The Agribusiness Innovation

Initiative in Ethiopia:
Ena bling a climate sma r t, competitive,
a nd susta ina ble a gr ibusiness sec tor
  

AGRIBUSINESS  INNOVATION  IN  ETHIOPIA  

 
Enabling  a  Climate  Smart,  Competitive,  and  Sustainable  
Agribusiness  Sector  
 

Prepared by infoDev  

Contributing authors: Julia Brethenoux, Teklu Kidane Aleme, Ellen Olafsen, Jim
Thaller, and Julian Webb
  

Copyright

©2012 Information for Development Program (infoDev)/The World Bank

1818 H Street NW

Washington DC 20433

Internet: www.infoDev.org

Email: [email protected]

All rights reserved

Disclaimers

InfoDev/The World Bank: The findings, interpretations and conclusions expressed herein are
entirely those of the author(s) and do not necessarily reflect the view of infoDev, the Donors
of infoDev, the International Bank for Reconstruction and Development/The World Bank and
its affiliated organizations, the Board of Executive Directors of the World Bank or the
governments they represent. The World Bank cannot guarantee the accuracy of the data
included in this work. The boundaries, colors, denominations, and other information shown on
any map in this work do not imply on the part of the World Bank any judgment of the legal
status of any territory or the endorsement or acceptance of such boundaries.

Rights and Permissions

The material in this publication is copyrighted. Copying and/or transmitting portions or all of
this work without permission may be a violation of applicable law. The International Bank for
Reconstruction and Development/The World Bank encourages dissemination of its work and
will normally grant permission to reproduce portions of the work promptly.

To cite this publication:

The Agribusiness Innovation Initiative in Ethiopia: Enabling a Climate Smart, Competitive, and
Sustainable Agribusiness Sector. 2012. InfoDev, Finance and Private Sector Development
Department. Washington, DC: World Bank.

ii
  

About infoDev

This report was developed by infoDev, a global partnership program within the Financial and
Private Sector Development Vice Presidency of the World Bank Group. Its mission is to enable
innovative entrepreneurship for sustainable, inclusive growth and employment.

This study was made possible thanks to the support of the Ministry for Foreign Affairs of
Finland.

For more information visit www.infodev.org or send an email to [email protected].

iii
  

Stakeholder Support

InfoDev would like to acknowledge the following stakeholders for their guidance,
support, and input through the conceptualization and development of this
assessment of the agribusiness market to be supported by the Climate Innovation
Center (CIC) in Ethiopia.

ORGANIZATION NAME CONTACT PERSON LOCATION

PRIVATE SECTOR

Kaliti Food Complex Share Company Mr. GetuKebede Kaliti/Addis Ababa

Genesis Farms Mr. Getachew Debrezeit/Oromiya region

Jittu Horticulture Mr. Yan Prins/Semira Debrezeit and Hawassa

Alema Farms Mr. Alemayehu A. Mariam Debrezeit/Oromiya region

Green Logistics Mr. BefekaduTilahun Addis Ababa

Agro Prom International Mr. Elias Geneti Addis Ababa

Burayou Packaging Company Mr. FanuelFeleke Burayou/Oromiya region

Adama Spinning Mr. FanuelFeleke Adama/Oromiya region

SelamBaltina Mr. Daniel/Mr. Mekonen Addis Ababa

Mama Fresh Injera Mr. HailuTesema Addis Ababa

Ecological Products of Ethiopia Addis Ababa and

Dr. MitselalKifleyesus
(ECOPIA) Arbaminch

Kombolcha/Oromiya
Alem Honey Mr. Tariku Mekonnen
region

Bezamar Agro-industry Mr. HailegiorgisDemissie Adama and Kaffa region

Kaffa zone/Southern
Apinec Agro-industry PLC/Honey Mr. WubishetAdugna
region

Keffa zone and Amhara

Tutu Honey Mr. EyobAssefa
region

Rut and Hirut Dairy Farm Ms. HirutYohannes Chacha/Oromoiya region

Astco Food Complex Mr. EsubalewKefale Akaki/Oromiya region

Fafa Food Complex Mr. Zeco Ebro/Haile W. Giorgis Saris/Addis Ababa

Piko Juice Factory Mr. ZiadChahwan/Berehe Addis Ababa

MuluMesob Bakery Mr. BekeleMekuria Addis Ababa

Mr.
Upper Awash Agro-industry Enterprise Upper Awash (Merti)
BirhanemeskelMehari/MesfinSodo

iv
  

Awassa Textiles Factory Mr. GirmaBeyene Hawassa/Southern region

Omo Valley Cotton Farm/Amibara Mr. BirhaneG.Yohannes Arbaminch

Arbaminch/Southern
Luci Cotton Farm Mr. Hadis
region

Arbaminch Textile Factory Mr. Mezgebe Arbaminch

Bahirdar Textile Factory Mr. AbayMelaku Bahirdar/Amhara region

Ada’a Milk Cooperative Mr. YeruksewFetene Debrezeit/Oromiya region

OLAM PLC Mr. Krishna Kumar Tigari region

Roha Pack PLC Mr. TeshomeKifle Lebu/Addis Ababa

Seka Agro-processing PLC Mr. Seifu W/Michael Kaffa zone

Ethiopian Tourist Trading Enterprise Ms. Afomiya Addis Ababa

PACTRA Mr. TadiosTsegaye Addis Ababa

EthioFibre Products Factory/G-Seven Mr. MelakuTilahun Akakai/Addis Ababa

Dima Honey Mekele/Tigray region

Peacock Shoe Factory Mr. Elias Bedada Addis Ababa

Kebire Enterprise/MAA Garment Mr. FasilTadesse Mekele/Tigray region

Addis Garment Factory Ms. GiulianaZuccato Addis Ababa

Mulat Garment Mr. AberaMulat Addis Ababa

Addis Ababa and

Fortune Enterprise/Africa Bamboo Ms. Sarah Kohls/FasilEyasu
Gambela region

Woira Oil PLC Mr. LammertNauta Mekele/Tigray region

Abreham Bamboo craft Mr. Abreham W. Sellasie Addis Ababa

Addis Ababa and Mojo

Addis Mojo Edible Oil Processing Sco. Mr. AbrehamDagne
town

Ethiopian Freight Forwarders

CDR TilahunMulugeta Addis Ababa
Association

GUTS Agro-industry Mr. EngiduLegesse Hawassa/Southern region

Fire Edget Food Processing

Mr. Million Addis Ababa
Cooperative

Ethiopian Spices Extraction PLC Mr. FelekeSebhatu Addis Ababa and Wolaita

Ethio-AgriCeft Addis Ababa

Ethiopian Cotton Growers Association Dr. ZerihunDesalegn Addis Ababa

v
  

Horticulture and Floriculture

Mr. TsegayeAbebe Addis Ababa
Association

Pulses, Spices and Oil Seeds

Mr. NigussieSime Addis Ababa
Association

Honey and Bees Wax Association Mr. Tariku Mekonnen Addis Ababa

Dairy Association Mr. Fekadeselasse Addis Ababa

Leather Industries Association Mr. AbdissaAdugna Addis Ababa

Cotton, Textile and Garment

Mr. FasilTadesse Addis Ababa
Association

Tsdey Mar/Honey Ms. BirtukanLiyeew Addis Ababa

Wossi Garment Ms. WosseneHailu Addis Ababa

ALMETA PLC Mr. YilkalKasa/Baharnesh Koka/Oromiya Region

ACOS Ethiopia PLC Mr. KassahunBekele Addis Ababa

Hibret Tailors Cooperative Mr. YimerMuhiye Addis Ababa

Africa Cottons Mr. Camillo Addis Ababa

Sabaharhar Handicraft/Silk weaving Ms. Kathy Marshal Addis Ababa

Fasika Spices Ms. Fasika Addis Ababa

Agricultural Machinery Supply

Mr. Belay Tensay Kaliti/Addis Ababa
Enterprise

Raha Fruit/Strawberry Processing

Mr. NuredinHassen Adama
Company

Rahel Food Processing Company Ms. Rahel Addis Ababa

Diredawa Food Complex Mr. Alazar Diredawa

Markel Spices Ms. Elizabeth Addis Ababa

Demerew Snacks Mr. Demerew Lafto/Addis Ababa

Genet Farm Ms. Genet Kidane Mekele/Tigray

TsegaBeles Fruits Ms. Tsega Mekele/Tigray

St. Michael Weaving Ms. AlmazBeyene Addis Ababa

Yhannes Bamboo Products Mr. YohannesTesfaye Addis Ababa

Green Focus Ethiopia Mr. G.D.Chaturvedi Ambo/Oromiya region

Nigist Ethiopia Weaving Mr. Sammy Abdella Addis Ababa

Memud Weaving Mr. MehamudHassen Addis Ababa

vi
  

Almeda Textiles Mr. Gebremedihin Adwa/Tigray region

Kombolcha/Oromoiya
Kombolcha Textiles Mr. Mutofa/Assefa
region

Addis Chamber – Merkato office Ms. FikrteLijalem Addis Ababa

Girum Spices Mr. MisganawAsmamaw Addis Ababa

Tsigereda Spices Women Cooperative Ms. Medihin G/Michael Addis Ababa

Nunusha Sweets Factory Ms. Lishan W/Gabriel Addis Ababa

Girum Spices/Awaze Ms. Beletu Addis Ababa

Africa Juice Dr. AbaynehEsayas Upper Awash (Merti)

SidamaFarmers Cooperative Ms. SimretSimano Hawassa

Omo Organic Banana Farm Arbaminch

Ethiopian Fruits and Vegetables

Mr. MengistuKebede Addis Ababa
Marketing Ent.

WubKollo Ms. Wubit Addis Ababa

ACACAS Logistics Mr. AkaluGeleta Addis Ababa

Bereket Foods Ms. Firewoini T. Mariam Addis Ababa

Government

Federal Ministry of Water and Energy Mr. GossayeMengiste Addis Ababa

Environmental Protection Agency Mr. DesalegnMesfin Addis Ababa

Federal Micro & Small Enterprises

Mr. GebremeskelChalla Addis Ababa
Agency

Ethiopian Standards Agency Ms. AlmazKahsay Addis Ababa

Leather Industry Development Institute Mr. WonduLegesse Addis Ababa

Textile Industry Development Institute Mr. SileshiLema Addis Ababa

Ministry of Agriculture Mr. WondyradMandefro Addis Ababa

Ethiopian Agricultural Transformation

Mr. Khalid Bomba Addis Ababa
Agency

Ethiopian Agricultural Research

Dr. Solomon Assefa Addis Ababa
Institute

Ministry of Finance and Economic

Dr. AbrehamTekeste Addis Ababa
Development

Ministry of Industry Mr. Dendena Addis Ababa

vii
  

Ethiopian Competitiveness Facility

Mr. AbebeGirmay Addis Ababa
(ECF)

RESEARCH INSTITUTIONS/EXPERTS

Selam Technical and Vocational

Mr. BiniamAsrat Addis Ababa
College

Addis Ababa Technology Institute Dr. AbebayehuAssefa Addis Ababa

Hope Food and Catering Training

Mr. Getachew Addis Ababa
School

Bahirdar University Dr. BaylieDamte Bahirdar

INTERNATIONAL

USAID/Ethiopia Mr. Randy Chester Addis Ababa

Royal Norwegian Embassy Mr. SisayNune Addis Ababa

ACDI VOCA Ms. Katherine/Mr. Tim Addis Ababa

Finish Embassy Amb. Leo Olasvirta Addis Ababa

DFID Mr. Kerry Conway/Mr. Ngusu Addis Ababa

SNV/Ethiopia Mr. Piet Visser Addis Ababa

World Bank Group Ms. Agata E. Pawlowska Addis Ababa

African Development Bank Mr. Peter Mwanakatwe Addis Ababa

International Livestock Research

Institute

Improving Productivity & Market

Dr. AzageTegegne Addis Ababa
Success (IPMS)

Delegation of the European Union to

Arnaud DEMOOR Addis Ababa
Ethiopia

IFC Mr. MamoEsmelealem M. Addis Ababa

FAO Calvin Miller Addis Ababa

IFAD Dr. Michael Hamp Addis Ababa

viii
  

List of Abbreviations and Acronyms

ABBREVIATION/
FULL NAME
ACRONYM
AC Advisory Committee
ACDI/VOCA Agricultural Cooperative Development International & Volunteers in
Overseas Cooperative Assistance
AfDB African Development Bank
AIC Agribusiness Innovation Center
AII Agribusiness Innovation Initiative
ATA Agricultural Transformation Agency
BDSP Business Development Service Provider
BMGF Bill and Melinda Gates Foundation
CCI Chamber of Commerce and Industry
CDE Center for Development of Enterprise
CIC Climate innovation Center
CIDA Canadian International Development Agency
CRGE Climate Resilient Green Economy
DfID U.K. Department for International Development
EARI Ethiopian Agricultural Research Institute
ECCSA Ethiopian Chamber of Commerce and Sectoral Associations
ECX Ethiopian Commodity Exchange
EFFA Ethiopian Freight Forwarders Association
EHBPEA Ethiopian Honey and Beeswax Producers and Exporters
EHPEA Ethiopian Horticulture Producers and Exporters Association
EIA Ethiopian Investment Agency
EKN Embassy of the Kingdom of the Netherlands
ELIA Ethiopian Leather Industries Association
EMPPA Ethiopian Milk Producers and Processors Association
EPA Environment Protection Authority
EPOSPEA Ethiopian Pulses, Spices and Oil Seeds Processors and Exporters
Association
EQSA Ethiopian Quality and Standards Agency
ETGAMA Ethiopian Textile and Garments Manufacturers Association
EU European Union
EWEA Ethiopian Women Exporters Association
FAO Food and Agriculture Organization of the United Nations
FORMIN Ministry for Foreign Affairs of Finland
GDP Gross Domestic Product
GEM Global Entrepreneurship Monitor
GIZ Deutsche GesellschaftfürInternationaleZusammenarbeit GmbH
GoE Government of Ethiopia
GoF Government of Finland
GTP Growth and Transformation Plan
ICT Information and Communication Technologies
IFAD International Fund for Agricultural Development
ILO International Labour Organization
M&E Monitoring and Evaluation
MFIs Microfinance Institutions
MoA Ministry of Agriculture
MoFED Ministry of Finance and Economic Development
MoI Ministry of Industry
MoICT Ministry of Information and Communication Technologies
MoIUD Ministry of Infrastructure and Urban Development
ix
  

MoT Ministry of Trade

MoT&C Ministry of Transport and Communication
MoWE Ministry of Water and Industry
MoYWSSIDA Ministry of Youth Women and Sport
SIDA Swedish International Development Agency
SME Small- and Medium-size Enterprise
SNV Netherlands Development Organization
TI Technology Institute
TVC Technology and Vocational Center
UNDP United Nations Development Programme
UNIDO United Nations Industrial Development Organization
USAID U.S. Agency for International Development
3ADI Accelerated Agribusiness and Agro-industries Development Initiative
 

x
  

Table of Contents
 

Stakeholder Support ........................................................................................................................... iv

List of Abbreviations and Acronyms...................................................................................................ix
Table of Contents .................................................................................................................................xi
List of Figures and Tables ................................................................................................................... xiii
1. Executive Summary.......................................................................................................................... 1
1.1 Project Objective ....................................................................................................................... 1
1.2 Project Beneficiaries .................................................................................................................. 1
1.3 Geographical Coverage.......................................................................................................... 1
1.4 Project Rationale........................................................................................................................ 1
1.5 The Feasibility Assessment Methodology ................................................................................ 3
1.5.1 Analytical Framework ........................................................................................................ 3
1.5.2 Process ................................................................................................................................. 4
1.6 Proposed Areas of Focus .......................................................................................................... 5
1.6 The Services of the AII................................................................................................................ 8
1.7 Limits of the AII............................................................................................................................ 9
1.8 Critical Success Factors........................................................................................................... 10
1.9 Implementation of the AII ....................................................................................................... 10
1.9.1 Institutional Framework .................................................................................................... 10
1.9.2 Location............................................................................................................................. 11
1.9.3 Business Model .................................................................................................................. 11
1.9.4 Selecting Clients ............................................................................................................... 11
1.9.5 Potential Link with the Climate Innovation Center ....................................................... 12
1.10 The Role of InfoDev................................................................................................................ 13
1.11 Outcomes and Impacts ........................................................................................................ 13
1.12 Budget Requirements............................................................................................................ 13
2.0 Accelerating Agribusiness Sustainably through Innovation .................................................... 14
2.1 Accelerating Agribusiness Development through Innovation ........................................... 14
2.2 The Concept of Agribusiness Innovation Initiative (AII) ....................................................... 15
3.0 The AII Feasibility and Business Plan Process ............................................................................. 18
3.1 Theoretical Framework............................................................................................................ 18
3.2 The Process ............................................................................................................................... 20
3.3 Engaging Key Agribusiness Stakeholders in Ethiopia ........................................................... 22
4.0 Seizing the Opportunity ............................................................................................................... 25
4.1 Value Chains with Market Potential ...................................................................................... 26
4.1.1 Bamboo ............................................................................................................................. 29
4.1.2 Dairy ................................................................................................................................... 29
4.1.3 Honey................................................................................................................................. 29
4.1.4 Fruit and Vegetables........................................................................................................ 30
4.1.5 Cotton, Textiles, and Garments ...................................................................................... 31
4.1.6 Wheat ................................................................................................................................ 31
4.1.7 Spices ................................................................................................................................. 32
4.2 Ethiopian Agribusiness Entrepreneurs Landscape ............................................................... 32
4.3 Ethiopian Agribusiness SMEs Needs ....................................................................................... 33
4.4 The Focus of the AII.................................................................................................................. 37
4.5 Potential Deal Flow .................................................................................................................. 39
5.0 AII Business Model......................................................................................................................... 42
5.1 Strategic Objectives ................................................................................................................ 42
5.2 Securing Clients........................................................................................................................ 43
5.3 AII Service Offering .................................................................................................................. 44
5.3.1 Pillar 1: Market ................................................................................................................... 46

xi
  

5.3.2 Pillar 2: Business and Technical Advice .......................................................................... 47

5.3.3 Pillar 3: Finance ................................................................................................................. 48
5.3.4 Pillar 4: Facilities ................................................................................................................. 49
5.4 A Multi-stakeholder Approach ............................................................................................... 50
5.4.1 Connecting to Farmers .................................................................................................... 50
5.4.2 Connecting to Buyers....................................................................................................... 53
5.4.3 Business Development Service Providers ....................................................................... 53
5.4.4 Financiers ........................................................................................................................... 53
5.4.5 Academia ......................................................................................................................... 53
5.4.6 Government...................................................................................................................... 54
6.0 AII Governance ............................................................................................................................ 60
7.0 Implementation Requirements ................................................................................................... 63
7.1 Staffing ...................................................................................................................................... 63
7.2 Facility and Infrastructure Requirements............................................................................... 64
7.2.1 Access to Testing Facilities............................................................................................... 64
7.2.2 Access to Relevant Technology ..................................................................................... 64
7.2.3 Access to Packaging ....................................................................................................... 64
7.2.4 Pre-Incubation .................................................................................................................. 64
7.3 Location .................................................................................................................................... 65
8.0 Financial Plan................................................................................................................................ 66
8.1 Budget....................................................................................................................................... 67
8.2 Sustainability ............................................................................................................................. 71
8.2.1 Royalty ............................................................................................................................... 72
8.2.2 Equity.................................................................................................................................. 73
8.2.3 Incubation Fee.................................................................................................................. 73
8.2.4 Finance Brokerage ........................................................................................................... 73
8.3 Fundraising Plan ....................................................................................................................... 74
9.0 Results and Impacts ..................................................................................................................... 75
9.1 Outcomes ................................................................................................................................. 75
9.2 Social and Economic Impact................................................................................................. 76
9.3 Climate Change Impact ........................................................................................................ 77
9.4 Monitoring and Evaluation ..................................................................................................... 78
10.0 Conclusions ................................................................................................................................. 79
Annexes ............................................................................................................................................... 81
Annex 1: Conclusions of InfoDev Global Good Practices Assessment on Agribusiness
Incubation ...................................................................................................................................... 81
Annex 2: Ethiopian Agribusiness Donor Mapping ...................................................................... 84
Annex 3: Main Gaps Faced by Ethiopian Agribusiness SMEs.................................................... 90
Annex 4: Agribusiness Entrepreneur Survey Report.................................................................... 98
Annex 5: Agribusiness Survey Form ............................................................................................ 118
Annex 6: Entrepreneur Survey Frequencies .............................................................................. 127
Annex 7: Priority Value Chains Literature Review ..................................................................... 135
Bamboo .................................................................................................................................... 137
Dairy Products .......................................................................................................................... 140
Honey Production.................................................................................................................... 144
Fruits and Vegetables ............................................................................................................. 146
Textiles and Garments............................................................................................................. 149
Wheat ....................................................................................................................................... 153
Spices ........................................................................................................................................ 156
Annex 8: AII and Finland’s Agro-BIG Program .......................................................................... 159
Annex 9: Phasing of Enterprise Support ..................................................................................... 161
Annex 10: AII’s Prospective Clients ............................................................................................ 163
Annex 11: Setting a Royalty Fee................................................................................................. 168
Annex 12: The Possible Fit with the CIC Services ...................................................................... 170

xii
  

List of Figures and Tables

Figure 1 Ethiopian Agribusiness Stakeholders Consulted................................................................. 5
Figure 2 Ethiopian AII Service Offering............................................................................................... 9
Figure 3 AIC Service Offering ............................................................................................................ 15
Figure 4 Ethiopian Agribusiness Stakeholders Consulted............................................................... 20
Figure 5 Ethiopia AII Feasibility Assessment and Business Planning Methodology ...................... 21
Figure 6 Ethiopian AII Feasibility Assessment Process Time Frame ................................................ 22
Figure 7 Ethiopia Agribusiness Stakeholder Mapping .................................................................... 24
Figure 8 The Importance of Food Processing in the Ethiopian Economy .................................... 25
Figure 9 Service Offering Gaps Reported by Ethiopian Agribusiness SMEs Surveyed ................ 35
Figure 10 Interest in Support Services Expressed by Ethiopian Agribusiness SMEs Surveyed ..... 36
Figure 11 Ranked Great and High Interest in Support Services Expressed by Ethiopian
Agribusiness SMEs Surveyed .............................................................................................................. 37
Figure 12 Positioning Ethiopian Agribusiness SMEs for Growth ...................................................... 44
Figure 13 Ethiopia AII Service Offering ............................................................................................. 46
Figure 14 AII Hubs and Satellite Locations ....................................................................................... 65
Figure 15 Ethiopian AII Budget Requirements (first six years of implementation) ....................... 68
Figure 16 Ethiopian AII Total Budget per Category (first six years of implementation) .............. 69
Figure 17 Ethiopian AII Target Clients’ Preferred Way of Paying for Services.............................. 71
Figure 18 Age of Ethiopian Agribusiness SMEs Surveyed ............................................................... 99
Figure 19 Employment before Current Business for Ethiopian Agribusiness SMEs Surveyed ...... 99
Figure 20 Why Surveyed Ethiopian Agribusiness SMEs are in Business ........................................ 101
Figure 21 Age of Ethiopian Agribusiness SMEs Surveyed ............................................................. 107
Figure 22 Business Problems Reported by Ethiopian Agribusiness SMEs Surveyed.................... 113
Figure 23 Interest in Support Services expressed by Ethiopian Agribusiness SMEs Surveyed ... 116
Figure 24 Ranked Great and High Interest in Support Services Expressed by Ethiopian
Agribusiness SMEs Surveyed ............................................................................................................ 116
Figure 25 Ethiopian AII Target Clients’ Preferred Way of Paying for Services............................ 117
Figure 26 Value of Imported Dairy Products by Ethiopia (in Birr) ................................................ 142
Figure 27 Phasing of Support to be Provided to AII Cilents ......................................................... 161
Figure 28 Ethiopian CIC Seervice Offering .................................................................................... 171

Table 1 Assessing the Potential for Value Addition .......................................................................... 4

Table 2 Ethiopian Agribusiness Stakeholder Mapping ................................................................... 23
Table 3 Assessing the Potential for Value Addition ........................................................................ 27
Table 4 Potential AII Market Size (based on survey sample)......................................................... 40
Table 5 Potential AII Client Numbers ................................................................................................ 41
Table 6 Ethiopian Agribusiness Stakeholder Mapping by Value Chain of Focus ....................... 51
Table 7 Potential Collaborating Agencies, Projects and Programs for the Ethiopian AII .......... 55
Table 8 Ethiopian AII Staffing Requirement (at full capacity) ....................................................... 63
Table 9 Ethiopian AII Total Budget per Year (first six years of implementation) .......................... 70
Table 10 Ethiopian AII Annual Expenses for Operation.................................................................. 71
Table 11 Ethiopian AII Revenue Generation Scheme for the First SixYears of Implementation 72
Table 12 Ethiopian AII Financing Required (over a six-year period)............................................. 74
Table 13 Ethiopian AII 6 & 10 Year Outcome and Impact Indicators .......................................... 75
Table 14 Studied Agribusiness Incubators’ Quantifiable Outputs................................................. 82
Table 15 Agriculture Value Chain Support Donor Programs in Ethiopia...................................... 84

xiii
  

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

xiv
  

1. Executive Summary

1.1 Project Objective

The Agribusiness Innovation Initiative (AII) seeks to contribute to advancing a

climate-smart competitive agribusiness sector which will create more jobs and raise
incomes for Ethiopians. The AII will contribute toward this objective by identifying
innovative growth-oriented entrepreneurs who are pursuing business opportunities
based on value addition of agricultural commodities and providing them with a
holistic service offering that accelerates their growth and increases their
sustainability. In the process of doing so, the AII will engage all stakeholders along
the value chain, thus strengthening the innovation and entrepreneurship ecosystem
affecting the start-up and growth of innovative agribusiness enterprises. Relatedly,
the AII will strive to have a demonstration—or catalytic—effect, encouraging a new
generation of entrepreneurs to enter, grow, and advance the industry.

