9 years

Export incentives The fiscal incentives given to all exporters are the o Exporters can benefit from the export credit following: guarantee scheme presently in place in order to ensure an exporter receives payment for goods o With the exception of a few products (e.g. semi- shipped overseas, in the event the customer defaults, processed hides and skins-150 per cent), no export reducing the risk of exporters’ business and allowing tax is levied on export products of Ethiopia. it to keep competitive prices. o Duty drawback scheme: this scheme offers investors an exemption from the payment of customs duties Remittance of capital and other taxes levied on imported and locally purchased raw materials used in the production of A foreign investor has the right to make the following export goods. remittances out of Ethiopia in convertible foreign currency: o Bonded factory and manufacturing warehouse schemes: producers not eligible for voucher schemes o Profits and dividends. but having been licensed for bonded factory and manufacturing warehouse schemes are entitled to o Principals and interest payments on external loans. operate such factories or warehouses to import raw o Payments related to technology transfer agreements. materials duty free. o Proceeds from the sale or liquidation of an enterprise. Exporters are allowed to retain and deposit in o Compensation paid to an investor. a bank account up to 20 per cent of their foreign o exchange earnings for future use in the operation o Proceeds from the sale or transfer of shares or of their enterprises, and no export price control partial ownership of an enterprise to a domestic is imposed by the National Bank of Ethiopia. investor.

16 Loss carried forward In the case of a corporate person, the latter is considered a resident when any of the three conditions below are Business enterprises that suffer losses during the income present: tax exemption period can carry forward such losses, following the expiry of the income tax exemption o If the principal office is located in Ethiopia; period, for half of the tax exemption period. o If the effective management of the company is in Ethiopia; or o If the company is registered by the Ministry of Trade and Industry. TAXATION

Table 7: Taxable business income tax rates Tax system Taxable business income/Birr Tax rate (%) The Ethiopian tax system comprises direct and indirect 0-1,800 Exempt taxes. Direct taxes include personal income tax, rental 1,801-7,800 10 tax, withholding tax and corporation tax, among others. 7,801-16,800 15 The main types of indirect taxes are value added tax 16,801-28,200 20 (VAT), customs duty, excise and turn over taxes. The 28,201-42,600 25 main taxes are summarized in the table below. 42,601-60,000 30 Over 60,000 35 Source: Income Tax Proclamation No. 286/2002

Table 6: Tax rate Taxable employment income Corporate income tax 30% Both foreigners working in Ethiopia and Ethiopian Turn over tax 2% and 10% citizens are subject to personal income tax. Income Excise tax 10% up to 100% tax is levied on any income derived from employment, Customs duties 0% up to 35% including any payments or gains in cash or in kind. Income tax from 0% up to 35% employment Table 8: Employment income tax rate Withholding tax 2% VAT 15% Employment monthly income Tax rate (%) 0% (with exception of (Birr) Export tax hides and skins-150%) The first 150 Exempt Royalty tax 5% 151-650 10 Dividend tax 10% 651-1,400 15 1,401-2,350 20 2,351-3,550 25 Corporate income tax 3,551-5,000 30 Business income tax is charged on all income of an Over 5,000 35 entity having a permanent establishment in Ethiopia. Source: Ethiopian Revenues and Customs Authority An administrative branch, factory, workshop, mine, quarry or any other place for the exploitation of natural resources, or a building site or place where construction Transaction taxes and/or assembly works are carried out, is considered as a permanent establishment. Income tax applies to Value-added tax residents with respect to their worldwide income, and non-residents with respect to their Ethiopian-sourced VAT is charged, under the Value-Added Tax Proclamation income. on the supply of goods and services by registered

17 persons, and on import of goods and services into INVESTMENT LEGAL Ethiopia, in addition to services performed by a non- FRAMEWORK resident (not registered for VAT in Ethiopia) who performs services for a resident in Ethiopia. The rate of VAT is 15 per cent. Investment procedures Turnover tax Foreign investors who invest in Ethiopia for the first Turnover tax is charged under the Turnover Tax time must apply for an investment permit with the Proclamation and at a rate of 2 per cent on the supply licensing authorities. Under the new registration process, of goods and services relating to contractors, grain mills, the application documents are simpler, one-stop shop tractors and combine harvesters, and at a rate of 10 services and the time required for issuing an investment per cent on other services. Turnover tax is payable on certificate is shortened. goods and services supplied by persons who are not registered for VAT. Licensing authorities The investment permit for a foreign investment project Excise tax in Ethiopia can be granted through either of the Excise tax is payable on certain goods specified under following processes: the Schedule to the Excise Tax Proclamation, when o Application for an investment permit by a foreign imported and when produced locally. The excise tax investor shall be made to the Ethiopian Investment rate varies from 10 to 100 per cent of the cost of Commission. production, or CIF (“cost-insurance-freight”) as the case Foreign investors intending to buy an existing may be. o enterprise in order to operate it as it stands or to buy shares of an existing enterprise shall obtain prior Deductible expenses approval from the Ministry of Trade. In the determination of business income subject to tax in Ethiopia, deductions will be allowed for expenses Post-licensing procedure incurred for the purpose of earning, securing, and An investment permit shall be renewed every year maintaining that business, provided that the expenses until the investor commences the marketing of his can be proven by the taxpayer and subject to the products or services. An investment permit may not limitations specified by the Income Tax Proclamation be transferred to another person without prior written No. 286/2002. approval of the appropriate investment organ.

In the determination of taxable business income, the owner of the business assets may deduct depreciation Acquisition of land of business assets. In Ethiopia, land is public property. Individuals, companies and other organizations have the right to use the land. There are two broad classifications of land for rent or lease purposes: 1) rural land; and 2) urban land. Rural land is rented mainly for agriculture. Urban land is divided into land for industrial use and land for other activities. Industrial land has received much attention by the Government and a number of industrial zones with the necessary infrastructure facilities (roads, electricity, water, communications, etc.) were established in major cities and towns in an effort to accelerate industrialization. Industrial land in industrial zones is allocated to investors at fixed prices. The periods of payment of urban land-lease prices vary from region to region and depend on the type of investment activity.

18 The Ethiopian Investment Commission is mandated MISCELLANEOUS to facilitate the allocation of land for FDI projects throughout the country. The lease and rental prices of urban and rural land vary according to location, type of investment and class of land. Land cannot be mortgaged Intellectual property or sold, but the lease or rental value of land and the Ethiopia is a member of the World Intellectual Property fixed assets thereon may be mortgaged or transferred Organization. The Ethiopian Intellectual Property to a third party. Rights Office, established in 2003, is responsible for the administration of patents, trademarks, copyrights, and Rental and lease prices other intellectual property policy and legal issues. Patents are protected for 10 to 15 years, with an additional five The rental prices of rural land for agriculture are set years of protection if there is proof that they are properly based on the development level of the zones and utilized. Industrial designs are protected for five years, distance from all-weather roads. Accordingly, the with two possible five year extensions. Once registered, minimum and maximum annual rental charges for trademarks have to be renewed every seven years. one hectare of rural land are 70.40 and Birr 135.00 (Oromia), Birr 178 and 498 (Amhara), and Birr 36 and 117 (SNNR), respectively. International agreements Ethiopia has concluded bilateral investment treaties (BITs) and Double Taxation Treaties (DTTs) with a number of countries.

Table 9: Land lease and rental price by region o BIT: Algeria, Austria, Belgium, Luxembourg, China, Denmark, Egypt, Equatorial Guinea, Finland, France, Urban land lease Rural land rental Regions* price for industry price( Birr/ Germany, India, Iran, Israel, Italy, Kuwait, Libya, Malaysia, (Birr/m2 / year) hectar/year) Netherlands, Nigeria, Russian Federation, South Africa, Spain, Sudan, Sweden, Switzerland, Tunisia, Oromia 4 to 6.50 70.40 to 135 Turkey, United Kingdom, and Yemen. DTT: Amhara 3 to 60 178 to 498 o China, Czech Republic, Iran, Israel, South Africa, Tunisia, Turkey, and United Kingdom. Tigray 0.50 to 0.75 - o Everything but Arms Agreement (EBA) with the SNNP 36 to 117 European Union. Benishan- 48 to 133 - gul-Gumuz Ethiopia is also member of COMESA (Common market Source: Ethiopian Investment Commission, 2015 for Eastern and Southern Africa) and a beneficiary of the African Growth and Opportunity Act (AGOA) export Note: Land lease and rental prices are not available for all regions. scheme. COMESA is the largest regional economic organization in Africa, with 19 member states and a population of about 390 million. It has a free trade area, with 19 member states, and launched a customs union in 2009. AGOA is the cornerstone of U.S. economic engagement with the countries of sub-Saharan Africa. It gives duty-free access to the U.S. market and eligible countries can export products, including value-added manufactured items such as textiles, to the United States.

Investment guarantees Ethiopia is a member of the Multilateral Investment Guarantee Agency, a World Bank affiliate and a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States.

19 CONTACT POINTS

Ethiopian Investment Commission (EIC) Ministry of Agriculture and Natural Resources Addis Ababa Addis Ababa P.O. Box 2313 P.O. Box 62347 Tel.: 251-11-551 0033 Tel.: 251-11-551 8040 Fax: 251-11-551 4396 Fax: 251-11-551 1543 Email: [email protected] Email: [email protected] http://www.ethioinvest.org/ http://www.moard.gov.et/

Ministry of Industry Ministry of Finance and Economic Cooperation Addis Ababa Addis Ababa P.O. Box 1905 P.O. Box 6945 Tel.: 251-11-155 2400 Tel.: +251 -11-515 1373 Fax: 251-11-156 0124 Fax: +251 -11-515 4843 Email: [email protected] http://www.moin.gove.et http://www.mofed.gov.et/

Revenues and Customs Authority Ministry of Labour and Social Affairs Addis Ababa Addis Ababa P.O. Box 2559 P.O. Box 2056 Tel.: 251-11-466 7666 Tel.: 251-11-551 7080 Fax: 251-11-466 8244 Fax: 251-11-551 8396 Email: [email protected] Email: [email protected] http://www.erca.gov.et/ http://www.molsa.gov.et/

Ministry of Water, Irrigation and Ministry of Public Enterprises Electricity Addis Ababa Addis Ababa P.O Box 5673 P.O. Box 517 Tel.: 251-11-661 1111 Tel.: 251-11-552 1834 Fax: 251-11-661 0710 Fax: 251-11-551 3955 http://www.mowie.gov.et/ Email: [email protected] http://www.ppesa.gov.et/

20 Ethiopian Institute of Agricultural Research Ethiopian Standards Agency Addis Ababa Addis Ababa P.O. Box 2003 P.O. Box 2310 Tel.: 251-11-432633 Tel.: 251 116 460111 Fax: 251-11-461294 Fax: 251 116 460880/81 Email: [email protected] Email: [email protected] http://www.eiar.gov.et/ http://www.ethiostandards.org/

Ministry of Environmental Protection & Forestry National Bank of Ethiopia P.O. Box 12760 Addis Ababa Addis Ababa P.O. Box 5550 Tel.: 251-11-646 5007 Tel.: 251-11-551 7430 Fax: 251-11-646 4882 Fax: 251-11-551 4588 Email: [email protected] Email: [email protected] http://www.epa.gov.et http://www.nbe.gov.et/

Ethiopian Chamber of Commerce and Addis Ababa Chamber of Commerce and Sectoral Associations Sectoral Associations Addis Ababa P.O. Box 2458 P.O. Box 517 Tel.: 251-11-552 8120 Tel.: 251-11-551 8240 Fax: 251-11-551 1479 Fax: 251-11-551 7699 Email: [email protected] Email: [email protected] http://www.ethiopianchamber.com/ www.addischamber

21 BIBLIOGRAPHY

Council of Ministers. Investment Incentives and Investment Areas Reserved for Domestic Investors Council of Ministers Regulation No. 270-2012

Ethiopian Airlines. 2014. Annual Report 2013/14

Ethiopian Investment Commission. 2015. Factor Cost. http://www.investethiopia.gov.et/images/Factor_Cost2015.pdf

House of People Representatives of Ethiopia. Proclamation No. 286/2002. Income Tax Proclamation.

International Monetary Fund (IMF). 2014. World Economic Outlook

Indexmundi. Ethiopia Demographic Profile 2014. http://www.indexmundi.com/ethiopia/demographics_profile.html

International Labour Organization (ILO): Ethiopia’s Country Profile

Invest In Ethiopia. 2016. http://www.investinethiopia.net/index.php/about-ethiopia/investment-law-and-regulation/ investment-incentives-in-ethiopia

Ministry of Education of Ethiopia. 2015. Education Statistics Annual Abstract

Ministry of Finance and Economic Development. 2014. Growth and Transformation Plan Annual Progress Report for F.Y. 2012/13

Ministry of Foreign Affairs of Ethiopia. 2015. Investment Opportunities in manufacturing sector in Ethiopia. Ethio- UK Trade and Investment Forum. London, UK

Moller, Lars Christian, Wacker, Konstantin. 2013. Ethiopia’s Growth Acceleration and How to Sustain It Insights from a Cross-Country Regression Model. World Bank Group. Washington DC.

National Planning Commission. 2015. The Second Growth and Transformation Plan (GTP II) (2015/16-2019/20)

Trading Economics. Ethiopia GDP 1981-2016

United Nations, Department of Economic and Social Affairs, Population Division (2015). World Population Prospects: The 2015 Revision.

United Nations Conference on Trade and Development (UNCTAD), World Investment Report, 2015

U.S. Department of State. 2015. Ethiopia Investment Climate Statement

World Bank. 2015. Doing business: Getting electricity. http://www.doingbusiness.org/data/exploreeconomies/ sudan/getting-electricity

World Bank. 2015. Ethiopia’s great run: The growth acceleration and how to pace it. World Bank Group. Washington DC.

World Bank. 2015. Country Partnership Strategy: Ethiopia

22

Vienna International Centre, P.O. Box 300, 1400 Vienna, Austria Telephone: (+43-1) 26026-0, Fax: (+43-1) 26926-69 E-mail: [email protected], Internet: www.unido.org

24 INTEGRATED AGRO-INDUSTRIAL PARKS (IAIPs) IN ETHIOPIA

Meat plant/ brewery Vegetable ancillary unit intermediatory Training centre Information kiosk & Creche market intelligence cell Substation 3 bedroom Sewage treatment plant & housing unit common effluent plant Vegetable Vegetable Admin office & anchor unit processing units R&D centre Poultry-egg Cereals processing unit anchor unit Poultry-egg storage unit Solid waste management plant

Meat-deep freeze cold storage Certification lab

QA & QC lab

Summer storage tank Vegetable finished goods storage Potato cold storage

Meat processing unit Truck lay bay, fuel station & weigh bridge

Cereals ancillary unit Milk-value added dairy products

Milk & dairy plant Rendering plant Meat anchor unit

Inclusive and Sustainable Industrial Development Disclaimer

This document represents work in progress and is intended to generate comment and discussion. It is not a fully polished publication. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the United Nations Industrial Development Organization.

This document has been produced without formal United Nations editing. The designations employed and the presentation of the material in this document do not imply the expression of any opinion whatsoever on the part of the United Nations Industrial Development Organization (UNIDO) concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries, or its economic system or degree of development. Designations such as “developed”, “industrialized” and “developing” are intended for statistical convenience and do not necessarily express a judgment about the stage reached by a particular country or area in the development process. Mention of firm names or commercial products does not constitute an endorsement by UNIDO.

The opinions, statistical data and estimates contained herein are the responsibility of the author(s) and should not necessarily be considered as reflecting the views or bearing the endorsement of UNIDO. 01 WHAT IS AN INTEGRATED AGRO-INDUSTRIAL PARK? ETHIOPIA

• An integrated agro-industrial park (IAIP) is • Specialized infrastructure consists of a geographic cluster of independent firms cold storage units, quarantine facilities, grouped together to gain economies of quality control labs, quality certification scale and positive externalities by sharing centres, raw material storage and central infrastructure and taking advantage of processing centres, among other specialized opportunities for bulk purchasing and selling, infrastructure. training courses and extension services. • Each IAIP is served by a network of rural • IAIPs will include open area production zones, transformation centres which provide linkages controlled environment growing, precision to producers. farming, knowledge hubs and research facilities, rural hubs, agri-infrastructure, collection centres, primary processing hubs, social infrastructure and agri-marketing infrastructure, among others. • IAIPs will have modern infrastructure. General infrastructure includes: roads, power, water, communications, drainage, sewerage, a sewage treatment plant and an effluent treatment plant, among other infrastructure.

