Industrialization by invitation: Will it work in Ethiopia?

Aiga Forum | 4 January 2010

Desta, Asayehgn Ph.D, Sarlo Distinguished Professor of Environmentally Sustainable Economics

In contradiction to the strategy devised by foreign consultants that industrialization by invitation would enable African nations to leapfrog over the agrarian stage and catch up with industrial nations, Ethiopia has designed “Agricultural Development Led Industrialization” (ADLI ) to accelerate sustainable development.  Briefly explained, ADLI is a capacity-building initiative mainly tailored to achieve Ethiopia’s food security and to promote high-valued export crops.  The ADLI strategy resulted as a synthesis of the Neo-liberal Washington Consensus Model and a critical examination of the State-led developmental Model pursued by Taiwan and South Korean.  As narrated by the United Nations Economic and Social Council (ECOSOC), some of the distinctive features of ADLI include:  “Commercialization of smallholder agriculture through product diversification, a shift to higher-valued crops, and promotion of a niche high-valued export crops…( 2007).

Ethiopia has gathered momentum by recording a steady economic growth until 2007.  As narrated by Tolina, “the growth in the last four years has been phenomenal as Ethiopia was able to register a double digit growth of four consecutive years (October 2007)”. Since Ethiopia is an agrarian-dominated country where more than 80 percent of the population depends on agriculture and rural farming activities, the Agricultural Development Led industrialization can be visualized as rural-centered, designed to enhance Ethiopia’s rural sectors.

Though a breakthrough from the dominant neoclassical paradigm, ADLI was heavily criticized because it concentrates on a small-scale agriculture base.  Land ownership in Ethiopia is predominantly under government control.  Though not very dynamic, ADLI played a major role in transforming the agricultural sector of the Ethiopian economy and enabled the country’s exports to grow by about 25 percent per year ( See for example, Tadesse 2008).

More recently, due to the world-wide economic and food crises a significant number of the Ethiopian people are impoverished and the government has publicly admitted that it is purchasing grain from the international grain market to feed the malnourished segments of its population.  In addition, various non-government agencies are soliciting for food aid from various philanthropic and multilateral donors to feed the 6-8 million starving and poverty-stricken. Moreover, realizing the severity of the problem that about 45 percent of the Ethiopian population are malnourished, the Ethiopian People Democratic Front (EPRDF), the ruling party, in contradiction to its previous stand against direct foreign investment in the agricultural sector of the country, is now considering its land use policy and allowing private investors to cultivate alongside Ethiopian peasant farmers (Ashine, 2009, see also, Weissleder (2009).

Given this revision of the government policy, Ethiopia has already committed to handing over 1.7 million of the 2.7 million hectares of arable land to foreign investors. As  stated by Weissleder, for example, Saudi Arabia has  already invested  in  flori/horticulture, and meat, and biofuel production, as well as rice cultivation (mainly in Alwero, Gambella Regional State).  India’s investments are in tea, bio-fuel, sugarcane, and cotton plantations.  China is involved in the production of sesame and other oil seeds.   The European Union Countries are involved in horticulture, meat, and biofuel production.  Israel’s investments are in flori/horticulture, vegetable and biofuel production.  Investors from the United States are heavily invested in flori/ horticulture, food, biofuel, and meat production (2009).

Ethiopia’s strategy of leasing farmland to foreign investors is not without critics. For example, Jacques Diouf, Head of Food Agricultural Organization (FAO) warns that Ethiopia will be subjecting itself to new forms of agrarian colonialism if it goes along with its extensive foreign-owned  commercial farmland lease deals. On a similar issue, Mersha eloquently endorses the opinion of an analyst at the Forum for Biotechnology and Food Security in India who argues  that “Outsourcing food production will ensure food security for investing countries but would leave behind a trail of hunger, starvation and food scarcities local population…The environmental tab of highly intensive farming – devastated soils, dry aquifer and ruined ecology from chemical infestation—will be left for the host country to pick up” ( 2009).

In support of land-lease agreements, Esayas Kebede, the director of the agricultural Investment Support Office  argues that one way of ending poverty and hunger in Ethiopia is through leasing of large scale foreign commercial farming  to foreign investors. Esayas Kebede goes one step further and downplays the size of the acreage that is allocated to investors by saying that “…it is only 2.7 million hectares compared to the country’s total arable land estimated at 74 million hectares, of which Ethiopian farmers plough only 17 million hectares” (Ashine 2009). However, even if we agree with Esayas Kebede that the farmland leased to  foreign investors is not huge in terms of magnitude,  the question that remains unanswered is why is Ethiopia renting its virgin lands by bestowing hefty incentives (such as tax holidays; exemption from the payment of custom duties and taxes on imports of capital goods;  exemption from payment of sales and excise taxes for export commodities) and by giving various forms of concessions to foreign investors to rent  large scale commercial farmlands, when these incentives  could be available to domestic investors or possibly to prospective Ethiopian investors in Diaspora? More substantially, do empirical data assure that multinational enterprises transfer technology and capital to poverty stricken regions such as Ethiopia?