1.2 Project Beneficiaries

The AII will have two groups of beneficiaries. The direct beneficiaries include high
growth potential agribusiness entrepreneurs and small businesses. This group includes
a high percentage of women. The indirect beneficiaries are the small-holder
farmers that supply the raw materials to the enterprises, and the tangential service
providers, such as truckers, packaging providers, and others that will benefit from the
increased demand generated.

1.3 Geographical Coverage

As most of the intended clientele are situated within a 100 kilometer radius of Addis
Ababa, it is recommended that the AII starts its base there, along with establishing a
satellite office in Bahir Dar (Amhara). Outreach services can be provided from these
bases to companies in Hawassa, Mekele, Diredawa, Adama, Arbaminch, and other
areas where high potential entrepreneurs are identified.

1.4 Project Rationale

Ethiopia benefits from exceptional climatic conditions that make the production of a
wide variety of agricultural products possible. Ethiopia also has a large addressable
market for agricultural products. The domestic market alone constitutes 90 million
people1and the nearby Middle Eastern market represents more than 380 million
potential customers. However, many finished food products are imported and
opportunities abound for import substitution, with products created by new and
growing domestic processing companies. Today, agriculture accounts for more than
50 percent of Ethiopia’s gross domestic product (GDP), more than 80 percent of its
export revenue and 85 percent of its jobs. Furthermore, an estimated 65 percent of

                                                                                                           
1Last estimates from July 2011.

1  
  

employed women work in the agricultural sector. The agricultural sector, thus,
represents a tremendous opportunity both from an economic growth and social
development perspective.

Given the potential of agriculture and its importance to people’s livelihoods, the
government of Ethiopia (GoE) has made agriculture a key priority in the country’s
Growth and Transformation Plan (GTP).As part of executing this plan, the
government has increased its investments in agriculture by expanding extension
systems and large-scale infrastructure. It has also established the Ethiopian
Agricultural Transformation Agency (ATA) to transform the agriculture sector and
realize the interconnected goals of food security, poverty reduction, and human
and economic development.

Responsible growth of the agricultural sector includes keen attention to climate

change impacts, which can be far reaching and significant. For example, climate
change impacts can destroy value on the farm and through small-holder supply
chains, threatening the long-term sustainability of the sector. Public goods, such as
drinking water, can also be affected by climate change and agricultural practices.
The GoE’s Climate Resilient Green Economy strategy (CRGE) specifically states that
Ethiopia’s ambition to “reach economic development targets in a resource–efficient
way that overcomes the possible conflict between economic growth and fighting
climate change.” The AII will make its contribution to ensuring that the nascent agro
processing industry evolves along a green growth trajectory, thus enabling the
development of a climate smart, competitive agribusiness sector.

Agro processing, small-and medium-size enterprise (SME) growth, increasing the

capacity of women, and job creation are four of the priorities of GTP. InfoDev, with
funding from the government of Finland (GoF) 2initiated a feasibility assessment to
identify the following:

1. The most significant market opportunities for value addition in the agribusiness
sector
2. The most significant barriers to enterprise start-up and growth in the specific
market opportunities identified
3. The financial and business development services most needed to accelerate
the growth of Ethiopian agribusiness SMEs  
 

                                                                                                           
2Finland is a core donor to infoDev and Ethiopia is one of Finland’s key partner countries. In agribusiness
specifically, Finland is supporting Ethiopia’s advancement of the sector through the “Programme for
Agro-Business Induced Growth in the Amhara National Regional State” (Agro-BIG).

2  
  

1.5 The Feasibility Assessment Methodology

1.5.1 Analytical Framework

Three “schools of thought” are leveraged in the approach to this study:

1. The value chain approach;

2. the innovation systems approach; and
3. a micro entrepreneurship approach.

All three “schools of thought” are helpful frameworks to analyzing what the
opportunities and constraints are for advancing innovative agribusiness enterprises in
Ethiopia and what solutions would be most likely to have an impact. An important
constraint imposed by infoDev was also that any proposed initiative should strive
toward operational financial sustainability.

For the purposes of this study, infoDev defines agribusiness incubation as the
provision of a holistic service offering to innovative, growth-potential SMEs.
Agribusiness incubation can either focus on one or a few subsectors or value chains
(that is, dairy). It can also focus on a broader model that assists any growth-potential
agribusiness enterprises, regardless of subsector.

The choice of model depends in large part on the “maturity” of the respective value
chains and local market conditions as assessed against the parameters outlined in
the table below. In addition, it depends on the similarities in the needs among the
potential target enterprises. Namely, if there is a clear market and enabling
conditions in place for dried mango, pineapple, apple, and others, the incubator
could probably effectively assist entrepreneurs across these value chains. However,
if opportunities were identified in pasteurized milk and dried pineapple, the value
chains and the markets for these would be vastly different and it would be more
costly for the incubator to serve both effectively. This again depends on the depth of
the business incubation services required. A non-sector specific incubator could
work well, if what the milk processor and the pineapple processer need help with
are general topics such as finances, good management, general business
coaching, and others. However, if more specialized services are needed that
provide market linkages, technology identification and acquisition, and others, it
would be more costly for the incubator to cover both value chains.

Another constraint when selecting a focus for an agribusiness incubator is the

potential “deal flow” or number of enterprises that can be identified as high-growth
potential entrepreneurs. A “critical mass” of entrepreneurs enables the incubator to
achieve economies of scale and decrease its “cost per enterprise” up to a certain
point. As a general rule of thumb, around 20 incubatees at any given time provide
the incubator with this opportunity.

3  
  

In designing the methodology and providing the recommended approach, infoDev

leveraged these and other lessons learned from its decade long experience in
business incubation, along with the insights and lessons learned from its recent study
Growing Food, Products and Businesses.3This study examines the results and lessons
from 10 agribusiness incubators in developing countries. A multidisciplinary group of
professionals representing business incubation and economist backgrounds was
engaged in the analysis leading to this study.

1.5.2 Process

The first step in the feasibility assessment was to narrow down the scope from the
vast agricultural sector into a subset that could be analyzed in some detail. InfoDev
examined the literature and engaged Ethiopian stakeholders in a discussion to
identify the agricultural subsectors they felt have most potential for growth. InfoDev
then analyzed the Ethiopian market against the parameters outlined in the table
below.

Table 1 Assessing the Potential for Value Addition

What is the Scope for High Growth Value Addition in

this Value Chain
Production Status Is there sufficient primary production of adequate
quality to facilitate value addition?
Entrepreneurial Do a sufficient number of growth-oriented
Capacity entrepreneurs exist within the value chain or
entrepreneurs who could be “recruited” from other
value chains?
Availability of Funding What funding is available for product development,
commercialization, and business expansion?
Clear, Ready Are there strong stakeholders who are ready and able
Stakeholders to affect change in the value chain?
Markets Can markets be identified that are accessible,
feasible, and viable?
Seasonality Is there marked seasonality in supply and demand of
raw materials that can impact negatively on the
value-addition opportunity?
Industry Leverage Are there existing initiatives that can be leveraged
that support the industry and that are likely to affect
entry into and exit from the industry and hence have
value addition potential?
Infrastructure Is there sufficient infrastructure available and does the
&Regulatory regulatory environment provide incentives for
Constraints entrepreneurs to take advantage of the value
addition opportunity?

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

4  
  

In total, infoDev engaged more than 118 public and private stakeholders and
entrepreneurs in the feasibility assessment (Figure 1 below illustrates the relative
proportion of the stakeholders consulted), and conducted a formal survey of 75
agribusinesses in Ethiopia. InfoDev undertook the work in the first six months of 2012.  

3%   12%  
Private  sector  

10%   Government  

Research  insLtuLons/
experts  
InternaLonal  
75%   organizaLons  

Figure 1Ethiopian Agribusiness Stakeholders Consulted

1.6. Proposed Areas of Focus

The tremendous diversity of ecological zones in Ethiopia enables production of a

wide variety of crops. Seven key value chains (or value chain groupings) were
identified as having good potential for growth at this time: bamboo; horticulture
(fruits and vegetables); dairy; cotton, textiles, and garments; honey; wheat; and
spices. The analysis was done by using the methodology outlined above and cross-
checking competitiveness and growth opportunities of commercial viability against
those value chains that already receive assistance that can be leveraged. These
opportunities are described briefly in Box 1 below (see Section 4 and Annex 7 of the
full report for a more detailed discussion on the opportunities and challenges
associated with each).

5  
  

Box 1: Current Ethiopian Agribusiness Market Opportunities

Bamboo: In Ethiopia, some 150 plus micro to small enterprises are engaged in low-value
addition industrial production of high value panels. Flooring is also emerging in response to
market demand—less than five firms exist at the moment (one of them employs 150 full-time
employees and has a $3million annual turnover) but this is expected to increase in the future.
Analysis indicates that Ethiopia can be highly competitive in this market.

Dairy: Ethiopia has the largest stock of milk producing animals in Africa, but it imports milk
products at a value of 114 billion Birr annually. None the less, between 2005 and 2010 there
was an increase in processing capacity and in dairy product lines. With unmet demand for
milk and milk products in growing urban areas, the growth potential is significant for the 18
producers (half of them are small to medium-size processors and the biggest one employs
380 people to process 33,000 liters per day).

Honey: Ethiopia is the largest honey-producing country in Africa and the fourth-largest
beeswax-producing country in the world. Both domestic and export market are growing. The
potential for honey processors is significant.

Fruit and Vegetables: The processing industry is quite nascent. Fifteen fruit and vegetable
processors and five fruit and vegetable processing plants are working below capacity
because of the lack of sufficient and regular supply of fruits and vegetables. These
processors and plants are producing for both the domestic and export markets, replacing
imports of fruit juices and addressing the growing demand for catering products from the
Middle East, nearby countries, and Europe. Ethiopian processors have a demonstrated
comparative advantage compared to their competitors from Egypt, Tunisia, Morocco, and
Kenya.

Cotton, Textiles, and Garments: Although the number of operating factories and their
capacity is comparably low (currently eight large scale textile factories and 13 garment
enterprises) and does not provide self-sufficiency for the demand by Ethiopian garment or
home textile industry, much cotton production in Ethiopia at the small holder scale is organic.
This offers an opportunity to enter the organic market where prices for organic cotton
increase internationally and the market could be linked with Ethiopia’s growing design and
fashion brands.

Wheat: Although Ethiopia is one of the largest wheat producers among the Common Market
for Eastern and Southern Africa (COMESA) countries, it still imported in 1.2million metric tons of
wheat4 in 2011. With a growing population and urbanization, the demand for wheat and
particularly for processed food in the form of bread, flour, macaroni, and pasta is expected
to increase, offering a real market opportunity for the 180 manufacturers of bakery products
and nine manufacturers of spaghetti and macaroni. Export of macaroni and spaghetti
started in 2007/2008, generating $ 50,000 export revenues, which reached $ 121,000 in
2008/2009 and is expected to continue to grow in the following years.

Spices: About 244,000 tons of spices are produced annually. There is high domestic demand
for spices and 50 percent of Ethiopian spices are exported to Sudan, while other major
export destinations include India, Morocco, Saudi Arabia, United Arab Emirates, and Yemen.
While the GTP now envisages substantial investment in the sector, the potential of spices has
been largely overlooked in the past. Only two spice extraction plants exist, which produce
for the export market, although not at full capacity because of equipment and production
problems. The market potential for new processors is high, especially for the growing export
markets.

                                                                                                           
4Idem.

6  
  

In assessing these value chains in further detail, the following was discovered:

a) No one value chain represents a sufficient quantity of growth potential

entrepreneurs to warrant a focused incubation model. It is, therefore,
proposed to adopt a broader model that works across subsectors. As
evidenced by the survey conducted, there is strong interest in an
agribusiness incubation service offering from agribusiness
entrepreneurs across sectors, and the analysis indicates that a
sufficient pipeline of growth-oriented/growth-potential enterprises can
be secured to enable a cost-effective implementation using an
agribusiness incubation model that targets enterprises from a broader
selection of value chains. Over time, as the respective value chains
mature, a more focused approach could be adopted.

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

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

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

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

d) Because of the challenging operating environment, it is recommended

to target primarily existing enterprises with growth potential, while
leaving room for some start-up support also.

e) In addition to having 65 percent of employed women working in the

agriculture sector, it is estimated that more than 60 percent of micro
and small-size businesses in Ethiopia are food processing enterprises
that are all run by women entrepreneurs. Because of the potential
impact on women entrepreneurship and employment, it is
recommended to target women specifically in AII’s outreach effort and
to develop a service offering and a service delivery approach that
meet their needs.

7  
  

f) The agribusiness entrepreneurs interviewed who represent the

intended target client for the AII expressed a need for help with
marketing, accessing new markets, and networking, along with
finance. Most existing entrepreneurs across the dominant value chains
of Ethiopia experience the challenge of developing both domestic
and international markets. Entrepreneurs struggle to understand the
opportunities for both domestic and international distribution, the
industry standards associated with each target demographic, and the
logistical constraints that require addressing.

1.6 The Services of the AII

The expressed needs of the entrepreneurs, along with the value chain analysis
conducted, indicates that the appropriate service offering for the AII would be a
comprehensive service offering that will facilitate entrepreneurs access to markets,
advice, finance, and facilities(primarily for lab testing and packaging)as outlined in
the diagram below.

There is significant opportunity to also leverage the GoE’s Climate Resilient Green
Economy strategy (CRGE), which outlines Ethiopia’s ambition to “reach economic
development targets in a resource–efficient way that overcomes the possible
conflict between economic growth and fighting climate change,” to ensure that
the nascent agro processing industry evolves along this same trajectory, thus
enabling the development of a climate smart, competitive agribusiness sector. The
post-harvest agribusiness sector must develop in a sustainable manner. Better
methods to ensure water conservation and quality, energy minimization, waste
management, and logistical impacts must be inculcated not only for environmental
sustainability, but for financial and product competitiveness. The AII will emphasize
these considerations when delivering its service offering.  

8  
  

Market Advice Finance Facilities

Promoting and Catalyzing Innovation through Outreach to Private Sector, Academia, and Government

Market research Business training &

mentoring Product and
• High value technology showcase
products Proof of concept
• Suppliers Product and brand
fund (for innovation
development
& demonstration)
Processing and
packaging equipment
Market
Technology
identification
Growth finance Lab and testing
Market linkages to facilities
• Working capital
customers and Quality, safety, and
suppliers • Asset financing
regulations
• Local
• National "How to be climate Business center  
• Export smart" consulting

Figure 2 Ethiopian AII Service Offering

Market knowledge, broadly defined, was found to be one of the main weaknesses
of existing growth-oriented entrepreneurs in the high opportunity value chains. The
AII will emphasize two activities: 1) expanding domestic and international market
opportunities for companies operating in value chains with high potential. This could
include establishing relationships in critical target markets, namely, the Middle East,
Sudan, other East African Economic Community   (EAEC) countries and even the
European Union (EU). It will also emphasize2) building the enterprises’ capacity to
develop competitive, well-branded, compliant food products.

1.7 Limits of the AII

Important barriers to growth of agribusiness enterprises that will not be met by the AII
include the development of primary agriculture, a system of cold chain facilities,
storage of raw materials, processed products, and transport logistics, as well as
investments in reliable energy supply. The AII will also not be involved in developing
or amending regulations or policies that may affect the prospects of agribusiness
entrepreneurs in Ethiopia.

The AII will seek to contribute to addressing these particular challenges by working
with allied organizations, such as the ATA, relevant government agencies, and
donor programs that are focused specifically on addressing value-chain
bottlenecks.

9  
  

1.8 Critical Success Factors

As revealed in Growing Food, Products and Businesses5, there are a number of

critical success factors for an intervention of this kind: 1) help clients manage risk; 2)
understand the details of the value chain; 3) maintain a broader goal of
demonstrating innovative business propositions so as to stimulate broader sector
take-up; 4) continuously adapt the focus and business model of the incubator; 5)
proactively identify and promote higher value market opportunities; and 6) design
and operate the business incubator in line with good practice. Good practices
include the following: ensuring a strong selection process that identifies and
cultivates innovative, growth oriented entrepreneurs; developing strong partnerships
with the public and private sector; locating the AII in a geographic location that is
attractive to the target clientele; ensuring that the manager of the AII and the
service provider has entrepreneurial, and preferably industry, knowledge, and that
these staff have incentives that align with the desired outcomes and impacts of the
AII; obtaining a strong capital structure; and putting in place a governance
framework that allows the management to operate the AII in a business-like manner.

1.9 Implementation of the AII

1.9.1 Institutional Framework

While infoDev will help provide its knowledge and lessons from similar initiatives
elsewhere to provide guidance to local implementers, the AII is intended to be
locally owned and operated. As implied by the service offering outlined above, it is
by necessity a partnership-based, highly networked initiative that required buy-in
and leadership from a range of value chain and innovation systems stakeholders.
Ideally, therefore, a consortium of partners would be formed to implement the
initiative. A broader advisory committee comprising key actors from the public and
private sectors that are critical to advancing the growth of climate-smart agro
processors is also recommended. Key government partners would include the
Agricultural Transformation Agency (ATA), the Ministry of Finance and Economic
Development (MoFED), the Ministry of Industry (MoI), and the Ministry of Agriculture
(MoA). Some examples of potential implementation partners of the AII include the
following: private business development service providers members of the Synovia
and Ethiopian BDS networks; the Ethiopian Chamber of Commerce and Sectoral
Associations (ECCSA); official representative of the private sector; the Ethiopian
Freight and Forwarders Association; the Addis Ababa Chamber of Commerce and
Industry; BDS associations and networks; Et Fruit, one of the largest food distribution
companies in Ethiopia; Olam, a global leader in the supply chain management of
agricultural products and food ingredients; Selam Technology and Vocational
Training Center; and the Academy of Food Sciences from the University of Bahir Dar.

                                                                                                           
5Theglobal assessment carried out by infoDev to understand the impact and lessons from agribusiness
incubators and innovation center is available at: http://www.infodev.org/en/Article.800.html

10  
  

As indicated above, while representation from all value chain and innovation system
stakeholders are critical to the success of the target clientele, lessons from similar
initiative elsewhere indicate that professionals with business background should
manage an incubation initiative. These professionals would operate within a
governance framework that enables constant adaptation and entrepreneurial
thinking.

1.9.2 Location

The AII must be based in an area that 1) is within close proximity to a critical mass of
its target clientele, 2) allows economical procurement of raw materials and
processing infrastructure and packaging, 3) is convenient from a logistics
perspective, and 4) is near the required sources of expertise (for example, technical,
business, or research and development[R&D]). On the basis of these criteria, the
most feasible location appears to be in the broader Addis Ababa area, with
potential satellite centers or outreach activities targeting entrepreneurs in Bahir Dar
(Amhara), Adama/Nazareth (Oromiya), Awassa (Southern Nations and Nationalities
Regional State), Mekele (Tigray), and Diredawa (self-administered city).It would be
recommended to start the AII with a base in Addis Ababa and one regional city,
expanding from that basis once the AII model has been tested and has gained
traction.

1.9.3 Business Model

To address the preferences of agribusinesses at different stages of development, the

AII should offer a number of payment options, including payment at full cost at the
time, a small percentage of equity, or a royalty levied on the increase in their sales
for a period. The proposed model seeks to achieve better than 63 percent financial
sustainability within six years, which is detailed in Section 8 of the full report. The
remainder of the funds would then need to be secured from public or corporate
donors.

1.9.4 Selecting Clients

The AII will emphasize networking, engaging, and working collaboratively with
chambers of commerce, private stakeholders’ associations, and private business
development service providers in order to not only identify, but also select and
support AII client enterprises.

A detailed selection process will need to be prepared in order to select the

enterprises. A number of points are pertinent:

1. Enterprises will need to have a growth focus.

2. Entrepreneurs will need to demonstrate strong entrepreneurial traits,
including for leadership and innovation that can be assessed through
psychological testing.

11  
  

3. Enterprises will have a track record indicating success and will

demonstrate competitive advantages in some ways.
4. The market potential of enterprises will need to be good to allow growth
activities.
5. The enterprise should be fundable either via direct commercial loan or
through a seed fund raised to support selected enterprises.
6. The business should be climate neutral or the entrepreneur should be
committed to taking steps to reduce its climate impact.

Selection will follow a process of application, assessment, review, and capacity

building. Finally, a selection panel will assess the merits of each enterprise. This panel
will include representation from a financial institution, as well as a professional with
sufficient market knowledge in the specific product market to assess the market
potential of the product.

Successful enterprises will be required to formally and legally commit to the

conditions of service, including payment regimes and conditions.

The initial focus of the selection will be on existing firms to help them grow, although
not to the exclusion of new businesses. In future years, new businesses will become a
more important target, working on the back of pre-incubation programs to help
people develop competitive and viable business propositions. This approach will
enable the AII to more quickly create a set of “demonstration clients,” to show the
tangible benefits to other future clients and that payment for services is worthwhile
for the entrepreneur.

The AII will invest specifically in attracting women-led enterprises to apply, but it will
not have a specific quota for the number of women-led versus male-led enterprises
so as to ensure selection based on merit only.

1.9.5Potential Link with the Climate Innovation Center

In 2011, infoDev prepared for the establishment of a Climate Innovation Center

(CIC) in Ethiopia with funding from U.K. Department for International Development.
The conclusion of the CIC business planning process recommended that the CIC
should focus on enabling a climate smart, competitive and sustainable agribusiness
sector, in addition to focusing on water and renewable energies. The
implementation approach to the CIC is similar to that outlined above for the AII, and
the selection process to identify an implementing consortium was launched in June
2012.

A few specific needs have been identified for agribusiness entrepreneurs, namely,
agribusiness market development advice, access to packaging, and testing
services. Section 4 of the full report describes these requirements in further detail.
None the less, most of the services needed by agribusiness entrepreneurs are
already foreseen in the CIC’s service offering. From a practical perspective, it could
make sense to develop and implement the AII under the umbrella of the CIC.

12  
  

1.10 The Role of InfoDev

At the planning and implementation stage, infoDev views its role as providing the
technical guidance to plan, resource, and operate the AII successfully. With a strong
commitment to building local institutional capacity, infoDev would harness its
decade-long experience with setting up business incubators and innovation centers,
its agribusiness incubation training program, and its international network of
innovation and entrepreneurship professionals across 107 countries to guide the
board and the AII manager through such important milestones as developing a
governance framework, client selection process, service design and execution,
marketing, and monitoring and evaluation. InfoDev could also manage single or
multi-donor trust funds to be disbursed to the AII. To ensure sustainability and
adequate local capacity, infoDev typically remains engaged for a three to five year
period, gradually scaling down its support as the capacity of the local team and
partners increases.

1.11 Outcomes and Impacts

Over a six-year period, the AII will directly support 50 sustainable growth-oriented
enterprises. It is to be expected that these enterprises will generate an additional
$11,923,276 in turnover and $1,326,235 in tax revenues over this same time period. It
can also be expected that these enterprises will create close to 1,700 jobs. It is
expected that out of these new jobs, more than 1,100 will be created for women.

By more than doubling the output of SME producers, their input purchases should
double as well, thus having a significant impact on farmers’ incomes.

An additional increase in the demand for ancillary products and supportive services
is also expected. An increase in demand for these products and services will directly
impact the unemployment and underemployment of personnel in each sector.

1.12 Budget Requirements

The AII is conservatively projected to become 75 percent financially sustainable

after six years—which is defined as covering the ongoing operating expenses of the
AII, including depreciation, through earned revenues. An initial investment of $10.35
million (comprising $5.53million for nonfinancial services; $3million for financial
services and $1.82 million for technical assistance and program management costs)
would be needed as start-up capital in order to achieve this objective. After the
initial ramp up period, costs are in the order of $880,000 per annum to operate the
AII, thus requiring public or corporate subsidies of $220,000 per annum after six years.
This being said, a flexible revenue model is proposed in which sustainability may be
enhanced once various revenue options are tested.

13  
  

2.0 Accelerating Agribusiness Sustainably through Innovation

2.1 Accelerating Agribusiness Development through Innovation

According to the World Bank, “the potential of

agricultural growth to reduce poverty is four
times greater than the potential of growth from
“The future of African
other sectors.” The 2008 World Development
Report outlined how investments in agribusiness development depends
produce significant multiplier effects through their on the ability to
forward and backward linkages, generating accelerate innovation
demand for agricultural products and associated by capitalizing on the
inputs and services and creating on and off-farm creativity of African
employment. Interventions that can unleash this farmers and agribusiness
potential can have a tremendous impact on entrepreneurs…
poverty. Innovation is under way
The fact is that many developing countries have
in African value chains.
not turned their vast comparative advantage in It is not driven by
agriculture into a competitive advantage in research, but by
value added processed products. They have entrepreneurs, networks
subsequently lost out on income generation and and supportive policies.”
job creation opportunities that this value addition
opportunity offers. Tanzania for example, exports
raw cashew nuts and imports processed cashew
Dr Andy Hall, LINK
nuts. Senegal’s retailers stock only a handful of locally manufactured food products-
Coordinator, United
preferring imported products – despite Senegal’s extensive horticulture industry and
rich culinary traditions. Nations University, MERIT,
Maastricht
Reaching development goals such as job creation and inclusive growth in
agriculture, will need more focus on supporting growth-oriented entrepreneurs
engaged in downstream business activities (such as processing) to develop
competitive enterprises to effectively link into productive value chains.

InfoDev seeks to advance new approaches to accelerating the growth of

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

14  
  

2.2 The Concept of Agribusiness Innovation Initiative (AII)

InfoDev is piloting the concept of an AIC as a mechanism to increase the

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

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

Figure 3 AIC Service Offering

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

15  
  

Its recent global assessment: Growing Food,

Products and Businesses6 revealed a number of Results from Agribusiness
critical success factors for an intervention similar Incubation
to an AIC (the conclusions of the global study are
available in Annex 1): Fundación Chile:

 Help clients manage risk: Agribusiness is Initial investment: $50 million

inherently risky because of its reliance on
farming (which is susceptible to such Entrepreneurs’ sales: $425 million
environmental risks as flood, drought, and
pests) and perishable products. Critical to
the success of an AIC is to help agro-
processors manage these risks above and IAA-IPB, Indonesia:
beyond the business challenges that any Initial investment: $300,000
enterprise faces in any industry.