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 02 SELECTED IAIPs ON THE MAP OF ETHIOPIA ETHIOPIA

Baeker IAIP – Western Tigray Bure IAIP – South West Amhara

Bulbula IAIP – Central Eastern Oromia

Yirgalem IAIP – Eastern SNNP

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 03 BULBULA IAIP MASTER PLAN – OROMIA ETHIOPIA

Oromia Region

263.09 Bulbula IAIP Total area 263.09 ha

INTEGRATEDINTEGRATED AGRO-INDUSTRIALAGRO-INDUSTRIAL PARKSPARKS ININ ETHIOPIAETHIOPIA 04 BAEKER IAIP MASTER PLAN – TIGRAY ETHIOPIA

Tigray Region

258.62 Baeker IAIP Total area 258.62 ha

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 05 BURE IAIP MASTER PLAN – AMHARA ETHIOPIA

Amhara Region

Bure 260.35

IAIP Total area 260.35 ha

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 06 YIRGALEM IAIP MASTER PLAN – SNNP REGION ETHIOPIA

SNNP Region

214.86 Yirgalem

IAIP Total area 214.86 ha

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 07 LAND USE PATTERN ETHIOPIA

Sample masterplan - Oromia IAIP

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 08 RURAL TRANSFORMATION CENTRES (RTCs) ETHIOPIA

Rural transformation centres • Public and private partners support farmers The Government of Ethiopia will establish rural to increase production and productivity to transformation centres to serve as raw supply raw materials of required quantity and material aggregation points in the catchment quality to the industries in the parks areas (100 km radius) of each IAIP. • Market information centres will provide information on business development, prices, market trends, and current market demand in • Rural transformation centres include terms of products and quality, among other warehouses, input supply, sorting, grading, services extension services, pre-processing activities and microfinance

Village Village Village Farm credit, farm finance Agri-clinic Primary health Village RTC Mentoring Commercial and training rural market, office space Food and Collection entertainment centre Village Village

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 09 IAIP INFRASTRUCTURE CONNECTIVITY ETHIOPIA

Tigray – Western Tigray

Oromia – Central Eastern Oromia

Amhara – South Western Amhara

SNNP – Eastern SNNP Railway Baeker Humera Airport – 25 kms Road Alula Aba Nega Airport Mekele – 630 kms Metema

Elidar Gulf of Aden Djibouti Bure

IndustrialFinote Selam Park Bole International Airport – 180 kms

Bahirdar Airport – 156 kms Addis Ababa Dire Dawa

Bulbula

Yirgalem

Bole International Airport – 318 kms Awasa airport – 50 kms Moyale Arba Minch Airport

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 10 INVESTMENT OPPORTUNITIES: IAIPS ETHIOPIA

• Agri-inputs: bio energy, green house • Floral concentrates cultivation, agri chemicals, • Vegetable oil and other products renewable energy • Bakery, confectionery goods • Energy foods • Agri-infrastructure: energy management, • Flour milling mechanization and transport, storage • Others facilities, bulk material handling

• Agri-food processing: • Capacity building: agri research, training hub, agri-lab and clinic, extension service, vocational • Fruit juice/pulp/slice/concentrate/ training dehydration • Tomato paste and puree • Others: agri tourism, rural financing, • Starch crop insurance • Coffee and tea • Vegetable pickling • Spice powder, oils and oleoresin • Grading and packing • Essential oils from herbs

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 11 HIGH POTENTIAL COMMODITIES ETHIOPIA

Coffee Poultry Ethiopia produces the best Arabica coffee in the world Demand for chicken products is growing quickly in Ethiopia. and is known for having a wider genetic variety of coffee The government recently set new targets to bring meat than any other coffee producing country. Ethiopian coffee production to 164 tonnes and egg production to 3.9 billion is well known for its special aroma and flavor, a uniqueness eggs by 2020 through improved poultry breeds. that makes it preferable for blending with coffee from other countries. Currently, Ethiopia is among the top five coffee Honey exporters in the world. Varied agro-climatic conditions and biodiversity favours a diversity of honeybee flora and a large number of honeybee Sesame colonies. Ethiopia is the tenth largest honey producing Production of sesame in the country has doubled in the past country in the world and the largest in Africa. It ranks fourth five years. Ethiopia produces a variety of different sesame in the world in terms of bee wax production and export. seeds which are highly valued in the international market. Currently there are efforts to improve yields and there is Maize potential to expand sesame seed production in Ethiopia through additional land cultivation. Ethiopia produces more than six million tonnes annually and recently adopted improved inputs and technologies. Maize provides wide opportunity for establishment of both large Meat and medium diversified industrial enterprises. With a cattle population of 55 million, Ethiopia ranks first in Africa and tenth globally. Meat processing in Ethiopia holds Tomato enormous potential for development as it is currently largely undertaken through traditional practices on a small scale. Tomato is currently grown in almost all parts of Ethiopia. Ethiopia already has well-established partners in the meat Provided that access to seed varieties and extension services trade, including Saudi Arabia, Dubai, Egypt, Yemen, Congo are improved, major insects and diseases are controlled and Brazzaville and Cote d'Ivoire. harvesting and post harvesting are optimized, yields of tomato can reach up to 80 tonnes per hectare which assures consistent and abundant supply. Dairy The size of the livestock population, the natural endowment Potato of favorable climatic condition for improved, high yielding animal breeds, provides Ethiopia with significant potential The agro ecology and soil conditions of Ethiopia are suitable to further develop its dairy sector. for potato production. Compared to major cereals, potato is a short duration crop that can yield up to 30-35 tonnes per hectare during a three to four month growing period. Between 2008/09 and 2012/2013, the total production increased by 125 per cent and yield by 44 percent.

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 12 INFRASTRUCTURE PROVISION ETHIOPIA

• We offerdeveloped land plots of variable sizes to anchor tenants and large scale manufacturers who wish to undertake 01 Land developed plots construction • Flexibility for both lease and own options

• Investment grade office space of variable sizes with requisite facilities and amenities 02 Built-up office space • Availability of lease and purchase options

• Single/Multi-tenanted pre-built industrial units of various sizes offered to investors 03 Pre-built factories • Flexibility for both lease and own models

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 13 SUPPORT FROM GOVERNMENT OF ETHIOPIA ETHIOPIA

The Government of Ethiopia provides site infrastructure - Land - Water - Power - Roads - Telecommunication • Capital contribution for IAIPs • Government support to small and medium enterprises • Government support to foreign operations • Logistical Support • One stop shop

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 14 COST OF POWER AND WATER ETHIOPIA

Type of payments Factory rent 1 $US/m2 Service charges Energy tariff $US/month $US/kwh Industrial Low Voltage (three phase and active/ 2.5 0.018 reactive) Water consumption (m3) $US/m3 Industrial High Voltage (15KV) (three phase and 2.52 0.029 active/reactive) 0-7 0.08 Industrial High Voltage 2.52 0.032 8-20 0.18 (132 KV) (Three phase and active/re- 21-40 0.36 0.684 active) Commercial-Single 41-100 0.28 Phase 0.013 (<50), 0.017 Commercial-Three Phase 1.05 (>50) 101-300 0.35

Commercial-active/reactive 1.65 301-501 0.43

Street-Light Single Phase 0.68 0.023 >501 0.54

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 15 TAXATION POLICY ETHIOPIA

Types of tax Common rate

Corporate income tax 30% Turn over tax 2% and 10%

Excise tax 10% to 100% Customs duties (Capital goods) up to 35%

Income tax from employment up to 35% Withholding tax 2% VAT 15% 0% (with exception of Export tax hides and skins-150%) Royalty tax 5%

Dividend tax 10%

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 16 WORKFORCE ETHIOPIA

University training programmes: • Mechanical and electric engineering • Design and construction Average payment • Food and consumer goods technology $US/month • Economics and management • Service and hospitality Agriculture, Forestry, Fishing 60 • Agricultural science Mining and Quarrying 101 • Natural resource management Electricity, Gas, Steam and Air • Business administration and management 103 Conditioning Supply

Construction 89

Transportation and Storage 92 Information and Communication 104 Finance and Insurance Activities 121 Professional Scientific and Technical Activities 139 Graduates from Ethiopian institutions Administratitve and Support 94 Service Activities TVET 125,738 65 Graduate 8,021 Manufacturing

Undergraduate 86,210 Other Service Activities 59

Source: Statistical Report on the 2014 urban employment unemployment Survey

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 17 MARKET OPPORTUNITIES ETHIOPIA

• Local population of 96.5 million (2014) • Ethiopia is part of the Cotonou agreement between - Population growth 2.5% the European Union and the African, Caribbean and Pacific Group of States (ACP countries); and the • Duty free access to U.S. market under African Growth • Common Market for Eastern and Southern Africa and Opportunity Act (AGOA) (COMESA) • Ethiopia concluded bilateral investment treaties (BITs) - Free trade area and double taxation treaties (DTTs) with a number of countries: - 19 African countries - BIT: Algeria, Austria, Belgium, Luxembourg, China, - Population of 470 million Denmark, Egypt, Equatorial Guinea, Finland, • Investment guarantees France, Germany, India, Iran, Israel, Italy, Kuwait, Libya, Malaysia, Netherlands, Nigeria, Russian - Ethiopia is a member of the Multilateral Investment Federation, South Africa, Spain, Sudan, Sweden, Guarantee Agency, a World Bank affiliate, and a Switzerland, Tunisia, Turkey, United Kingdom, and signatory to the Convention on the Settlement Yemen. of Investment Disputes Between States and Nationals of Other States. - DTT: China, Czech Republic, Iran, Israel, South Africa, Tunisia, Turkey, and United Kingdom. • Everything but Arms Agreement (EBA) with the European Union

Source: Statistical Report on the 2014 urban employment unemployment Survey

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 18 INCENTIVES FOR INDUSTRIAL PARK DEVELOPERS ETHIOPIA

Land • An investor entitled to a duty-free privilege who • The Government of Ethiopia provides land for buys capital goods or construction material from industrial park and manufacturing enterprises at a local manufacturing industries will be refunded the customs duty paid for raw materials or components very low price used as inputs for the production. Income Tax Exemption • Industrial park developers are exempt from income Other rights tax for 10 years if the park is developed within Addis • Design, construct, develop, exploit industrial park Ababa or special zones of Oromia (surrounding Addis and provide services; Ababa) and for 15 years if elsewhere • Sub-lease developed industrial park; Customs Duty • Rent or sell to industrial park enterprises immovable assets, buildings and rooms built within the industrial • Customs duty exemptions of up to 100% on imports parks in accordance with the proportion specified in of capital goods; the regulation; • Spare parts worth up to 15% of the total value of the • Enter into a sub-lease agreement for the development, imported investment capital goods; operation and promotion of industrial park; and • Investors granted with a customs duty exemption • Participate in financial markets in order to obtain will be allowed to import capital goods duty free loans, fund guarantees and other financial resources. indefinitely if the investment is in the manufacturing and agriculture sectors;

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 19 INCENTIVES FOR ENTERPRISES OPERATING IN INDUSTRIAL PARKS ETHIOPIA

Income Tax Exemption

Areas of Investment In Addis Ababa In Other Areas and Surrounding

Food industry 1 to 5 years 2 to 6 years Beverage industry 1 to 3 years 2 to 4 years Textiles and textiles prodcuts industry 2 to 5 years 3 to 6 years Leather and leather products industry (except 2 to 5 years 3 to 6 years tanning of hides and skins below finished level) Integrated manufacturing with agriculture 4 years 5 years

Loss Carried Forward Fiscal Export Incentives • Business enterprises that suffer losses during the income • Duty drawback scheme; tax exemption period can carry forward losses, following • Voucher scheme; the expiration of the income tax exemption period, for • Bonded factory and manufacturing warehouse schemes; half of the tax exemption period; • Import opening charges (L/C, CAD, and advance • Investors who export 60% of their products or supplies payment) is 0.5% for exporters against 3.5% for others. to an exporter: exemption for additional 2 years; • Investors investing in an industrial park and exporting 80% of their products: income tax exemption for an Non-fiscal Export Incentives additional: • Exporters are allowed to retain and deposit in a bank • 2 years if the industrial park is located around Addis account up to 20 percent of their foreign exchange Ababa and special zone of Oromia earnings for future use in the operation of their • 4 years if the industrial park is located in other areas enterprises; • Franco valuta import of raw materials are allowed for enterprises engaged in export processing;

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 20 INCENTIVES FOR ENTERPRISES OPERATING IN INDUSTRIAL PARKS ETHIOPIA

Remittance of Capital Other Incentives A foreign investor has the right to make the • The Government of Ethiopia provides incentives following remittances out of Ethiopia in convertible for further training and retraining of labour foreign currency: • Financial support through financial institutions, • Profits and dividends such as development banks; if the investment • Principals and interest payments on external is a joint venture with local investors the bank loans can provide a loan of up to 75% of the total investment • Payments related to technology transfer agreements • The enterprises within the IAIP that acquire land using right-at-market price should be allowed to • Proceeds from the sale or liquidation of an use the right as a mortgage for loans enterprise • One-stop administrative offices established by • Compensation paid to an investor the Ethiopian Investment Commission in the • Proceeds from the sale or transfer of shares or industrial parks partial ownership of an enterprise to a domestic investor

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA 21 TENANT STATUS ACQUISITION ORDER ETHIOPIA

01 02 03

REGISTRATION BUSINESS PLAN AGREEMENT PRESENTATION SIGNING Register the legal Present the Sign an agreement body with the business plan with the Regional Ministry of Industry to the Ministry Industrial Park and the Ethiopian of Industry and Corporation (RIPC) Investment the Ethiopian Commission Investment Commission

Application shall include*: • Business plan • Copies of constituent documents • Copy of the Certificate of incorporation • Copy of Tax registration certificate * Investors will be supported by the Industrial Parks Development Agency at every stage

INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA Inclusive and Sustainable Industrial Development INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA

SID 1

CONTENTS

DEVELOPMENT CONTEXT...... 4

ECONOMIC CONTEXT...... 4 AGRICULTURAL SECTOR CONTEXT...... 4 AGRIBUSINESS SECTOR CONTEXT...... 4 THE ROLE OF INTEGRATED AGRO-INDUSTRIAL PARKS IN ETHIOPIA’S DEVELOPMENT.....5 UNIDO’S PROGRAMME FOR COUNTRY PARTNERSHIP FOR ETHIOPIA...... 5 THE OBJECTIVES OF THE IAIP PROGRAMME...... 6 INTEGRATED AGRO-INDUSTRIAL PARKS...... 6 LINKING SMALLHOLDER FARMERS/PRODUCERS...... 8 INTEGRATING ALLIED INDUSTRY COMPANIES...... 8

GENERAL DESCRIPTION OF SITES...... 11

FEASIBILITY STUDIES...... 11 SITE SELECTION PROCESS...... 12 MANAGEMENT AND OPERATIONS OPTIONS...... 14 GOVERNANCE STRUCTURE...... 14 SITE FEATURES...... 15 FINANCIAL OVERVIEW OF IAIPS AND RTCs...... 19 INDICATIVE COSTS OF IAIP DEVELOPMENT...... 19 REVENUE STREAMS...... 20 MEANS OF FINANCE...... 21 PROMOTION...... 22 ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENTS...... 22 PROGRAMME IMPLEMENTATION...... 22 THE WAY FORWARD...... 23 SAMPLE – INTEGRATED AGRO-INDUSTRIAL PARK MASTERPLAN – BULBULA IAIP, OROMIA...... 24 SAMPLE – RURAL TRANSFORMATION CENTER MASTERPLAN – BULBULA IAIP, OROMIA...... 27

3 DEVELOPMENT CONTEXT quality inputs, inefficient handling chains, as well as high post-harvest losses and higher prices. If these challenges can be overcome, the agricultural sector is well placed Economic context to drive agro-industrial development and underpin future economic growth. Few countries in the world have reached a high level of economic and social development without having developed an advanced industrial sector. It contributes to poverty reduction by generating employment and Agribusiness sector context creating income. The industrial sector also has extensive While agriculture plays a central role in the Ethiopian linkages with other sectors of the economy. Agriculture- economy, agro-industries accounted for only 5 per cent based industry is particularly important for developing of GDP in 2012 (UNIDO 2012). In terms of contribution countries and is a first step towards the structural to the manufacturing sector, agro-industries – food and transformation of the economy. beverages – account for about 50 per cent, the largest share of manufactured goods. Ethiopia’s agro-exports Ethiopia is a country on the cusp of transformation. are currently almost entirely limited to primary and Economic growth averaged 10.9 per cent per year from unprocessed products. The share of processed products 2003/04 to 2013/2014 compared to the regional sub- in total agro-industry exports constitute only 1.3 per Saharan average of 5.4 per cent (World Bank). To sustain cent (2013) and import dependency remains strong and translate this growth into structural transformation, (UNCTAD, forthcoming). At the same time, globally, the development of higher-productivity activities, such the export of processed food products is growing at as manufacturing, is critical. approximately 10 per cent annually, suggesting that market conditions for exports of processed food are favourable. Agricultural sector context Despite excellent potential for growth, a critical constraint Ethiopia’s economy is predominantly agriculture-based. to agro-industrial development is the lack of infrastructure It directly supports 85 per cent of the population, to support supply to processors. While Ethiopia possesses constitutes 46 per cent of gross domestic product competitive advantages in several crops such as oil seeds (GDP) and 90 per cent of export value. The agricultural and cotton, and horticultural crops such as fruits and sector is characterized by the presence of many vegetables, this advantage is often lost due to poor linkages smallholder farmers – with average land holdings of with agro-industry and limited knowledge on the part of only 0.2 hectares – who account for an estimated farmers regarding best agricultural practices. Moreover, the 97 per cent of agricultural production in the country presence of numerous middlemen contributes to wastage (Growth and Transformation Plan Progress Report and inefficiency. Wastage between the farm gate and the 2013). However, the vast majority of farmers in Ethiopia final consumer is often 40 per cent in fresh products and up are not integrated into commercial value chains. to 20 per cent in cereal crops, contributing to unnecessarily high prices. Good climate, ample arable land and labour, adequate rainfall and a range of agro-ecological zones all A long supply chain also means that each level of the contribute to the wide diversity of commodities which supply chain is unaware of the requirements of the next can be produced, making agricultural commercialization level. Limited communication between farmers and a very attractive proposition. processors means that farmers have little incentives to produce high quality products, employ best handling In the context of rising demand for processed food practice, invest in high quality inputs or adopt best products, medium- and large-scale food processing agronomic practices. companies in Ethiopia often cite a lack of raw material inputs as a main constraint hindering their ability to work It is difficult for processors to procure the appropriate at full capacity. This is the result of two issues: 1) poor quantity and quality of raw materials due to the quality inputs; and 2) collection inefficiencies due to the fragmented nature of the Ethiopian agricultural system. large number of smallholder farmers scattered over large This has repercussions for their businesses as the areas. With expansive territories to cover, agricultural situation often leaves them unable to honour their value chains are composed of a large number of private marketing commitments. As a result, lenders are less traders. Long handling chains between farmers in rural willing to make loans to processors, harming business areas and processors in urban areas contribute to poor operations and growth.

