The concept of economic development has been, and remains, highly debated on a global scale. Development economics aims to incorporate all social, political and environmental dimensions into economic development. Traditional neo-classical theories see development as a chain of processes which have a positive impact on the development of an economy; with its main focus on growth, in terms of income. Since the Washington Consensus, it has been general knowledge that for an economy to develop, free market reforms and liberalisation of trade policies are vital requirements. Through trade, markets are expanded by creating jobs, increasing productivity, encouraging new technologies and competition.⁽²⁾

Foreign aid has been used as a mechanism to speed up development in poorer countries that struggle to finance domestic investments needed to fuel economic growth. However, aid assistance has not met its intended purpose. Trends in aid have been decreasing over the years, poverty levels are still at record highs and many developing countries seem worse off than before in their effort to end the vicious cycle of borrowing more to pay off their debt.

This CAI paper explores how the flower export market has become an alternative source of income for Africa's most popular aid recipient, Ethiopia. The Ethiopian floriculture industry became the fourth largest flower exporter in the world and second largest in Africa in the last five years. The paper also discusses the industry's impact on the Ethiopian economy, which has experienced rapid rise growth, suggesting that international investment and trade should be encouraged as a substitute for foreign aid.

More trade, less aid

The millennium decade saw a new unified approach to eradicating world poverty by both industrialised and developing countries, and global institutions. The Millennium Declaration in September 2000 saw a commitment to do everything necessary to eradicate global poverty, develop human capital through education, better health and sanitation services, and promote equality and environmental sustainability. Hence, the Millennium Development Goals were created, providing a cohesive focus in the development community unlike any that had been set before.⁽³⁾ Foreign aid was seen as a way to help speed up these development strategies and reverse problems caused by policies undertaken in previous decades.

Developed countries would increase aid assistance by pledging 0.7% of their gross national income (GNI) to countries that were genuinely making an effort to apply their resources to poverty reduction.⁽⁴⁾ However, the world's poorest countries are mainly within Sub-Saharan Africa (SSA) where over 8 million people die as a result of extreme poverty and over 1 billion still live on less than US$ 1 a day annually. There is now more inequality between rich developed Western countries and poor nations in SSA compared to the 1960s. This raises doubt about how foreign aid helps countries develop.⁽⁵⁾

With trade, developing countries can become less dependent on the foreign assistance needed to finance development projects. It increases domestic effort, pushing the idea that development occurs from within, not from outside. Africans, in particular, want to trade and increase their revenue. This contributes to a fit balance of payments, better education and improved healthcare systems. Trade also increases the amount of foreign reserve a country has, and develops production specialisation and technology. Developing countries normally depend on the export of traditional agricultural products such as coffee, cotton and cocoa. However, these industries have experienced decreases in world demand and a fall in prices over recent years, making them unprofitable. In an era of globalisation, it is important that developing countries diversify into high-value, non-traditional exports as an alternative export promotion strategy.⁽⁶⁾

The rise of Ethiopia's floriculture industry

In recent years, several developing countries in SSA, such as Ethiopia, Kenya, Zambia and Uganda, have experienced speedy growth in the export of highly perishable horticultural products to developed countries. Flowers are luxury products with a high value in most societies. Demand reached US$ 40 billion in 2008.⁽⁷⁾ The floriculture industry is an example of a successful diversification into non-traditional markets. The industry emerged in the late 1990s, and despite being a late-comer, Ethiopia has become the second largest flower exporter in Africa (after Kenya) with speculations of increased future growth. Export value earned is expected to rise up to US$ 550 million by 2016.⁽⁸⁾

Climate conditions have made Ethiopia a favourable cultivation site for such products as it is situated in the tropics, with its diverse range of altitudes. Additionally, the Ethiopian Government, the Ethiopian Horticulture Producers and Exporters Association (EHPEA), and international investment played key roles in Ethiopia's floriculture industry development. The EHPEA, which included private sector entrepreneurs, has been instrumental in gaining government support in the sector. The organisation's aim was to promote the sector.

Following recent ethnic violence and reduced labour force in Kenya, Africa's number one global flower exporter, investors and producers needed to diversify and invest in other countries. With good climate conditions and cheap transportation costs, Ethiopia was a favourable choice, especially for the cultivation of roses. State-owned land was made available for flower farms at affordable prices, especially near the airport. This reduced transportation cost facilitated market entry. The Ethiopian Government also offered attractive incentives for investors. For example, a five-year corporate tax exemption for inputs, import duties were scrapped and investors were also given access to financing from banks. It became obvious that Ethiopia had a comparative advantage in the production of roses, especially with vast amount of labour. As the industry expanded, the unit cost of production decreased.