 Understand the characteristics of the

Entrepreneurs’ sales: $8 million
value chain: The agribusiness value chain
can be long with critical dependencies
between each element in the chain. The
AIC must understand the state and
dynamics of the value chain to assist the
agro-processing enterprise in being
successful. Relatedly, the World Bank has
found in its review of agribusiness
investments that a strong focus on a few
cross-cutting issues, locations, or value
chains with an established comparative
advantage and strong market prospects provides an opportunity to “pilot
difficult reforms, demonstrate success, and learn from those efforts in scaling
up the program.” InfoDev has therefore sought to pro-actively identify a few
initial focus areas for each AIC.

 Proactively identify and promote higher value market opportunities: The

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

 Maintain a broader goal of demonstrating innovative business propositions:

The desired catalytic effect of an intervention of an AIC does not necessarily
happen without a deliberate, tangible effort. Specific programs must be
designed for this purpose.

                                                                                                           
6
The  global  assessment  carried  out  by  infoDev  to  understand  the  impact  and  lessons  from  agribusiness  incubators  and  
innovation  center  is  available  at:  http://www.infodev.org/en/Article.800.html.

16  
  

 Design and operate business incubation in line with good practice.

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

• Ensuring a strong selection process that identifies and cultivates

innovative, growth-oriented entrepreneurs

• Developing strong partnerships with the public and private sector

• Locating the AIC in a geographic location that is attractive to the

target clientele. The World Bank’s review of agribusiness investments
collaborates this lesson: “Locations with revealed competitive
advantage and proven investor demand should be preferred over
attempts to initiate new industries in new areas.”

• Ensuring that the AIC manager and service provider have

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

• Obtaining a strong capital structure

• Putting in place a governance framework that allows the

management to operate the AIC in a business-like manner

• Continuously adapting the focus and business model of the incubator

in line with evolving market conditions

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

17  
  

3.0 The AII Feasibility and Business Plan Process

3.1 Theoretical Framework

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

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

The innovation systems approach

Putting Innovation and Entrepreneurship in
recognizes that the advancement of Context:
the agricultural sector (or of a specific
Only about 18 percent of early stage
value chain) requires a network of
entrepreneurs are growth oriented (expecting to
organizations, enterprises, and create 20 or more jobs in the next five years).
individuals (value-chain actors)
focused on bringing new products, Only about 18percent of early-stage enterprises
are innovative.
new processes and new forms of
organizations into economic use. The Even in the United States almost 50 percent of
network works together with the new businesses discontinue within four years.
institutions and policies that affect their Global Entrepreneurship Monitor. 2011
behavior and performance8.

Entrepreneurship theory predicts entrepreneurial activity, for example, by

characterizing conditions that are likely to lead to new profit opportunities or to the
formation of new enterprises. The micro view of entrepreneurship examines the
factors that are specific to entrepreneurship and are part of the internal locus of
control. Most commonly accepted among these theories is “the entrepreneurial trait
school of thought,” which emphasizes that achievement, creativity, determination,
and technical knowledge are four factors that successful entrepreneurs usually
exhibit. When assessing how to enable the start-up and growth of innovative
agribusiness enterprises, all three schools of thoughts are helpful frameworks to
analyzing what the opportunities and constraints are advancing these enterprises
and what solutions would most likely succeed.
                                                                                                           
7World Bank, 2009.Building Competitiveness in Africa’s Agriculture: A Guide to Value Chain Concepts
and Applications.
8World Bank.2012.Agricultural Innovation Systems: an Investment Sourcebook.

18  
  

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

For the purposes of this study, infoDev defines agribusiness incubation as the
provision of a holistic service offering to innovative, growth-potential SMEs.
Agribusiness incubation can either focus on one or a few subsectors or value chains
(such as dairy) or on a broader model that assists any growth-potential agribusiness
enterprises, regardless of subsector. The choice of model depends in large part on
the “maturity” of the respective value chains and local market conditions as
assessed against the parameters assessing the potential for value addition. The
model also depends on the similarities in the needs among the potential target
enterprises. That is, if there is a clear market and enabling conditions in place for
dried mango, pineapple, apple, and others the incubator could probably
effectively assist entrepreneurs across these value chains. However, if opportunities
were identified in pasteurized milk and dried pineapple, the value chains and the
markets for these would be vastly different and it would be more costly for the
incubator to serve both effectively. This again depends on the depth of the business
incubation services required. That is, if what the milk processor and the pineapple
processer need help with are general topics (such as finances, good management,
or general business coaching), a non-sector specific incubator could work well.
However, if more specialized services are needed that provide market linkages,
technology identification, acquisition, and other services, it would be more costly for
the incubator to cover both value chains.

Another constraint when selecting a focus for an agribusiness incubator is the

potential “deal flow” or number of enterprises that can be identified as high growth
potential entrepreneurs. A critical mass of entrepreneurs allows the incubator to
achieve economies of scale, and decrease its cost per enterprise, up to a certain
point. As a general rule of thumb, around 20 incubatees at any given time provides
the incubator with this opportunity, along with the possibility of offering incubates
peer-to-peer learning and exchange that is relevant to their businesses.

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

1. The location is within 50km. of a large number of the target clientele;

2. it is within an area that allows economical procurement of raw materials,
processing equipment, processing infrastructure, and packaging;
3. it is convenient from a logistics perspective; and
4. it is near sources of expertise (such as technical, business, or R&D).

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

19  
  

3.2 The Process

InfoDev maintains a strong commitment to lasting impact, sustainability, and local

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

3%   12%  
Private  sector  

10%   Government  

Research  insLtuLons/
experts  
InternaLonal  
75%   organizaLons  

Figure 4Ethiopian Agribusiness Stakeholders Consulted

20  
The feasibility assessment and business planning methodology is outlined in the diagram below.  

Stakeholder Stakeholder
• Identification Gap Analysis • Data
Identification Consultation
of value •  Interviews to gathering to
chains that validate create
offer high • Identification selection of • Interviews to business • Feedback
growth of value chains map existing model, from local
opportunities stakeholders and identify service evaluate stakeholders
for the affecting the barriers to SME offerings and locations, •  Review and
country success of start-up and planned principal inputs from
agribusiness growth initiatives partners/ international
entrepreneurs hosts,and expert group
Value Chain others
Analysis
Stakeholder Business Modeling
Consultation

Partner
Identification
 

Figure 5 Ethiopia AII Feasibility Assessment and Business Planning Methodology

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

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

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

Feb 12: Mission 1: Oct 12:

Jan12: Stakeholder April-May12: May 12: Mission2: Value Sept 12:
Value chains & Finalize
identification & needs, Addis Enterprise chains & needs & Mission 3: business
sector mapping   Survey   follow-up analysis   Model design  
Ababa   model  

Figure 6 Ethiopian AII Feasibility Assessment Process Time Frame  

3.3Engaging Key Agribusiness Stakeholders in Ethiopia

A diverse set of stakeholders is involved in

The main government agencies
agribusiness in Ethiopia, coming from both the most relevant to the AII include:
public and private sectors. Their interventions
target different sectors, value chains, and • Agricultural Transformation
segments of the value chain. Agency
• Ministry of Agriculture and the
The AII implementation approach will be to Ethiopian Institute of
engage all actors affecting the ability of its target Agricultural Research
clients to succeed and to partner with • Ministry of Industry
organizations that have key competencies • Ministry of Finance and
Economic Development
required to serve these clients effectively. The AII
will seek to complement existing initiatives and The ATAis notably the main
contribute to strengthening the innovation andgovernment entrepreneurship ecosystem
counterpart for the
required for innovative, growth-oriented enterprises toimplementation
thrive. of the AII. The
government of Ethiopia formed
A quick overview of the key agribusiness stakeholders theinATAEthiopia is provided
to serve in the
as a catalyst for
table below and the interconnection between them is illustrated in the following
transformational and sustainable
graph. Further details on the existing agribusiness support
change.initiatives in the country are
Agricultural
provided in Annex 2. Transformation Council governs
the ATA, which is chaired by the
Prime Minister.
  

Table 2 Ethiopian Agribusiness Stakeholder Mapping

RELATING TO AII VALUE CHAINS ORGANIZATIONS

Government – Customs Authority, Ethiopian Agricultural Transformation
Agency, Ethiopian Investment Agency, Ethiopian
Quality and Standards Agency, Ethiopian
Competitiveness Facility, Ministry of Agriculture, Federal
and Regional Micro and Small Enterprise Development
Agencies, Ministry of Energy and Water, Ministry of
Finance and Economic Development, Ministry of ICT,
Ministry of Industry, Ministry of Infrastructure and Urban
Development, Ministry of Trade, Ministry of Transport
and Communications, Productivity Enhancement
Centre
R&D Institutes – AAU-Technology Institute, Ethiopian Agricultural
Research Institute
Donors African Development Bank (AfDB), BMGF, Canadian
International Development Agency (CIDA), Embassy of
the Kingdom of the Netherlands (EKN), EU, FAO, GTZ,
USAID, World Bank Group (WBG)
Universities/Academia – University of Bahir Dar, Academy of Food Science
Business and Professional – Ethiopian Chamber of Commerce, Ethiopian
Communities Commodity Exchange (ECX), Ethiopian Freight
Forwarders Association, Ethiopian Women Exporters
Association
Finance organizations – Abay Bank, Addis International Bank (AdIB), Awsah
International Bank (AIB), Bank of Abyssinia (BoA), Bunna
Bank, Commercial Bank of Ethiopia (CBE), Cooperative
Bank of Oromiya (CBO), Construction and Business Bank
(CBB), Dashen Bank, Debub Bank, Development Bank
of Ethiopia (DBE), Enat Bank, Nib Bank, Lion Bank, United
Bank, Wegagen Bank, Zemen Bank, and 30
Microfinance Institutions (MFIs)
Multinationals/Corporate – DuPont, Pioneer, Proctor and Gamble, Olam
Entrepreneurship support – Addis Ababa Chambers of Commerce and Sectoral
Associations, Ethiopian Chamber of Commerce and
Sectoral Associations, Federal Micro and Small
Enterprises Development Agency, Regional Micro and
Small Enterprises Development Agencies, Selam
Technology& Vocational Center, Technical and
Vocational Training Institutes (TVETs), and several
private business development service providers (BDSPs).

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

23  
  

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

Figure 7 Ethiopia Agribusiness Stakeholder Mapping

24  
  

4.0 Seizing the Opportunity

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

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

7000  
6000  
5000  
4000  
3000  
2000   Employment  (%)  
1000   No.  of  firms  
0   Private  Sector  Share  
Food  processing  

lasAcs      
Fabricated  Metal  
   
Chemical  Products  
Paper  &  PrinAng  
Wood  and  Furniture  
Iron  &  Steel    
Leather  &  Footwear  
   
Vehicles  &  Trailers    
PharmaceuAcals    
Machinery  &  
Equipment    
 Pinerals  

&  Garments  

Tobacco  
Cement  and  Non-­‐

Total    Value-­‐added  
Manufacturing  
TexAles  products  

Products  
metallic  &m
Rubber  

Figure 8The Importance of Food Processing in the Ethiopian Economy11

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

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

25
  

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

There is significant opportunity to leverage the GoE’s Climate Resilient Green Economy
strategy (CRGE), which outlines Ethiopia’s ambition to “reach economic development
targets in a resource–efficient way that overcomes the possible conflict between
economic growth and fighting climate change.” Following this path helps to ensure
that the nascent agro processing industry evolves along this same trajectory, thus
enabling the development of a climate smart, competitive agribusiness sector.  

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

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

Post-harvest agribusiness is likewise a sector of the Ethiopian economy that must

develop in a sustainable manner. Better methods to ensure water conservation and
quality, energy minimization, waste management, and logistical impacts must be
inculcated for environmental sustainability, along with financial and product
competitiveness.

Climate-smart agro-processing, SME growth, increasing the capacity of women, and

job creation are four of the priorities of the GTP. InfoDev, with funding from FORMIN,
therefore initiated a feasibility assessment to identify:

1. The most significant market opportunities for value addition in the agribusiness
sector
2. The most significant barriers to enterprise start-up and growth in the specific
market opportunities identified
3. The services most needed to accelerate the growth of Ethiopian agribusiness
SMEs, thus contributing to the GTP targets

4.1 Value Chains with Market Potential

The tremendous diversity of ecological zones in Ethiopia allows production of a wide

variety of crops. The first step in the feasibility assessment was to narrow down the scope

26
  

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

Table 3Assessing the Potential for Value Addition

What is the scope for high growth value addition in this

value chain
Production Status Is there sufficient primary production of adequate
quality to facilitate value addition?
Entrepreneurial Do a sufficient number of growth-oriented
Capacity entrepreneurs exist within the value chain or
entrepreneurs who could be “recruited” from other
value chains?
Availability of Funding What funding is available for product development,
commercialization and business expansion?
Clear, Ready Are there strong stakeholders who are ready and able
Stakeholders to affect change in the value chain?
Markets Can markets be identified that are accessible, feasible,
and viable?
Seasonality Is there marked seasonality in supply and demand of
raw materials that can impact negatively on the value
addition opportunity?
Industry Leverage Are there existing initiatives that can be leveraged that
support the industry and that are likely to affect entry
into and exit from the industry and hence value
addition potential?

Infrastructure Is there sufficient infrastructure available and does the

&Regulatory Constraints regulatory environment provide incentives for
entrepreneurs to take advantage of the value addition
opportunity.

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

27
  

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

• Increasing domestic and international market demand.

• Supply side problems in terms of both quantity and quality; issues other
stakeholders are addressing and which processors are overcoming themselves.
• Only a limited number of processors in any specific value chain and a need for
more to address the increasing market demand.
• Poor marketing and management capabilities.
• A priority for local stakeholders.

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

 Exceptional climatic conditions that make the production of a wide variety of

agricultural crops possible.
 Production by small-holder farmers, who by default use natural and organic farming
methods, which causes supply constraints, but which can be an advantage for
climate change impacts and as developed countries shift more and more to
organic and clean food.
 A large domestic market and labor force, with a population of 90million people,
growing annually by 3percent.
 A widely acknowledged trainable work force.
 Comparatively cheaper wages than in other countries. The average wage for
unskilled labor generally ranges from Birr 20-30 ($1.58 to 2.37) per day.
 Acknowledged as priority sectors by the government and hence supported by
favorable policy measures.
 Agreements with the United States, Middle East, and European countries that ensure
access to their markets for Ethiopian products.

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

                                                                                                           
12Value chains, such as coffee where a number of stakeholders are already operating, have been left
outside the scope of the AII in order to focus on value chains where the AII initiative can have the biggest
impact. Details are provided in Annex 7.
13The ATA, leading the drive for transformation and sustainability in agriculture, is focusing on cereal crops

initially, which account for 80 percent of the crops grown by small-holder farmers and in particular teff,
maize and wheat. Other priorities in the near term are pulses including chickpeas, oilseeds, rice, and
livestock. The key value chains identified for the AII differ from the ATA priorities because of subtly different
objectives. The AII is to focus on processors, not farmers per se, whereas the ATA’s overall priority is to focus
on the value chains that have the greatest potential to achieve productivity growth for small-holder
farmers and pastoralists.

28
  

4.1.1 Bamboo

Ethiopia has the seventh largest bamboo resource in the world. Some 150 plus micro to
small enterprises are engaged in low value addition of bamboo, producing such
products as fences, toothpicks, and crafts. In response to the growing demand from
international markets for industrial grade bamboo products, Ethiopian industrial
production of high value panels and flooring is also emerging. Less than five firms exist
at the moment (one of them employs 150 full time employees and has a $3million
annual turnover), but this is expected to increase in the future. Analysis indicates that
Ethiopia can be highly competitive in this market.

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

4.1.2 Dairy

Ethiopia has the largest stock of milk producing animals in Africa, but it imports milk
products at a value of 114 billion Birr annually. None the less, the period from 2005–10
saw a subtle transition for the Ethiopian dairy sector. There was an increase in
processing capacity, accompanied by an increase in dairy product lines. Improved
breeds and extensions services are helping improve productivity and donors. In
addition, stakeholders are working to remove supply chain impediments (such as
transport, storage, and productivity).

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

4.1.3 Honey

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

29
  

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

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

4.1.4 Fruit and Vegetables

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

Established in 2002, the Ethiopian Horticulture Producers and Exporters Association

(EHPEA) currently records 39 members who focus on fresh fruits and vegetables. The
processing industry is however nascent. The potential for the AII is to support the 15 fruit
and vegetable processors identified to date in replacing imports of fruit juices and
addressing the growing demand for catering products from the Middle East, nearby
countries, and Europe. Ethiopian processors have a demonstrated advantage
compared to their competitors from Egypt, Kenya, Morocco, and Tunisia. The five fruit
and vegetable processing plants are producing a limited variety of products: mainly
tomato paste, orange marmalade, vegetable soup, canned vegetables, and wine.
Indeed, they are working below capacity because of the lack of sufficient and regular
supply of fruits and vegetables. They are producing for both the domestic and export
markets,

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

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

30
  

4.1.5 Cotton, Textiles, and Garments

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

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

4.1.6 Wheat

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

With a growing population and urbanization, the demand for wheat and processed
food in the form of bread, flour, macaroni, and pasta is expected to increase, offering
a real market opportunity for the 180 manufacturers of bakery products and nine
manufacturers of spaghetti and macaroni. Export of macaroni and spaghetti started in

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

31
  

2007/2008, generating $50,000 export revenues, which reached $121,000 in 2008/2009

and is expected to continue to grow in the following years.

4.1.7 Spices

Ethiopia has a long history of spice production. The unique environmental conditions of
the country offer the opportunity to produce a wide variety of spices, primarily
produced by small-holders. About 244,000 tons are produced annually. There is high
domestic demand, and 50 percent of Ethiopian spices are exported to Sudan, while
other major export destinations include India, Morocco, Saudi Arabia, United Arab
Emirates, and Yemen.

While the GTP now envisages substantial investment in the sector, the potential of spices
has been largely overlooked in the past. Only two spice extraction plants exist,
producing for the export market, although not at full capacity because of equipment
and production problems. The market potential for new processors is high, especially for
the growing export markets.

4.2 Ethiopian Agribusiness Entrepreneurs Landscape

Food processing is among the oldest of Ethiopia’s manufacturing industries. Bakeries,

grain, and oil mills were in operation as early as 1906 and the first food factory, Kaliti,
was established in 1938.Most recent combined statistics available for the agribusiness
sector as a whole date back to FY2006/07. A record 330 large- and medium-scale firms
are in the food processing industry, employing about 36,000 people, which amounted
to26percent of all employees in the manufacturing sector. The food processing industry
can be broken into eight major subsectors:
 Sugar manufacturing is the leading subsector, accounting for 53percent of sales
revenue and 57percent of employment in the food processing sector.
 Meat processing and exporting is the leading export subsector. Processed meat
products comprise canned and frozen meat. In FY2008/09, about$27 million was
generated from the export of meat and meat products.
 Wheat-based products manufacturing consists of flour, macaroni, spaghetti, and
biscuit manufacturing, and involves about 200 firms.
 Fruit and vegetable processing is dominated by a state-owned firm that
produces orange marmalade, tomato paste, and tomato juice.
 Edible oil production is carried out by mid-size and small-scale businesses that
produce vegetable butter, edible oil, and cheese for the domestic market.
 Dairy products in Ethiopia include yogurt, cheese, and butter, mostly produced
by small-scale farmers and households.
 Grain milling is practiced by numerous small-scale businesses located in villages
throughout the country.

32
  

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

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

Women entrepreneurs constitute more than half of the entrepreneurs, giving an

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

4.3 Ethiopian Agribusiness SMEs Needs18

In summary, agribusiness entrepreneurs in Ethiopia face many problems, the most

significant of which are supply chain constraints, market development, and financing
for growth. Such bodies as the Federal Micro and Small Enterprises agency assist with
basic business support and many donors working with farmers and processors are
helping overcome the supply chain constraints. There is a significant gap in market
development for both the domestic and international markets, including poorly
                                                                                                           
17John Sutton and NebilKellow. 2010. “An Enterprise Map of Ethiopia,” International Growth Center.
18The needs of agribusinesses in Ethiopia were assessed by way of consultations with stakeholders and
agribusiness entrepreneurs, focus groups, workshops, and a formal survey of 75 agribusiness entrepreneurs.
A summary of the main gaps faced by entrepreneurs is provided in Annex 3. The survey report is in Annex
4, the survey questionnaire in Annex 5, and frequencies for responses to each question is in Annex 6.

33
  

developed distribution mechanisms, limited packaging and testing options and

competitive strategies to address evident market needs. There is also gap for those
entrepreneurs wanting to grow their businesses, for which suitable services do not exist.

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

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

34
  

30  

25  

20  

15  

10  

5  

0  

 
Figure 9Service Offering Gaps Reported by Ethiopian Agribusiness SMEs Surveyed

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

35
  

Interest  in  Services  

80%  
70%  
60%  
50%  
40%   No  Interest  
30%  
20%   Some  Interest  
10%  
0%  
Interest  

Bus.  Licencing  
Finance  
Networking  
New  markets  

MarkeAng  
TesAng  &  Cert.  
Packaging  
Bus.  Planning  
Bus.  Training  
Mgt.  Advice  

Sales  
Financial  mgt.  
Technology  

Mentor  &  
Coach  
High  Interest  
Great  Interest  

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

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

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

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

From an entrepreneurship perspective, in which personal self-knowledge is important for

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

36
  

track to foster better entrepreneurial attitudes. Consultations with stakeholders also

indicated a lack of an entrepreneurial culture and attitudes.

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

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

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

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

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

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

4.4 The Focus of the AII

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

37
  

g) No one value chain represents a sufficient quantity of growth potential

entrepreneurs to warrant a focused incubation model. It is, therefore,
proposed to adopt a broader model that works across subsectors at this
point in time. As evidenced by the survey conducted, there is strong
interest in an agribusiness incubation service offering from agri-business
entrepreneurs across sectors. The analysis indicates that a sufficient
pipeline of growth-oriented/growth-potential enterprises can be secured
to enable a cost-effective implementation using an agribusiness
incubation model that targets enterprises from a broader selection of
value chains. Over time, as the respective value chains mature, a more
focused approach could be adopted.

h) While the market opportunities outlined in Box 1 are promising, even these
value chains face significant challenges that have been recognized.
Many donors and Ethiopian government agencies are now working to
overcome value chain bottlenecks. The timing may be opportune to
complement this work by addressing the business-level impediments
faced by agro processors.

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

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

j) Because of the challenging operating environment, it is recommended to

target primarily existing enterprises with growth potential, while leaving
room for some start-up support.

k) In addition to having 65 percent of employed women working in the

agriculture sector, it is estimated that more than 60 percent of micro and
small-size businesses in Ethiopia are food processing enterprises that are all
run by women entrepreneurs. Because of the potential impact on women
entrepreneurship and employment, it is recommended to target women
specifically in the outreach effort of the AII and to develop a service
offering and a service delivery approach that meet their needs.

l) The agribusiness entrepreneurs interviewed who represent the intended

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

38
  

value chains of Ethiopia, one resonating challenge experienced by most

existing entrepreneurs is the development of both domestic and
international markets. Entrepreneurs struggle to understand the
opportunities for both domestic and international distribution, the industry
standards associated with each target demographic, and the logistical
constraints that require addressing.

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

In international markets, Ethiopian entrepreneurs face stiff competition and simply

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

4.5 Potential Deal Flow

Successful business incubators usually need a critical mass of at least 20 growth-

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

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

39
  

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

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

SIZE OF THE MARKET PERCENTOF

RESPONDENTS

Interested 100% – 75

Opportunity 72% – 54
Entrepreneurs
(OE)Only
OEs With Growth 80% – 43
History
Conversion Factor 1 30% – 13

Conversion Factor 2 20% – 9

Conversion Factor 3 10% – 4

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

40
  

Table 5 Potential AII Client Numbers

Turnover range, $ per Percent of Percent of micro, Client numbers over three
annum survey small, medium and years
sample large businesses

– Pre-incubation activity to
– 19% – 33% develop the deal flow
– 0 to 1,000
pipeline

– 1,000 to 28,000 – 23% – 24% – 10

– 28,000 to 283,000 – 21% – 11% – 8

– 283,000 to 565,000– 37% – 33% – 12

In Ethiopia, the small and medium-level Potential Client Example

enterprises are the ones looking most for Genesis Farms: Ideal for incubation
financial and nonfinancial services. The program…needs upgraded processing for
expansion
small enterprises may be challenged by
• Involved in vertically integrated poultry,
the capacity to pay for the services, dairy, and horticulture.
whereas the medium-level enterprises • 126 dairy out growers.
are relatively capable of paying for • Provides artificial insemination and home
veterinary services, and has a plan to offer
services as far they believe in them. The cows on loan (in-kind) in four regions
large enterprises have the full capacity around Addis.
to pay, but they are very selective in • For vegetables, they sell quality seedlings
purchasing services. with better varieties.
• For poultry, they sell day old chicks.
• Partnered with training center next door,
Reinforcing conclusions from stakeholder
offering vaccines, vet services and
consultations, the demand is spread training.
across many sectors and therefore a • Services all hotels and supermarkets with
multi-sector approach within the agri- vegetables, eggs, and others.
• Sets their own price because of lack of
business arena is warranted, rather than
competition for quality.
focusing on a particular value chain. This • Pays 1,000,000 birr per month for milk from
levers the work of other donors, who out growers.
focus on specific value chains. • 7,000-9,000 milk pasteurization capacity.
• Company is 11 years old, has partners
from United States and the Netherlands
(3.3 million birr–combined investment) and
has 30,000,000 birr in sales (with 25,000,000
in expenses).
• Uses coconut bark for exceptional water
holder (available in Sri Lanka for 50 birr for
41
5kg (freight not included.
  