4 Agro-industries are highly dependent on a network The development of IAIPs is prioritized in Ethiopia’s of close linkages with farmers that supply raw inputs. national development strategy and is a core component Despite the challenges outlined above, agro-industry of the current Growth and Transformation Plan (GTP companies must achieve adequate returns on invested II, 2015-2020)1. IAIPs are considered a vehicle for the capital by operating throughout the year. structural transformation of the economy through the commercialization of the agricultural sector. They are The role of integrated agro-industrial parks in also expected to help pave the way for the realization Ethiopia’s development of the country’s Vision 2025 of becoming a leading manufacturing hub in Africa. The Government of Ethiopia (GoE) expects the industrial sector to play an important role in GDP UNIDO’s Programme for Country Partnership growth, job creation, foreign exchange earnings, and for Ethiopia small and medium-sized enterprise (SME) development over the coming years. The development of IAIPs is also a central objective of The overall goal of the Government’s Industrial UNIDO’s Programme for Country Partnership (PCP) Development Strategy (IDS) is to bring about the for Ethiopia. The PCP for Ethiopia brings together accelerated structural transformation of the economy development partners, UN agencies, development through enhancing industrialization, raising the share of finance institutions and the private sector – under the industrial sector of GDP from the current 13 per the ownership of the Ethiopian Government – to cent to 27 per cent by 2025, and the GDP share of the help achieve the goals set out in the country’s IDS and manufacturing sub-sector from the current 4 per cent Growth and Transformation Plans (GTP I and GTP II). to 18 per cent by 2025. The PCP focuses on three light manufacturing sectors: The development of agro-industries presents agro-food processing; textiles and apparel; and leather Ethiopia with an opportunity to accelerate economic and leather products. These sectors were selected due development and achieve its industrial development to their potential for job creation, strong linkages to the goals. If addressed correctly, agro-industries can help fulfill agricultural sector, high export potential and capacity to the potential of agriculture and advance industrialization attract private sector investment. The development of in the country. these sectors will help transform Ethiopia’s economy from one based on agriculture to one driven primarily Recognizing this opportunity, the GoE is spearheading by light industries. the development of integrated agro-industrial parks (IAIPs) and accompanying rural transformation centres (RTCs) with the intention of better integrating agricultural value chain actors.

1 Three key overarching policy documents guide interventions in the sector over a 13-year period (2013-2025). These are: the Industrial Development Roadmap (IDR), which provides a strategic framework for industrial development for the next ten years; the Industrial Development Strategic Plan (IDPS), which defines strategies, programmes and projects for the implementation of the IDR; and, the Industrial Development Institutional Setup (IDIS), which provides an institutional framework for industrial development. The strategic direction for industrial development elaborated in the IDR and IDS are encompassed in the Growth and Transformation Plan 2015/16-2019/20 (GTP II) and beyond up to 2025, by which time Ethiopia aims to become a middle-income country.

5 The objectives of the IAIP programme Integrated agro-industrial parks The overall objectives of IAIPs are to: (a) drive the An IAIP is a geographic cluster of independent firms structural transformation of the Ethiopian economy; grouped together to gain economies of scale and (b) to reduce rural poverty; and (c) to create a better positive externalities by sharing infrastructure – roads, environment for increased investment in agro-food and power, communication, storage, packaging, by-product allied sectors. utilization, effluent treatment, logistics and transport, laboratory facilities, etc. – and taking advantage of Structural transformation will be driven by the opportunities for bulk purchasing and selling, training development of the Ethiopian agricultural production courses and extension services. Multiple agro-processing system from its current fragmented and supply-driven functions take place in the IAIPs, such as final processing, practices, to one that is organized and based on quality storage, packaging, marketing and distribution. Support and demand. Such a change will boost agro-processing businesses and social infrastructure are also present. and will help stimulate a shift in investment and human resources from agriculture to agro-industries. IAIPs will include open area production zones, controlled environment growing, precision farming, Poverty reduction will be achieved through the knowledge hubs and research facilities, rural hubs, agri- integration of smallholder farmers, small-scale processing infrastructure, collection centres, primary processing enterprises and allied industries in commercial value hubs, RTCs, social infrastructure and agri-marketing chains. This, in turn, will increase local value-addition, infrastructure, among others. create additional jobs in rural areas and improve the overall efficiency of the agricultural value chain. IAIPs will have state of the art infrastructure. General Medium- and large-scale firms will also benefit from infrastructure will include: roads, power, water, more efficient value chains, through reduced transaction communications, drainage, sewerage, sewage treatment costs, allowing for additional growth and job creation. plant, effluent treatment plant, storm water drains, rain water harvesting, and firefighting facilities, among others. The development of IAIPs will produce an environment Specialized infrastructure will consist of cold storage that is conducive to attracting investment in agro-food units, quarantine facilities, quality control labs, quality and allied sectors. certification centres, raw material storage, controlled and modified atmospheric storage, central processing The IAIPs will: centres, etc. In addition, infrastructure at the IAIPs will • Create world class supply-chain infrastructure emphasize environmental sustainability. needed for agro-industrial development; Each IAIP is served by a network of rural transformation • Increase total flows of investment in agro-industry centres which provides linkages to producers. An - both in terms of skills and capital - to establish RTC is a facility that provides integrated services to backward and forward linkages; rural communities within a 100 kilometer radius of • Foster strong linkages between agriculture and the proposed IAIP site. RTCs are rural development agro-industry; initiatives of the GoE which not only facilitate inclusive rural development, but also serve as a linkage to the • Provide a close interface between research, IAIP in terms of raw material supply. extension mechanisms, industry and farmers in the agricultural sector; RTCs are geographic clusters of infrastructure and • Increase value addition and reduce wastages, services, though on a smaller scale than IAIPs. Farmers thereby increasing the income of farmers; and farmer groups deliver their produce and receive agricultural inputs. At the RTCs, agricultural produce • Produce better quality products; is collected, sorted, stored and may undergo primary • Create rural employment, off-farm income processing before onward transport to an IAIP. For most opportunities and improve quality of life in rural areas; farmers, the RTCs are the main point of contact with commercial agricultural value chains. Apart from their • Assist small-scale agro-industrial enterprises to primary functions, RTCs also offer small-scale financial remain competitive in global markets; and services to farmers as well as basic social services. • Facilitate commercialization of agriculture and increase exports of processed and value added agro-products.

6 Figure 1: IAIP and RTC connections • Agricultural produce supply chain management – These support services aim to improve the marketing of agricultural products through supply chain management from the farm to consumers. This will be achieved through better planning and appropriate quality control across the supply chain.

The primary feature of IAIPs and RTCs is the clustering of essential infrastructure, utilities and services required by businesses to operate and grow. Clustering allows for economies of scale that lower transaction and overhead costs. In addition, economies of scale in terms of raw material inputs allow processing firms to operate at full capacity. The clustering of firms also provides the critical mass needed for the efficient provision of services such as eco-friendly waste recycling and disposal, which is difficult to provide to widely dispersed firms. Furthermore, clustering allows the GoE to better The major components of RTCs include: introduce and monitor targeted incentive regimes to • Training and capacity-building for rural populations - promote agro-industrial growth. Training opportunities for rural communities aimed at enhancing knowledge, skills and abilities to increase Clustering also lowers the overall cost of production by income-earning opportunities and, as a result, reducing post-harvest losses, transportation and energy improve standards of living. Training will cover areas costs, as well as ensuring higher returns due to high such as cultivation, post-harvest handling, packaging quality outputs, off season availability, better traceability and branding, product performance and animal feed and enhanced productivity. management. In addition to the proposed training centres, a network arrangement can be established Another key feature of the IAIPs and RTCs is innovation with the existing farmer training centers within the diffusion. IAIPs facilitate vertical and horizontal links catchment area of the RTCs. between resident enterprises, as well as between enterprises and facilitating organizations, such as • Market information centre - A one-stop information government support institutions, development partners centre that combines information and services and research institutes. offered by various ministries and government agencies. The centre will provide information on agro- By disseminating knowledge, skills and innovation, the food business development, prices, market trends, IAIPs and RTCs will contribute to the overall upgrading and current market demand in terms of products of the agro-industry sector and allow Ethiopian firms to and quality, among other services. compete more successfully at the regional and global • Agriculture support services – These services will help levels. The benefits also reach the farmer and small- rural communities to enhance productivity; produce scale processor level, ensuring higher product quality premium vegetable, including high-demand vegetables from farm to fork, and integrating larger portions of the such as capsicum; and cover areas such as dairy population into commercial agricultural value chains. development, including raw milk marketing. These services will also target quality improvement by setting Increased integration with commercial value chains up agriculture input services, agriculture equipment encourages the inclusion of informal economic actors support services, and agri-clinics, among others. into the formal system. IAIP and RTC facilities will also encourage SMEs to locate closer to the source of their • Agro-food processing activities – Aims at developing raw materials, and ensure the spread of processing and food processing enterprises in rural areas, with an manufacturing operations into less developed regions. emphasis on improved agro-food product quality for local and overseas markets. This will support agro-industrial development through value added activities and generate additional income for farming communities.

7 Linking smallholder farmers/producers Integrating agro-allied industry companies

Linkage to smallholder farmers is a key feature of IAIPs As commercial value chains become more integrated, and RTCs. Through aggregating produce from several there are greater benefits from specialization and an farms into one location, IAIPs and RTCs are able to link increasingly important role for agro-allied industry smallholder farmers to large agricultural value chains. companies. Examples of such companies include those Such linkages serve two key functions: 1) to integrate specialized in sales, distribution and transport, input raw material suppliers (smallholder farmers) with the supply, and food catering. By offering incentives, such as demand side of the food chain in an efficient manner; modest plot lease fees, financial assistance and training, and 2) to provide the appropriate raw materials to the IAIPs or RTCs promote specialization and growth, agro-industries (the major constraint affecting food generating important off-farm employment. processors in Ethiopia). This is essential for poverty reduction in rural areas and for the structural Lack of capital is currently the biggest challenge for transformation of the economy. these companies. Financial services for small-scale food processors to innovate or expand are only beginning The physical infrastructure of RTCs and IAIPs is to emerge, and credit from specialized banks remains complemented by contract farming. Very few smallholder minimal. IAIPs will facilitate access to finance through farmers presently have contractual links to agro-food the presence of on-site financial institutions offering processors. This contributes to a supply-driven agro- financial solutions catered specifically to agro-allied industry system characterized by uncertainty and high industry companies. Large-scale firms present in the transaction costs, and does not provide incentives for IAIPs (and sometimes RTCs) can advance funds and smallholder farmers to produce the quality or quantity operational equipment to smaller-scale firms, offering of raw materials required by agro-industries. With another option for access to finance. contract farming, agricultural producers enter into legally binding agreements with processors that cover production methods and technology; output quantity, quality and prices; and technical and financial support. This reduces transaction costs for both parties.

Both processors and producers stand to benefit from better linkages between farmers and agro-industries. Processors profit from a guaranteed delivery of produce, while producers benefit from essential inputs and services (e.g. seeds, fertilizers, equipment, finance and technical advice), and access to stable and more predictable markets, allowing for better expenditure planning and savings.

8 Table 1: At a glance: Benefits of IAIPs and RTCs

Key beneficiaries

Types of benefits Private Ethiopia Farmers companies Sectoral benefits Government of

• Timely availability of agricultural inputs of right quality and quantity x x

• Enhanced fodder and feed production x x

• Refined seed-production technologies x x

• Development of improved crop varieties/hybrids x x

• Development of improved cultivars and genetic resources x

• Improved indigenous poultry breeds including strains x Agricultural inputs • Genetic up-gradation of indigenous /native cattle x x • Conservation and improvement of native animal genetic resources to maintain x x diversity of breeds • Improved production practices for focus crops x x

• High-density plantations, shade net cultivation, poly-house cultivation x x x

• Precision farming x x • Diversification from traditional crops to plantations, orchards, vineyards, flowers x x and vegetable gardens

• Shift from subsistence to commercial farming x x x

• Increased milk production and milk processing capacity x • Energy management and utilization of both conventional and non-conventional x energy sources in agricultural production and processing activities • Knowledge dissemination and technology transfer of international best practices x x x and standards • Increased productivity of animal husbandry sector x x

Production and agro-processing Production • Efficient, economic, eco-friendly and sustainable crop production and protection x x technologies • Implementation of international sanitary and hygiene standards and norms x x

• Adoption of precision machinery and strategies for carrying out timely and x efficient operations for agriculture, horticulture and livestock production

9 Key beneficiaries

Types of benefits Private Ethiopia Farmers companies Sectoral benefits Government of

• Linkages among stakeholders such as farmers, industry, research and extension x x x service providers

• Supply chain alignment with domestic and international requirements x x x

• Improved branding and marketing x x

• Competitive and efficient marketing arrangements x x x • Addressing the growing domestic and overseas markets for obtaining better x x prices

Market and linkages • Access to capital, technology, and support services such as credit, marketing, x x research and extension • Minimized post-harvest losses and reduced wastage x

• World-class facilities at an affordable cost structure x • Access to common infrastructure facilities x x

• Excellent facility management in IAIP x x • IAIP clusters create enabling institutional structures, facilitate flows of investment, x x technology, skill sets and modern management practices • IAIP brings together farmers, processors and retailers and links agricultural production to the market to ensure maximum value addition and minimal x x x Investors wastage • Research and development (R&D) in food processing for product and process x x development encouraged • Implementation of modern food processing technologies x

• Special IAIP incentives provided by the Government x • Possibility to apply targeted policy towards achieving the GTP II vision and x Sustainable Development Goal 9 • Improved food security for the country and region x • Increased industrial output and economies of scale x

• Rural growth and employment for local population x x • Demand for ancillary jobs required for the IAIP’s activity will help in development of industry in and around the area, and further advance industrialization of x x Local economy Ethiopia • IAIP clusters will attract agribusiness investment, creating employment opportunities for the local population and fostering sustainable inclusive economic x x x growth

10 GENERAL DESCRIPTION OF SITES The studies cover a range of aspects, including: agro- and allied sector potential in the selected areas; The next section provides a general description of IAIP value chain analysis of prospective agriculture goods; sites. This covers feasibility studies, site selection criteria, conceptualization and configuration of IAIPs and RTCs; as well as options for the management, operations land selection for IAIPs and RTCs; zone definition, and governance of an IAIP. An outline of the features including land use patterns and agricultural production in of the four pilot IAIP sites in Central Eastern Oromia, the areas; analysis of commodity volumes; masterplans for Southwest Amhara, Eastern SNNP and Western Tigray the IAIPs and RTCs; list of infrastructure and facilities for follows. The last section provides an overview of the IAIPs and RTCs, including gaps; preliminary environmental financial costs for IAIP and RTC development. and social impact assessments; options for IAIP/RTC development and operations; cost of establishing IAIPs Feasibility studies and RTCs, and revenue sources; means of finance; marketing and branding strategies for the IAIPs and RTCs; Feasibility studies for the establishment of four pilot IAIPs and risk mapping and risk mitigation strategies. and 28 RTCs were undertaken. The feasibility studies were carried out as a collaborative effort between As part of the feasibility studies, 17 agro-industrial UNIDO, the Food and Agriculture Organization (FAO), growth corridors (AIGC) were identified. One IAIP is the United Nations Development Programme (UNDP) planned to be developed in each of the AIGCs. Based and the GoE (comprising the Ministry of Industry, on the results of the feasibility studies, the development Ministry of Agriculture, and the Ministry of Finance and of IAIPs and RTCs will take place in two phases. The Economic Cooperation), with support from the Italian first implementation phase began in February 2016 and Development Cooperation. will see four pilot IAIPs and 28 RTCs developed. The selected sites are in Central Eastern Oromia, Southwest Amhara, Eastern SNNP and in Western Tigray.