Through international investment, knowledge transfers and technological innovations can be introduced into the domestic market; for example, through improved agricultural methods. International investment is beneficial for the recipient country as it also promotes economic activity, therefore increasing employment. In the case of Ethiopia, the cut flower industry has experienced investment from a range of geographical and industrial backgrounds, from the Netherlands, United Kingdom and India, to more regional markets such as Nigeria, Sudan and Oman, thereby also encouraging South-South integration. Nevertheless, the biggest market for the Ethiopian rose is the Netherlands, as around 90% of rose exports go to Holland. Evidently, Ethiopia has emerged as a strong global cut flower market competitor.

Economic impact

The floriculture industry has had a huge impact on Ethiopia's economy and society; most significantly on job creation, which is said to amount to over 100,000 new jobs in the last five years. Locals are being trained in business and management skills and most donors are giving back to society in one way or another. For example, Et-Highlands Flora hires and trains orphans, thereby including them in the workforce and reducing crime rates.⁽⁹⁾ The industry has also had a major influence on gender perspectives, as more than 75% of workers are female. One argument holds that floriculture is comparable to childcare, as women’s presence facilitates the entire growth process. It also enables them to break barriers in commercial entrepreneurship as they are able to interact with business communities and traders.⁽¹⁰⁾ Although there has been some concern over environmental impacts and village politics, such as disputes over land tenures between foreign investors and local communities, the flower industry’s development has proven to be a good step towards internal development for Ethiopia. Tropical developing countries should see the increased world demand for cut flowers as an opportunity for market entry because they have the relevant resources such as water, land and labour in abundance to cultivate such non-traditional products.

Concluding remarks

The emergence of the flower industry in Ethiopia proves that development can occur in a developing country with sound policies, and a focus on trade strategy, rather than via aid. Through production diversification, Ethiopia can depend more on trade and less on aid.

The time has come for more African countries to move away from trade in traditional products with low earnings value and engage in the production of non-traditional commodities. This will open up global markets and reduce reliance on aid assistance. Although floriculture is a fairly new industry in Ethiopia, sales records of flower exports have shown how profitable diversification can be achieved through trade. How governments of developing countries utilise such options remains the question.

Written by Nanya Oboite ⁽¹⁾

NOTES:

(1) Contact Fumnanya Oboite through Consultancy Africa Intelligence's Optimistic Africa Unit (optimistic.africa@consultancyafrica.com).This CAI discussion paper was developed with the assistance of Charlotte Sutherland and was edited by Kate Morgan.
(2) Goldin, I. and Reinert, K., 2007. Globalization for development: Trade, finance, aid, migration and policy. World Bank: Washington DC.
(3) Todaro, M. and Smith, S.C. (eds.), 2011. Economic development. Pearson Education Ltd: England.
(4) United Nations, 2000. The Millennium Development Goals report. UN: New York.
(5) One reason why aid has failed to achieve positive development is the conditionality that donors associate with any aid given which can be very rigid and inadaptable. Most donors offer assistance in return for some corresponding benefits such as reduced export prices of a commodity. There may be military or political interests that have no linkages with economic growth. Most bilateral donors also offer tied aid, which are loans or grants that have to be spent on the import of the donor country's product. These goods are normally overpriced and reduce market competition and access to other international markets for the recipient country. The 2008 financial crisis has also increased protectionist measures among rich developed countries, worsening further market access for Africa.
(6) Gebreeyesus, M. and Iizuka, M., 2010. Discovery of the flower industry in Ethiopia: Experimentation and coordination.United Nations University: Maastricht.
(7) Mitiambo, P.M., 'Floriculture value chain: The Case of Kenya', ESAMI, 6 November 2011, http://www.roundtableafrica.net.
(8) Malone, B. and Cawtorne, A., 'Ethiopia sees double-digit GDP growth for a decade', Reuters, 8 July 2009, http://www.reuters.com.
(9)'A series of studies on industries in Ethiopia',The Japan Embassy, 30 April 2011, http://www.et.emb-japan.go.jp.
(10) Agoramoorthy, G. and Hsu, M.J., 2012. Impact of floriculture development enhances livelihood of India's rural women. Journal of Agriculture and Rural Development in the Tropics and Subtropics, 113(1), pp. 69-76.