5.0 AII Business Model

5.1 Strategic Objectives

The AII seeks to contribute toward advancing a climate-smart competitive agribusiness

sector in Ethiopian that benefits Ethiopians with an increased number of jobs and raised
incomes. The AII will contribute toward this objective by identifying innovative growth-
oriented entrepreneurs who are pursuing business opportunities based on value
addition of agricultural commodities. It will provide them with a holistic service offering
that accelerates their growth and increases their sustainability. In the process of doing
so, the AII will engage all stakeholders along the value chain, thus strengthening the
innovation and entrepreneurship ecosystem affecting the start-up and growth of
innovative agribusiness enterprises. Relatedly, the AII will strive to have a
demonstration—or catalytic—effect, encouraging a new generation of entrepreneurs
to enter, grow, and advance the industry and the value chains in which they operate.
In summary, the AII will reduce risks faced by entrepreneurs by providing the required
services to the most growth-oriented enterprises and helping them grow and thereby
fostering the upgrading and up-scaling of value chains. Furthermore, the AII will aim to
help create a service market for business and financial services targeted at agribusiness
SMEs in Ethiopia, by working in close partnership with those people and organizations
developing value chains and providing business development support services.

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

42
  

5.2 Securing Clients Potential Client Example

Mama Fresh Injera: An indigenous product
As discussed, the highest impact and the with great growth potential
highest likelihood of sustainability of the AII
• Producing 10,000 injera per day (35,000
can be achieved by targeting enterprises
capacity).
that at a minimum demonstrate some • 4,000,000 injera eaten in Addis Ababa
understanding of market demand, target each day.
the local and national markets, and have • 65 percent of those buy “ready-made.”
• Exports to United States, United
access to a minimum level of equipment. Kingdom, United Arab Emirates,and
These enterprises, thus, have a foundation Saudi Arabia…mostly diaspora sales.
that positions them for growth into new • Uses only teff (gluten free) (40,000kg per
markets or products. month).
• Pays out growers an extra 100 birr for
quality teff.
A detailed selection process will need to • Has three brokers servicing farmers.
be prepared in order to select the • Wants to open own warehouse
enterprises. While this will be the mandate (advised to go public) in United States.
of the management team during the
start-up phase, a number of points are pertinent:

1. Enterprises will need to have a growth focus.

2. Entrepreneurs will need to demonstrate strong entrepreneurial traits, including
for leadership and innovation that can be assessed through psychological
testing.
3. Enterprises will have a track record indicating success and will demonstrate
competitive advantages in some ways.
4. The market potential of enterprises will need to be good to allow growth
activities.
5. The enterprise should be fundable either via direct commercial loan or
through a seed fund raised to support selected enterprises.
6. The business should be climate neutral or the entrepreneur should be
committed to taking steps to reduce its climate impact.

Selection will follow a process of application, assessment, review, and capacity

building. Finally, a selection panel will assess the merits of each enterprise. This panel will
include representation from a financial institution, as well as a professional with sufficient
market knowledge in the specific product market to assess the market potential of the
product.

Successful enterprises will be required to formally and legally commit to the conditions
of service, including payment regimes and conditions.

43
  

The initial focus of the selection will be on existing firms, to help them grow, although not
to the exclusion of new businesses. In future years, new firms will become a more
important target, on the back of pre-incubation programs to help people develop
competitive and viable business propositions. This approach will enable the AII to more
quickly create a set of “demonstration clients,” to show the tangible benefits to other
future clients and that payment for services is worthwhile for the entrepreneur.

The AII will invest specifically in attracting women-led enterprises to apply, but it will not
have a specific quota for the number of women-led versus male-led enterprises so as to
ensure selection based on merit only.

5.3 AII Service Offering

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

Support new Expand new

market access product markets
EXISTING MARKET

Strengthen Encourage new

product/market products
position

EXISTING PRODUCT NEW PRODUCT

Figure 12Positioning Ethiopian Agribusiness SMEs for Growth

44
  

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

The expressed needs of the entrepreneurs, along with the value chain analysis
conducted, indicates that the appropriate service offering for the AII would be a
comprehensive service comprised of four broad areas (pillars) as follows:

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

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

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

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

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

45
  

This service offering is depicted in the diagram below.

Market Advice Finance Facilities

Promoting and Catalyzing Innovation through Outreach to Private Sector, Academia and Government

Market research Business training &

mentoring Product and
• High value products technology showcase
• Suppliers Proof of concept fund
(for innovation &
Product and brand demonstration)
development Processing and
packaging
equipment
Market linkages to Technology
customers and identification
suppliers Growth finance Lab and testing
• Local • Working capital facilities
Quality, safety, and • Asset financing
• National
regulations
• Export

"How to be climate Business center  

smart" consulting

Figure 13 Ethiopia AII Service Offering

5.3.1 Pillar 1: Market

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

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

46
  

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

Pillar 1: MARKET Description

Activities  Assist companies to identify, target, and test new markets and new
products.  
 Assist companies to exploit existing domestic markets, navigating
the Merkato and putting in place distributions systems.  
 Assist export ready companies to exploit international markets,
navigating complex and limited export pathways.  
 Facilitate access to available packaging and to address the
deficiencies in the packaging options available, including co-
packing arrangements for the international market.  
 Assist companies with market research to assess opportunities and
to position themselves in the market with current and new high
value products. This could be provided in partnership with
international and local consultants.  
 Assist enterprises in the identification of and access to inputs and
supplies, such as appropriate produce, consumables, logistics
services, and equipment (for example, establishment of contracts
between farmer and processor for adequate supply of appropriate
quality at good pricing). This could be provided in partnership with
local agents.  
 Facilitate procurement of common commodities in bulk for resale
to processors. Items such as jars, bottles, or bags can be resold in
this manner, giving both AII and processor an advantage. This
could be provided in partnership with local agents.  
 Assist companies to identify, target, and conclude sales deals by
walking with them in more lucrative markets.  
 Potential services could also include the following: facilitation of
trade show activities; “plan-o-gram” support for market positioning
in new markets (for example, shelf depiction); and support for
certification (for example, Fair-trade or organic). This could be
provided in partnership with local existing organizations.  

5.3.2 Pillar 2: Business and Technical Advice

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

47
  

business development services. To support the development of a dynamic business

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

Pillar 2: ADVICE Description

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

Activities market development, and others. This support will be provided by
internal staff and outsourced to specified experts, such as mentors,
coaches, and business development service providers.  
 Facilitate processing technology improvements, hygiene
improvements, standardization, testing, and access to the latest
processing knowledge. This will be provided by a limited internal staff
and outsourced to specific experts, delivering technical training.  
 Create a network of support organizations that will be able to support
entrepreneurs in such areas such as registration, regulatory
compliance, sector development, advocacy, or R&D.
 Work with local institutions to identify and meet local standards and
with local consumers to identify standards that must be met.
 Provide consulting services on how to make the business “climate
smart”.
 

5.3.3 Pillar 3: Finance

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

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

48
  

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

3. The entrepreneur has a high entrepreneurial quotient.

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

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

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

5.3.4 Pillar 4: Facilities

Investing in facilities and equipment is costly and risky. The stakeholder consultation
process considered the establishment of a physical processing facility, but the preferred
approach, initially at least, is to support processors expanding and developing their
own facilities. This is in line with the strategy of focusing on existing processors initially,
who already have processing facilities of one form or another, which may be improved
and expanded with business support and financing. In the future, facilities for new start
businesses may be considered.

None the less, to support entrepreneurs with market development, a facility in the
Merkato will be established to showcase innovative products and technologies and as
a base to help entrepreneurs navigate the complicated Merkato systems, which many
entrepreneurs do not understand, for both marketing of products and sourcing supplies.

The AII will broker and facilitate access to testing and certification facilities, as well as
packaging facilities, both in Ethiopia and internationally, levering partners and
networks. For instance, co-packing arrangements will be facilitated offshore, so
producers can export in bulk and have their products packed under their own label in
existing co-packing facilities. The AII will facilitate access to partners, testing laboratories

49
  

in Ethiopia, and where they are not available, follow facilitate international access (for
instance, to South African facilities) until such a time as they are available in Ethiopia.

Business center services and associated facilities will be available for clients in the AII’s
office facilities, separate from the Merkato facility.
On this basis, the AII will at the initial stages provide facilities—or access to them—as
follows:
 

Pillar 4: FACILITIES Description

 The AII will negotiate and facilitate access to specialized

Activities equipment for new product development and testing. This could
be provided in partnership with research/universities.  
 The AII will assess packaging facilities, standards, and labeling for
both local and international markets.  
 An innovation demonstration center will be made available at the
AII’s Merkato premises.
 The AII will link with local institutions to facilitate access to testing
and laboratory facilities (for example, microbiological tests or pH
tests), and where these are not available in Ethiopia, internationally.
 The AII will offer a limited number of meeting rooms and shared
office equipment for entrepreneurs.

5.4 A Multi-stakeholder Approach

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

5.4.1 Connecting to Farmers

Many stakeholders, including donors and government agencies, are undertaking

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

50
  

Table 6Ethiopian Agribusiness Stakeholder Mapping by Value Chain of Focus

Value Chain Textiles Fruits and

Dairy Honey Oil seeds Bamboo Wheat Leather
Specific Garments Vegetables
– ATA – ATA
Government
– Ethiopian
– International – Ethiopian Leather
– Holeta – Ethiopian Agricultural Research Institute
Livestock Textile Industries
Research
R&D Institutes Research Developme Developm
Institute
Institute (ILRI) nt Institute ent
Institute

– SNV,
– SNV,
– SNV, – GIZ,
USAID/Land – Finnish
– DFID, GIZ Finnish – SNV UNID – DFID
Donors O’Lakes, (AgroBIG),
(Agro BIG) O
ACDI/VOCA
– DFID
– Development Bank of Ethiopia
– Debrezeit
– Veterinary
Commercial Bank of Ethiopia
Universities/
Finance School – Bahir Dar
Academia
organizations – 15 Private Commercial University
Banks
– Haromaya
– University
Microfinance Institutions

– Ayka Addis – Ethiopi

Textiles an
Multinationals/ – Land O’Lakes,
– Ethiopian – Et Fruit – Olam
Pulses,
– Corporate Holland Dairy
–– Dima
Ethiopian Honey Spices
Textiles
Textile and and Bee – Ethiopian and
– Ethiopian Milk Garment wax Horticulture Oil
– Bahir Dar – Ethiopian
Producers and Manufactur Processors and Seeds
University TVET Leather
Entrepreneurship
Business and Processors ers – and schools Floriculture Proces
support Industries
Professional Association Association Exporters Producers sors
– TVET Associatio
Communities (EMPPA)/Dairy (ETGAMA), Associatio and and
n (ELIA)
Board Ethiopian n Exporters Export
Cotton (EHPEA)/H Association ers
Association oney Associ 51  
Board ation
(EPOS
PEA)
  

schools

52  
The AII will coordinate closely with the numerous donor programs to ensure a solid
supply of quality raw materials to the value adding entrepreneurs, thus connecting
growers with processors with markets. It will do this while ensuring quality inputs are
being used to produce competitive, legally compliant finished products and
developing the market for such products.

5.4.2 Connecting to Buyers

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

5.4.3 Business Development Service Providers

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

5.4.4 Financiers

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

5.4.5Academia

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

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

5.4.6 Government

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

Below follows an overview of some of the organizations that could be approached

to become AII partners.

54  
  

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

INSTITUTION ACTIVITIES AND POSSIBLE COLLABORATION

University of Bahir – Activities

Dar, Academy of • Academy of Food Science offers a five-year program (three-year
Food Science (AFS) externship) focused on quality controls, post-harvest handling and
processing.
• Externships provided at no cost to companies.
• Most graduates (95 percent) go to work in government sector.
• Has a curriculum on entrepreneurship—no record of success.
• Works with Ethiopian Competition Fund (a World Bank funded
program)—business plan competition where the winner gets 150,000
Birr
• Claims their equipment development services are the “best in the
country”—although they have never approached the private sector
to address processing challenges.
• AFS has 400 students and graduates 40 students per year.
• Has their own laboratory—not certified—lacks chemicals.
• Wants to focus on the fish industry in Bahir Dar—supply is blacklisted
from Addis markets for lack of proper storage. Need cold storage
and air freight—although, no one has done any work on this, as both
are readily available in Bahir Dar.

– Possible Collaboration

• Practical training options on entrepreneurship

• Laboratory access, if deficiencies are addressed
• Training for agro-dealers
• Local seed programs and marketing

Et Fruit – Activities
• Established in 1992, ET Fruit is a government-owned fresh fruit and
vegetable distribution company—one of the largest companies in
Ethiopia.
• Mission: “to work with private, government and small holders to buy
and distribute fresh fruits and vegetables.”
• Exports directly to the EU and the Middle East.
• Does not own any of their farms—100 percent out grower.
• Operates five wholesale markets in Addis—13 in the regions.
• Operates 60 retail stores in Addis.
• Has 35 trucks distributing products—18 refers (refrigerated).
• Currently has 350 employees and 500 casual workers.
• Works mostly with citrus fruits, banana, mango, and papaya.
• Upper Awash Agro Industry is leading supplier of citrus.
• World Vision is working with ET Fruit to coordinate cooperatives.
• SNV also has value chain projects.

55  
  

• Et Fruit is the exclusive importer of Pro Seed (Dutch, high quality seed
supplier).
• Also distributes sugar, oil, tomato paste, juices, and other finished
products (all from government-owned companies).
• Transports cut flowers from farmer group to airport.
• Planning on outsourcing some distribution needs.
• Also looking at expanding value-added offerings and catering
services into textile companies.
• All sales done on a consignment basis—5 to10 percent mark-up.
• Currently sells imported products such as coffee, tea, seasonings, and
others.
• Services “most” supermarkets in Ethiopia.
• 480M Birr in annual sales 2011—more than Merkato.

– Possible Collaboration

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

seeks amemorandum of understanding (MOU) with infoDev to partner
on projects.
• May be able to help address cool storage problems.

Olam – Activities
• Multinational-based in Singapore.
• Works in coffee, sesame, groundnuts, and spices.
• Has coffee estate of 4,200ha (producing 1-ton per HA).
• Looking at expanding spices, but needs local partner.
• 250,000 tons of sesame total in country (three to four month
production).
• Organizing farmer group for sesame.
• They only work with products not used for local consumption.
• Coffee (West & South), sesame (North & West), spices (West & South) .
. . spices have high value per hectare.
• Programs in Ethiopia, Mozambique, Senegal, and Tanzania (among
others) . . . logical value chain partner (and interested).

– Possible Collaboration

• Proposes that infoDev helps establish a center for collection, storage,

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

56  
  

Selam Technology – Activities

and Vocational • Local NGO training facility with attached charities and income-
Center generating services.
• Provides training in mechanics, equipment design and engineering
and culinary arts.
• R&D unit focuses on post-harvest agro-processing equipment,
although there is no curriculum for students in this track.
• Currently has over 500 students in two facilities.
• Only women are enrolled in the culinary arts program.
• Training is a three-year, accredited program in metal work, wood
working, machinery, and culinary arts.
• Highlights graduates as “many micro-enterprises – few entrepreneurs.”
• Also operates an edible oil program and renewable energy program.

– Possible Collaboration

• Possible opportunities to link with Selam for potential processing

equipment sales, although others have called Selam’s equipment
“more expensive than imports and low quality.”

Addis Ababa – Activities

Chamber of • Provides capacity building, business training, accounting, business
Commerce—met plans, and start-up training.
with the branch • Has an awareness program for government laws and programs.
office of COC in the
• Promotion of market access services.
Merkato, sponsored
by the Dutch • Focuses on SME development—particularly women-owned
Embassy companies.
• Sponsors Merkato handicraft festival, as well as radio ads, television
ads, and the publication of Merkato Magazine —3,000 distribution.
• Stated that “few value-added products” are using the Merkato—no
explanation why.
• The manager was “not familiar with how the Merkato works,” even
though he is based in Merkato.

– Possible Collaboration

• The Chamber is developing a Chamber Academy, which may be

very beneficial for the AII clients for business capacity building and
training.

Ethiopian Freight Activities

Forwarders • Established in 2004, targeting government organizations and private
Association sector.
• Has 50 members (100 total in Ethiopia) and is a member of FIATA.
• Challenges: Awareness of freight forwarding and organization.
• Authored a training program for industry about freight forwarding and
customs.
• Will offer training for approximately 10,000 birr. Annual membership is

57  
  

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

– Possible Collaboration

• Good opportunity to partner on training programs (raise awareness

for them . . . services for incubatees).

Synovia Network
– Activities

• SYNVOIA is a platform that brings together the providers of business

development services (supply side) and the consumers (demand
side) of the same in order to do the following:
o Create an efficient market for BDS services
o Improve the quality of existing services
o Help develop new services

SYNOVIA aims to do the following:

• Develop a network of high quality BDSPs to help power a private

sector led growth in Ethiopia
• Foster and incentivize innovation in the sector as per the demand
situation in Ethiopia
• Allow for the most efficient and effective use of resources of BDSP
service users (deliver better value for their money)
• Save foreign currency by reclaiming market currently served by
foreign consultants and eventually exporting services abroad
• Build the capacity of BDSPs

– Possible Collaboration

• The AII needs to work with and through private BDSPs to both identify
and support selected firms
• Participation in the SYNOVIA network
• Capacity building for BDS service providers

Ethiopian BDS
Network – Activities
• To establish a close contact among the various MSME promotional
agencies, chambers, business associations, and others that have a
stake in MSE promotion to achieve a meaningful success in assisting
MSMEs.
• To share experience and knowledge as experienced in the daily
activities of the various regions and organizations, which will
strengthen the promotion of the sector.
• Eliminate duplication of efforts and there by create better resource
utilization in the promotion of the MSE sector.
• Help the member organizations to concentrate and specialize in
giving specific services, in which they are better, so that the operators

58  
  

will be better served.

• To create linkage and better information exchange among the
various MSE stakeholders, which facilitates the promotion of the
sector.

– Possible collaboration
• The AII needs to work with and through private business service
providers to both identify and support selected firms.
• Participation in the EBDS Network.
• Capacity building for BDS service providers.

59  
  

6.0 AII Governance

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

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

It is recommended that the AII be housed in a local organization selected through a

competitive bidding process. To foster the necessary public-private partnership
arrangements, a consortium is desirable, led by the anchor organization and
comprising of the following:

• Relevant players form the public sector, whose focus should largely be
facilitative and policy-related, and improve the overall business and value chain
ecosystems.
• One or more universities or institutes, whose focus should be on entrepreneurship
education and access to testing and other facilities.
• Leading private business development service providers and entrepreneurs,
whose role should be to focus on business support, market development, and
helping clients develop innovative and competitive business models. To bring to
bear the necessary market development expertise and linkages internationally,
an international organization might complement local service providers.

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

60  
  

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

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

 Capabilities to build and manage complex organizations, including strong internal

governance frameworks and a track record of fiduciary responsibility and
accountability, at the core of more fluid networks of business service providers,
value chain actors, and financiers.
 Proven ability to attract and build a strong team of individuals for project
implementation.
 Understanding of the needs of agribusiness SMEs in Ethiopia or similar contexts,
including experience evaluating agribusiness technologies and incubating early-
stage businesses.
 Strong local and international links with potential partners, including agribusiness
firms, investors, technical and business experts, policy experts, and leading research
and development organizations.
 Ability to leverage existing and additional sources of funding, both cash and in-kind,
such as space, equipment, and staff.
 Ability to implement and maintain procurement and financial management
processes and a comprehensive M&E strategy.
 Ability to network purposefully with value chain actors and business development
service providers in Ethiopia and knowledge of these networks, the organizations,
and individuals concerned.

As mentioned earlier, there are many linkages specific to agribusiness development

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

61  
  

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

62  
  

7.0 Implementation Requirements

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

7.1 Staffing

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

Table 8 Ethiopian AII Staffing Requirement (at full capacity)

CEO also Market Development Manager - International 1

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

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

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

Staffs need to be supported by a flexible consulting and mentoring budget, to bring in

specialist experts and mentors to work with the entrepreneurs. A budget for consulting

63  
  

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

7.2 Facility and Infrastructure Requirements

7.2.1 Access to Testing Facilities

Agribusiness entrepreneurs need access to testing facilities and laboratories, through

brokering relationships rather than setting up dedicated facilities. Generally, companies
have testing done in South Africa or Europe in the absence of local facilities and
services.

7.2.2Access to Relevant Technology

Technology information, development, and transfer are another important element of

the AII. In implementing this track, the AII will need to address the needs of food
manufacturing and processing companies in any databases and services that broker
access to appropriate technology.

7.2.3Access to Packaging

Access to packaging in Ethiopia is an impediment for food processors, who have

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

7.2.4 Pre-Incubation

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

64  
  

7.3 Location

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

Figure 14 AII Hubs and Satellite Locations

65  
  

8.0 Financial Plan

The AII is designed to become 75 percent financially sustainable after six years—which is
defined as covering the ongoing operating expenses of the AII, including depreciation,
through earned revenues. In terms of cash flow, 90 percent of cash expenses would be
covered. A flexible revenue model is proposed in which sustainability may be
enhanced once various revenue options are tested. An initial investment of $10.35.9
million would be needed as start-up capital in order to achieve this objective. This
investment would be comprised of $5.53million for nonfinancial services and capital
expenditure; $3 million for financial services and $1.82 million for implementation costs
that include technical assistance and trust fund and program management. The fund
as proposed and detailed in Section 5.3.3, should accommodate $600,000 in soft
loans/equity per annum.

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

• Royalty of 6 percent fee on turnover per annum, anticipating that 60 percent of

clients will choose this option. The royalty fee is set against income needs of the
AII and the ability of the clients to pay. Modeling an increase in turnover of 30
percent, a decrease in the cost of sales of 10 percent, and a decrease in
overheads of 10 percent, as a result of the intensive support provided, indicate
the net profit exceeds net profits after payment of a 6 percent fee. The rationale
is that support will improve financial well-being while the client is in the AII (even
with a royalty fee) and that upon leaving, the client will reap full benefits.
• Equity of 5 percent, anticipating 20 percent of clients choose this option. Along
similar lines to the royalty rationale, improved revenues and profitability will lead
to growing company value.
• Incubation fee of $20,058per annum,19 anticipating 20 percent of clients choose
this option, which is applicable mostly to larger firms. The fee is commensurate
with the average royalty paid by the firms choosing the royalty option.
• Finance brokerage of between 5 percent and 2.5 percent on finance raised,
anticipating 50 percent of clients are assisted with securing finance from $50,000
to $500,000.

The agribusiness entrepreneur survey respondents acknowledged the need to pay for
services, with 48 percent preferring a royalty arrangement, 20 percent equity, and 28
                                                                                                           
19Based on the average royalty paid for the first year.

66  
  

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

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

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

in Annex 11.

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

8.1 Budget

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

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

An allocation for communications and marketing expenses is required, because of

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

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

67  
  

2,000,000    
1,900,000    
1,800,000    
1,700,000    
1,600,000    
1,500,000    
1,400,000    
1,300,000    
1,200,000     Staffing  and  overheads  
1,100,000     Capex  
1,000,000     Seed  Capital  
900,000     DepreciaAon  &  Provisions  
800,000     Building  rent  and  services  
700,000     Mentoring  &  Advisory  
600,000    
500,000    
400,000    
300,000    
200,000    
100,000    
0    

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

68  
  

3%  

16%  

Staffing  and  overheads  

Mentoring  &  Advisory  
35%  
Building  rent  and  services  
DepreciaAon  &  Provisions  
26%  
Seed  Capital  
Capex  

8%  
12%  

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

69  
  

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

Category Yr0 Yr1 Yr2 Yr3 Yr4 Yr5 Total

Staffing and overheads 154,952 235,000 240,000 240,000 240,000 240,000 1,349,952
Mentoring & Advisory 315,154 345,154 385,154 420,154 420,154 320,154 2,205,924
Building rent and services 167,799 167,799 167,799 167,799 167,799 167,799 1,006,793
Depreciation & Provisions 0 83,109 83,109 83,109 83,109 333,987 666,423
Seed Capital 0 615,000 597,000 597,000 597,000 597,000 3,003,000
Capex 297,000 297,000
Totals by Year 934,905 1,446,062 1,473,062 1,508,062 1,508,062 1,658,940 8,529,092

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

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

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8.2 Sustainability

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

Table 10 Ethiopian AII Annual Expenses for Operation

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

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

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

None  of  the  

above  
4%  

Small  %  of  Equity  

(5-­‐7%)    
Pay  as  You  Go  at   20%  
Full  Cost  
28%  

Royality  on  
Increase  in  Gross  
Sales  (3-­‐7%)  for  3  
or  4  years  
48%  

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

71  
  

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

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

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

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

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

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

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

Brokerage
Notional 0 1,000 4,800 8,600 16,600 24,600 32,600
10percent
Return on
Equity
Portfolio

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

8.2.1 Royalty

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

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8.2.2 Equity

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

8.2.3 Incubation Fee

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

8.2.4 Finance Brokerage

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

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

• Training, for which revenue potential largely depends on how much is

outsourced to other providers, in which case margins are likely to be low.
Strategically outsourcing may be an important way to lever and involve partners.
• Sponsorship, from corporations interested in supporting the agribusiness sector as
a part of their corporate social responsibility programs.
• Rental of hot desk services, meeting rooms, and other facilities in the AII premises.

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8.3 Fundraising Plan

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

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

Subsidy Required—Total $5,53m

Subsidy Required—Capital $0,297m

Subsidy Required—Operational $5,229,000

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

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9.0 Results and Impacts

The raison d’être of the AII is to advance the competitiveness of agribusinesses, so as to

increase their growth, and thereby increase jobs and incomes.