Figure 2: Agro-industrial growth corridors in Ethiopia

11 Site selection process • Water – The availability of water was analyzed for both agriculture and industrial processing by considering the mean annual rainfall, availability The four pilot IAIPs were selected on the basis of six of river systems, availability of natural and broad criteria as described below. artificial reservoirs, and groundwater potential.

1. Agricultural production potential for strategic • Railways, dry port, airport terminals and commodities: telecommunication – Railways and dry ports The priority selection criterion was the availability were evaluated considering the current and and supply of raw materials – livestock, coffee, oncoming national networks/projects. sesame, cereals, pulses, fruits and vegetables, and honey. Under this criterion, current and potential 4. Market potential: production, as well as the surplus of targeted A viable market for the products and services commodities, was assessed. available in the park is essential for the successful establishment of enterprises and the long-term 2. Inter-industry linkages and triggering effect: commercial viability of the park. The urban sector is This criterion focused on capturing the potential assumed to be the prime market for industrial agro- linkages with existing industries that could trigger processed products. Thus, the urban population size further industrial development. Specifically, the of each corridor and proximity of parks to urban existence of sugar plantation projects and factories, centers is assessed. and exportable cash crop commodities were taken into account for the analysis. 5. Access to commercial and support services: Commercial and support services such as universities, 3. Infrastructure facilities: research centers, technical vocational education The presence of power, road network, water, and training centres; farmers’ cooperatives and railways, airport terminals and telecommunication unions; and financial institutions are very important infrastructure were taken into account. in providing services demanded by the park. Their proximity to the parks was assessed. • Power – Availability of power in the growth corridors was assessed based on the presence 6. Concentration of enterprises and attractiveness for of power stations, sub-stations and transmission investors: lines within or near the parks. The existence of an industrial base and facilities such as import/export logistics, housing, recreation • Road network – Road network densities for the centres, schools and other social facilities are very corridors were assessed by examining national important for attracting investors/manpower and road network data from official national zonal retaining those that may establish firms or work administration boundaries. there. The density and proximity of these facilities was taken into account.

12 Figure 3: Location and key information for selected IAIPs

s Federal Democratic Republic of Ethiopia - Project Sites

Crop and livestock Sorghum and sesame, fruits and vegetables, dairy, meat and other animal products. Total Area of IAIP 258.62150.92 Ha Ha Population 4.3 million Grand total cost US$ 232.83 Initial Investment US$ 72.67 million Investment over 4 yearsUS$ 181.18 million Crop and livestock Sorghum and sesame, Year 1: US$ 122.48 million fruits and vegetables, dairy, Year 2: US$ 54.49 million meat and other animal products. Year 3: US$ 6.04 million Total Area of IAIP 1260.3554.99 Ha Ha Internal Rate of Return 17.09 % (13 years of operation) Population 17.2 million Payback period 3 years Grand total cost US$ 227.58 Initial Investment US$ 69.71 million Investment over 4 yearsUS$ 173.81 million Year 1: US$ 84.7 million Year 2: US$ 53.8 million Year 3: US$ 5.9 million Internal Rate of Return 18.23% (13 years operation period) Payback period 3 years

Crop and livestock Wheat, barley, haricots bean, fava bean, tomato, potato, fruits and vegetables, dairy, meat and other animal products. Total Area of IAIP 263 Ha Population 27.16 million Crop and livestock Grand total cost US$ 233.12 million dairy, meat and other animal products. Initial Investment US$ 72.1 million Total Area of IAIP 10214.868.80 Ha Ha Investment over 4 yearsUS$ 69.71 million Population 15.04 million Year 1: US$ 84.4 million Grand total cost US$ 176.21 Year 2: US$ 53.9 million Initial Investment US$ 51.55 million Year 3: US$ 5.96 million Investment over 4 yearsUS$ 128.53 million Internal Rate of Return 18.23% (13 years operation period) Year 1: US$ 61.42214.86 million Ha Payback period 3 years Year 2: US$ 39.17 million Year 3: US$ 4.53 million Internal Rate of Return 17.03% (13 years of operation) Payback period 3 years

13 Management and operations options Governance structure

The IAIPs are to be developed, managed and operated Figure 4: Organigram of IAIP oversight structure under investment-driven partnerships with the private sector. A corporation will be established at the regional RIPCB level of each IAIP. These corporations will be registered as special purpose vehicles (SPVs). They can be a FBPIDI private company, a public company, or a public-private RIPC partnership. SPVs can provide all or a combination of the following services based on the interests of the SPV participants: Park A RIPC Park B RIPC Park C RIPC Park D RIPC a) On-site infrastructure development, including Branch Branch Branch Branch the rehabilitation, modernization, expansion, development and distribution of infrastructure The Regional Industrial Park Corporation (RIPC) is the and utilities, including gas, water, electricity, principal body and agency of the Regional Government, communication and roads, as well as: for the promotion, implementation and regulation of IAIPs i. Provision of specialized agriculture infrastructure and will be represented in each IAIP through a branch and services, including primary processing office. The RICPs will be responsible for developing a centres, storage facilities, etc.; regional IAIP plan and regularly review; regulating and overseeing the development and operations of the ii. Provision of general services, including IAIPs directly and through its IAIP offices; identifying and warehousing, transport, etc.; and selecting actors (private and public) for the formation iii. Provision of support infrastructure, social of the SPV; and developing and issuing guidelines and infrastructure and real estate services; standards for the operations of the parks. The RIPCs are supported by the Food, Beverages and Pharmaceuticals b) Overall IAIP site management, including management Industry Development Institute (FBPIDI) under which a of various infrastructure on the site; unit is established to provide capacity-building, resource c) Collection of rent and fees for infrastructure mobilization and technical backstopping services. utilization, specialized and general service provision, and facilities management; and The RIPC will be subject to oversight from the Regional Industrial Park Corporation Board (RIPCB), which will d) Promotion of the park to attract further investment. also be responsible for providing guidance, reviewing and approving plans and strategies, and overseeing the operations of the RIPCs. The RIPC branch office will undertake many of the RIPC duties at the park level and coordinate between actors at the regional IAIP level.

14 Features of the selected four IAIP sites

Information specific to each of the four selected sites is presented in the following tables.

Oromia – Central Eastern Oromia – Bulbula IAIP

Location of IAIP • Bulbulla town in East Shewa administrative zone

Size of IAIP • 263 hectares considered for initial development

• RTCs location Shashemene, Dodola, Robe, Bekoji, Eteya, Welenchiti, Meki & Biyo Biske

• Availability of two operational sugar plantations • Concentration of fattening, dairy farms, abattoirs Agricultural potential and agri-facilities • Fishery potential, Koka dam, rift valley lakes (Zeway, Langano) • Wheat, barley, haricot bean, fava bean, tomato, potato, fruits and vegetables, dairy, fish, poultry, honey and meat

• Energy Substation at Ziway town at a distance of approximately 17.5 kms

• Water source – River Bulbulla – it is proposed to provide Water infiltration well, collection well and pump house near the river basin at an approximate distance of 2 kms External infrastructure • Concentration of lakes, surface water, water supply

• Road network The site abuts the federal highway connecting Addis Ababa & Awasa

Railways, dry port, airport • Proximity to biggest airport terminal, dry port & Djibouti port terminals • Bole International airport, Addis Ababa – 180 kms

• Telecommunication Telecom – communication facilities available in Bulbulla town can be extended

Raw materials required 859,354 MTPA

Growing area required 334,971 hectares

Total processing area 239.73 hectares

Total non-processing area 23.36 hectares

Total area 263.09 hectares IAIP internal infrastructure Length of road 14.06 km details Total water demand 6,660 m3/day

Wastewater generation 4,504.77 m3/day

MSW generation 59.38 TPD

Power demand 45.951 MVA

15 Amhara – South West Amhara – Bure IAIP

• Bure town in West Gojjam administrative zone Location of IAIP • The site is part of the proposed industrial master plan of Bure which renders the advantage of utilizing the industrial infrastructure

• 260.35 hectares considered for initial development Size of IAIP • 1000 hectares identified in total

• RTC locations Merawi, Finote Selam, Dangila, Enjibara, Chagni, Amanuel and Motta

• Agricultural potential and agri-facilities Maize, sesame, potato, live animal (cattle, sheep, goat) dairy, meat, poultry and honey

• The total estimated power demand of 46.82 MVA is to be met Energy from Bure substation connected to the national grid situated at a distance of 4 kms from the proposed IAIP site

• Water demand will be met from the proposed infiltration External Water gallery and pump house at River Yisr located at 3.5 kms from infrastructure the project site

• The site abuts the federal highway connecting Addis Ababa Road network and Bahirdar

Railways, dry port, airport • Airport – Bole International airport, Addis Ababa – 407 terminals kms & Bahirdar airport – 156 kms

• Communication facilities available in Bure towncan be Telecommunication .extended. Raw materials required 824,476 MTPA

Growing area required 398,059 hectares

Total processing area 245.11 hectares

Total non-processing area 15.24 hectares

Total area 260.35 hectares IAIP internal infrastructure Length of road 9.31 km details Total water demand 7,381 m3/day

Wastewater generation 4,928.73 m3/day

MSW generation 63.47 TPD

Power demand 46.82 MVA

16 Tigray – Western Tigray – Baeker IAIP

Location of IAIP • Baeker town in Western Tigray administrative zone

Size of IAIP • 258.62 hectares considered for initial development

• RTC locations Maykadra, Setit-humera, Adigoshu, Adi-hirdi, Maygaba, Dansheha and Shire-Indaselassie

• Agricultural potential and agri-facilities Sorghum, sesame, fruits and vegetables, dairy, meat and other animal products

Energy • Power source available – Humera substation – 34.8 kms

• River Samina – it is proposed to provide infiltration well, Water collection well and pump house near the river basin at an External approximate distance of 1.6 kms infrastructure

Road network • The site abuts the Gondar to Humera highway

• Railways, dry port, airport Airport – Bole International airport, Addis Ababa – 951 terminals kms, domestic Humera airport – 25 kms and Alula Aba Nega Airport, Mekele – 630 kms

• Telecommunication Communication facilities available in Humera town can be extended

Raw materials required 897,522 MTPA

Growing area required 52,4706 hectares

Total processing area 233.18 hectares Total non-processing area 25.44 hectares Total area 258.62 hectares IAIP internal infrastructure Length of road 13.87 km details Total water demand 6,777.10 m3/day

Wastewater generation 4,659.68 m3/day

MSW generation 55.07 TPD

Power demand 45.473 MVA

17 SNNP – Eastern SNNP – Yirgalem IAIP

Location of IAIP • Yirgalem in Sidama Adminstrative zone

Size of IAIP • 214.86 hectares considered for initial development

Location of RTCs • Dilla, Yirgachefe, Bule, Daye, Aletawondo and Hawela Tula

• Agricultural Potential and agri-facilities Cereals, coffee, fruits and vegetables, dairy and meat and other animal products

• Energy Substation at Yirga Alem town at a distance of approximately 6 kms

• River Lagadara – it is proposed to provide infiltration well, External Water collection well and pump house near the river basin at an infrastructure approximate distance of 0.8 kms

• Road network The site abuts federal highway connecting Addis Ababa & Awasa

Railways, dry port, airport • Bole International airport – 318 kms and Awasa airport – terminals 50 kms

• Telecommunication Communication facilities available in Yirga Alem town can be extended.

Raw materials required 387,305 MTPA

Growing area required 163,461 hectares

Total processing area 197.25 hectares

Total non-processing area 17.61 hectares

Total area 214.86 hectares IAIP internal infrastructure Length of road 8.23 km details Total water demand 4,634 m3/day

Wastewater generation 3,202.06 m3/day

MSW generation 44.93 TPD

Power demand 36.46 MVA

18 Financial overview of IAIPs and RTCs Table 2 presents the costs for the establishment of the four pilot IAIPs. Table 2: Categories and indicative costs of IAIP development

Park cost (US$ million) Description Oromia SNNP Amhara Tigray Cost of land (land lease amount) 0.00 0.00 0.00 0.00 Site grading and other land development expenses 0.25 0.21 0.25 0.25

Compound wall, fencing and gates 0.57 0.80 0.52 0.52

Roads, culverts and drainage 9.57 5.30 8.07 11.52 Decentralized water supply, treatment and distribution 3.56 2.23 3.27 3.63 Electrical, street and fire lighting 1.17 0.94 0.90 1.07 Telecom and communications systems 0.22 0.13 0.15 0.22 Sustainable infrastructure elements, rain water harvesting, 0.49 0.38 0.40 0.52 summer tank storage and greenery Decentralized waste water, network and solid waste 3.89 2.72 3.99 3.88 management Buildings - Industrial/business 110.03 79.32 113.00 101.07 Buildings - Commercial 7.17 6.25 6.06 7.60 Buildings - Residential 11.58 7.31 6.98 19.24 Buildings - MEP 0.43 0.28 0.31 0.51 Buildings - Social infrastructure development 0.20 0.18 0.13 0.19

Specialized agri-infrastructure facilities within IAIP 1.58 1.58 1.58 1.58

Miscellaneous fixed assets 0.24 0.24 0.24 0.24

Manpower costs during pre-operation period 0.38 0.27 0.36 0.38

Preliminary expenses and company formation expenses 1.13 0.81 1.09 1.14 Project consultancy, detailed engineering and project 2.26 1.62 2.19 2.28 supervision costs Initial marketing and project launch costs 3.40 2.43 3.28 3.42 Pre-operation and other expenses 3.40 2.43 3.28 3.42

Contingency 15.09 10.79 14.59 15.20 Interest during construction 3.27 2.34 3.16 3.29 Total 179.88 128.56 173.80 181.17

19 Revenue streams

As part of the feasibility studies, an assessment of each site was undertaken in order to ascertain detailed estimated figures for business development. The below section outlines the results of the assessment, illustrating general revenue streams for IAIPs and RTCs (Table 3). These are general revenue streams common to all IAIPs and RTCs.

Table 3: Revenue streams for IAIPs and RTCs

Category Details

• The IAIP SPV offers a long-term leasehold /short-term lease/yearly lease/ Revenue from developed monthly lease rental with the occupant industries /residential /commercial/ plots – industrial, residential, institutional area users. commercial and social zones • Income generation from undeveloped land long-term leasehold /developed land – long- term leasehold, developed land-short term lease.

• The IAIP SPV would enter into long-term leasehold /short-term lease/ Revenue from built monthly lease rental for usage of built up space with the occupant industries/ up space – Industrial, residential/commercial/institutional area users. residential, commercial and social zones • Income generation from built up space – long-term leasehold, built up space – short-term lease, built up space - monthly lease rentals are computed. Revenue from facility • Fees collected for operation and maintenance from facility management of management IAIP and RTCs. • Income from operations of specialized agri-infrastructure within IAIP Income generation from covering a R&D hub, innovation centre and knowledge hub, warehouses, operations of specialized procurement centres, packing and labelling, grading and sorting, QA & QC agri-infrastructure facilities lab, administrative building, R&D centre, etc. are computed. Income generation from • Interest income will also accrue to the IAIP SPV based on the deposits interest on deposits collected from occupant units and other deposits.