The proponents of neo-classical economics, and the globalization optimists have forcefully argued that multinational enterprises are conduits for the introduction of capital, technology,  management, and marketing techniques to host countries. The presence of multinational enterprises in host countries increase competition, improve efficiency, create jobs, generate needed foreign exchange, alleviate shortages of managerial and technical skills, and increase government revenues through taxation (see for example, Desta, 1998).

However, over the years, empirical data from a number of developing countries instead reveal that multinational enterprises capture the commanding heights of the host countries economy. They crowd out potential domestic borrowers and soak up indigenous sources of capital. They drive local firms out of business, and impose excessive environmental costs. In Africa, for example, it has been ascertained that multinational enterprises have exposed innocent people to hazardous wastes, such as chemicals and carbon emissions. They run away leaving empty holes after the natural resources are excavated and extracted (Kofi and Desta, 2008).  In terms of the argument that multinational enterprises create jobs for host nations, Frank demonstrates  that multinational enterprises “reinforce a pattern of development that over the long run would trap countries in their poverty because of inevitable decline in the price of exports of primary commodities with the price of manufactured goods” (1980). In the case of Ethiopia, Mersha states that

Although a theoretical possibility exists in a few cases for some transfer of technology for agricultural development, risk also exists to peasant farmers who cannot compete with well-resourced commercial farms.  Take, for instance, the case of barley and oilseed produced in Ethiopia. China is given an unknown size of farmland to produce oilseeds, sesame especially. China …would definitely bring Chinese workers to do the job. This not only would deny the country employment possibilities but also the transfer of experience and technology would be minimal (2009)

Based on review of the literature given above, we can be assured that multinational enterprises present both risks and opportunities.  Foreign investors are moving to Ethiopia because Ethiopia is “…endowed with fertile land and has developed a very investor-friendly environment over the last 10 years through strong changes in their national policy framework (2009).  In the age of globalization, it might be absurd to suggest to the Ethiopian Government that Ethiopia should isolate itself from the rest of the world. Nonetheless, Ethiopian policy makers should cease to see globalization as an end itself. The real end is environmentally sustainable economic development of Ethiopia. To the extent that multinational enterprises add value to the achievement of this goal, they could be welcomed.  But, the Ethiopian government needs to stay on the alert and keep the abuses of foreign investments in check through judicious governmental policies.

At this juncture, there is no way to put the clock back because the Agricultural Development Led Industrialization (ADLI ) has been very effective, and can be made to be dynamic through minor modifications such as revising the ownership and management of land. However, if ADLI is constrained because of unexpected shocks (such as drought and world-wide economic recession), then the only way the existing backbone of Ethiopia’s economic and social problems can be at the cutting edge, and environmental sustainability can be achieved is if local Ethiopians (with the help of the government, and/or genuine foreign investors), are willing to form cooperative joint ventures at the local level that can create employment and emancipate workers.  Thus harnessing the energies of local communities and private investors (such as the Ethiopian Diaspora who are willing to give back to the people in their country of origin) to form agro-business cooperatives is the cornerstone for revitalizing self-sustaining socioeconomic development in Ethiopia.


Ashine, Argaw (August 22, 2009). “African Agriculture: Hunger-Ridden Ethiopia defends Land Grabs.” Retrieved December 12, 2009, from

Desta, A. (1998). Environmentally Sustainable Economic Development.  Westport, CT: Paeger Publisher.

Frank, I. (1980). Foreign Enterprises in Developing Countries. Baltimore: John Hopkins, pp. 30-31.

Kofi , T. and Desta, A. ( August 2008). The Saga of African Underdevelopment: A viable Approach for Africa’s Sustainable Development in the 21st Century. Trenton, NJ: Africa World Press.

Mersha, G (12 August 2009). “Experts worry about negative consequences : International  Agricultural Land Deals Award Ethiopian Virgin Lands of Foreign Companies.” Retrieved December  15, 2009, from

Tadesse, T. “Ethiopia Keeps 10. 8% GDP Growth Forecast for 2008”. Retrieved May 15, 2008, from

Tolina t. E. (October 2007). “Agricultural Development Led Industrialization (ADLI) Strategy of Ethiopia”.

United Nations Economic and Social Council (2007) “The Agricultural Development Led Industrialization (ADLI) Strategy, Ethiopia “ Development  Strategies that Work: Country Experiences Presented at the ECOSOC Annual Ministerial Review.  Retrieved December 12, 2009, from!policy.action?id=124

Weissleder, L. (2009). Foreign Direct Investment in the Agricultural Sector in Ethiopia in  ECOFAIR TRADE DIALOGUE, Discussion Papers, No.12/October 2009/ p. .

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