A detailed monitoring and evaluation framework will be developed to measure

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

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

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

6 Year Impact 10 Year Impact

CLIENT BUSINESSES 50 growth-oriented 100 growth-oriented business
businesses supported supported
Additional $11.9 million Additional $ 27.3 million turnover
turnover generated generated
EMPLOYMENT 1,698 jobs created 3,744 jobs created
1,103 jobs created for 2,433 jobs created for women
women

9.1 Outcomes

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

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

75  
  

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

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

9.2 Social and Economic Impact

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

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

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

Over a six-year period, the AII will directly support 50 sustainable growth-oriented
enterprises. It is to be expected that these enterprises will generate an additional
$11,923,276 in turnover over this same time period.

By more than doubling the output of SME producers, their input purchases should
double as well, thus having a significant impact on farmers’ incomes.

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

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

76  
  

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

9.3 Climate Change Impact

At a general level, more sustainable, environmentally friendly and efficient agribusiness

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

As noted by GRAIN, an international nonprofit organization that works to support small

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

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

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

At a company level, this assessment of the market for incubation of agribusinesses,

uncovered a number of specific opportunities, including the following:

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

22I bid

77  
  

 There is a spice extraction company that has a struggling solar drier program.
 The briquettes factory in Awassa could be expanded to use coffee/sugar rinds
and for which the Addis Glass Company could take ash residue for glass
production.
 There are biogas opportunities with, for example, horticulture processing
companies that currently dump all their waste.
 The only PET supplier in Ethiopia is interested in and sees opportunity for
public/private PET recycling program.

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

9.4 Monitoring and Evaluation

The AII will be developing a comprehensive monitoring and evaluation framework,

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

 Turnover per annum

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

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

78  
  

10.0 Conclusions

The tremendous diversity of ecological zones in Ethiopia enables production of a wide

variety of crops. Market opportunities exist for Ethiopian agricultural products: seven key
value chains (or value chain groupings) were identified as having good potential for
growth at this time: bamboo; horticulture (fruits and vegetables); dairy; cotton, textiles,
and garments; honey; wheat; and spices. However, significant challenges remain. One
resonating challenge experienced by most existing entrepreneurs is the development of
both domestic and international markets enabling entrepreneurs to potentially reach
380 million customers.

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

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

The AII is designed to become 75 percent financially sustainable after six years—which
is defined as covering the ongoing operating expenses of the AII, including
depreciation, through earned revenues. In terms of cash flow, 90 percent of cash
expenses would be covered. A flexible revenue model is proposed in which
sustainability may be enhanced once various revenue options are tested. An initial
investment of $10.35 million ($8.53 for operations and capex and $1.82 for
implementation support and management) will be needed in order to achieve this
objective. After the initial ramp up period, it will cost about $880,000 per annum to
implement the AII.

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

79  
  

Agribusiness-led growth has great potential to contribute to sustained economic

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

80  
  

Annexes

Annex 1: Conclusions of InfoDev Global Good Practices Assessment on

Agribusiness Incubation

In 2011, infoDev conducted a study of 10 agribusiness incubation programs in eight

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

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

• Fundación Chile has spearheaded the development of the salmon industry that
in a span of just slightly more than 10 years has been able to grow by a factor of
1,000 and contributed to $2.2 billion exports and more than 35,000 jobs.
• The efforts of Technoserve in Mozambique and Fundación Jalisco in Mexico
have led to the upgrading of entire subsectors, such as poultry, cashew nuts,
and blueberries.
• CENTEV-UFV in Brazil has developed a new model for commercialization of
agricultural research in Brazil. It has cultivated such successes as a biotechnology
business specializing in a fungus that protects plants from parasitic nematodes, a
product that could help reduce the yearly $100 billion losses in world agriculture.
• Timbali Industrial Incubator in South Africa has transformed the life of poor
women into assertive entrepreneurs in the highly competitive flower business.
• ABI-ICRISAT in India has supported the growth of successful biotech companies.
• IAA-IPB in Indonesia has promoted the growth of zero-stage enterprises owned
by women into successful, competitive, and growing medium enterprises.

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

81  
  

Table 14Studied Agribusiness Incubators’ Quantifiable Outputs

Incubator Graduates Average Nr. Of Years Initial Total Sales “ROI”

Sales of the Investment of
Enterprises Incubator in Graduated Enterprise
Has Incubator Enterprises Sales/ Initial
($ million) Operated ($ million) ($ million) Investment in
Incubator

85 5 30 50 425 2.3
Fundación
Chile

24 2.5 16 0.7 60 60.4

CENTEV

4 1.25 5 4 5 1.2
Fundación
Jalisco

38 0.21 16 0.3 7.98 18.7

IAA-IPB

140 0.03 8 2.8 4.2 1.3

Timbali

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

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

82  
  

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

1. Help the entrepreneur manage the risks associated with an agribusiness

enterprise through a combination of technology, institutional, and networking
strategies
2. Understand the value chain affecting the success of the enterprise and assisting
the enterprise with positioning itself in the value chain by linking farmers and
enterprises to meet the demand of consumers for stable, quality, and affordable
products
3. Identify and demonstrate innovative business propositions so as to catalyze
broader sectoral take-up
4. Adapt the focus and business model of the incubator, and strategically scaling it
up in response to market opportunities and market failures
5. Promote pro-active business orientation that actively identifies market
opportunities
6. Support incubation design basics: leadership with a business mindset and
excellent agricultural market knowledge (preferably with agribusiness
experience), a lean staff complemented by strong partnerships, an institutional
framework that provides sufficient flexibility allowing for learning by doing, strong
capital structure, and dense networks—including effective linkages with sector
leaders.

83  
Annex 2: Ethiopian Agribusiness Donor Mapping

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

Table 15Agriculture Value Chain Support Donor Programs in Ethiopia

NAME OF INSTITUTE FOCUS AREA

– Used value chain approach to boost exports, competitiveness, and incomes growth. Targeted value
chains included the following: fresh fruits and vegetables, cut flowers (roses), cotton garments and
World Bank
textiles, and leather (shoes). Currently uses value chain approach to support the GoE's plan to
develop an industrial cluster development strategy.
– Used value chain approach to develop a market-driven, private sector-led Ethiopian dairy industry
built on private investment that does the following: generates employment and income for small-
holder families; provides comprehensive support package to improve Ethiopia's animal health and
phytosanitary systems; introduces and adapts modern processing technology in meat industries;
USAID identifies major policy issues that discourage private sector involvement and provide alternative
policy options to promote the sector; identifies market opportunities and stimulates market-led agro-
enterprise and cooperative linkages with domestic, regional and international markets; and increases
growth in investment, private sector employment, and incomes in the value chains of coffee,
sesame, hides/skins/leather, and other horticulture crops.
– Uses value chain approach to strengthen the agriculture sector, enhance access to finance, and
ACDI/VOCA stimulate innovation and private sector investment. Targeted value chains include the following:
chick peas, coffee, honey, maize, sesame, and wheat.
– Uses value chain approach to ensure sustainable long-term economic growth by developing
entrepreneurs, in particular women entrepreneurs (move from the informal to the formal sector) and
Increase the productivity and sustainability of businesses, based on realistic market potential, which
CIDA
will result in increased long-term formal employment opportunities. Targeted value chains include the
following: livestock, fruits, oilseeds, and eventually honey, and new value chains such as pulses,
spices, and vegetables.
– Uses value chain approach to contribute to poverty reduction through agriculture-based economic
Finland Embassy
growth. Targeted value chains include onion and honey.
  

– Uses value chain approach to develop the private sector. Targeted value chains include horticulture,
DFID
leather, and textiles.
– Used value chain approach to promote economic growth in the Arsi zone through commercialization
of small farm crops with market potential in the value chains of horticulture, vegetables, and
livestock. Used this approach to increase the economic productivity of traditional agricultural
products, namely the durum wheat of Bale and the wild coffee of Harenna forest, through the
strengthening of key institutions involved in the value chains, and the support to farmers and their
Italian Development organizations in the implementation of enhanced cropping and post-harvest practices toward a full
Cooperation recognition of their quality products by national and international final users. Used this approach to
increase food security, reduce poverty, diversify agriculture, and promote soil and land conservation
for fruit and cactus pear production. Funder of the Crop Diversification and Marketing Development
Project (CDMDP).
– The Italian development cooperation has been recently focusing its support on the development of
the leather value chain.
– Used Value Chain Approach to raise subsistent small-holder production to commercial level in the
dairy value chain, to promote economic growth in rural areas through strengthening
commercialization of small scale-farmers in areas with recognized market potential through the Crop
Diversification and Marketing Development Project (CDMDP) funded by the Italian Cooperation and
FAO which focused on wheat and barley. Collaborates with UNIDO in the framework of the Edible Oil
Value Chain Enhancement Programme (see below).
– The FAO has been focusing its activities toward the implementation of the warehouse receipt system
and has been acting as a purchaser of raw and processed agricultural products from private
companies in the framework of its aid programs in the regions.
– Uses value chain approach to develop the capacity of private companies, private sector
intermediary organizations, and public service bodies in order to enhance the business and export
growth opportunities in selected sectors. Uses approach to add value to livestock commodity
production chains by integrating strengthened animal health, advisory, and regulatory services,
CDE/EU
supported by effective dialogue between and mutually agreed actions by stakeholders in the public
and private sectors. Uses approach to contribute towards increased income and reduced poverty of
small-holder farmers through enhanced integration into agricultural commodity markets. Targeted
value chains include fruits and leather.
Bill and Melinda Gates – Uses value chain approach to boost agricultural productivity growth. Targeted value chains include
Foundation staple crops (cereals, oilseeds) and livestock (meat).

85  
  

– Uses value chain approach to increase production, income, and employment opportunities for small
SNV Ethiopia farmers by enhancing their inclusion in local, national, and global value chains. Targeted value
chains include oilseeds, honey, fruits, and dairy.
Uses Value Chain Approach in preparing an agro-industrial master plan for Ethiopia, by prioritizing
commodities to identify those offering the highest prospects for growth. Twenty-two commodities
were assessed, 12 were selected including four priorities: cereals (wheat, maize, teff, and barley);
oilseeds (sesame, Niger seed, linseed and rapeseed); coffee and sugar; and design strategies to
support commercialization and agro industrial development. The Edible Oil Value Chain
UNIDO
Enhancement Programme (funded by the Spanish Government and jointly implemented by UNIDO,
International Labour Organization (ILO), and the FAO) in the Amhara and Oromiya regions aims to
increase the productivity and competitiveness of Ethiopia’s oilseed producers, to boost the capacity
for processing oilseeds, and improve access to local and international markets by integrating the
private sector into the edible oil seed production value chain.
– Used value chain approach to contribute significantly to more efficient agricultural value chains by
supporting private sector actors and improve the efficiency and effectiveness of farmers'
Dutch Embassy/EKN
organizations in agricultural marketing of milk and milk products, honey and beeswax, edible oils and
oilseeds, and pineapple.
– Used value chain approach in the Amhara region to help poor farmers manage long-term
SIDA
sustainable production and improve small farmers’ rights and economic possibilities.
– In collaboration with the East Africa Community (EAC), uses value chain approach in the framework
of a new initiative—East Africa Project Facilitation Platform (PFP)—to boost food production, job and
UNDP
income opportunities for farmers through advancing agriculture value chains in East Africa. Targeted
value chains include sorghum, soy and dairy.
– Uses value chain approach to upgrade the areas of agro processing of bamboo, leather, textiles,
and pharmaceuticals and to ensure that through value chain interventions the competitiveness of
GIZ
the local industry is strengthened in the framework of the Engineering Capacity Building Program,
which involves KfW.
Spanish cooperation – Funder of the Edible Oil Value Chain Enhancement Programme.
Chinese Cooperation – Special economic zone, construction, TVET, and Import-Export Bank.

86  
  

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

1. Finnish Embassy—Agro-BIG is dedicated to agribusiness induced growth in the

Amhara National Regional State. The four-year program supported by both
governments of Ethiopia and Finland aims to contribute to poverty reduction
through agriculture-based economic growth in the program area by establishing
efficient and profitable value chains of selected crops or products (during the
first phase, the value chains of focus will be onion and honey), benefitting the
involved actors and stakeholders along the chain (farmers, processing industries,
traders, and buyers). Agro-BIG will have three vertical components: value chain
development, service delivery development, and access to funds and financial
services. Finland views infoDev as a key implementing partner for Agro–BIG and
supports the integration of the AII with the CIC. Annex 6 summarizes how the AII
and Agro-BIG Program can work together as an example for how the AII can
complement the work of other donors.
2. DFID—Private Enterprise Program Ethiopia (PEPE) and the Government for
Growth (G4G) program, which is under design and which aims to take over the
Ethiopian Competitiveness Facility (ECF) focusing on horticulture, leather, and
textiles—both of which could have intersects with the CIC. DFID is infoDev’s core
donor partner for funding the CIC in Ethiopia.
3. European Commission—Two EC-funded initiatives could be explored for
intersects with the CIC: a business incubator to be set up at the University of
Addis Ababa that will focus on leather, pharmaceuticals, and chemicals (in line
with the GTP); and the €30million transformation instrument designed to
accompany the implementation of the GTP.
4. USAID—The FABS program will be launched in June or July of this year. This is a
five-year program focused on expansion of financial services, business
development services, and trade facilitation. Once the implementer has been
selected, it has been agreed that USAID colleagues will link this entity with
infoDev to explore collaboration opportunities with regard to the sustainable
agribusiness
5. SNV—The BOAM program launched in 2005, focused on four “neglected value
chains”: apiculture (honey), fruits, dairy, and oil seeds. The next phase of the
program still under development foresees a €10 million grant support in dairy for
the development of public-private partnerships and a €9 million grant support
toward enhancing investment in commercial finance and innovation supply in
the honey sector. Other sectors to be supported will include fruits.
6. African Development Bank—Their focus is on facilitating access to microfinance,
notably through a rural finance program implemented with IFAD and which the
second phase is currently being designed. The aim is to facilitate access to
markets of value added products by collaborating with private sector

87  
  

stakeholders and facilitating their access to adequate infrastructure and credit.

The AfDB has offered to link the infoDev team with the relevant contact person in
the AfDB headquarters so that collaboration opportunities can be explored.
7. SIDA—SIDA promotes private sector development through projects at the macro
level (supporting ministries, for example), at the meso-level (such as developing
chambers of commerce), and at the micro level (through training small-scale
farmers, for example). The efforts that are prioritized in different countries and
regions depend on each country’s particular conditions and requirements. In
Ethiopia, SIDA has been supporting a major project in the Amhara region for
some time. This program helps poor farmers manage long-term sustainable
production. By promoting self-determination locally, the project has improved
small farmers’ rights and economic possibilities.
8. UNIDO—In 2007, UNIDO carried out an agribusiness sector study on the basis of
which it has developed with the government the Agro-industry Development
Strategy, which focuses on 12 value chains. Out of the 12, it prioritized five for
critical intervention for each of which it has developed or is currently developing
a dedicated strategy. To date, it has developed the strategies for coffee and
oilseeds and is still developing the strategy for fruits and vegetables and dairy.
The oilseeds value chain project mentioned earlier is currently being
implemented in partnership with two agencies: FAO and ILO.
a. The FAO focuses on agriculture and production—helping farmers and
cooperatives to work organized in business associations focusing on
access to inputs and marketing. Small-scale processors are organized in
geographic clusters moving to industrial zones where they receive support
with raw material supply agreements facilitation, technology, and
marketing. The project enables farmers to produce better and processors
to get better and consistent raw material, namely, the raw material supply
issue (identified as the first issue by agribusinesses in Ethiopia) is sorted out.
b. The ILO focuses on the policy and enabling environment—providing
support to research institutes, BSD providers, universities, and professional
associations.

UNIDO is coordinating the overall project that intends to link small-holder

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

9. IFAD—IFAD’s strategy in Ethiopia is well aligned with the government’s GTP

strategy. It focuses on supporting investment programs with the greatest
potential impact on sustainable household food security and the incomes of
poor people. IFAD’s strategy is to improve poor rural people’s access to natural

88  
  

resources (such as land and water), improve agriculture and livestock

production technologies and support services, and develop reliable financial
services. The projects particularly target women, small-scale farmers, and
herders. IFAD has taken the lead role, together with their partners, in the
development and expansion of rural finance, small-scale irrigation, and support
systems for pastoral communities. IFAD also works with governments and
communities in the Eastern Africa region to introduce appropriate measures and
adaptive technologies that reduce the vulnerability of poor rural communities to
climate variability and longer-term climate change.

A main focus is restoring ecosystems and their services as a means of bolstering

the resilience of agricultural livelihoods. IFAD is also pioneering and testing
payment for environmental services, income diversification, and more
sustainable and profitable management systems, which promise to become a
major factor in encouraging rural communities to protect the resources they
depend on and to help them become active players in reducing global
greenhouse gas emissions. No specific action has been rolled out in Ethiopia, yet.
 

89  
  

 
Annex 3: Main Gaps Faced by Ethiopian Agribusiness SMEs

Using a combination of workshop outputs, agribusiness entrepreneur survey results,

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

Input Supply Problems and Low Utilization of Installed Capacity

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

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

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

Consequently many firms operate below capacity (for example, 20 percent, 60

percent, and 50 percent) because of a combination of factors: good quality raw

90  
  

material, small quantities produced by individual farmers, inadequate storage, handling

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

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

Market Development

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

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

 Limited or lack of market information  Access to consistently updated market

local, regional, and international information relating to demand situation
demand situation
 Lack of awareness of quality  Periodical training on grades and standards
standards in local, regional, and prevalent in local, regional, and international
international markets markets. Instituting standards and associated
systems
 Lack of well-defined quality  Training on QMS and the creation/adaptation
management systems (including of QMS
good manufacturing practices)

 Poor agro produce packaging and  Facilitated linkages with packaging firms and
underdeveloped packaging industry promotion of a local packaging industry
 Lack of marketing capability  Extensive training, coaching and on the job
support
 Export infrastructure and services,  Better export infrastructure and services and
either via Djibouti or airfreight helping entrepreneurs to develop their
capabilities to better navigate through the
complications
 Very poor domestic distribution  Strategies and business models to improve
services distribution

91  
  

Food processing entrepreneurs struggle to understand the following: opportunities for

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

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

The Merkato, a complex network of regional, informal markets (complete with an

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

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

92  
  

have to go by road to Djibouti or by airfreight, entrepreneurs have few options and

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

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

Business Management Capability

As well as market development weaknesses, agribusinesses in Ethiopia suffer from other

business level gaps related to poor management strategy and execution, which are
summarized below.

93  
  

Business Level Gaps:

Building a pipeline of business skills, capacity, capability, and sustainability
 
Gaps – Needs

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

experienced professionals

 Lack of ongoing access to business  Availability of local advisors with broad

advice knowledge to advise on business matters
 Weak business planning and  Organized, tailor-made hands-on coaching
execution in business planning and implementation
 Skills gaps in marketing, especially  Exposure sessions to a diverse range of
broadening marketing channels marketing strategies
and identifying strategic outlets,  Skilled consulting assistance to help develop
both domestically and for export
competitive market entry and development
strategies
 Lack of knowledge in establishing  Facilitating contract and out-grower farms
raw material supply deals and deals and helping companies to improve
efficient supply chains the efficiency of their supply chains
The entrepreneurs surveyed desire support from the AII to address these weaknesses, for
which marketing (marketing and new markets combined) and financing top the list,
followed by training, business planning, and management advice and mentoring.

Finance

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

94  
  

Finance
Ensuring access to risk capital

Gaps – Needs

 Access to finance limited by risk  Access to risk capital

aversion, collateral and personal
equity requirements, and high
interest rates
 Limited finance options  Access to risk capital and development of
viable options for debt

 Weaknesses in preparing fundable  Exposure and coaching on business write-

business proposals ups and also linkages with business service
providers

 Micro finance is too small for agri-  Finance for growth

business companies on a growth
path, although may be involved
further down the chain

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

 A ginger processing company is at 100 percent capacity, processing five tons of

raw ginger a day and is seeking $3,000,000 to expand production to 50 tons a
day.
 A large textile company with old machinery and spare parts problems is seeking
$5 million.
 A new dairy company producing milk, cheese, and butter is seeking $56,000 for
working capital to assist their growth.
 A three-year old fast food company is planning on selling shares to raise
$1.1million to fund their planned growth.
 A poultry company selling chickens, pullets, eggs and pork needs $1.1 million to
double production.

Equipment and Technology Gaps

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

95  
  

Equipment and Technology:

Supporting acquisition of equipment and technology for competitiveness

Gaps – Needs

 Lack of knowledge of latest  Ongoing education of technology advances

processing technology
 Equipment is outdated or  Access to new and improved equipment
inappropriate
 Insufficient equipment to increase  Facilitation of finance to acquire new and
production more equipment
 Lack of after sale services and spare  Facilitating better equipment supply deals
parts with after sale deals.
 Underdeveloped local manufacturers  Exposure of local manufactures to dealership
and equipment maintenance with international providers
services
 Grossly inadequate post-harvest  Facilitation of access to facilities and support
storage and cool storage in rural for enterprises in these areas
areas, limiting the ability of producers
to store and market their produce
efficiently while reducing post-harvest
 losses
Insufficient food health and safety  Better access to existing institute and
laboratories and certification services university laboratories and laboratory
improvement, along with improved
certification services and understanding
international links to appropriate laboratories
 

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

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

Linkages and Networking

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

96  
  

Linkages
Connecting, informing, leveraging, and transforming relationships

Gaps – Needs

 Research and development knowledge  Facilitating linkages between research

not reaching processors and development and processors

 Government policies do not always assist  Advocating behalf of processors to

processors improve support

 Higher education, vocational training,  Facilitating curriculum review, training

and research not meeting the demands methodologies, and research to address
of the agro processing industry local industry challenges
 Improving access to laboratories and
other facilities
 Promoting internship and
entrepreneurship programs to foster a
pipeline of new agribusiness
entrepreneurs

 No enforced national standards, for  Introducing standards, associated

example, for honey and organic services, and training
certification

Consultations with stakeholders and businesses identified a range of areas in which

government policies and services need to improve:

 Only government can import wheat, causing problems for wheat processors who
cannot always get the type and quality of wheat they need.
 Far better industry statistics and evaluation are needed, with data that can be
trusted by industry.
 Having customs and duty charges on packaging material are unnecessary and
arguably unfair impediments, since no domestic companies are producing the
material. Because TetraPak is insulated with aluminum, it attracts a 30 percent
import duty.

97  
  

Annex 4: Agribusiness Entrepreneur Survey Report

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

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

Profile of the Sample

The Entrepreneurs

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

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

98  
  

>60    <20  
1%  0%  
20-­‐30  
51-­‐60   7%  
15%  

31-­‐40  
37%  

41-­‐50  
40%  

Figure 18 Age of Ethiopian Agribusiness SMEs Surveyed

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

Other    
13%   Not  formaly  
employed  
17%  
Employed  
Study  
(public  
13%  
sector)  
23%  
Employed  
(pvt  sector)  
34%  

 
Figure 19 Employment before Current Business for Ethiopian Agribusiness SMEs Surveyed

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

99  
  

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

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

Of the 75 respondents, 72 percent stated they are in business to seize a market

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

                                                                                                           
23 Global Entrepreneurship Monitor. 2004 Executive Report.  

100  
  

 D/K  
1%  

No  opFon  
16%  
To  
supplement  
other  
income  
11%  
To  seize  a  
maket  
opportunity  
and  long  
term  growth  
72%  

 
Figure 20 Why Surveyed Ethiopian Agribusiness SMEs are in Business

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

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

101  
  

The Businesses

Reflecting a desire to focus on value adding, the Business Sample

majority of businesses are food manufacturers, with
Large, medium, and small scale
the remainder classified as agriculture or forestry, enterprises, as well as micro enterprises,
or in related industries, such as transportation and organized into cooperatives.
storage. The majority of the businesses are more
The majority were engaged in
than five-years old. Although with 14 percent from processing of raw material to add
three to five years old, 23 percent from one to value, with some companies engaged
three years old and only 7 percent less than one in commercial farming, logistics,
year old, the sample has a useful range of packaging, training and research, and
technology development.
experience from which to learn. It must be noted
that the sort of incubation under consideration is As with most agro-processors in
not restricted to new start businesses, but Ethiopia, 95 percent were from Addis
Ababa, while the rest were from other
potentially for any age of business that warrants
towns, such as Dukem, Debrezeit, Koka,
and needs the intensive support offered to help Adama, Merti, Hawassa, Arbaminch,
them on a growth path. Almost all exhibit a history Kombolcha, Bahirdar, Mekele, and
of growth in turnover—an important criteria when North shoa (Chacha).
seeking growth-oriented businesses with which to
work to achieve more growth.