Table 4 outlines the main estimated sources of revenue for the four IAIPs. Table 4: Indicative total revenue for IAIPs

Park revenue (US$ million) Description Oromia SNNP Amhara Tigray

Undeveloped land long-term leasehold 0.00 0.00 0.00 0.00 Developed land long-term leasehold 25.24 15.44 24.65 27.05 Developed land yearly lease 8.90 6.35 9.04 8.41 Built-up space long-term leasehold 184.64 133.28 182.09 181.10 Monthly lease rental 98.13 70.87 96.72 96.19 Facility management 26.63 20.74 24.31 28.91 Other income 10.01 7.23 9.87 9.81

Income from direct operation of specialized services 14.50 14.50 14.50 14.50 Total 368.05 268.41 361.17 365.98

20 Means of finance

As part of the feasibility studies, means of finance and financial and investment models were addressed. Below is a general description of the financial resources for undertaking IAIP and RTC development. Table 5: Financial details for IAIPs and RTCs

Category Details

• The IAIP programme will be funded through several components: in the initial phase through equity and a term loan, and in the subsequent phases through internal accrual. Equity and term loan will vary depending on the park and investors business plan. Means of finance • The term loan may be raised against the land, infrastructure, buildings and other fixed assets and will be secured as the first charge. • For the development in subsequent phases, the capital expenditure is met through internal accrual.

• The major components involved in the costs of operation are utility cost, technical and managerial personnel salaries, repairs and maintenance, general operational expenses, other overheads and administrative expenses. Costs of operations • The main source of power is through external power supply from the national grid; in addition, standby captive power generation units are also provided. The cost for power, water and fuel is considered in the overall costs of operation.

• The interest rate considered for a term loan is 8.5 per cent per annum and is repaid in the 1st, 2 nd, 3 rd and 4th year of operation (i.e. two years after phase I development period). • Depreciation is calculated on a straight-line method and written down value Financial expenses method (income tax purpose) for determining the costs of operation and profitability. • The operating profit is positive right from the first year of operation. The amount spent on preliminary expenses is written off over a period of 13 years.

• By discounting the cash flows to the present value, the internal rate of return after tax is 17.09 per cent based on a 13-year operational period. The project equity and term loan are required only for phase I. Phases II and III are funded Internal rate of return through internal accrual. • The internal rate of return calculation includes the cost of major maintenance and/or rehabilitation expected to be incurred during the period of assessment.

Debt service coverage ratio/ • The average ratio works out to 2.34 for the repayment period. The analysis repayment of term loan indicates that the repaying capacity is satisfactory.

• During the construction period, funds are available as term loans and equity capital. In the subsequent years, the cash inflow is from the profits from operation Projected cash flow and is utilized for increased working capital requirements, payment of tax and statement repayment of long-term loan. The surplus remains as cash bank balance and is deployed for meeting the capital expenditure of subsequent phases.

• The payback period for the proposed IAIP would be three years for phase I Payback period investments, considering the investment for phases II and III through internal accrual.

21 Promotion • Collection of primary data of the study area, including: As part of the IAIP development, a promotional - Identification of project affected persons campaign will be carried out for IAIPs and RTCs to (PAPs) and project affected families (PAFs); attract domestic and foreign investment. - Establishing the socio-economic profile of the A branding and advertising campaign will target potential PAPs and PAFs; actors, including IAIP and RTC developers and tenants - Evaluation of resettlement and rehabilitation interested in investing in the various components of (R&R) aspects; the park, including the industrial zone/commercial zone, - Suggestions on income restoration plan in line business zone, education zone, as well as specialized with the R&R policy guidelines of Ethiopia; and agri-infrastructure. - Identifying employment and business potential opportunities for PAPs, PAFs and host Branding is an important component of the marketing communities in RTCs, IAIPs and in procurement strategy. It will enhance the visibility of products made in and marketing activities. an IAIP and will set it apart from other similar products; branding can communicate the type of business the IAIP is; and a strong brand can create loyalty and let Programme implementation customers know what to expect. The implementation of the IAIP/RTC development programme will be led by the Government of Ethiopia, Marketing materials will be printed in various languages, with UNIDO and other development partners playing such as Amharic, Arabic, Chinese, English, French, support roles. German, Italian, Korean and regional languages. Multiple modes of communication will be utilized to promote The programme will be guided by a Progamme the IAIPs, including: website development; information Steering Committee (PSC). The PSC will provide overall packages for interested investors; branding for all strategic direction, decide on major issues and guide communication and office supplies; promotional videos; policy matters. The PSC will be composed of senior articles in print media; and news stories on television officials from the Ministry of Industry, the Ministry of and radio. Agriculture, the Ministry of Finance and Economic Cooperation, the Bureaus of Industry (BoI) from each The GoE will play an important role in marketing the region, the Agricultural Transformation Agency (ATA), IAIPs. Ethiopian missions around the world will promote private sector representatives, UNIDO, FAO and will be the IAIPs. Diplomatic missions in Addis Ababa will also chaired by the State Minister of Industry. be invited to briefing seminars on the IAIPs. A technical task force (TF) will be formed in each Environmental and social impact region. The TF will be composed of senior officials from BoI, Bureau of Agriculture (BoA), Bureau of Finance and assessments Economic Development (BoFED), ATA, Cooperative Another important component of IAIP and RTC Promotion Agency, and selected universities. The TF development is the preparation of an environmental impact will be actively engaged in all regional matters in the assessment report covering the following aspects: implementation of the IAIP; it will be chaired by the Vice President and Head of the BoI of the region. UNIDO • An environmental assessment of the IAIP and RTC and FAO will assign a focal point for day-to-day activities areas, based on secondary data, and; in each region. • A collection of primary data of the study area, including: Specific roles are as follows: - Establishment of baseline environmental The Ministry of Industry (MoI) leads the programme. conditions; Through the PCP framework, UNIDO will support the - Identification and prediction of impacts; Ministry of Industry in their leadership role. The Ministry - Evaluation of impacts; and already assigned one senior official for daily follow-up and - Preparation of environment management plan. coordination of the activities of the programme. activities The Ethiopian Food, Beverage and Pharmaceutical A social impact assessment report will also be prepared Industry Development Institute and the Ethiopian Meat covering the following aspects: and Dairy Industry Development Institute, both under • Secondary data (social) of the study area; the MoI, will also play roles.

22 The Ministry of Agriculture (MoA) will play an once the enabling environment and infrastructures are important role in aligning the ongoing projects related in place. Value chains to be targeted will be selected to agricultural and rural transformation with those that from a short-list of value chains already identified as provide support to the smallholder farmers. The MoA promising. will assign focal points at the federal level to closely monitor the progress of the project. The focal points will be members of the PSC. The way forward The Ministry of Finance and Economic Cooperation Regional governments are responsible for the (MoFEC), in collaboration with the MoI and the MoA, development of off-site infrastructure, the cost of which will be responsible for the allocation of financial resources is estimated at US$ 35.19 million. Resources required for project infrastructure development; coordination for the development of the four IAIPs amount to US$ with regional governments to align their infrastructure 663.41 million. towards the development of IAIPs; and for mobilization of financial resources from the Government and The Italian Development Cooperation is contributing development partners for the implementation of the EUR 1.45 million to a project jointly initiated by UNIDO programme. and FAO, coordinated by UNIDO, which will support the establishment of the Bulbula IAIP in the Oromia region. Each of the regional governments will play a crucial role Similar financial amounts are needed for the technical in approving specific project documents, working with assistance required for the establishment of three IAIPs partners to develop incentive regimes for investors, in South West Amhara (Bure IAIP), Eastern SNNP appointing a focal point for the programme from the (Yirgalem IAIP) and Western Tigray (Baeker IAIP). BoA, as well as providing financial support for the development of the IAIPs, supporting farmers through To meet these costs, the federal Government and the the regional BoA and land allocation. The regional four regional Governments, with support from UNIDO BoAs will lead implementation of agricultural value and FAO, will mobilize resources from development chain-related activities, including the establishment and finance institutions and the private sector. provision of technical support to smallholder farmers. If Ethiopia is to compete in an increasingly globalized The BoAs will also assign a focal point for the PSC. market for agro-industrial products, it needs to create The Chamber of Industries will represent the private a favourable environment for the establishment and sector and will support the mapping of the enterprises. growth of agro-industrial firms. It is important that the Government facilitates private sector growth by UNIDO and FAO, under the overall ownership providing incentives for domestic and foreign investors and leadership of the MoI and MoA, will support and for the development of supply chain infrastructure. the management of the programme. In this capacity, This would have multiplier effects and greatly increase UNIDO will provide overall leadership for programme competitiveness across the entire agricultural sector. management and implementation, including the A well-integrated and coordinated approach to recruitment of a Programme Coordinator. UNIDO infrastructure development will be necessary to ensure will also support the establishment of the Integrated proper utilization of infrastructure facilities across the Agro-Industrial Park Agency (IAIPA) to coordinate and supply chain. design the IAIPs; build capacity of the IAIPA to manage and oversee operations of the IAIPs; allocate the land The Government, in conjunction with appropriate private for the IAIPs; establish an implementation framework sector agencies and development partners, will market for the operation of the IAIPs and form SPVs for park this supply chain infrastructure opportunity to multilateral management; and provide guidance for constructing the financial agencies and other infrastructure investors. park, finalizing management and operations modalities, Global processors and retailers need to be targeted, as as well as incentives regime for the establishment of the they create linkages with the consumer, a feature that IAIPs. has previously been missing in Ethiopia’s agribusiness development. The responsibility for such marketing will The activities of FAO will focus on building market lie with the Ethiopian Investment Commission, the MoA, linkages and strengthening the capacities of value chain the MoI and the Ministry of Foreign Affairs. In the short- actors to ensure a consistent supply of raw materials to medium- term, significant investments need to be according to quantity and quality specifications. This will made in construction, cold storage, value added centres, provide incentives for private sector actors to invest irrigation and agronomic practices. in IAIP development and/or to relocate to the park, Sample masterplan for integrated agro-industrial park – Bulbula IAIP, Oromia

24 25 26 Sample masterplan for rural transformation centre – Bulbula IAIP, Oromia

27 28 29 BIBLIOGRAPHY

Federal Democratic Republic of Ethiopia (2014) Growth and Transformation Plan Progress Report 2013, Ministry of Finance and Economic Development, Addis Ababa.

United Nations Conference on Trade and Development (forthcoming), Ethiopia Diagnostic Trade Integration Study Update of Ethiopia.

United Nations Industrial Development Organization (2012). Agribusiness for Africa’s Prosperity. Country Case Studies: Ethiopia,” UNIDO Working Paper 2nd Edition. Vienna.

World Bank (2015), 4th Ethiopia Economic Update. Overcoming Constraints in the Manufacturing Sector.

30

Vienna International Centre, P.O. Box 300, 1400 Vienna, Austria Telephone: (+43-1) 26026-0, Fax: (+43-1) 26926-69 E-mail: [email protected], Internet: www.unido.org

32 PARTNERSHIP FOR SHARED PROSPERITY

INCLUSIVE AND SUSTAINABLE INDUSTRIAL DEVELOPMENT FOR ETHIOPIA

SID Photo: Bringing key stakeholders together: The Prime Ministers of Ethiopia and Senegal and the Secretary-General of the United Nations hosted by the Director General of UNIDO at the Second ISID Forum, November 2014 CONTENTS

1. INTRODUCTION...... 4 1.1 INTRODUCTION TO THE BROCHURE...... 4 1.2 WHAT IS PCP?...... 4 1.3 RATIONALE FOR THE PROGRAMME FOR COUNTRY PARTNERSHIP...... 4 1.4 INTERNATIONAL DEVELOPMENT CONTEXT...... 5

2. FEATURES OF THE PROGRAMME FOR COUNTRY PARTNERSHIP...... 6 2.1 GOVERNMENT OWNERSHIP...... 6 2.2 ALIGNMENT WITH NATIONAL DEVELOPMENT PLANS...... 6 2.3 A FOCUS ON SELECTED PRIORITY SECTORS...... 6 2.4 A STRONG PARTNERSHIP APPROACH...... 7 2.5 LEVERAGING INVESTMENT FUNDS...... 7 2.6 RIGOROUS MONITORING AND EVALUATION SYSTEM...... 7

3. PRIORITY SECTORS IN ETHIOPIA...... 8 3.1 AGRO-FOOD PROCESSING...... 8 3.2 LEATHER AND LEATHER PRODUCTS...... 8 3.3 TEXTILES AND APPAREL...... 9

4. CROSS-CUTTING ISSUES...... 10 4.1 INSTITUTIONAL CAPACITY-BUILDING...... 10 4.2 INVESTMENT PROMOTION...... 10 4.3 INDUSTRIAL ZONES...... 10 4.4 TRADE FACILITATION...... 11 4.5 ENVIRONMENT AND ENERGY...... 11

5. BENEFITS TO THE PARTNERS...... 12 5.1 BENEFITS TO THE PRIVATE SECTOR...... 12 5.2 BENEFITS TO MULTILATERAL DEVELOPMENT BANKS...... 12 5.3 BENEFITS TO DEVELOPMENT PARTNERS...... 13 5.4 BENEFITS TO UNITED NATIONS AGENCIES...... 13 5.5 UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION...... 13

6. PCP GOVERNANCE AND COORDINATION...... 14 6.1 HIGH-LEVEL JOINT STEERING COMMITTEE...... 14 6.2 NATIONAL TECHNICAL TASK FORCE...... 14 6.3 THE ROLE OF THE PCP SECRETARIAT...... 14 6.4 PARTNERSHIP TRUST FUND...... 15 1. INTRODUCTION 1.2 WHAT IS PCP? The PCP is a model of partnership for achieving inclusive and sustainable industrialization at the country level. The PCP brings 1.1 INTRODUCTION TO THE BROCHURE together actors in a multi-stakeholder platform to coordinate and optimize the contribution of each. The objective of the This brochure provides information on the Programme partnership is to accelerate the implementation and deepen for Country Partnership (PCP) for Ethiopia. It serves as an the impact of the government’s industrial development introductory guide for people interested in this innovative agenda. For UNIDO, it is a model to operationalize its new approach to address inclusive and sustainable industrial mandate for inclusive and sustainable industrial development development challenges. (ISID). At the same time, it is a model that can be used to address The brochure is divided into six parts. Part 1 introduces the PCP, a wide range of current development challenges, including describing what it is and why it was developed. Part 2 describes those adopted as part of the Sustainable Development Goals the features of the PCP – government ownership; alignment (SDGs). with national development plans; a focus on selected priority sectors; a strong partnership approach; leveraging for investment; and a rigorous monitoring and evaluation system 1.3 RATIONALE FOR THE PROGRAMME FOR – that combine to make it a unique and effective approach COUNTRY PARTNERSHIP to technical assistance delivery and leveraging investment funds. Part 3 outlines the priority sectors identified for PCP Few countries in the world have reached a high stage of Ethiopia. Part 4 outlines the cross-cutting issues that will also economic and social development without having developed be addressed under the PCP Ethiopia. Part 5 explains how an advanced industrial sector. It contributes to poverty participation in the PCP is beneficial to each partner. Finally, reduction by generating employment and income through Part 6 describes the governance and coordination mechanisms accelerated economic growth. The industrial sector also has for the PCP, describing oversight and technical committees, as extensive linkages with other sectors of the economy, in well as the secretariat and trust fund for implementation. particular with services and agriculture.1 1 UNIDO. Combating Marginalization and Poverty through Industrial Development (2006). UNIDO Research Programme. Vienna. p.4.

Opening session of the third ISID Forum. From left to right: World Bank Group President, Jim Yong Kim; UNECA Executive Secretary, Carlos Lopes; AUC Chairperson, Nkosazana Dlamini-Zuma; UN Secretary-General, Ban Ki-moon; UNIDO Director General, Li Yong; Prime Minister of Ethiopia, Hailemariam Dessalegn; Minister of Economy, Finance and Planning of Senegal, Amadou Ba; and EC Director General for International Cooperation and Development, Fernando Frutuoso de Melo.

1 UNIDO. Combating Marginalization and Poverty through Industrial Devel- opment (2006). UNIDO Research Programme. Vienna. p.4.