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

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

102  
  

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

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

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

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

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

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

To grow businesses need to be competitive and in a competitive global market, which

often involves differentiation and completion on the basis of value. This appears to be

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

103  
  

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

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

Table 16Categorization of Ethiopian Agribusiness SMEs Surveyed per Industry

Business Category

22 29%
Agriculture, Forestry
43 57%
Manufacturing (food, juice, milk, honey, spices)
1 1%
Wholesale, Retail, Repair
3 4%
Transportation, Storage
5 7%
Accommodation, Food Service
1 1%
Professional, Scientific, Technical Activities
75 100%
Total

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

104  
  

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

Activities and Products

1. Agriculture—fruits and vegetables farming 10 13%

2. Agriculture—cotton farming 2 3%

3. Agriculture—cereals and grains farming 0 0%

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

5. Agriculture—dairy and poultry farming 3 4%

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

7. Agriculture—research and training 0 0%

8. Agriculture—packaging 1 1%

9. Agriculture—technology and equipment 1 1%

10. Manufacturing—fruits and vegetables processing 4 5%

11. Manufacturing—spices processing 8 11%

12. Manufacturing—cotton and silk processing, textile, and 16 21%

garment making
13. Manufacturing—packaging materials 0 0%

14. Manufacturing—testing and standardization services 0 0%

15. Manufacturing—transportation and logistics 0 0%

16. General Training 1 1%

17. Accommodation and Food Service Activities 7 9%

18. Transportation and Storage 2 3%

19. Agriculture—honey and bees wax 3 4%

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

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

22. Manufacturing—wood and bamboo 3 4%

105  
  

23. Manufacturing—local drinks—wine 2 3%

24. Agriculture—marketing services 1 1%

75 100%

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

Table 18Location of Ethiopian Agribusiness SMEs Surveyed

Business Location

42 56%
1. In Addis
0 0%
2. Oromoiya—25kms out of Addis
2 3%
3. Oromiya—45kms out of Addis
2 3%
4. 100 kms out of Addis
29 39%
5. >100kms out of Addis
0 0%
6. In Addis and one of the regions
75 100%

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

106  
  

Years  in   1.  Less    than  1  

OperaFon   year  
0%   7%  

2.  1to  under  3  
years  
23%  
5  and  above  
56%  
3.  3  to  under  
5  years  
14%  

Figure 21 Age of Ethiopian Agribusiness SMEs Surveyed

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

Table 19Business Structure of Ethiopian Agribusiness SMEs Surveyed

Business Structure

1. Sole Trader 11 15%

2. Company 41 55%

3. Cooperative 15 20%

4. Partnership 3 4%

5. Other 5 7%

75 100%

107  
  

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

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

Source of Money when Business Began

1. Did not Need 1 1%

2. Personal Savings 32 43%

3. Friends and family 7 9%

4. Money from Friends Overseas 1 1%

5. Micro Credit, Bank Loan 16 21%

6. Investor 18 24%

7. Other—specify 0 0%

75 100%

108  
  

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

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

Number of Full-time Paid Employees Including Self, Family

1. 1 6 8%

2. 2-5 12 16%

3. 6-10 7 9%

4. 11-20 7 9%

5. 21-50 10 13%

6. 51-100 8 11%

7. 101-500 16 21%

8. 501-1000 3 4%

9. 1001-2000 2 3%

10.>2000 4 5%

11. N/A 0 0%

75 100%

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

109  
  

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

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

Sales Turnover (ETB)—Last Year

1. Under 20,000 14 19%

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

3. 500,001-1 million 15 20%

4. 3-5 million 1 1%

5. Over 5 million 28 37%

75 100%

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

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

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

Trend in Turnover Movement Last Three Years

1. Higher than Before 60 80%

2. About the Same as Previous 12 16%

3. Lower than Previous 3 4%

4. N/A 0 0%

75 100%

110  
  

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

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

111  
  

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

Source of Business Growth

1. Increase in Sales and Customers 36 48%

2. Export 27 36%

3. Increase in Profit 6 8%

4. Increase in Employees 6 8%

75 100%

To grow businesses need to be competitive and in a competitive global market this

often involves differentiation and completion on the basis of value. Almost 50 percent
of the respondents appear to understand this.

Table 25Ethiopian Agribusiness SMEs Surveyed Understanding of Competitiveness

Reasons for Competitiveness

1. Cost Efficiency 6 8%

2. Price Competitiveness 12 16%

3. Product, Service Quality 25 33%

4. Scale of Economies 21 28%

5. Uniqueness/Differentiation 11 15%

75 100%

Problems Faced and Interest in Support Services

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

112  
  

Looking at the entrepreneurs, it appears that 70 to 80 percent are opportunity

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

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

30  
25  
20  
15  
10  
5  
0  
Lack  of  finance,  Capital  

Lack  of  space  

restricFons,  regulaFons  
Lack  of  technology,  

UFlity  problems,  water,  

Lack  of  demand  

Health,  stress  

Tax  and  compliance  

Poor  access  to  

Lack  of  skilled  staff  

Need  for  be[er  

Lack  of  raw  material  or  

power,  road,  transport  

technical  skills  
customers  

equipment  

difficulFes  
Government  
services  

.  

Figure 22Business Problems Reported by Ethiopian Agribusiness SMEs Surveyed

113  
  

Table 26Business Problems Faced by Ethiopian Agribusiness SMEs Surveyed

Business Problems

Lack of Finance, Capital 27 36%

Lack of Raw Material or Services 10 13%

Lack of Space 9 12%

Poor Access to Customers 6 8%

Government Restrictions, Regulations 6 8%

Lack of Technology, Equipment 6 8%

Lack of Skilled Staff 3 4%

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

Need for Better Technical Skills 2 3%

Lack of Demand 1 1%

Health, Stress 1 1%

Tax and Compliance Difficulties 1 1%

Copy Cats (Competition) 0 0%

Lack of Business Skills 0 0%

Lack of Time 0 0%

Family Arrangements 0 0%

Self-imposed (personal) 0 0%

Other 0 0%

1,2&3 0 0%

Two or More 0 0%

75 100%

114  
  

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

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

Somewhat surprisingly, given experience elsewhere and extensive consultations in

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

From an entrepreneurship perspective, in which personal self-knowledge is important for

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

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

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

115  
  

80%  
70%  
60%  
50%  
40%   No  Interest  
Some  Interest  
30%  
Interest  
20%  
High  Interest  
10%  
Great  Interest  
0%  

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

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

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

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

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

116  
  

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

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

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

None  of  the  above  

4%  

Small  %  of  Equity  

(5-­‐7%)    
20%  
Pay  as  You  Go  at  
Full  Cost  
28%  

Royality  on  
Increase  in  Gross  
Sales  (3-­‐7%)  for  3  
or  4  years  
48%  

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

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

117  
  

Annex 5: Agribusiness Survey Form

Form  Number:    
Introduction  
 
Business   incubation   is   a   unique   and   highly   flexible  
combination   of   business   development   processes,  
infrastructure   and   people,   designed   to   nurture   and   grow   new   and   small   businesses,   products  
and  ideas  by  supporting  them  through  the  early  stages  of  development  and  change.    
Interviewer  Script  
We’re  undertaking  a  survey  of  businesses  in  Ethiopia  to  determine  if  there  is  a  need  for  an  agri-­‐
business  innovation  centre  as  a  part  of  a  broader  Climate  Innovation  Centre  in  Ethiopia.    The  
work  is  being  undertaken  for  InfoDev/World  Bank.    
Are  you  able  to  spare  several  minutes  to  take  part  in  the  survey?  

Your  actual  responses  will  only  be  viewed  by  the  interviewer  and  the  consultants  working  with  
for  infoDev.  All  your  responses  will  be  treated  as  strictly  confidential  and  will  be  grouped  with  
other   people's   responses   for   reporting.   The   survey   is   anonymous   and   you   will   not   be   identified  
in  any  way.  
We  appreciate  your  co-­‐operation  in  this  study.      
Thank  you  –  we  will  commence  the  survey  now.  

118  
  

Name  of  interviewee  (optional)  ___________________________________  

1. ABOUT  YOU  –  THE  BUSINESS  OWNER  

 

1.1 What  is  your  age  group?  

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

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

 

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

– Because  you  have  no  other  option  for  employment       1¨  

To  supplement  other  income     – 2¨  

To  seize  a  market  opportunity  and  grow  a  long  term  business  creating  employment   – 3¨  
for  yourself  and  others  (necessitates  full  time  involvement)  And  /  or  I  want  to  be  my  
own  boss  

Don’t  know   – 4¨  

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

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

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

 

1.4  Do  you  have  other  employment?   ¨Yes     ¨No  

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

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

– 25%   to  
2¨   49%   – 4¨   – 75%  to  94%      
 

119  
  

1.6  Before  starting  or  buying  this  business,  were  you:    

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

– Employed   (public  
2¨   – Studying   – 4¨   sector)      
 

1.7  What  formal  qualifications  do  you  have?  

– 1 Postgraduate   Trade  or  other  Technical   Primary  School  

¨   University  Degree     3¨   certificate   5¨   completion    

– Bachelors  level   – High  school  

2¨   university  degree     – 4¨     completion     – 6¨   – None  

        – 7¨   – Other  

 
2. SECTION  2  –  ABOUT  YOUR  BUSINESS  

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

Agriculture,  Forestry   1¨   Financial  and  Insurance  activities   11¨  

– 2 – 1
Mining  and  Quarrying   ¨   – Real  estate  activities   2
¨  

– 3 – 1
– Professional,  scientific  and  
Manufacturing  (food,  juice,  milk,  honey,  spices)   ¨   3
technical  activities  
¨  

– 4 – 1
– Administrative  and  support  
Electricity,  gas,  steam  and  air  conditioning  supply   ¨   4
service  activities  
¨  

– 5 – 1
Water  Supply,  Sewerage,  waste  management   ¨   – Education   5
¨  

– 6 – 1
– Human  health  and  social  
Construction   ¨   6
work  activities  
¨  

120  
  

– 7 – 1
– Arts,  entertainment  and  
Wholesale  and  retail  trade,  repair   ¨   7
recreation  
¨  

– 8 – 1
Transportation  and  storage   ¨   – Other  service  activities   8
¨  

– 9 – 1
– Activities  of  households  as  
Accommodation  and  food  service  activities   ¨   9
employers  
¨  

– 1  
Information  and  Communication   0 – Other  (specify)  
¨  
 

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

2.3  Where  is  your  business  based?  

– In  Addis    Ababa     1¨  

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

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

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

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

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

121  
  

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

– 1
Less  than  1  year   2¨   1  to  under  3  years  
¨  
– 4
– 3  to  under  5  
3¨   ¨ – 5  years  or  more  
years  
   
 

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

2.5a.  If  so  what  is  the  structure?  

1¨   Sole  trader   2¨   Company  

– 4
3¨   – Cooperative   ¨   – Partnership  (e.g.  husband  and  wife)  

– 5 – Other  (please    
¨   specify)    
 

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

– Did  not  need  any   1¨  

Personal  savings   – 2¨  

Friends  and  family   – 3¨  

If  yes  to  friends  and  family  (above),  were  any  of  the  friends  and  family  located  overseas   – 4¨  
and  did  they  send  the  money  to  you?  

Micro  credit  or  bank  loan   – 5¨  

Investor   – 6¨  

Other  –  be  specific  if  possible   – 7¨  

122  
  

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

  PAID   UNPAID  
  Full-­‐time   Part-­‐time   Full-­‐time   Part-­‐time  

#  =     #  =   #  =   #  =  

1¨1     1¨0   1¨0   1¨0  

2¨2-­‐5     2¨1-­‐5   2¨1-­‐5   2¨1-­‐5  
3¨6-­‐10     3¨6-­‐10  
4¨11-­‐20     4¨11-­‐20  
5¨21-­‐50     5¨21-­‐50  
6¨51-­‐100     6¨51-­‐100  
7¨101-­‐500     7¨101-­‐500  
8¨501-­‐1000     8¨N/A  
9¨1001-­‐20009¨D/K  
10¨>2000  
11¨N/A  
2.8  What  were  your  sales  (turnover)  last  year  in  ETB?  Don’t  force  people  to  answer  if  it  is  too  confidential  

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

– 2
20,001  to  500,000   – over  5  million   – 5¨  
¨  
– 3
500,000  to  1,000,000      
¨  
 

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

  1  ¨  Higher  than   2  ¨  About  the  same  as   3  ¨  Lower  than  previous  financial  year–  
  previous  financial   previous  financial   estimate  the  %  change  
  year    estimate  the   year  –  Tick  
YEAR   %  change  
2011   – %   – ¨   – %  
2010   – %   – ¨   – %  
2009   – %   – ¨   – %  
  1¨0%                 1¨1-­‐5%  
  2¨1-­‐5%               2¨6-­‐10%  
  3¨6-­‐10%               3¨11-­‐15  
  4¨11-­‐15               4¨16-­‐20  

123  
  

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

2.10  Sales  by  location  

Domestic/Export  (%)  
1¨100%  Domestic  
2¨100%  Export  
3¨25%  Domestic;  75%  Export  
4¨30%  Domestic;  70%  Export  
5¨70%  Domestic;  30%  Export  
6¨50%  Each  
7¨40%  Domestic;  60  Export  
8¨60%  Domestic;  40%  Export  
9¨90%  Domestic;  10%  Export  
10¨10%  Domestic;  90%  Export  
11¨20%  Domestic;  80%  Export  
12¨80%  Domestic;  20%  Export  
13¨Sales  not  yet  started.  

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

  1  ¨  Yes     2¨  No    
If  Yes:    
By  increasing  sales  and  customer  numbers?   Yes   1¨      
– Y – 2
By  exporting   e ¨      
s  
– Y – 3
By  increasing  profit?   e ¨      
s  
– Y – 4
By  employing  more  people?   e ¨      
s  
 
2.12  What  makes  your  business  competitive?  
– Cost  efficiency   1¨  
Price  competitiveness   – 2¨  

Product/service  quality   – 3¨  

124  
  

Scale  of  economies   – 4¨  

Uniqueness/differentiation   – 5¨  
Other    

2.13  What  problems  do  you  face  in  growing  your  business?  
– 1 7¨   13¨  
Lack  of  demand   Lack  of  business  skills   Self-­‐imposed  (personal)  
¨  
2¨   – 8 – 1
– Poor  access  to   – Need  better  technical  
¨   4 – Tax  &  compliance  difficulties  
customers   skills  
¨  
3¨   – 9 – 1 – Government  restrictions  or  
– Copy  cats  
¨   – Lack  of  space   5 regulations  (which  ones?)  
(competition)  
¨    
4¨   – 1 – 1
– Lack  of  raw  
0 6 – Lack  of  
materials    or   – Lack  of  time  
¨   ¨   technology/equipment  
services  
 
5¨   – 1 –  
– Lack  of  skilled  staff 1 1 – Utility  problems  (water,  
– Family  arrangements  
    ¨   7 power,  road,  transport  
¨  
6¨   – 1 – 1
– Lack  of  
2 – Health  /  stress   8 – Other  (specify)  
finance/capital  
¨   ¨  
 

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

– Ye
1¨   Proceed  to  SECTION  3  
s  
No   – 2¨   – Thank  you  for  your  time  and  assistance.    
 

3. SECTION  3  –  SUPPORT  SERVICE  INTEREST  

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

  Low  interest                              High  interest  

3.1  Business  support  services   1     2  3   4   5   N/A   D/K*  
a.   Business  mentoring  and  coaching   .............   1   2   3   4   5   6   7  
b.   Business  management  advice ....................   1   2   3   4   5   6   7  
c.   Business  training  workshops ......................   1   2   3   4   5   6   7  
d.   Business  planning  advice............................   1   2   3   4   5   6   9  
e.   Networking  opportunities ..........................   1   2   3   4   5   6   7  
f.   Market  research  and  marketing  advice        1 2  3   4   5   6   7  
g.   Help  finding  new  markets ..........................   1   2   3   4   5   6   7  

125  
  

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

i.   Help  raising  finance ....................................   1   2   3   4   5   6   7  
  How  much?.........................................  
  For  what  purpose?..................................................................................................  
j.   Financial  management  advice....................   1   2   3   4   5   6   7  
k.   Help  testing/certification ...........................    1   2   3   4   5   6   7  
l.   Help  sourcing  (identify)  technology ...........    1   2   3   4   5   6   7  
m.   Advice  on  business  licensing ......................    1   2   3   4   5   6   7  
n.   Help  in  accessing  packaging  services..........    1   2   3   4   5   6   7  
o.   Others  (specify).....................................................................................................................  
*      N/A  =  Not  Applicable,  D/K  =  Don’t  Know  

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

Small  %  of  equity  (shares  or  equivalent)  in  your  business  i.e.  5%  –  7%   1¨  
Royalty  on  increase  in  gross  sales  e.g.  3%  –  7%  for  a  3  or  4  year  period   – 2¨  
Pay  as  you  go  at  full  cost  (rent,  advice,  secretarial,  phone,  fax,  internet  etc)   – 3¨  
None  of  the  above   – 4¨  
 

– 3.3  Any  other  points  you  would  like  to  make:    

 

THANK  YOU  FOR  YOUR  TIME  AND  ASSISTANCE.  

126  
  

Annex 6: Entrepreneur Survey Frequencies

 
Years  in  Operation  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – Less  than  1  year   – 3   – 5.9   – 5.9   – 5.9  
– 1  to  under  3  
– 9   – 17.6   – 17.6   – 23.5  
years  
– 3  to  under  5  
– 10   – 19.6   – 19.6   – 43.1  
years  
– 5  and  above   – 29   – 56.9   – 56.9   – 100.0  
– Total   – 51   – 100.0   – 100.0    
 
Why  in  Business  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – No  option   – 8   – 15.7   – 15.7   – 15.7  
– To  supplement  
other  income   – 4   – 7.8   – 7.8   – 23.5  

– To  seize  a  
market  
opportunity   – 39   – 76.5   – 76.5   – 100.0  
and  long  term  
growth  
– Total   – 51   – 100.0   – 100.0    
 
   
Number  of  Work  Hours/Week  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – up  to  10  
– 2   – 3.9   – 3.9   – 3.9  
hours  
– 11-­‐20  
– 1   – 2.0   – 2.0   – 5.9  
hours  
– 21-­‐34  
– 1   – 2.0   – 2.0   – 7.8  
hours  
– 35-­‐50  
– 15   – 29.4   – 29.4   – 37.3  
hours  
– 51-­‐75  
– 12   – 23.5   – 23.5   – 60.8  
hours  
– over  75  
– 20   – 39.2   – 39.2   – 100.0  
hours  
– Total   – 51   – 100.0   – 100.0    
 

127  
  

Other  Employment  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – Y
– 10   – 19.6   – 19.6   – 19.6  
es  
– N
– 41   – 80.4   – 80.4   – 100.0  
o  
– T
ot – 51   – 100.0   – 100.0    
al  
 
Proportion  of  Personal  Income  from  Business  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – Less  than  
– 3   – 5.9   – 5.9   – 5.9  
25%  
– 25-­‐49%   – 2   – 3.9   – 3.9   – 9.8  
– 50-­‐74%   – 3   – 5.9   – 5.9   – 15.7  
– 75-­‐94%   – 4   – 7.8   – 7.8   – 23.5  
– 95-­‐100%   – 39   – 76.5   – 76.5   – 100.0  
– Total   – 51   – 100.0   – 100.0    
   
Employment  before  Current  Business  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – Not  formally  
– 7   – 13.7   – 13.7   – 13.7  
employed  
– Studying   – 8   – 15.7   – 15.7   – 29.4  
– Employed  (Pvt  
– 19   – 37.3   – 37.3   – 66.7  
Sector)  
– Employed  (pub  
– 11   – 21.6   – 21.6   – 88.2  
sector)  
– Other   – 6   – 11.8   – 11.8   – 100.0  
– Total   – 51   – 100.0   – 100.0    
 
   
Source  of  Money  when  Business  Began  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – Did  not  need   – 1   – 2.0   – 2.0   – 2.0  
– Personal  savings   – 24   – 47.1   – 47.1   – 49.0  
– Friends  and  family   – 3   – 5.9   – 5.9   – 54.9  
– Money  from  friends  
overseas   – 1   – 2.0   – 2.0   – 56.9  

– Micro  credit,  Bank  

– 10   – 19.6   – 19.6   – 76.5  
loan  
– Investor   – 12   – 23.5   – 23.5   – 100.0  

128  
  

  – Total   – 51   – 100.0   – 100.0    

Number  of  Full-­‐time  Paid  Employees,  Including  Self  and  Family  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – 1   – 4   – 7.8   – 7.8   – 7.8  
– 2-­‐5   – 9   – 17.6   – 17.6   – 25.5  
– 6-­‐10   – 5   – 9.8   – 9.8   – 35.3  
– 11-­‐20   – 4   – 7.8   – 7.8   – 43.1  
– 21-­‐50   – 9   – 17.6   – 17.6   – 60.8  
– 51-­‐100   – 6   – 11.8   – 11.8   – 72.5  
– 100-­‐500   – 10   – 19.6   – 19.6   – 92.2  
– 500-­‐
– 1   – 2.0   – 2.0   – 94.1  
1000  
– 1001-­‐
– 2   – 3.9   – 3.9   – 98.0  
2000  
– >2000   – 1   – 2.0   – 2.0   – 100.0  
– Total   – 51   – 100.0   – 100.0    
 
Sales  Turnover—Last  Year  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – Under  20,000   – 10   – 19.6   – 19.6   – 19.6  
– 20,001  -­‐  
– 12   – 23.5   – 23.5   – 43.1  
500,000  
– 500,001-­‐1  
– 10   – 19.6   – 19.6   – 62.7  
million  
– 3-­‐5  million   – 1   – 2.0   – 2.0   – 64.7  
– Over  5  million   – 18   – 35.3   – 35.3   – 100.0  
– Total   – 51   – 100.0   – 100.0    
 
Increase  in  TO  (%  previous)  
 

  Frequency   Percent   Valid  Percent   Cumulative  Percent  

Valid   – 0%   – 2   – 3.9   – 3.9   – 3.9  
– 1-­‐5%   – 8   – 15.7   – 15.7   – 19.6  
– 6-­‐
– 16   – 31.4   – 31.4   – 51.0  
10%  
– 11-­‐
– 4   – 7.8   – 7.8   – 58.8  
15%  
– 16-­‐
– 1   – 2.0   – 2.0   – 60.8  
20%  
– 21-­‐
– 5   – 9.8   – 9.8   – 70.6  
30%  
– 31-­‐
– 1   – 2.0   – 2.0   – 72.5  
40%  
– >40
– 6   – 11.8   – 11.8   – 84.3  
%  
– N/A   – 1   – 2.0   – 2.0   – 86.3  
– 10.0
– 7   – 13.7   – 13.7   – 100.0  
0  

129  
  

  – Total   – 51   – 100.0   – 100.0    

 
Sales  by  Location  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – 100%  Domestic   – 30   – 58.8   – 58.8   – 58.8  
– 100%  Export   – 4   – 7.8   – 7.8   – 66.7  
– 30%  Domestic,  70  
– 3   – 5.9   – 5.9   – 72.5  
export  
– 70%  Domestic,  
30%export   – 5   – 9.8   – 9.8   – 82.4  

– 50%  Each   – 1   – 2.0   – 2.0   – 84.3  

– 40%Domestic,  60%  
export   – 1   – 2.0   – 2.0   – 86.3  

– 90%  Domestic,  10%  

export   – 3   – 5.9   – 5.9   – 92.2  

– 10%Local,  90%  export   – 1   – 2.0   – 2.0   – 94.1  

– 20%  Domestic,  80%  
export   – 2   – 3.9   – 3.9   – 98.0  

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

– Total   – 51   – 100.0   – 100.0    

 
Business  Problems  
 

  Frequency   Percent   Valid  Percent   Cumulative  Percent  

Valid   – Poor  access  to  
customers   – 2   – 3.9   – 3.9   – 3.9  

  – Lack  of  raw  material  or  

services   – 8   – 15.7   – 15.7   – 19.6  

  – Lack  of  skilled  staff   – 1   – 2.0   – 2.0   – 21.6  

  – Lack  of  finance,  capital   – 20   – 39.2   – 39.2   – 60.8  
  – Lack  of  space   – 6   – 11.8   – 11.8   – 72.5  
  – Health,  stress   – 1   – 2.0   – 2.0   – 74.5  
  – Tax  and  compliance  
difficulties   – 1   – 2.0   – 2.0   – 76.5  

  – Government  
restrictions,   – 5   – 9.8   – 9.8   – 86.3  
regulations  
  – Lack  of  technology,  
equipment   – 4   – 7.8   – 7.8   – 94.1  

  – Utility  problems,  
water,  power,  road,   – 3   – 5.9   – 5.9   – 100.0  
transport  
  – Total   – 51   – 100.0   – 100.0    
 

130  
  

Preferred  Way  of  Paying  for  Support  Service  

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

– Royalty  on  Increase  in  

gross  sales  (3-­‐7%)  for  3   – 28   – 54.9   – 54.9   – 74.5  
or  4  years  
– Pay  as  you  go  at  full  
cost  (rent,  advice,  
secretarial,  phone,  fax,   – 11   – 21.6   – 21.6   – 96.1  
Internet)  
– None  of  the  above   – 2   – 3.9   – 3.9   – 100.0  
– Total   – 51   – 100.0   – 100.0    
 
Interest  for  Business  Mentoring  and  Coaching  
 
  Frequency   Percent   Valid  Percent   Cumulative  Percent  
Valid   – Not  Interested   – 9   – 17.6   – 17.6   – 17.6  
– Somewhat  
– 3   – 5.9   – 5.9   – 23.5  
interested  
– Interested   – 6   – 11.8   – 11.8   – 35.3  
– Highly  interested   – 11   – 21.6   – 21.6   – 56.9  
– Greatly  interested   – 22   – 43.1   – 43.1   – 100.0  
– Total   – 51   – 100.0   – 100.0    
 
Interest  for  Business  Management  Advice  
 
  Frequency   Percent   Valid  Percent   Cumulative  Percent  
Valid   – Not  interested   – 6   – 11.8   – 11.8   – 11.8  
– Somewhat  
– 2   – 3.9   – 3.9   – 15.7  
interested  
– Interested   – 9   – 17.6   – 17.6   – 33.3  
– Highly  interested   – 13   – 25.5   – 25.5   – 58.8  
– Greatly  interested   – 21   – 41.2   – 41.2   – 100.0  
– Total   – 51   – 100.0   – 100.0    
 
Interest  for  Business  Training  Workshops  
 

  Frequency   Percent   Valid  Percent   Cumulative  Percent  

Valid   – Not  interested   – 6   – 11.8   – 11.8   – 11.8  
– Somewhat  
– 3   – 5.9   – 5.9   – 17.6  
interested  
– Interested   – 4   – 7.8   – 7.8   – 25.5  
– Highly  interested   – 18   – 35.3   – 35.3   – 60.8  
– Greatly  interested   – 20   – 39.2   – 39.2   – 100.0  
– Total   – 51   – 100.0   – 100.0    

131  
  

 
   