4 PROGRAMME FOR COUNTRY PARTNERSHIP • ETHIOPIA Achieving inclusive and sustainable industrial development 1.4 INTERNATIONAL DEVELOPMENT CONTEXT is a complex goal that no single organization or entity can manage successfully on its own. Ensuring that industrialization The seventeen SDGs recently adopted at the United Nations benefits everyone and safeguards the environment requires Sustainable Development Summit are considerably more that resources and expertise from diverse actors are pooled. ambitious in scope than the Millennium Development Goals. Partnerships allow for precisely this collective action. They address not only development but also the manner in which it is pursued. The sums required are substantial. We Governments facing challenges in executing inclusive and have moved from talking about billions of dollars to trillions sustainable industrial development will have partners to of dollars to combat poverty effectively. The United Nations provide support and ensure inclusivity and sustainability Intergovernmental Committee of Experts on Sustainable through each step of the intricate process of industrialization. Development Financing states that the required annual Because inclusive and sustainable industrial development is investment for global infrastructure alone is estimated at $5 both a large and urgent priority, partnerships through the PCP trillion to $7 trillion2 and concludes that current investment model provide an effective mechanism for stakeholders to keep patterns will not deliver sustainable development.3 each other accountable and thereby translate commitment into unified and concrete action. The 2030 Agenda for Sustainable Development fully recognizes the crucial role of inclusive and sustainable While the investment needs of developing countries to industrial development. SDG #9 Build resilient infrastructure, accelerate growth and development have never been greater, promote inclusive and sustainable industrialization and foster the financing landscape has never been more complex.There innovation is particularly relevant to UNIDO’s mandate for are an increasing number of financial institutions, including a inclusive and sustainable industrial development. growing number of multilateral development banks (MDBs) The Lima Declaration, adopted in December 2013 by UNIDO and donors from emerging countries; the private sector is Member States reaffirms “commitment towards achieving investing unprecedented amounts in developing countries; and inclusive and sustainable industrial development, and […] non-governmental organizations and private foundations are reaffirm[s] the unique mandate of UNIDO in supporting our continuing to increase their role in the post-2015 development countries in achieving this goal.”4 The Declaration is based on agenda. If we are to achieve development objectives, such the recognition by Member States that poverty eradication “[…] as the SDGs, it is necessary to re-examine how we advance can only be achieved through strong, inclusive, sustainable and development and involve all these actors. resilient economic and industrial growth, and the effective integration of the economic, social and environmental dimensions of sustainable development.”5

2 United Nations General Assembly. Report of the Intergovernmental Commit- tee of Experts on Sustainable Development Financing. A/69/315. 15 August 2014 p.8. 3 United Nations General Assembly. Report of the Intergovernmental Commit- tee of Experts on Sustainable Development Financing. A/69/315. 15 August 2014. p. 5. 4 Lima Declaration. Fifteenth Session of the UNIDO General Conference, Lima, Peru. 2 December 2013. Resolution GC.15/Res.1. 5 Lima Declaration. Fifteenth Session of the UNIDO General Conference, Lima, Peru. 2 December 2013. Resolution GC.15/Res.1.

ETHIOPIA • PROGRAMME FOR COUNTRY PARTNERSHIP 5 2. FEATURES OF THE PROGRAMME FOR The host government also takes a leadership role in the PCP by creating a conducive environment for investment and business COUNTRY PARTNERSHIP development. The host government is able to facilitate this dialogue between the private sector, development partners and itself using the PCP multi-stakeholder platform. The PCP is a model of partnership at the country level that brings together actors in a multi-stakeholder platform to leverage investment funding, as well as coordinate and optimize the contribution of each. The PCP builds on UNIDO’s past technical assistance service provision, but adds new features that make 2.2 ALIGNMENT WITH NATIONAL DEVELOPMENT it especially relevant for current development challenges and PLANS achieving ISID objectives. The model of PCP has six distinct features. An important feature of the PCP is its alignment to or full integration with the economic development plans of the host 1) Government ownership country. The alignment or integration with the host government’s 2) Alignment with national development plans own development plan increases the probability of the success of 3) A focus on selected priority sectors the PCP by making the host government directly accountable for outcomes and in the process re-forges the government’s ownership 4) A strong partnership approach of the Programme. In Ethiopia, the PCP is part of the Growth and 5) Leveraging for investment Transformation Plan II (GTP II) covering the period from 2015 to 2020. 6) Rigorous monitoring and evaluation system The overall objective of the GTP II is the structural transformation of the Ethiopian economy. It addresses important industrial development objectives such as increasing manufacturing value added as a percentage of the industrial sector’s contribution to the 2.1 GOVERNMENT OWNERSHIP gross domestic product, promoting exports, substituting imports Government ownership is a critical feature of the PCP. Under the and creating skilled employment. The GTP II was developed PCP, ownership goes far beyond government consultation and alongside the PCP, ensuring their seamless integration. The three endorsement of the Programme; ownership is imbedded in the priority sectors as set-out in the PCP – agro-food products, leather design of the Programme and is demonstrated through the actions and leather products and textiles and apparel – also lie at the heart of the host government. of the GTP II. The host government is responsible for overall guidance and leadership of the PCP and coordinates through two bodies. A high-level Joint Steering Committee (JSC), chaired by the highest authority in the government, is responsible for guidance and 2.3 A FOCUS ON SELECTED PRIORITY SECTORS oversight of the PCP. A National Technical Task Force (NTTF) is Another important feature of the PCP, from where it draws strength, responsible for the day to day operations of the PCP. In addition is its initial focus on a select number of priority sectors. Such an to the two PCP entities, the government uses inter-ministerial approach is important because it allows for a concentration of coordination meetings and coordinates with the programmes of scarce resources on a limited number of priority sectors in which development partners to ensure the efficient implementation of Ethiopia enjoys a comparative advantage, ultimately enhancing the PCP and alignment with industrial development objectives. the impact of PCP interventions. A targeted step-by-step approach allows for impact in priority sectors, increasing the probability of The host government also plays an important role in the mobilization success, before progressing to other sectors. of resources for the implementation of the PCP. This is done in part through the allocation of its own resources to leverage additional The PCP Ethiopia priority sectors were selected based on job large-scale funding. creation potential, availability of raw materials, export potential and ability to attract investment.

6 PROGRAMME FOR COUNTRY PARTNERSHIP • ETHIOPIA 2.4 A STRONG PARTNERSHIP APPROACH Annual progress reports will be prepared on the status of results Partnership lies at the heart of PCP and is its defining feature. (outputs), as well as resource mobilization and utilization. The The partnership in PCP includes a wide range of actors, focus will be on the achievement of the benchmarks indicated including MDBs and the private sector. The PCP brings these in the results framework of the PCP. actors together, and offers its unique technical assistance and In Ethiopia, the NTTF undertakes monitoring and reporting coordination services to help ensure that diverse development activities for the overall programme implementation of the PCP. goals are coordinated in a manner that creates a synergy and Monitoring of the PCP begins with a comprehensive baseline supports the host government to reach its development assessment, addressing the priority sectors in order to obtain objectives. a clear picture of the level of their development prior to the PCP. The baseline assessment and subsequent monitoring work is done in collaboration with the Central Statistical Agency of Ethiopia. The PCP Secretariat holds monthly coordination 2.5 LEVERAGING FOR INVESTMENT meetings and provides, through the team leader and the field An innovative feature of the PCP is its focus on leveraging overseas office, technical updates on programme implementation and development assistance (ODA) funds for larger investment. The monitoring reports to the NTTF every four months. traditional conception of a project has a clear beginning and In Ethiopia, reporting on the progress of PCP is integrated end. UNIDO projects under PCP, however, are not designed into the reporting system of both the federal and the to accomplish an immediate development objective alone, regional governments. As the PCP is fully integrated with the but to leverage additional resources to accomplish a far larger government’s economic development plan, progress reports, development objective than would be possible acting by itself. including PCP elements, are drafted by the Ministry and UNIDO employs its technical assistance to support investment submitted to the Minister for follow-up. Furthermore, regular by the private sector and MDBs in the targeted sector. This may reports from the ministries to the Prime Minister contain PCP include, among others, providing a range of upstream support components. activities such as diagnostics and feasibility studies to facilitate investment by partners. The PCP will be subject to a mid-term review and a final evaluation. A mid-term review (during the second year) of The concept of leveraging technical assistance funds for the PCP will be carried out in collaboration with national investment is closely linked to partnerships. It is through partners. The review will seek to assess the design of the PCP, partnerships facilitated under PCP that UNIDO is well-placed to examine performance against outcomes, and assess the actual leverage funds for investment. delivery against planned outputs – whether outputs are being converted into expected outcomes, and whether the strategies and partnerships are effective and efficient. Regular monitoring reports will be distributed to all stakeholders to assess relevant 2.6 RIGOROUS MONITORING AND achievements and address remaining challenges. Donor EVALUATION SYSTEM partners will play a central role in monitoring PCP interventions. Monitoring, reporting and evaluation under the PCP is At the end of the fifth year, an in-depth independent evaluation bolstered through a combination of government and PCP will be carried out in collaboration with the Evaluation Group, monitoring and reporting procedures. The PCP monitoring the UNIDO Regional Programme, the UNIDO Field Office, and and evaluation strategy includes project monitoring, field national partners. The evaluation will be conducted to document visits, regular reporting, and data collection on a biannual basis. lessons learned and outline options for the way forward.

ETHIOPIA • PROGRAMME FOR COUNTRY PARTNERSHIP 7 3. PRIORITY SECTORS IN ETHIOPIA Integrated agro-industrial parks (IAIPs) are one option to transform Ethiopian agricultural production from being fragmented and supply-driven to becoming organized, safe, This section describes the three priority sectors selected for demand-led and quality-oriented. IAIPs are accompanied by the PCP Ethiopia. The limited number of industrial sectors rural transformation centres (RTCs) that act as nodal points, enables UNIDO to concentrate its diverse, in-house expertise. connecting farmers to the IAIPs. The RTCs will also establish This focus brings together a multi-disciplinary team to provide primary processing facilities, cold and dry storage facilities, sectoral and cross-cutting interventions. As such, the PCP and improved agro-logistics systems. presents one integrated service package for the host country.

3.1 AGRO-FOOD PROCESSING Agriculture is the backbone of Ethiopia’s economy. A central objective of the Government of Ethiopia is the structural transformation of the economy from low-productivity agriculture to more productive manufacturing and industry. The agricultural sector directly supports more than 75 per cent of the population, and 85 per cent of export earnings are derived from it. Smallholder farmers are the main producers of agricultural outputs. They are largely supply-driven and farming plots are often scattered over large areas, leaving production 3.2 LEATHER AND LEATHER PRODUCTS highly fragmented and with large post-harvest losses. Ethiopia has one of the largest livestock herds in Africa. The Government of Ethiopia plans to utilize these resources Finite land and a growing population (of workers and through the development of its leather and leather products consumers) require that larger amounts of food are produced sector in an effort to create more jobs and boost exports. The by fewer people thereby increasing the importance of off-farm leather and leather products sector is already one of the most livelihoods. If agriculture is to endure as a source of economic successful of Ethiopia’s economy due to its strong backward growth for Ethiopia, structural transformation is needed. linkages to the rural economy and its labour intensive nature. Agro-industries are the link between agriculture and industry A long-term solution would be the development of a and present an opportunity for Ethiopia to take a further step commercialized livestock sub-sector that would also support in its economic development, moving from agriculture toward the emergence of a robust meat industry. Nonetheless, light industry. Agro-industries already account for the largest important challenges confront the industry as it strives to share of manufactured goods in Ethiopia and its development strengthen its capabilities in the face of increasing global is crucial given its close connection with the agricultural basis competition. To assist the Government of Ethiopia in of the Ethiopian economy. The strong linkages to the rest of developing a leather cluster on the basis of the existing the economy and the use of abundant agricultural products concentration of tanneries in the town of Modjo, UNIDO as inputs create a positive climate for the development of finalized a feasibility study regarding the establishment of the agribusiness. Modjo Leather City.

8 PROGRAMME FOR COUNTRY PARTNERSHIP • ETHIOPIA UNIDO will support the Government in the mobilization of resources for the Modjo Leather City. The Organization will also help establish four footwear and leather goods clusters with a budget of $20 million, as well as strengthen the fashion design and training capabilities of the Leather Industry Development Institute with an estimated budget of $10 million.

3.3 TEXTILES AND APPAREL The textile sector has potential as a starting point for economic and social development, with job creation as the main immediate objective. This is a strategy many developing countries have used. A high raw materials potential, low wages and low energy costs give the Ethiopian textile sector a competitive advantage over other countries and regions. Ethiopia grows some of the world’s finest cotton and has a rich spinning and weaving history. Like the agro-food processing sector, raw material shortages are one of the challenges faced by Ethiopian textile and clothing industries. An insufficient supply of quality raw materials, weak spinning and ginning industries, lack of skills, low capabilities in institutions that provide support along the textiles and apparel value chain and, most notably, weak trade logistics, are all significant obstacles to the development of this sector. The Textile Industry Development Institute, established by the Ministry of Industry, provides investment promotion, consultancy, training, and research and marketing services in an effort to boost the sector’s competitiveness. In collaboration with its partners, UNIDO will support the Government of Ethiopia and the private sector to promote investment, increase the supply of quality raw materials, improve the skills of the workforce, build the capacity of support institutions, and significantly improve trade logistics.

ETHIOPIA • PROGRAMME FOR COUNTRY PARTNERSHIP 9 4. CROSS-CUTTING ISSUES investment include organizing large events that bring potential investors and government officials together to discuss investment opportunities. Targeted material In support of the three priority sectors, the PCP in Ethiopia is produced as background to these events, including addresses a number of cross-cutting issues. investment brochures, market information, sector profiles and project portfolios. 4.1 INSTITUTIONAL CAPACITY-BUILDING Through its technical assistance, UNIDO can build capacity in In addition to institutional capacity-building to support the investment promotion institutions to strengthen monitoring management and implementation of large-scale programmes, and evaluation mechanisms, and tools and methodologies for institutional capacity-building is also required to support the regular data collection on investment impact. growth of the private manufacturing sector and to achieve industrialization targets. The Ethiopian Industrial Development In this regard, UNIDO can also mobilize its network of Institutional Setup proposes an institutional framework for investment and technology promotion offices (ITPOs) to assist industrial transformation that includes the improvement of potential foreign and domestic investors to identify, promote existing institutions, the establishment of new ones, as well and establish investment and technology partnerships. as the strengthening of the National Industrial Development In particular, partnerships can be established between Council for oversight. Strengthening institutional capacity is enterprises from Ethiopia and from ITPO host countries one of the most important cross-cutting issues as Ethiopia – Japan, Italy, Bahrain, China, Republic of Korea and the endeavours to capitalize on the large investment flows coming Russian Federation. An outcome of investment promotion into the country, and to achieve its industrial development efforts would be that national and international investors are goals. presented with profiled companies operating in the agro- industry and agro-processing field. Through the PCP, UNIDO will work to: (1) strengthen the analytical capacity of the Ministry of Industry in the generation of industrial intelligence and policy (primarily in agro-industries); (2) establish an “industrial observatory” – to 4.3 INDUSTRIAL ZONES observe and benchmark industrial practices in other countries Industrial zones address many of the challenges identified with – to help inform policy and industrial practices in Ethiopia; respect to the development of the country’s industrial sector. and (3) leverage impact for inclusive and sustainable industrial Industrial zones provide a catalyst for private investment, as development through South-South and triangular industrial proven by the large number of foreign investors establishing cooperation. production facilities in such environments. Industrial zones offer the opportunity to link local small-scale suppliers to the resident manufacturers, allowing local firms to access global 4.2 INVESTMENT PROMOTION value chains. Funding for the establishment of industrial zones Investment promotion is critical in order to leverage small- comes from private and public sources. Foreign investors scale interventions, such as ODA, into large-scale investment have contributed a substantial amount of funding, while flows for inclusive and sustainable industrial development. the Government of Ethiopia has also invested considerable Under the PCP Ethiopia, investment promotion will not public funds into industrial parks as part of its industrialization be limited to the three priority sectors, but will also extend strategy. to other industrial sub-sectors. Interventions to promote

10 PROGRAMME FOR COUNTRY PARTNERSHIP • ETHIOPIA Industrial zones provide enterprises with basic 4.5 ENVIRONMENT AND ENERGY infrastructure – roads, energy, water, sewerage and Energy is essential to achieving the goals of the three telecom services – and inexpensive land. They can also priority sectors under PCP Ethiopia and of industrial provide restructured public services and policies, skills productivity in general. Industrial parks are often located development training, and buildings for rent or lease. in rural areas close to raw material supply. However, this also results in more limited access to a reliable energy supply, leading to losses of production time. In 4.4 TRADE FACILITATION addition, energy is often not consumed efficiently, further A critical constraint to the development of light industries increasing input costs. Industrial parks can harness locally in Ethiopia is high trade costs. These include high freight available renewable energy resources, such as bio-waste handling costs, high costs of financial services rendered by or small hydropower stations, to power their operations. banks, long delays in the authorization of letters of credit, Moreover, a systematic and integrated approach to energy long customs procedures, high customs costs, and logistical use and efficiency can result in substantial energy savings, inefficiency. The PCP Secretariat will collaborate with its increasing the productivity and competitiveness of partners to support relevant government institutions in the industries. In Ethiopia, an estimated 300,000 metric tonnes following areas: (1) create an information and knowledge of animal by-products are dumped annually in open fields. centre on import-export procedures, tariffs and best Apart from the loss of a valuable economic resource, this practices in logistics operations to reduce information creates an environmental problem. asymmetries among businesses, public institutes and The PCP will assist the Government of Ethiopia to: (1) investors, and improve national competitiveness; (2) design industrial complexes with superior environmental train public officials in trade facilitation and develop a standards, and improve the management of waste, water, better understanding of the different practices applied energy, emissions and hazardous chemicals through by other countries; and (3) analysis of current institutional targeted interventions at various stages of the leather, responsibilities and regulatory powers to eliminate textiles and apparel, and agro-food value chains; and (2) redundancies and improve ineffective procedures in establish renewable energy sources – small hydropower public institutions. stations – in rural transformation centres.

ETHIOPIA • PROGRAMME FOR COUNTRY PARTNERSHIP 11 5. BENEFITS TO THE PARTNERS provide insight on a country’s industrial sector, as well as act as a neutral broker between the government and the private sector.

5.1 BENEFITS TO THE PRIVATE SECTOR Private sector investment is increasingly recognized as an 5.2 BENEFITS TO MULTILATERAL DEVELOPMENT essential means for achieving economic growth, creating jobs BANKS and reducing poverty. While traditional development assistance remains important, large-scale private sector investment is Multilateral development banks (MDBs) are critical actors in the critical to the structural transformation of an economy. In addition economic development of countries. They have the means that to investment, the private sector also brings technologies and a enable developing countries to invest in their infrastructure. wealth of knowledge that is often highly specialized; knowledge The effectiveness of a loan or grant from MDBs can be further that is required by young people in developing countries to get enhanced by its delivery through a PCP framework. Through the skilled and productive employment. PCP, a MDB has a ready-made partnership platform to integrate its loan or grant with inputs from other development partners and inputs from the private sector in line with the development The PCP can facilitate the work of the private sector in host objectives of the host government. Participation in the PCP countries, helping to ensure that the long-term interests of provides advantages to MDBs. the private sector and the development objectives of the host country reinforce each other. Participation in the PCP provides i) Through the PCP, UNIDO offers its technical assistance clear advantages to the private sector. services, such as pre-investment studies, providing MDBs with high-quality and objective information to help inform i) By participating in the PCP, the private sector is provided with investment decisions. In this manner, technical assistance is a platform through which to engage with the government directly linked to increased investment, creating a situation in a dialogue concerning the investment and business where the MDB, the host government and local populations environment. all benefit. ii) Through the PCP, technical assistance provided by UNIDO ii) Through the PCP, investment can be better coordinated, is able to help coordinate public and private investment, ensuring that the impact of investments by MDBs is as well as reduce initial costs for investors by identifying enhanced. Investments from MDBs and the private sector, pre-requisites for investment such as infrastructure needs for example, will be coordinated so as to bolster the others’ – power, water, roads, etc. – and undertaking feasibility investment. This can be further reinforced by inputs from studies and baseline data collection. other development partners and the host government, iii) Through its technical assistance, UNIDO is able to build creating a strong synergy and delivering higher returns the capacity of local workforces ensuring that they have on investment, whether it is in terms of loan repayment or the skills and knowledge needed to engage in high-skilled number of beneficiaries. labour. This provides people from developing countries iii) Through the PCP, UNIDO technical assistance services can with a better opportunity to gain skilled employment that improve the effectiveness of MDB programmes through is in demand, and it benefits companies by providing them building the capacity of the host government to manage with a workforce equipped with appropriate skills. and implement large-scale programmes and projects. Capacity-building comprises interventions on subjects such In more general terms, with its long presence in many as monitoring and reporting, procurement, management developing countries, UNIDO is well-placed to support industrial competencies, and budget forecasting and monitoring. development initiatives by new actors. The Organization can

12 PROGRAMME FOR COUNTRY PARTNERSHIP • ETHIOPIA 5.3 BENEFITS TO DEVELOPMENT PARTNERS i) Through the PCP, technical assistance interventions of UN agencies can reach more beneficiaries and make a bigger Development partners, such as donor countries and foundations, impact on each. For example, an investment in market are critical actors in international development. They often have infrastructure can be coordinated with a training programme a wealth of experience, expertise and the financial means to by the Food and Agricultural Organization (FAO) to improve help meet national and international development targets. food handling practices in a selected community, region or Participation in the PCP offers development partners an country. This allows both interventions to achieve a greater opportunity to enhance the reach and effectiveness of their development impact. ODA through several means. Moreover, the PCP builds on and complements UN i) Through the coordinating mechanism of the PCP, funds and structures and frameworks already present in the country. expertise from development partners can be combined or The UN Development Assistance Framework and the One work in parallel with investments from MDBs, private sector UN initiative are examples. actors and the host government to upscale the development impact. For example, funds or expertise to support the upgrading of selected agricultural value chains in Ethiopia can be coordinated with an investment in rural road 5.5 UNITED NATIONS INDUSTRIAL DEVELOPMENT infrastructure or the establishment of an integrated agro- ORGANIZATION industrial park. Through bringing the separate initiatives together, each has a much larger development impact than UNIDO is one of the key actors in the PCP, playing two would be achieved without a coordinated effort. important roles. ii) Through the PCP, technical assistance by UNIDO can i) UNIDO performs a coordinating role through the PCP support investment opportunities for businesses in the Secretariat. It provides support to the two governing bodies of donor country. UNIDO uses its neutral broker position to the PCP – JSC and NTTF – and helps ensure that the inputs of a help ensure that the development objectives of the donor diverse set of partners (outlined previously) create an effective country, and the economic development and job creation synergy. interests of the host country, can be converged with the long-term business interest of the potential investor. This ii) UNIDO’s technical support to governments remains similar creates a win-win-win situation where the objectives of each to its traditional technical assistance role. However, where actor are reached in a sustainable and inclusive manner. technical assistance was previously developed around a project with a clear beginning and end, technical assistance under the PCP is designed to leverage additional resources. Industrialization requires roads and utilities; it needs 5.4 BENEFITS TO UNITED NATIONS AGENCIES infrastructure and capital investment; it needs modern technology and market access. To this end, UNIDO identifies United Nations (UN) agencies are sources of technical expertise and designs technical interventions under the PCP not only and have vast experience throughout the developing world. UN for their immediate outcomes (as was the traditional practice), agencies can play an important role in the PCP through working in but also for their strategic impact on the broader industrial parallel and in coordination with other interventions to enhance development objectives of the host country. This allows development impact. There are also clear advantages for UN for the leveraging of additional funds through domestic agencies to be part of the PCP. revenue mobilization, as well as loans and private finance.

ETHIOPIA • PROGRAMME FOR COUNTRY PARTNERSHIP 13 Through this approach, the PCP does not crowd out mitigation measures; provide technical backstopping; and private investment or government borrowing to finance monitoring and reporting. The general objective of the Task Force development, but instead provides assistance that is to champion the implementation of projects. facilitates the crowding-in of large-scale private and public The NTTF is composed of: Ministry of Industry, Ministry of financing. Agriculture, Ministry of Finance and Economic Cooperation, Food, Beverage and Pharmaceutical Industry Development Institute, Ethiopian Meat and Dairy Industry Development Institute, Textile Industry Development Institute, Leather Industry 6. PCP GOVERNANCE AND Development Institute, Investment Promotion Council, UNIDO COORDINATION and representatives of relevant regional governments.

The following section describes how the PCP works at the operational level. 6.3 THE ROLE OF THE PCP SECRETARIAT The Secretariat for PCP Ethiopia serves two critical functions. 6.1 HIGH-LEVEL JOINT STEERING COMMITTEE The first role of the Secretariat is its convening function, providing support to the two governing bodies and to the host The overall guidance of the PCP is provided by the high-level Joint government to ensure that the diverse inputs of partners are Steering Committee (JSC). The JSC is responsible for: (1) providing channelled towards common objectives. The PCP Secretariat strategic direction and aligning the development programmes of also leads and coordinates the development of new projects, partners to the priorities of the government; (2) setting priorities manages the implementation of ongoing projects and supports for programme activities; (3) ensuring coordination among the the other partners in the mobilization of funds. Second, the various development partners, MDBs, private sector actors and Secretariat serves as a neutral broker to ensure that programmes different public institutes involved in the Programme; and (4) are implemented in an inclusive and sustainable manner. mobilizing resources for the projects and programmes of the PCP Ethiopia. It is through the Secretariat that UNIDO employs its technical In the PCP Ethiopia, the JSC is composed of: Ministry of services. The Organization provides two modes of technical Industry, Ministry of Agriculture, Ministry of Trade, private sector, support to the PCP. First, it provides targeted technical assistance development partners, MDBs (such as the World Bank, the on challenges related to inclusive and sustainable industrial International Finance Corporation and the African Development development. Such technical assistance is based on UNIDO’s Bank), UNIDO, FAO, and other partners from the public and private traditional role in technical assistance cooperation. UNIDO has a sector to be determined at a later stage. dedicated PCP team composed of a multi-disciplinary group of experts at UNIDO headquarters with experience in the priority sectors that is responsible for providing technical assistance.

6.2 NATIONAL TECHNICAL TASK FORCE The second mode of support to the Secretariat is programme The JSC is supported by the National Technical Task Force management. Through the Secretariat, UNIDO helps ensure (NTTF) which is responsible for the day to day operations of that the inputs of partners are coordinated in a manner that is the PCP. Its main responsibilities are to: develop action plans; economically feasible, environmentally sustainable and socially review implementation status and challenges and recommend responsible. As part of its support for Programme management,

14 PROGRAMME FOR COUNTRY PARTNERSHIP • ETHIOPIA UNIDO also helps to identify and design PCP technical interventions Specific activities to be implemented under the trust fund include: for their strategic impact on the broader industrial development (1) in partnership with the PCP country government, develop an objectives of the host country. industrialization strategy and review its current industrial policy framework; (2) in partnership with contributors and recipients The Secretariat is hosted within the Ministry of Industry, allowing of the trust fund, conduct relevant global forum activities for direct communication with multiple actors and ensuring direct demonstrating and promoting the added value of partnerships channels for monitoring and reporting. in achieving inclusive and sustainable industrial development; (3) preparatory and partnership programme development activities in selected countries (primarily least developed countries); (4) coordination of the PCP in close consultation with 6.4 PARTNERSHIP TRUST FUND the host government and other partners; (5) joint activities with the government, private sector entities and MDBs to contribute A Partnership Trust Fund will be established to ensure the primarily to the operationalization of partnership programmes; smooth implementation of PCP activities. Through voluntary and (6) implementation of PCP components where bridging a contributions, this trust fund is expected to support the funding gap has the potential to trigger additional large-scale development, coordination and launching of PCPs. It will funding flows. also contribute to the organization of global forum activities dedicated to the promotion of partnership initiatives primarily targeting governments, the private sector and MDBs.

ETHIOPIA • PROGRAMME FOR COUNTRY PARTNERSHIP 15 For more information, please contact:

Dejene Tezera

Unit Chief, Agribusiness Development Branch and Team Leader, Programme for Country Partnership for Ethiopia

Email: [email protected]

For more information on the Programmes for Country Partnership, please visit:

https://isid.unido.org/index.html

INCLUSIVE AND SUSTAINABLE INDUSTRIAL DEVELOPMENT

OPERATION PLATFORM

Copyright © 2015 by the United Nations Industrial Development Organization (UNIDO) This document has been produced without formal United Nations editing. The designations employed and the presentation of the material in this document do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations Industrial Development Organization (UNIDO) concerning the legal status of any country, territory, city or area of its authorities, or concerning the delimitation of its frontiers or boundaries, or its economic system or degree of development. Designations such as “developed”, “industrialized” and “developing” are intended for statistical convenience and do not necessarily express a judgment about the stage reached by a particular country or area in the development process. Mention of firm names or commercial products does not constitute an endorsement by UNIDO. Although great care has been taken to maintain the accuracy of information herein, neither UNIDO nor its Member States assume any responsibility for consequences which may arise from the use of the material. The document may be freely quoted or reprinted but acknowledgement is requested.. Vienna International Centre, P.O. Box 300, 1400 Vienna, Austria Telephone: (+43-1) 26026-0, Fax: (+43-1) 26926-69 E-mail: [email protected], Internet: www.unido.org PROGRAMME FOR COUNTRY PARTNERSHIP FOR ETHIOPIA

2015 PROGRESS REPORT

SID Photo: Bringing key stakeholders together: The Prime Ministers of Ethiopia and Senegal and the Secretary-General of the United Nations hosted by the Director General of UNIDO at the Second ISID Forum, November 2014

CONTENTS

1. EXECUTIVE SUMMARY...... 4 2. BACKGROUND...... 5 3. KEY ACHIEVEMENTS...... 5 3.1 ESTABLISHING A GOVERNANCE STRUCTURE FOR THE PCP...... 6 3.2 PARTNERSHIP MOBILIZATION...... 6 3.3 AGRO-FOOD SECTOR...... 6 3.4 LEATHER AND LEATHER PRODUCTS SECTOR...... 6 3.5 TEXTILES AND APPAREL SECTOR...... 6 3.6 INSTITUTIONAL CAPACITY-BUILDING...... 7 3.7 INVESTMENT PROMOTION...... 7 3.8 TRADE FACILITATION...... 7 3.9 ENVIRONMENT...... 8 3.10 SOUTH-SOUTH AND TRIANGULAR INDUSTRIAL COOPERATION...... 8

4. MONITORING AND EVALUATION...... 9 5. UPCOMING KEY ACTIVITIES...... 9 1. EXECUTIVE SUMMARY Preparations are underway for the first International Agro-Industry Investment Forum in Addis Ababa, to be held in May 2016. On 18 November, representatives of This report highlights the main activities and key development partners, heads of MDBs, together with achievements of the Programme for Country State Ministers of the MoI and the Ministry of Finance Partnership (PCP) for Ethiopia for the period of and Economic Cooperation (MoFEC), as well as the November 2014 to November 2015. Ethiopian Investment Commission (EIC) announced to more than 56 national and international media The PCP is anchored in the industrial development outlets the preparation of the first of its kind agro- strategy of Ethiopia. It aims to support the industry investment forum. As part of the preparation implementation of the Growth and Transformation process, more than 200 investment profiles and ten Plan II (GTP II) and to support the government address green field investment projects were prepared for economic structural transformation. presentation to international and local investors.

Since the start of implementation of the PCP for Within the framework of the PCP, UNIDO signed a Ethiopia (PCP-ETH), substantial progress has been memorandum of understanding (MoU) respectively achieved. At the national level, two PCP coordination with the EIB, the AfDB, and the China Development mechanisms have been established – the high- Bank. This will help coordinate development efforts level Joint Steering Committee and the National and leverage the technical assistance provided by Technical Task Force – under the leadership of the UNIDO into larger-scale loans and grants from MDBs Government of Ethiopia. UNIDO also established a to support public and the private sector industrial Secretariat within the Ethiopian Ministry of Industry infrastructure projects. Discussions have also been (MoI). Within UNIDO, a nine-person team comprising initiated with the China-Africa Development Fund experts from different branches of the Organization (CAD-Fund) for a similar partnership. was established to provide technical assistance in the three priority sectors identified for the Programme. Solid partnerships were established between UNIDO and other United Nations agencies, The PCP is gaining recognition as an innovative model including the United Nations Conference on Trader of partnership for achieving inclusive and sustainable and Development (UNCTAD), the United Nations industrialization in Ethiopia. The Secretary-General of Economic Commission for Europe (UNECE), the the United Nations, the president of the World Bank, United Nations Economic Commission for Africa as well as heads of the African Development Bank (UNECA) and the Food and Agricultural Organization (AfDB), the European Investment Bank (EIB) and the (FAO) to address industrial development-related Chairperson of the African Union Commission (AUC), initiatives. all praised the PCP model. UNIDO supported the Government of Ethiopia in In Ethiopia, the PCP is already providing support to strengthening the technical capacity of key public the government, including through feasibility studies institutions in charge of designing and implementing aimed at facilitating investment from partners and industrial/sectoral policies and promoting investment. leveraging technical assistance funds for larger-scale Twenty experts from different institutions under investment flows. the MoI were trained in industrial competitiveness analysis, value chain analysis and market intelligence. Over the course of the last nine months of implementation, master plans were finalized for four In terms of project development and funds large-scale integrated agro-industrial parks (IAIP) mobilization, five projects in the fields of agro-food, in strategically located agricultural development energy and environment were developed and the corridors. Moreover, a master plan for a leather proposals submitted to partners. The projects have industry development district was also finalized a total budget of $7.3 million. In addition, a $10 and submitted to private investors, multilateral million soft loan for industrial infrastructure is being development banks (MDB) and development negotiated under the PCP and will be released to the partners, generating considerable interest. Government of Ethiopia in December 2015.