Interest  for  Business  Planning  Advice  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – Not  Interested   – 2   – 3.9   – 3.9   – 3.9  
– Somewhat  
– 5   – 9.8   – 9.8   – 13.7  
interested  
– Interested   – 6   – 11.8   – 11.8   – 25.5  
– Highly  interested   – 13   – 25.5   – 25.5   – 51.0  
– Greatly  interested   – 24   – 47.1   – 47.1   – 98.0  
– 9.00   – 1   – 2.0   – 2.0   – 100.0  
– Total   – 51   – 100.0   – 100.0    
 
Interest  for  Business  Networking  Opportunities  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – Not  interested   – 2   – 3.9   – 3.9   – 3.9  
– Somewhat  
– 3   – 5.9   – 5.9   – 9.8  
interested  
– Interested   – 8   – 15.7   – 15.7   – 25.5  
– Highly  interested   – 12   – 23.5   – 23.5   – 49.0  
– Greatly  interested   – 26   – 51.0   – 51.0   – 100.0  
– Total   – 51   – 100.0   – 100.0    
 
Interest  for  Market  Research  and  Marketing  Advice  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – Not  interested   – 1   – 2.0   – 2.0   – 2.0  
– Somewhat  
– 2   – 3.9   – 3.9   – 5.9  
interested  
– Interested   – 5   – 9.8   – 9.8   – 15.7  
– Highly  interested   – 12   – 23.5   – 23.5   – 39.2  
– Greatly  interested   – 31   – 60.8   – 60.8   – 100.0  
– Total   – 51   – 100.0   – 100.0    
 
Help  in  Finding  New  Markets  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – Not  interested   – 2   – 3.9   – 3.9   – 3.9  
– Somewhat  
– 6   – 11.8   – 11.8   – 15.7  
interested  
– Interested   – 7   – 13.7   – 13.7   – 29.4  
– Highly  interested   – 9   – 17.6   – 17.6   – 47.1  
– Greatly  interested   – 27   – 52.9   – 52.9   – 100.0  
– Total   – 51   – 100.0   – 100.0    
 

132  
  

 
Help  with  Sales  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – Not  interested   – 2   – 3.9   – 3.9   – 3.9  
– Somewhat  
– 13   – 25.5   – 25.5   – 29.4  
interested  
– Interested   – 11   – 21.6   – 21.6   – 51.0  
– Highly  interested   – 13   – 25.5   – 25.5   – 76.5  
– Greatly  interested   – 12   – 23.5   – 23.5   – 100.0  
– Total   – 51   – 100.0   – 100.0    
 
Help  with  Raising  Finance  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – Not  interested   – 2   – 3.9   – 3.9   – 3.9  
– Somewhat  
– 2   – 3.9   – 3.9   – 7.8  
interested  
– Interested   – 5   – 9.8   – 9.8   – 17.6  
– Highly  interested   – 7   – 13.7   – 13.7   – 31.4  
– Greatly  interested   – 35   – 68.6   – 68.6   – 100.0  
– Total   – 51   – 100.0   – 100.0    
 
Help  with  Testing,  Certification  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – Not  interested   – 10   – 19.6   – 19.6   – 19.6  
– Somewhat  
– 2   – 3.9   – 3.9   – 23.5  
interested  
– Interested   – 4   – 7.8   – 7.8   – 31.4  
– Highly  interested   – 12   – 23.5   – 23.5   – 54.9  
– Greatly  interested   – 23   – 45.1   – 45.1   – 100.0  
– Total   – 51   – 100.0   – 100.0    
 
Help  with  Sourcing  Technology  
 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – Not  interested   – 3   – 5.9   – 5.9   – 5.9  
– Somewhat  
– 5   – 9.8   – 9.8   – 15.7  
interested  
– Interested   – 5   – 9.8   – 9.8   – 25.5  
– Highly  interested   – 10   – 19.6   – 19.6   – 45.1  
– Greatly  interested   – 28   – 54.9   – 54.9   – 100.0  
– Total   – 51   – 100.0   – 100.0    
 
   

133  
  

Help  with  Accessing  Packaging  Services  

 
Cumulative  
  Frequency   Percent   Valid  Percent   Percent  
Valid   – Not  interested   – 10   – 19.6   – 19.6   – 19.6  
– Somewhat  In  
– 7   – 13.7   – 13.7   – 33.3  
retested  
– Interested   – 3   – 5.9   – 5.9   – 39.2  
– Highly  interested   – 6   – 11.8   – 11.8   – 51.0  
– Greatly  interested   – 25   – 49.0   – 49.0   – 100.0  
– Total   – 51   – 100.0   – 100.0    
 
 

134  
  

Annex 7: Priority Value Chains Literature Review

Following a literature review and stakeholder consultations, infoDev explored the

potentiality of the following value chains:

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

The key objectives were to improve understanding about following questions:

1. What are the biggest market opportunities for value addition in the agribusiness
sector?
2. What are the most significant barriers to enterprise start-up and growth in the
specific market opportunities identified?
3. What additional services or fine tuning of CIC services is needed to satisfy the
agribusiness market?

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

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

135  
  

maize26).Currently only 6 percent of the marketable maize is processed and

distributed in flour form.
 Coffee. Value could potentially be added by roasting the beans. However, this is
not done in Ethiopia; namely, the green beans are exported as raw material to
other countries where the roasting can be done in a more competitive way than
in Ethiopia. Green coffee beans can be stored for several years, whereas roasted
beans essentially expire in less than 18 months. Additionally, most major coffee
suppliers prefer to blend high-quality Ethiopian coffee with lesser varieties found
around the world, hence always preferring to buy green coffee beans. There is
already extensive stakeholder activity in the coffee value chain.
 Flowers. Flowers do not offer a lot of value addition potential. Processing of
flowers is limited to cut flowers. Following the government’s focus on this sector, a
substantial number of investors have started to get involved in the sector,
impacting directly on the level of exportations of cut flowers and the number of
jobs created in the value chain, which have been growing steadily and
significantly since 2001.The industry of cut flowers has managed to position itself
as a competitive and performing industry in Ethiopia over the past decade.
 Leather. The Leather Institute has identified numerous issues in every single aspect
of the supply chain of leather, starting with the absence of a formalized leather
(hides) industry. The industry is mainly composed of small-scale farmers, who
have limited understanding of hide removal or quality and pricing.
 Oil Seeds. The number of oil seeds processing companies is limited and the
approach of the Edible Oil Value Chain Enhancement Program in this value
chain seems relevant. The Edible Oil Value Chain Enhancement Program—which
the Spanish government funds—is a three-year initiative jointly implemented by
UNIDO, ILO, and FAO in the Amhara and Oromiya regions in Ethiopia. The
program aims to increase the productivity and competitiveness of Ethiopia’s
oilseed producers, boost the capacity for processing oilseeds, and improve
access to local and international markets by integrating the private sector into
the edible oil seed production value chain. Most oil seeds are traded as
commodities. Although Olam is interested, the value adding Olam seeks is
limited to cleaning and hulling of sesame seeds for the export market.
 Pulses. The main potentiality is with chickpeas, which the ATA is currently
exploring through a program with PEPSI Co. The ATA’s Pulses and Oilseeds
Program is developing a strategic roadmap to address systemic issues in the
chickpea value chain, while also recommending a set of immediate
interventions. The program is focused on strengthening access to markets
through capacity building that supports the efforts of selected cooperative
unions to secure forward contracts with large local and international chickpea
buyers. Current activities include Cooperative Contracts with external partners in
                                                                                                           
26UNIDO data. 2011.

136  
  

the Middle East, Europe, and Southeast Asia—supplying over 6,000 tons of
chickpea from Ethiopia. Meanwhile, chickpea focused cooperatives will be
strengthened to supply the domestic markets, and at least two Unions will start
exporting chickpea by early 2013.Inputs access includes the following:2,160
quintals of improved seed and 4,320 liters of chemical inputs will be provided to
cooperatives in Becho, Dembia, and Lume. The ATA’s activities are also gearing
up to introduce improved agronomic practices to 48,000 farmers in Becho and
Dembia, beginning with the training of Development Agents who will pass the
knowledge on at the Farmer Training Center level.27
 Tea. Tea does not involve small- and medium-size processors. These processors
would actually struggle to compete with neighboring countries’ processors, such
as in Kenya. Given the limited SME involvement and the lack of competitiveness
in the sector, the potential to add value in this value chain is very limited.
 Teff. The processing potential of teff is limited to injera. The distribution of teff in
the country—albeit informal—is already very good. Given the specificity of injera
to the Ethiopian diet, teff has limited use outside of Ethiopia. The opportunities to
add value in this value chain are hence very limited.

Bamboo

State of Bamboo Production

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

Bamboo’s positive environmental impacts are significant: bamboo can grow up to 1

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

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

137  
  

Size of the Domestic Bamboo Market

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

Bamboo Market Trends

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

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

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

                                                                                                           
28UNIDO. January 20, 2007.“Bamboo Market Study in Ethiopia,”available at:
http://www.eabp.org.et/Publications/StudyP/Bamboo_market_study_in_ethiopia.pdf
29MelakuTadesse. April 8, 2011.“The Potential of Ethiopian Bamboo Development and Future Cooperation

with Other Development Partners,” Nile BDC workshop, Addis Ababa, available at:
http://www.slideshare.net/CPWF/the-potential-of-ethiopian-bamboo-development-and-future-
cooperation-with-other-development-partners

138  
  

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

Value Adding Bamboo Enterprises

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

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

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

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

139  
  

products, so customers tend to prefer timber products.

 There is very limited access to finance to acquire adequate technology and
machinery to manufacture a wider range of quality products in substantial
quantity and to finance working capital.
 There is limited coordination with bamboo growers to make sure the processors
can source from them the raw material at the quality and in the quantity
required for processing purposes.
 There are limited market linkages to stimulate the growth of the sector.

Dairy Products

State of Dairy Production

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

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

Size of the Domestic Dairy Market

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

140  
  

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

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

Dairy Products Market Trends

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

141  
  

140,000,000  

120,000,000  
Cheese  
100,000,000  
Bu[er  
80,000,000  
Yoghurt  and  other  bu[er  
60,000,000   milk  

40,000,000   Milk  and  Cream  

20,000,000   Total  

0  
2005   2006   2007   2008   2009   2010  
 

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

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

Value Adding Dairy Enterprises.

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

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

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

142  
  

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

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

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

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

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

An interesting characteristic of Ethiopian dairy processing is that operations tend to be

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

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

143  
  

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

follows:
• Poor animal health and management are major constraints to dairy
development in Ethiopia, which cause poor performance across the whole dairy
production value chain, starting with low levels of productivity.
 Lack of coordination along the value chain does not allow efficient sourcing of
raw material from producers to processors, or efficient production and
distribution of processed products.
 There is limited access to finance to invest in new technology and equipment
(for example, pasteurization and testing equipment).
 Cold storage, pasteurization equipment, and refrigerated transport options for
domestic markets are all lacking.
 Information and standards for regional export markets are lacking.
 Domestic distribution capabilities range from poor to nonexistent.

Honey Production

State of Honey Production

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

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

Size of the Domestic Honey Market

The domestic market remains quite unstructured. Over 97 percent of the total honey
produced is marketed. The remaining percentage is stored for medicinal and other
purposes. More than 70 percent of the marketed honey is goes to the local production
of the very popular beverage of “tej”, that is, honey wine. The remaining 30 percent is
used for table honey.
                                                                                                           
32“Status of the Ethiopian Apiculture Sector,”Apitrade Africa Apiexpo and Conference, 26-29 October 2010
in Lusaka, MulufirdAshagrie, available at: http://www.apitradeafrica.org/publications/cat_view/52-
apiexpo-africa-2010-country-presentations.html?start=5

144  
  

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

Honey Market Trends

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

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

Value Adding Honey Enterprises

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

 There is very limited capacity to trace the products and ensure quality because
of the lack of standards that would enable enforcement of ethical business
practices. This is of particular importance for exports to the EU and U.S. markets.
The absence of laboratories within the country affects companies engaged in
export who need to send their product samples to Uganda (a competitor
country) or elsewhere for quality testing.
 The disorganized value chain and absence of labeling and packaging services
makes the whole value addition process very challenging.
 Very limited access to medium to long term credit negatively impacts the
capacity of processors to upgrade their processing capacity by adopting
learning from training sessions training sessions, acquiring material, obtaining
internationally accepted quality certifications, and others.
 There is a lack of quality packaging options and the manufacturers are
unfamiliar with co-packing options in targeted export markets.
 Distribution capabilities to key domestic markets are lacking.

                                                                                                           
33Idem.

34Idem.

145  
  

Fruits and Vegetables

State of Horticulture Production

Because of the unique climatic and natural resources, potentially almost all types of
fruits and vegetables can be grown in Ethiopia. The number of small-scale producers
involved in horticulture is estimated at 5.7 million farmers.35 The strong support from the
government, with incentives for foreign direct investment and exports, continues to
encourage increased production of horticulture products.

Small-scale farmers produce 2.1 million tons of vegetables from 260 thousand hectares,
while the state farms produce 18 thousand tons from 880 hectares. Private companies
are undertaking an increasing numbers of investments and experiments to produce
peas, mange touts, cherry tomatoes, and asparagus for export to the EU market.
Growers in Southern Ethiopia have successfully started herb production, partly in
greenhouses.

Total fruit production is almost 500 thousand tons, of which the state farms account for
approximately 10 percent of production. Foreign investors have also come to Ethiopia
to start avocado and passion fruit production and processing, mainly on former state
owned plantations. In addition, a Dutch grower has a few years’ experience growing a
wide range of vegetables of excellent quality in greenhouses.

Food safety and environmentally friendly production standards are high already, thanks
to the nature of production (almost organic by default at the small-holder level) and
are expected to increase further. Therefore, sophisticated technical and organizational
skills are essential. Recently supermarkets in Europe have become stricter on MRL’s
(Maximum Residue Levels of pesticide residues). It is foreseen that norms will become
stricter and evolve toward “zero tolerance.” The impacts of climate change are
expected to receive more public and political attention in the coming years, for
instance U.K. supermarkets already provide information on “food miles” on the product
label. This market trend is increasingly important for medium- and long-term business
strategies.

Size of the Domestic Horticulture Market

The size of the domestic market for fruit and vegetables is limited and not very diverse.
Fruits in the markets of Addis Ababa are restricted to bananas, papaya, and mango.
Potatoes, onions, peppers, and tomatoes are the main vegetables sold. Although the
offer is larger in rural markets, it is to be noted that other fruit and vegetables are not
common in the Ethiopian diet.

                                                                                                           
35WUR. February 2009. “Business Opportunities in Fruit and Vegetable Sector.”

146  
  

Despite the various opportunities to process fruits and vegetables, most of the products
are consumed as they are without further processing. For example, fruit juices are
manually processed from mango, pineapple, oranges, banana, and papaya.
Unfortunately, no detailed recent and reliable data are currently available on the
market.

Horticulture Market Trends

In the short-term, there is a potential for import substitution of processed fruits, mainly
soft drink concentrates and fruit juices. The available processing plants have the
potential to produce high-quality products for the top market segments in Ethiopia, but
the current level of organization of the value chain does not allow processors to source
raw materials locally; for example, some processors import the pulp of fruits to process
fruit juices.

The government of Ethiopia has given a policy priority for the production of fresh
vegetables, fruits, and herbs. Ethiopia produces and exports green beans, snow peas,
broccoli, zucchini, okra, asparagus, cherry, tomatoes, green chili, chives, parsley,
rosemary, dill, basil, Roccola, strawberries, and table grapes. The export performance of
the sector had been limited, with a low volume of exports to neighboring countries and
European market. However, the export status is changing as more modern farms and
processing enterprises are expanding.

Export of fruit and vegetables from Ethiopia can be categorized into three types: 1)
export of relatively high value perishable produce to Europe (including fresh beans,
strawberries, grapes, tomatoes, zucchini, peppers, and fresh herbs); 2) the export of
conventional products cultivated predominantly in Eastern Ethiopia around Dire Dawa,
to regional markets (mostly Djibouti); and 3) some processed and fresh produce to
Middle East countries. Export of fruit and vegetables has been limited, but is now
growing strongly with exports of vegetable products from Ethiopia increasing from
25,300 tons in 2002/03 to 63,140 tons in 2009/10. The value of the fruit and vegetable
exports increased by an average of 18 percent during this period, from less than
$10million to $30million.36

Both in Europe and the Middle East, there is growing demand for products from
Ethiopia, for instance, the demand for tomato concentrate in the Middle East and
Sudan. Saudi Arabia now imports processed products from China, a real competitor for
Ethiopia because of its low costs of production. Successful companies in the Ethiopian
fruits and vegetables sector most commonly produce directly for wholesalers or even
                                                                                                           
36Ethiopian Horticultural Development Agency and Ethiopian Horticultural Producers and Exporters
Association.March15, 2011.“Exporting fruit and vegetables from Ethiopia—assessment of development
potentials and investment options in the export-oriented fruit and vegetable sector, ”available at:
http://www.ehpea.org/index.php?option=com_content&view=article&id=147&Itemid=272 .

147  
  

directly to supermarkets, or have their own processing plants. This appears to be the
preferred strategy in Ethiopia. Issues that are addressed in these market arrangements
include volumes, varieties, and seasonality and quality requirements. The competitive
advantage of Ethiopia compared to countries such as Egypt, Kenya, Morocco, and
Tunisia is crucial in this.

Value Adding Horticulture Enterprises

The government of Ethiopia gives high priority to the development of the horticulture
sector. In 2008, the Horticultural Development Agency was established with a specific
focus to promote and support the further development of the horticulture sector. The
past few years have seen a major change in government policies toward the
horticulture sector, reflecting efforts to redirect the economy away from centralized
planning to a more liberalized economy. The government of Ethiopia increasingly
considers the private sector as the engine for economic growth and the catalyst for
employment creation and export expansion. As a result, private companies were
allowed and facilitated with an array of incentives to engage in the sector. Et Fruit, the
largest government-owned company, is currently looking at developing value added
products and seems to be willing to support the AII initiative by helping develop brands
and supporting domestic distribution.

In Ethiopia, the number of fruits and vegetables processing industries is limited. Most
recent data refer to 15 fruit and vegetable processors and five fruit and vegetable
processing plants in the country. These plants presently process a limited variety of
products: tomato paste, orange marmalade, vegetable soup, frozen vegetables, and
wine. Currently most processed products are geared to the domestic market. Existing
processing plants are working below capacity because of the lack of sufficient and
regular supply of fruits and vegetables.

Fruits and vegetables processors face the following barriers to growth:

 Processing equipment, know how, packaging, and storage do not meet quality
standards, hence a high rate of product spoilage and hygiene problems.
 There is a lack of understanding about product options (that is, what value-
added products can be produced with the raw materials available).
 Packaging options are poor and no distribution options are available.
 Poorly organized and highly fragmented supply chain and distribution
mechanisms make the whole process of adding value quite challenging, for
example the shortage of supply of raw materials can be inconsistent and make
prices escalate.
 Access to information about export markets is limited.

148  
  

Textiles and Garments

State of Cotton Production

The current production areas of cotton cover more than 90,000 hectares of lowlands,
both rain fed and irrigated, and are cultivated mainly by small-holders, aside from
public and private farms. The total volume of production varies from year to year, with
an estimated average of 110,000 tons of raw cotton. Some 2.6millionhectares of land
are suitable for cotton production, which is equivalent to that of Pakistan, the fourth
largest producer of cotton in the world. The climatic conditions and land resources of
Ethiopia favor cotton growing.

Cotton can be produced in three different ways: 1) certified organic, 2) conventionally

grown, and 3) supervised integrated pest management (IPM). Studies comparing the
three conclude that organic fields tend to have significantly fewer western tarnish plant
bug nymphs (Lygus Hesperus, a key pest) and more generalist predators than
conventional fields. No significant treatment differences in plant development, density,
or lint quality appear. Lower quantities of insecticide are obviously used in organic and
IPM fields (average 0.30 lb. of active ingredient insecticide per acre), 83 percent less
than in conventional fields (1.78 lb.AI/acre). The costs of production per bale are usually
35 percent higher for organic than for conventional cotton, primarily because of
greater hand-weeding costs and lower yields in organic cotton (that is, yields are 2.1,
2.7, and 2.8 bales/acre, for organic, IPM and conventional treatments, respectively),
but the overall production cost is generally 13 to 15 percent lower in organic cotton
fields, because of 40 percent lower cost for inputs (seeds, manures, and organic pest
management Items).

Although the initial yield may be low when compared to conventional cotton, it has
been observed that after two years, there is an increase in the yield of 4 to 6 percent.
Because of slightly higher cotton yields, the 20 percent higher price for organic cotton
products and lower production costs, gross margins in organic cotton fields are usually
30 to 40 percent higher than with conventional cotton. Organic production presents an
untapped opportunity for Ethiopia. According to the fourth annual Organic Exchange
Farm and Fiber Report 2009, organic cotton production grew an impressive 20 percent
over 2007/08 to 175,113 metric tons (802,599 bales) grown on 625,000 acres (253,000
hectares). Organic cotton now represents 0.76 percent of global cotton production.37

A major challenge from Ethiopia is that the cotton grown does not meet international
market standards. The international market needs cotton with 30-32mm length fibers to
be competitive, whereas Ethiopian farmers produce 25-28mm.
                                                                                                           
37http://www.ota.com/organic/mt/organic_cotton.html .

149  
  

150  
  

Size of the Domestic Textile and Garment Market

The production of textile goods is the largest formal manufacturing activity in the
country. During the first quarter of 2011, the largest share of production value was
contributed by the manufacturing of textile products reaching 8.6billion Birr,
representing 38.4 percent of the overall manufacturing production in the country.38
Textile manufacturers believe the local demand will increase in the next few months.

Textile and Garment Market Trends

Ethiopia exports textiles and garments to Asia (67 percent), Africa (23 percent), and
Europe (10 percent). In 2011, the country earned over $14.6 million from the export of
textiles and the garment sector. Major importers from Ethiopia included France,
Germany, the Netherlands, and United States.39As competition on the major
international textile and garment markets (EU and United States) continues to increase,
Ethiopia as a “newcomer” has to face not only the requirements of potential customers,
but performance of competitors and trends in markets as well. The future potential and
development chances of the textile and garment sector in Ethiopia will strongly
depend on appropriate steps by local manufacturers, organizations, and institutions, as
well as government strategies and support (developing competitive advantages for
manufacturers and suppliers in Ethiopia). The following chart shows a comparison of the
production value chain for a basic polo shirt in Ethiopia, China, and India (Figures
approximately in percent based upon FOB value).

                                                                                                           
38Central Statistical Agency.December 2011.“Report on the 1st quarter of the 2004 EFY Manufacturing
Business Survey.”
39http://www.ethiopiantextileexpo.com/index.php?option=com_content&view=section&layout=blog&id=2

&Itemid=3

151  
  

The table shows that in the knitwear sector there is potential for value addition in
Ethiopia especially concerning knitting and confection, which again depends on and
requires an efficient production and increased qualification of production staff. It
underlines the importance of a respective investment into know-how transfer and
improvement in the garment field, as well as strategic investment in knitting, spinning,
and weaving equipment, as well as staff qualification in these sectors.

However, Ethiopian imports of textiles and clothing are increasing. While in 2007 the
total Ethiopian imports of textile and clothing were $142.6 million, it increased to $239.8
million in 2008, showing a significant increase of 68 percent. In 2007, the increase was
4.2 percent over 2006. China, Indonesia, India, and United Arab Emirates are the major
countries exporting textile and clothing to Ethiopia, with their market share totaling
approximately 70 percent (China 53.3 percent, Indonesia 5.8 percent, India 5.6 percent
and United Arab Emirates5.3 percent). The other major exporting countries to Ethiopia
include Thailand, Taiwan, Turkey, United Kingdom, Pakistan, and the Republic of Korea
in order of their market share.40Right now, U.A.E can only be an intermediary.

As a result of consumer interest, organic cotton fiber is used in everything from personal
care items (sanitary products, make-up removal pads, cotton puffs, and ear swabs), to
home furnishings (towels, bathrobes, sheets, blankets, and bedding), children's products
(toys and diapers), clothes of all kinds and styles (whether for lounging, sports, or the
workplace), and even stationery and note cards. In addition, organic cottonseed is
used for animal feed and organic cottonseed oil is used in a variety of food products,
including cookies and chips. According to the Organic Cotton Market Report 2009
released by Organic Exchange in May 2010, global sales of organic cotton apparel
and home textile products reached an estimated $4.3 billion in 2009. This reflects a 35
percent increase from the $3.2 billion market recorded in 2008. Companies reported
significant growth of their organic cotton programs, and increased adoption of
standards addressing organic product traceability and sustainable textile processing.41

The country does not produce competitive cotton. The fibers are too short because of
poor growing practices, lack of irrigation, and poor post-harvest practices. Low world
cotton prices and the lack of premium prices for organic cotton are additional
obstacles to adopting organic cotton production.

Value Adding Textile and Garment Enterprises

Ethiopia has a long tradition of producing cotton textiles. The textile, garment, and
home textile industry in Ethiopia shows a complete value chain only in the cotton
garment sector (cotton growing, ginning, spinning, yarn dyeing, weaving, and knitting,

                                                                                                           
40Idem.

41http://www.ota.com/organic/mt/organic_cotton.html .

152  
  

as well as confection and garment finishing); some of the factories in Ethiopia are even
fully vertically integrated (for example, spinning to finished garment or product).
However, the number of operating factories and their capacity is comparably low and
does not provide self-sufficiency for the demand by Ethiopian garment or home textile
industry, neither regarding the domestic market nor potential future export orders.