4 PROGRAMME FOR COUNTRY PARTNERSHIP • ETHIOPIA Upon request of the high-level Joint Steering 3. KEY ACHIEVEMENTS Committee of the PCP, UNIDO developed a country- level PCP funds mobilization strategy that is currently being reviewed by partners. 3.1 ESTABLISHING A GOVERNANCE STRUCTURE FOR THE PCP

One of the first activities of the PCP Ethiopia was the establishment of a governance structure under 2. BACKGROUND the leadership of the Government of Ethiopia. Two governing bodies were established: a high-level Joint Following the Lima Declaration, Ethiopia and Senegal Steering Committee (JSC) and an inter-ministerial were selected to pilot the implementation of the PCP. National Technical Task Force (NTTF). In order to develop the pilot PCPs, UNIDO conducted The JSC is chaired by the State Ministers of MoFEC high-level scoping missions in late 2014 to consult and MoI. The JSC is composed of: MoI, Ministry with relevant stakeholders. of Agriculture, Ministry of Trade, private sector For PCP-ETH, a multidisciplinary technical team was representatives, development partners, MDBs (such assembled in August 2014 and undertook a mission as the World Bank (WB), the International Finance to Ethiopia during August and September 2014 to Corporation and the AfDB), UNIDO, FAO, and other design the Programme. The PCP-ETH was developed partners from the public and private sector that will after extensive consultations with development be determined at a later stage. partners, the private sector and MDBs, under the The JSC is responsible for providing strategic direction overall leadership of the Government of Ethiopia. The to the PCP, aligning programmes to the priorities of executive board of UNIDO approved the Programme the Government of Ethiopia, as well as overseeing in December 2014. In February 2015, the PCP-ETH funds mobilization and allocation. project document was approved by the Government of Ethiopia and project implementation began March The National Technical Task Force (NTTF) is responsible 2015. for the day to day coordination of PCP implementation. The NTTF is chaired by the MoI and is composed of The PCP is rooted in the industrial development technical institutes under the MoI, representatives strategy of Ethiopia. It aims to support the Government of the private sector, the Ethiopian Revenues and in the implementation of the GTP II and in addressing Customs Authority and regional governments. challenges associated with structural transformation. The key features of the PCP are: (1) government The establishment of these two bodies was crucial ownership; (2) alignment with national development in solidifying government ownership of the PCP-ETH plans; (3) a strong partnership approach; (4) leveraging and for ensuring inter-ministerial coordination. The for investment; (5) focus on selected priority sectors; establishment of the PCP-ETH Secretariat was also and (6) a rigorous monitoring and evaluation system. important. The Secretariat, housed in the MoI, has a convening function and serves as a neutral broker; The PCP focuses on three light manufacturing it is through the Secretariat that UNIDO provides its sectors: (1) agro-food processing; (2) textiles and technical assistance. apparel; and (3) leather and leather products. These sectors were selected based on their prospects Within UNIDO, a nine-person PCP team composed for job creation, strong linkages to the agricultural of technical experts from different branches was sector, high export potential and ability to attract established at headquarters (HQ) and the field private sector investment, as well as taking note of office in Addis Ababa. The multidisciplinary team is UNIDO’s comparative advantage to deploy an array providing integrated technical support focused on of technical assistance services in these sectors. the three priority sectors.

ETHIOPIA • PROGRAMME FOR COUNTRY PARTNERSHIP 5 3.2 PARTNERSHIP MOBILIZATION 3.4 LEATHER AND LEATHER PRODUCTS The PCP-ETH was presented to different partners SECTOR during the second and third ISID forums organized The Ethiopian leather industry enjoys significant in Vienna and Addis Ababa respectively. Forum comparative advantages as Ethiopia has one of the participants included the Prime Minister of Ethiopia, world’s largest livestock populations. However, the the Secretary-General of the United Nations, tanning industry produces highly contaminated presidents of the WB, EIB, AfDB, the Executive Secretary waste water. Improper planning during the of the UNECA and the Chairperson of the AUC. The establishment of the tanneries in Ethiopia led to PCP was recognized by all the above as a model that difficulties in monitoring and mitigating pollution. demonstrates how multi-stakeholder partnerships The establishment of a leather district will enable can mobilize financing for industrial infrastructure stakeholders to better address pollution challenges. projects and programmes. Development partners Under the PCP, a feasibility study for the proposed and MDBs active in Ethiopia have demonstrated their Modjo Leather City (MLC) industrial zone was commitment and support for the PCP through their prepared based on the official request of the active participation in the JSC. Ethiopian MoI. The MLC presents an opportunity to set-up an environmentally friendly leather tanning district, driven by a network of tanneries and a common effluent treatment plant. The MLC will 3.3 AGRO-FOOD SECTOR play an important role in enhancing not only the environmental and social conditions, but also the Industrial development initiatives within the agro- local economy. food sector of PCP-ETH include the development of integrated agro-industrial parks (IAIPs). IAIPs UNIDO is supporting the Government of Ethiopia are recognized by the Government of Ethiopia as in securing an estimated $60 million loan from the an important tool for accelerating the structural EIB for the establishment of the MLC. Promotion transformation of the economy, from agriculture to materials, including a video using 3D technology and manufacturing, and are part of the GTP II. a brochure, have been useful in promoting the project and encouraging local and foreign investment.1 Master plans for the establishment of IAIPs at four strategic agricultural corridors were finalized and are being reviewed by the stakeholders. A range of investors from Asia, the Middle-East and Europe, in addition to MDBs, have expressed an interest in 3.5 TEXTILES AND APPAREL SECTOR investing in the IAIPs. The textiles and apparel sector in Ethiopia has opportunities in both regional and international Under this component of the PCP, $11.8 million was markets. At the same time, fierce competition, mass mobilized from the Government of Italy, in the form customization, increased leverage of buyers, post- of a soft loan for industrial and rural infrastructure. multi-fibre agreement quota-free environment, Out of this, $10 million are earmarked as a loan to and the African Growth and Opportunity Act pose the Government of Ethiopia, and will be used for both challenges and opportunities for Ethiopian the development of basic infrastructure for rural enterprises. aggregation points and the initial infrastructure for the IAIPs. An amount of $1.45 million will be used There are significant openings for Ethiopia to supply to fund technical support provided by UNIDO and the regional market with cotton fabric. However, FAO to the Government of Ethiopia and the private production and supply chain inefficiencies along the sector, while $350,000 is being utilized for investment cotton-to-textile value chain prevent Ethiopia from promotion activities and the preparation of master becoming a global player. One of the main activities plans for the IAIPs. of this component was the preparation of an

1 The video can be viewed at: https://www.youtube.com/watch?v=W28w- M5JvF8Q

6 PROGRAMME FOR COUNTRY PARTNERSHIP • ETHIOPIA investment promotion portfolio of Ethiopian textiles the roles of the stakeholders – such as the diplomatic and garment companies. missions in Ethiopia, UNIDO’s network of Investment and Technology Promotion Offices, and the Ten large investment projects have been identified diplomatic missions of Ethiopia in the Organization for jointly by the Agribusiness Development Branch and Economic Cooperation and Development member the Business Investment and Technology Branch of countries and emerging economies – was prepared UNIDO. The profiles are under review, and a brochure in close collaboration with the PCP NTTF. A brochure and video on the Ethiopian textiles and apparel presenting investment opportunities in Ethiopia sector are being prepared for investment promotion entitled “Why invest in Ethiopia?” was developed, purposes. including sector intelligence and investment profiles.

A pre-investment forum was held on 18 November in Addis Ababa to announce the forum to international 3.6 INSTITUTIONAL CAPACITY-BUILDING and national media. Representatives of development partners, heads of MDBs, together with the State The objective of this cross-cutting component of the Ministers of the MoI, MoFEC and the EIC, announced PCP is to strengthen the analytical capacity of the MoI the preparation of the first of its kind International to better generate industrial intelligence and policy, Agro-Industry Investment Forum to more than 56 primarily for agro-industries. UNIDO supported the national and international media outlets. Government of Ethiopia through strengthening the technical capacity of key public institutions in charge A database of companies in the three priority sectors of designing and implementing industrial/sectoral – agro-food, leather and leather products, and textiles policies and promoting investment. These include and apparel – was compiled drawing on multiple local the Leather Industries Development Institute (TIDI), sources, such as the Chamber of Commerce, TIDI, LIDI Textile Industry Development Institute (TIDI) and and a number of sectorial associations (such as millers, the Food, Beverages and Pharmaceutical Industry agro-products exporters and women exporters). Development Institute (FBPIDI). Twenty experts from Currently, it is the most up-to-date database of micro, above institutions and the MoI participated in a UNIDO small and medium-sized enterprises in Ethiopia, training programme focused on methodologies comprising over 1,200 entries in the three sectors. for industrial competitiveness analysis, value chain Three waves of identifying investment profiles were analysis and market intelligence. The training conducted, yielding a compilation of 222 investment programme was highly valued by the participants. profiles. Moreover, ten green field projects were identified for investment promotion. The NTTF also approved the project document for the implementation of an institutional capacity- building programme. Furthermore, UNIDO prepared a background paper, which was used for a Diagnostic Trade Integration Study of Ethiopia. 3.8 TRADE FACILITATION This component of the PCP was designed to support the Government of Ethiopia to address matters pertaining to trade facilitation of Ethiopian products 3.7 INVESTMENT PROMOTION (including competitiveness and market access). This UNIDO is supporting the organization of the first component also highlights areas for improvement high-profile International Agro-Industry Investment in terms of time and cost reduction in supply chains, Forum in Addis Ababa, to be held in May 2016. For this from exit point in Ethiopia to entry point in third purpose, a team based at UNIDO HQ and a national task markets. This is being done as part Ethiopia’s GTP II force with representation from all main stakeholders and its Trade Logistics Strategy. This component also (including the MoI, Ministry of Foreign Affairs, MoFEC, emphasizes coherence between the PCP and the and the EIC) was established. A detailed work plan for Diagnostic Trade Integration Study of Ethiopia (DTIS) the preparation of the investment forum, including update.

ETHIOPIA • PROGRAMME FOR COUNTRY PARTNERSHIP 7 An UNCTAD-UNIDO partnership was established 3.10 SOUTH-SOUTH AND TRIANGULAR under which the agro-processing sub-chapter of the INDUSTRIAL COOPERATION DTIS was produced. This includes UNIDO integrating This component aims to leverage impact for inclusive issues pertaining to World Trade Organization sanitary and sustainable industrial development through and phytosanitary measures and technical barriers for South-South and triangular industrial cooperation trade into the DTIS, in the preparation of the trade- (SSTIC). In order to facilitate SSTIC, a manual on related technical assistance activities of relevance to developing and reporting on SSTIC projects in the PCP-ETH. Ethiopia was developed, in addition to a concept note The outlines of the UNECE-UNIDO collaboration for implementing SSTIC with the aim of preparing a for application of the Business Process Analysis full-fledged SSTIC project in early 2016. methodology and the Trade Facilitation Road Support was provided by UNIDO to the Government Map were defined and agreed upon. Moreover, of Ethiopia for the preparation of the China-Africa in collaboration with FAO, harmonized animal Investment Forum. A MoU for the partnership with identification and traceability systems in Ethiopia are the CAD-Fund has also been developed. The MoU being updated. aims to support the three priority sectors of the PCP- ETH through a South-South cooperation modality.

Under this component, UNIDO and Deutsche Messe, 3.9 ENVIRONMENT the world’s leading industrial fair organizer, discussed a partnership to organize the first industrial fair in The project document titled “Slaughterhouse waste Africa. A meeting between the Chief Executive Officer management: the sustainable and productive use of Deutsche Messe and the Director General of UNIDO of animal by-products in Ethiopia” was finalized in took place on 25 November 2015. Deutsche Messe is collaboration with Ethiopian counterparts including invited to attend the investment promotion event private slaughterhouses, MoI, MoFEC and the in Ethiopia in early 2016 under the framework of the Ethiopian Meat and Dairy Industry Development PCP-ETH. Institute. In addition, consultations for project financing ($3.9 million) were undertaken with partners in China, including the Chinese Ministry of Commerce (MoFCOM). Upon endorsement of the project document by the MoI, a letter to request full project funding was delivered by MoFEC to the Chinese MoFCOM. This is currently being followed up with MoFCOM, with a funding potential of $4 million from the Government of China.

8 PROGRAMME FOR COUNTRY PARTNERSHIP • ETHIOPIA 4. MONITORING AND 5. UPCOMING KEY ACTIVITIES EVALUATION In 2016, UNIDO will continue to improve the governance structure of the PCP at the country The PCP results framework was developed in line with level, as well as at UNIDO HQ and the field office. the GTP II. It focuses on the priority sectors as selected The Organization will also support the government for the PCP. To the extent possible, the PCP and GTP to mobilize funds for the implementation the II Monitoring and Evaluation (M&E) systems will be Programme and organize an international investment linked. As the PCP requires a comprehensive M&E forum. UNIDO will also work with the JSC of the PCP- system to collect data to track its progress and report ETH in loan and grant negotiations with MDBs for results, the Partnerships and Results Monitoring large-scale industrial infrastructure development, branch of UNIDO initiated discussions with Ethiopia’s such as the Modjo Leather City and the IAIPs, and Central Statistical Agency and MoFEC to collaborate mobilize funds for technical assistance. on the development of a rigorous M&E system for the PCP.

The Programme will undergo a mid-term review by the end of 2017 and a final evaluation at the end of the Programme in 2019. To this end, the evaluation group at UNIDO has undertaken an evaluability assessment of the Programme which provided important comments that were used to improve the results framework.

ETHIOPIA • PROGRAMME FOR COUNTRY PARTNERSHIP 9 10 PROGRAMME FOR COUNTRY PARTNERSHIP • ETHIOPIA For more information, please contact: Dejene Tezera Unit Chief, Agribusiness Development Branch and Team Leader, Programme for Country Partnership for Ethiopia

Email: [email protected]

Copyright © 2015 by the United Nations Industrial Development Organization (UNIDO)

This document has been produced without formal United Nations editing. The designations employed and the presentation of the material in this document do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations Industrial Development Organization (UNIDO) concerning the legal status of any country, territory, city or area of its authorities, or concerning the delimitation of its frontiers or boundaries, or its economic system or degree of development. Designations such as “developed”, “industrialized” and “developing” are intended for statistical convenience and do not necessarily express a judgment about the stage reached by a particular country or area in the development process. Mention of firm names or commercial products does not constitute an endorsement by UNIDO.

Although great care has been taken to maintain the accuracy of information herein, neither UNIDO nor its Member States assume any responsibility for consequences which may arise from the use of the material. The document may be freely quoted or reprinted but acknowledgement is requested.. Vienna International Centre, P.O. Box 300, 1400 Vienna, Austria Telephone: (+43-1) 26026-0, Fax: (+43-1) 26926-69 E-mail: [email protected], Internet: www.unido.org Government of Ethiopia

FIRST INTERNATIONAL AGRO-INDUSTRY INVESTMENT FORUM ETHIOPIA

From 5 to 7 October 2016, His Excellency, Mr. Hailemariam Desalegn, the Prime Minister of Ethiopia will host the first International Agro-Industry Investment Forum in Addis Ababa.

The high-level Investment Forum will feature participants from the public and private sector, including representatives of the Government of Ethiopia, current investors, international financial institutions, domestic enterprises, international organizations and industry associations.

Why participate in the International Agro-Industry Investment Forum 2016?

The Investment Forum will provide an opportunity to: • Create strategic partnerships and expand your network through business-to-business meetings. • Meet directly with policymakers at the ministerial level. • Learn about the investment environment in Ethiopia. • Secure a foothold in one of the fastest growing economies in Africa.

This event is by registration only. To register, please click on the following link: https://isid.unido.org/AIFE1.html

We look forward to seeing you at the UNECA building in Addis Ababa this October.

In partnership with:

United Nations Economic Commission for Africa Government of Ethiopia

FIRST INTERNATIONAL AGRO-INDUSTRY INVESTMENT FORUM ETHIOPIA

SAVE THE DATE

Please join us for the FIRST INTERNATIONAL AGRO-INDUSTRY INVESTMENT FORUM 5 to 7 October 2016 in Addis Ababa Hosted by His Excellency, Mr. Hailemariam Desalegn, the Prime Minister of Ethiopia

The high-level Investment Forum will feature participants from the public and private sector, including representatives of the Government of Ethiopia, current investors, international financial institutions, domestic enterprises, international organizations and industry associations.

Why participate in the International Agro-Industry Investment Forum 2016?

The Investment Forum will provide an opportunity to: • Create strategic partnerships and expand your network through business-to-business meetings. • Meet directly with policymakers at the ministerial level. • Learn about the investment environment in Ethiopia. • Secure a foothold in one of the fastest growing economies in Africa.

This event is by registration only. To register, please click on the following link: https://isid.unido.org/AIFE1.html

In partnership with:

United Nations Economic Commission for Africa