Ethiopia currently has eight large scale textile factories (out of which seven are publicly
owned) and 13 garment enterprises (four of them are public enterprises). Many of the
Ethiopian companies have very good or even partly excellent technical equipment,
but lack proper use and handling (low productivity and a lack of qualification). The
basic quality of workmanship is broadly acceptable for export markets, however in
case of ready to use products, including yarn or fabric supply by the Ethiopian
manufacturer, the quality of finishing (yarn and garment finishing) needs generally to
be improved. Most of the Ethiopian manufacturers are not yet ready for independent
and proactive export marketing, as they lack basic know-how and experience, for
example, regarding product and company presentation, customer requirements, and
acquisition, as well as customer service. The financial situation in most of the companies
is not a problem, even though an increase in export earnings could generate a further
boost in company development. Ethiopia’s fashion design industry is extremely viable,
which represents a significant opportunity for cotton and garments. The status of
Ethiopian textile companies can be summarized as the following:

• There are very good technical equipment and very low production costs, but
very low productivity against a high price pressure inhibit companies from
earning profits.
• There is limited availability of ready to use fabric, accessories and trim (need to
be imported) and value adding elements, such as prints and embroideries, are
rarely done following international standards.
• There are poor marketing, sales, and management skills.
• A reasonable financial basis exists, but there is limited access to finance for
working capital.
• Qualified staff (for example, production and marketing) and intense export
promotion and acquisition of export customers are needed to generate and
benefit from competitive advantages.

Wheat

State of Wheat Production

With growth in production over the past decade (namely, around 8.7 percent annual
increase because of area expansion and yield improvement), Ethiopia’s wheat

153  
  

production reached 3.147 million metric tons42 in 2011, securing its position as one of the
largest wheat producers among the COMESA countries. In terms of area cultivated and
annual wheat production, wheat is the third most important cereal crop in Ethiopia,
following maize and teff. The average annual area under wheat and wheat production
during the period 2004-09 was 1.51 million hectares and 2.29 million metric tons,
respectively. Small-holders produce nearly 98 percent of the wheat.

According to Ethiopian Institute of Agricultural Research (EIAR), now there are many
improved varieties of bread and durum wheat. In 2004-09 alone, 13 improved varieties
of bread wheat and 13 improved varieties of durum wheat have been released by
different research centers and institutions. These varieties are high yielding and suitable
for industrial processing. However, the utilization of these improved seed varieties by
producers is extremely weak. At present only 3 percent of the country’s wheat area is
covered with improved seed varieties and only 79,400 metric tons of chemical fertilizer
was used on 446,709hectares of wheat. This clearly shows that there is immense
potential for increasing domestic wheat production, but there are many constraints
that hinder the intensification of wheat production. These constraints include the
following:

• Weak seed production and distribution, lack of participation by private firms and
farmers’ organizations in the production and distribution of improved wheat
varieties
• High seed cost because of high transport and handling costs
• Inadequate coordination between research, seed production, and extension
services
• Lack of market information for traders, producers, and farmers’ organizations
• Lack of access to appropriate storage and marketing facilities and infrastructure
• Lack of contractual agreements between producers and millers
• Lack of access to bank credit
• Inadequate road infrastructure and high cost of transferring wheat from surplus
areas to consumption centers

With climate change, higher temperatures negatively affect the growth of wheat and
decrease productivity. Appropriate adaptive and mitigative techniques are needed,
including changed cultivation practices, better irrigation systems, new technology, and
use of new drought resistant varieties.

Size of Wheat Domestic Market

The annual volume of wheat handled by food processors is about 53 percent of the
total wheat supply to the domestic market. It is supplied to consumers in the form of
                                                                                                           
42Source: US Department of Agriculture, available at:
http://www.indexmundi.com/agriculture/?country=et&commodity=wheat&graph=production

154  
  

flour, spaghetti, and bread. The remainder is distributed in the form of whole grain,
which is processed by consumers and retailers, including small shops, bakeries, kiosks,
restaurants, cafes, and supermarkets.

With a growing population and urbanization, the demand for wheat and particularly for
processed food in the form of bread, flour, macaroni, and pasta is expected to
increase.

Wheat Market Trends

Ethiopia imported in 1.2million metric tons of wheat43 in 2011.Some pasta producing

companies import hard wheat, because it is more uniform than that grown
domestically. These companies are concerned about maintaining the quality of their
product. The majority, however, produce the lower-quality flour, biscuits, and pasta.
Although indigenous to Ethiopia, durum wheat production has dwindled over the past
decades. The pasta factories in Ethiopia mostly do not use durum wheat for the
production of their pasta and instead opt for hard bread wheat. Durum wheat is
relatively low yielding compared to bread wheat and the indigenous varieties known to
the pasta processing companies are very low yielding. As a result, these companies
think that it is not possible to use durum wheat and instead rely on hard bread wheat,
either imported or produced domestically.

Value Adding Wheat Enterprises

Wheat is used as an input for the country’s modern food processing factories, which
makes it the most important crop used as an industrial input for food processors. Food
processors that use wheat as an input include 86 large and medium flour mills, 180
manufacturers of bakery products, and 9 manufacturers of spaghetti and macaroni.
These enterprises employ about 11,000 people. Food processors normally operate
below their capacity. For example, the capacity utilization of flour mills, bakeries, and
manufacturers of pasta and macaroni44 operated at 36 percent, 67 percent, and 58
percent of their capacity in 2006/07. The main reason for this is the shortage of raw
materials, because of the lack of coordination between the stakeholders of the wheat
value chains that does not allow processors to source the wheat they need locally.

The value added by the different actors in the wheat-bread value chain is about
$393.24/metric ton. The share of the different actors in the total value chain is as follows:
wheat growers (44.7 percent), wholesale traders (5.5 percent), flourmills (19.8 percent),
and bakeries (30.0 percent).This is may be due to the presence of large international
community in Addis Ababa. For ordinary citizens, consumption of pasta becomes

                                                                                                           
43Idem.
44
CSA. 2008

155  
  

necessary whenever there is shortage in supply of staple foods and during fasting
seasons.

Adding value wheat processors face the following challenges:

 The value chain is not organized. Producers and processors do not
communicate their differing needs to growers to ensure production is
optimum for their processing needs, which impacts negatively the quality of
the wheat products.
 Capacity to market wheat products is very limited.

Spices

State of Spices Production

Ethiopia has a long history of spices production. The unique environmental conditions of
the country offer the opportunity to produce a wide variety of spices, including
korarima (Aframonum Korarima), long pepper, black cumin, Bishops weed
(‘Nechazmud’), and coriander. Spices are mainly produced by small-holders. Data
from 2010 indicate that spices production cover 222,700ha of land, enabling the
production of 244,000 ton per annum.

It seems that most of the production of spices is organic, although it is not certified as
such.

Size of Spices Domestic Market

Spices have always been part of Ethiopian people’s diet. Therefore, the domestic
demand for spices is large, mainly for whole pepper and ground ginger, fenugreek,
cinnamon, chilies, long pepper, and mixed spices.

Spices Market Trends

Despite its acknowledged potential, the spices industry has long been underexploited.

Export of spices from Ethiopia is very limited, currently contributing only about 1 percent
of the country’s total agricultural export. Under its five year Growth and Transformation
Plan (GTP), the government of Ethiopia envisages investing$7.5million in order to boost
the revenues from the spices sector, expected to generate $50million annually from
2016 by notably supplying over 34,000 tons of spices to the export market, which would
represent a significant increase compared to the 15,500 tons of spices exported in
2009/10 generating $33.2million.

Exports of spices have been steadily growing over the past few years. More than 50
percent of Ethiopian spices are exported to Sudan, which absorbs up to 75 percent of
Ethiopia’s ginger export. The other main export destinations for Ethiopian spices include

156  
  

India, Morocco, Saudi Arabia, United Arab Emirates, and Yemen. Recently, the
substantive shift towards] natural products in developed countries has stimulated the
demand for spices in parallel with demand for organic spices in Europe, Japan, and
United States. Although the size of this market is small (around 1 percent of the total
market), the annual growth rate is 25 to 30 percent. Hence, there is a large and
growing world demand for unprocessed and ground spices, as well as spice extracts,
such as essential oils and oleoresins.

Customs data record that the imports of spices increased from 863 tons in 2005 to 1,534
tons in 2009, while import value of spices increased from $7.7million in 2005 to $18.1
million in 2009.45

Value Adding Spices Enterprises

There are two spice processing plants in the country, one public and one private. The
public spice extraction plant, the Ethiopian Spice Extraction Factory, has a processing
capacity of 180 tons per year, 85 percent of which is paprika, but it can process ginger
from locally grown ginger root, capsicum oleoresin from red pepper, and turmeric. The
privately owned spice extraction plant—Kassk Spices and Herbs Extraction PLC—has a
processing capacity of 120 tons per annum. All of the extracted spices are exported
overseas for food coloring, flavoring, and other purposes to Europe: mainly Germany,
Italy, and Spain.

The two spice extraction plants in Ethiopia are presently not operating at full capacity
because of machinery obsolescence and shortage of raw materials. To date, the
adding value practices have been limited to storing spices in bulks and jars and drying
spices. There is an increasing number of small enterprises processing spices products,
but the level of processing and packaging equipment of these processors is very
limited.

Spices value adding processors face the following challenges:

 There is very limited storage space.
 High quality spices are adulterated by selling low quality varieties as high
quality.
 The spices are of poor quality because of poor pre- and post-harvest
handling practices. There are no enforceable quality standards so the
product is altered by adding water, which changes the weight, color, and
appearance.
 Capacity and know-how of existing processors are both limited.
 Access to market information is limited.
 Organization of the stakeholders along the value chain is limited.
                                                                                                           
45MasreshaYimer. November 2010. “Market profile on spices: Ethiopia”, UNCTAD ITC.

157  
  

158  
  

Annex 8: AII and Finland’s Agro-BIG Program

Agro-BIG is dedicated to agribusiness induced growth in the Amhara National Regional

State. The four-year program supported by both governments of Ethiopia and Finland
aims to contribute to poverty reduction through agriculture-based economic growth in
the program area by establishing efficient and profitable value chains of selected
crops or products (during the first phase, the value chains of focus will be onion and
honey), benefitting the involved actors and stakeholders along the chain (farmers,
processing industries, traders, and buyers). Agro-BIG will have three vertical
components: 1. value chain development, 2. service delivery development, and 3.
access to funds and financial services. Finland views infoDev as a key implementing
partner for Agro–BIG and supports the integration of the AII with the CIC.

The AII can assist Agro-BIG in it service delivery and access to funds and financial
services components, building upon the value chain development work and levering
the AII’s focus and capability with market development, business management, and
financing.

The service delivery component will develop private and public service provision to the
value chain actors. The component is about human resource development—accessing
services that can facilitate group formation (including associations and cooperatives),
input supply, action planning, quality control, standardization, market information and
market intelligence, accounting, auditing, business development planning, and
applications to gain assistance from funds and financial services. All these services may
potentially be identified as needs by the value chain actors. Services can also be
developed within the private or public sectors—and development of new services can
be done with the assistance of the Innovation Demonstration and Research Fund.46

The AII can assist by helping with market information and intelligence, for both the
domestic and international markets, by linking local producers with larger processors
and by providing intensive market development, business management, and financing
support to suitable growth-oriented agribusiness entrepreneurs coming through the
Agro-BIG program. Financing support will start by ensuring the chosen agribusinesses
are finance ready, with the necessary management and accounting practices and
competitive business models that are important to secure finance.

The Access to Funds and Financial Services component will strengthen the link to saving
and credit facilities for participants along the value chain and make funds available for
value chain development through existing private and public institutions. It will set up
process and procedures round the Innovation, Demonstration and Research Fund
(BoFED will manage) that can be used by actors in component 1 and 2. A minimum of
                                                                                                           
46Program document 2011.

159  
  

50percent of the funds should go to private sector actors, and all access will be based
upon sound applications. The fund will only respond to private and public initiatives
around the needs identified in the Value Chain Development Strategy of the chosen
value chains. Agro-BIG will coordinate with other donors in identifying ways to support
access to credit via private and public banks and microfinance institutions. The
possibilities of a guarantee scheme should be investigated. A Value Chain Fund is to be
set up with the Amhara Credit and Saving institution, which can top up on savings
made by such groups as coops, farmers associations, and irrigation groups. A Matching
Grant Fund for larger private investments is to be set up (Amhara Credit and Saving
Institution or the Development Bank) to serve micro, small, and medium enterprises.47

The AII can assist as a financier of growth-oriented agribusinesses resulting from the
Agro-BIG Program, which is co investing alongside other financiers. As a part of the CIC,
the AII will benefit from CIC investment activities, with proof of concept grants up to
$100,000 and seed funding up to $750,000. Ongoing support from staff, mentors, and
consultants will be provided to investee companies to mitigate the risk and maximize
success.

The AII will have its main location in Addis Ababa, with facilities in the main Merkato and
offices with the CIC. Clients not located in Addis Ababa will be supported by visiting
and remote services. The location in the main Merkato in Addis Ababa will help clients
from across Ethiopia navigate its complicated and confusing systems, which are
nonetheless crucial for distributing products to the domestic market.

As a part of implementation, the AII should agree with Agro-BIG exactly where AII
services can best benefit and complement Agro-BIG services, maybe leading to an
MOU. For this, monitoring and evaluation will be important. Working with clients
remotely is a feature of the AII and a growing trend with business incubation, but it is not
always easy. Service delivery mechanisms instituted with Agro-BIG can serve as
examples for work with other donor programs and learning will need to be captured.

                                                                                                           
47 Ibid.

160  
  

Annex 9: Phasing of Enterprise Support

Different types of support will be required, depending on the stage and targets of the
client enterprises. Below provides an overview of how support could be phased.

PHASE   1:  2S:  trengthen  

PHASE   Support   PHASE   2:  3E:  ncourage  
PHASE   Expand  

MARKET
product/market   new   p roducts  
NEW new  market  access   new  product  
position   markets  
 
  1  
EXISTING

1  
MARKET

– EXISTING PRODUCT – NEW PRODUCT

Figure 27Phasing of Support to be Provided to AII Cilents

Phase 1

Phase 1 support will strengthen current activities with existing products in existing
markets. Incremental improvements, both technical and managerial, will be the
key focus in Phase 1. Improvements in procurement, processing technology,
packaging, and sales approaches could reduce costs, improve quality, and
expand existing markets and strengthen these enterprises for later phases.

Phase 1 support is seen as a “means to an end” in preparing Level 2 enterprises

for accelerated growth.

Phase 2 - New Markets

Phase 2 would use the advances made in better procurement, additional

equipment availability, more hygienic and advanced processing, better quality
packaging and branding, and improved managerial capability to access new
markets.

Phase 2 may progress very fast for some enterprises, but the test of
competitiveness (as a proxy for market acceptance of a good quality,
available, and well-priced product) will be measured by the consistency of

161  
  

demand over time. Hence, this phase may also run concurrently with Phase 1 in
some enterprise contexts.

Phase 2 - New Products

Phase 2 will mark the product expansion phase and will signal a stable enterprise
with adequate and constant income and with the resources and managerial skill
to venture into new products. New products will require investment in product
development; test marketing, packaging, and sales and this will be encouraged
and supported in enterprises that have the capability to do this.

the AII will facilitate access to packaging services both in Ethiopia and
internationally, because new product development and testing requires a focus
on both product and packaging, and because there is a definite lack of good
packaging options, and because consumer perception is a critical decider of
purchase interest.

Phase 2 activities may require a year of support to test reliability of test market
outcomes. From a managerial and business expansion perspective, this
represents adequate time for scale adjustment (for example, developing
accounting or distribution changes that keep pace with growth).

Phase 3

Phase 3 activities represent the pinnacle of new growth with new products
expanding into new markets. While these can be export markets, national
distribution of new products offers significant potential in Ethiopia in all the
sectors under consideration by the AII.

Market expansion is a complex process, especially with new products as it taxes

general management and finance, logistics, and marketing in particular. It can
be a significant drain on resources and must be well managed. The AII will offer
support in collaboration with partners, such as export promotion agencies,
financiers, and logistics linkages.

Phase 3 will begin in the third year for most companies and will be supported for
at least a year.

162  
  

Annex 10: AII’s Prospective Clients

The financial plan was built on an expected 30 companies supported per year (from
year 3). The first two years of the AII program will be dedicated to building the pipeline
of enterprises to be supported.

Three levels of client are anticipated as shown in this table.

Table 27Ethiopian AII Target Clients Categorization

Level Business Category by Size Current Turnover AII Support

Range

1 – New start and very small – $0 to $1,200 per – Pre-incubation

micro businesses annum

2 – Small and medium – $1,200 to $283,000 – Incubation

businesses per annum

3 – Large businesses – $283,000 to – Incubation

$565,000 per
annum

The levels may be segregated further as a part of the implementation in Year 0 when
further planning and refinement will take place, learning from selected clients. Initially,
Level 2 and 3 clients will be the focus in order to hone the model and drive for
revenues.

The deal flow of level 2 and 3 enterprises is captured in the table below, which
incorporates phases of support also, three for level 2 clients and two for level 3 clients
(which have been described further in Annex 7).

163  
  

Table 28Deal Flow of AII’s Enterprises

CLIENT CUMULATIVE CLIENTS

LEVEL PHASE Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

2 1 0 6 6 6 6 6 6 6 6 6 6
2 2 0 6 6 6 6 6 6 6 6 6
2 3 0 0 0 6 6 6 6 6 6 6 6

3 2 0 4 4 4 4 4 4 4 4 4 4
3 3 0 4 8 8 8 8 8 8 8 8

TOTAL 0 10 20 30 30 30 30 30 30 30 30
NEW 0 10 10 10 10 10 10 10 10 10 10
CUMULATIVE 0 10 20 30 40 50 60 70 80 90 100

164  
  

Companies enter the AII for an average of three years, noting that services will be
tailored to the unique needs of each and every company with a case management
approach. Inevitably some companies will grow and progress faster than others.

The table below captures the combine turnover of the supported enterprises, on the
assumption that Level 2 turnover increases by 1.5x in Phases 1 and 2 (combined), 1.5x in
Phase 3, and Level 3 turnover increases by 1.5x.

165  
  

Table 29Combined Turnover of AII’s Client Enterprise

CLIENT COMBINED ENTERPRISE TURNOVER

Year
LEVEL PHASE 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
2 1 0 1127880 1127880 1127880 1127880 1127880 1127880 1127880 1127880 1127880 1127880
2 0 0 1466244 1466244 1466244 1466244 1466244 1466244 1466244 1466244 1466244
3 0 0 0 1906117 1906117 1906117 1906117 1906117 1906117 1906117 1906117

3 2 0 2215200 2215200 2215200 2215200 2215200 2215200 2215200 2215200 2215200 2215200
3 0 0 3338400 6676800 6676800 6676800 6676800 6676800 6676800 6676800 6676800

TOTAL 0 3343080 8147724 13392241 13392241 13392241 13392241 13392241 13392241 13392241 13392241

166  
  

Clients will only agree to pay a royalty on their turnover if the AII confers tangible benefit in
terms of profit to the entrepreneur, by way of increasing turnover and by improving gross profit
margins and efficiency.

This is depicted in a simple example below with two scenarios. This calculator highlights the
benefit of agreeing to pay a percent of turnover and demonstrates just how far the AII can go
with the percent before it turns negative for the entrepreneur. A percent royalty and with an
increase in turnover means the entrepreneur pays a certain amount. Then with an assumed
gross profit and overhead margin, one can see whether the entrepreneur gains or loses with
the profit or loss they make. It appears gross profits are around 50 percent and overheads 18
percent, which are used as the basic assumptions.

With Scenario 1, assuming a turnover of $100, a 30 percent increase in turnover improves the
profit by $9.60, but incurs a royalty payment of $7.80 with a net gain to the entrepreneur of
only $1.80. This may not be enough to secure entrepreneur engagement.

Scenario 2 assumes the AII will improve both the gross profit margin and the overhead
percentage resulting in a changed operating profit, because it is assumed that not only will
the AII intervention increase turnover, but also help the entrepreneur compete on value and
improve internal efficiencies. In this example, the net gain to the entrepreneur is $8.40. This
demonstrates how the AII can charge what may seem to be a high percent of operating
profit without damaging the business.

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Annex 11: Setting a Royalty Fee

  SETTING  A  ROYALTY  FEE                

                   
  – Royalty   – 6.00%                
  – Growth  in  turnover   – 30.00%                
  – COS%  of  turnover   – 50.00%                
– Overhead  %  of  
  turnover   – 18.00%                
                   
                   
                   
– SCENARIO  1.  AN  INCREASE  IN  TURNOVER  WITH  NO  CHANGE  IN  GP  or  OPAS  A  PERCENT  OF  TURNOVER  (that  is,  increased  turnover  with  no  efficiency  gain  from  
intervention)      
                         
  –     – BEFORE   – AFTER     – Royalty  fee                
  –     – $   – $     – $                
  – Turnover   – 100.00   – 130.00     – 7.80                
  – Cost  of  Sales   – 50.00   – 65.00                    
  – GP     – 50.00   – 65.00                    
  – Overhead   – 18.00   – 23.40                    
  – OP     – 32.00   – 41.60                    
  – OP%  of  turnover   – 32.00%   – 32.00%                    
  – Royalty  %  of  OP     – 0.19                    
                         
  – Gain  in  OP  ($)   – 9.60                      
  – Payment    ($)   – 7.80                      
  – Nett  gain  ($)   – 1.80                      
                         
– and
growth
  – Royalty  of   – 6.00% of – 30.00% – confers additional income of – $1.80        
                         
  

                         
– SCENARIO  2.  AN  INCREASE  IN  TURNOVER  WITH  AN  INCREASE  IN  GP  and  OP  (that  is,  some  efficiency  gain  from  
intervention)              
                         
  –     – BEFORE   – AFTER     – Royalty  fee   –     –     –            
  –     – $   – $     – $       –            
  – Turnover   – 100.00   – 130.00     – 7.80       –            
– COS  
  – Cost  of  Sales   – 50.00   – 58.50     decreased  by     – 10%   – due  to  intervention          
– Overheads  
  – GP     – 50.00   – 71.50     decreased  by   – 10%   – due  to  intervention        
  – Overhead   – 18.00   – 23.30     –     –       –            
  – OP     – 32.00   – 48.20                    
  – OP%  of  turnover   – 32.00%   – 37.08%     –     –       –            
  – Royalty  %  of  OP     – 0.16     –     –     –     –            
                         
  – Gain  in  OP  ($)   – 16.20                      
  – Payment    ($)   – 7.80                      
  – Nett  gain  ($)   – 8.40                      
                         
– decline
in
overhe
ads
confer
– and – decrease s
growth in COS additio
  – Royalty  of   – 6.00% of – 30.00% – with a – 10% and – 10% nal – $8.40 –
 

169  
Annex 12. The Possible Fit with the CIC Services

The AII will dedicate a highly qualified and knowledgeable staff with solid
experience and networks in the agribusiness sector to foster the growth of a climate-
smart, competitive agribusiness sector in Ethiopia. By working in partnership with
strong agribusiness stakeholders, the AII will offer tailor-made services to
agribusinesses, enabling them to innovate on both the technology and marketing
sides, with the purpose of having a demonstration effect that can catalyze take-up
of these innovations across the agricultural processing industry.

By reviewing the requirements (detailed further later in the current document) for the
proposed AII, designed in response to the three questions outlined above, it could
make sense to include the AII under the CIC. If this option was selected, the aim
would be to have an agribusiness service line integrated to the CIC. It would add to
the CIC service offering by addressing the specific needs of Ethiopian value adding
agribusinesses toward accelerating their growth and competitiveness.

The AII will, together with the CIC, form a strong green growth program, positioning
Ethiopia to harness its comparative advantage in agriculture for economic growth,
competitiveness, and job creation, while protecting that advantage through
climate technologies.

Agribusiness is an important sector for the CIC. Should the AII be integrated within
the CIC, the AII Business Line should add to the CIC service offering.

The services of the Ethiopian CIC are summarized in the following figure.
  

Figure 28Ethiopian CIC Seervice Offering

Finance is an important pillar for both the CIC and the AII. The Innovation Catalyst
Fund is what is required to help existing firms to scale and grow and the proof of
concept grants are important for future new start businesses. The strong need
expressed by survey respondents for investment to help companies grow indicates a
strong fit with the CIC.

Market development is not noted as a pillar for the CIC, but is addressed under
mentoring and access to information. However, as a core service for the AII, relying
on external networks to help clients with market development is not sufficient.
External providers and mentors in Ethiopia do not necessarily have the expertise. To
generate trust and credibility with entrepreneurs, this critical service needs
experienced staff at the core of the AII, who can then lever and efficiently use
external specialist consultants, mentors, and the financing mechanisms.

Advice, including mentoring and access to specialist consultants, is a core pillar for
the AII and is very similar to the mentoring pillar of the CIC. The notable difference
relates to market development, for which the AII needs core staff with both
domestic and international market development expertise in value-added agro-
processing businesses. For the same reasons, the AII will need at least one business
development staff person. A management staff to client ration of 1: 6 is desirable to
provide the intensive incubation required.

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The CIC will have office facilities in Addis Ababa, although it is not noted as a pillar.
The additionally for the AII is that a second facility is required in the Merkato to
showcase products and technology and as a base from which to help
entrepreneurs understand and lever the complex Merkato systems and networks.

Policy support is an important pillar for the CIC, for which regulation in some sectors is
needed to create competitive markets. It is a necessary service for the AII in terms of
advocacy for quality standards, certification, and enforcement and to remove
regulatory bottlenecks to make supply chains more efficient. Indeed, advocacy for
certification and standards is an important pillar of the CIC, recognizing that
regulation helps create new markets in the climate change arena, especially in the
absence of a price on carbon globally. The situation is very similar for agro
processors for whom standards regarding health, safety, and quality (including
organic) are important in developing competitive and valuable brands and who
often rely upon international services in South Africa and Europe. Detailed planning
for the CIC will need to address the specific certification needs of agribusiness.

Helping entrepreneurs overcome the deficiencies in packaging options in Ethiopia is

a need specific to food processors, which is not as important in other climate
innovation sectors. This requires staff and consultants who understand the needs,
what is available in Ethiopia, and overseas options, so they can provide valuable
advice and facilitation to entrepreneurs.

In summary the AII Business Line will add to the CIC, offering the following specific
services:

1. Market development staff. The AII needs two senior experienced people, one
with international experience and the other with domestic experience and
networks.
2. Staff who understand packaging possibilities needs and options.
3. Facilities in the Merkato.

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