Increasing Agricultural Productivity:
Encouraging Foreign Direct Investments in the COMCEC Region
80
therefore it is concluded that the transmission mechanisms necessary to generate economic
growth caused by FDI inflows are in place. Further, Ethiopia has become more integrated in
international trade through the investment of [multinational enterprises], which also stimulates
GDP growth. Negative consequences of FDI inflows on the economic growth such as the
crowding out of small farmers through the modernisation of the agribusiness sector will mainly
lead to a slowing down of the GDP growth rate in the short term prospect but will not stop the
midterm economic growth caused by the FDI inflows. Therefore, it is concluded that parts of the
economic growth in Ethiopia appear through FDI inflows.117
This conclusion is also supported by data that indicate a sharp increase in agriculture value
added, from US$5.28 billion in 2005 to US$13.6 billion in 2009.118
Risks and Reactions
The contribution of FDI in Ethiopia’s agricultural sector to increased productivity and value
added is, however, less clear-cut than this analysis suggests, while there may be other,
potentially negative, consequences: For the environmental development the picture drawn is
different. As no strong regulatory framework is in place and the emphasis of the last years was
to attract as much FDI inflows as possible the conflict on land and water resources is about to
increase further if no changes appear. 119
The headline-grabbing announcements of huge deals have, in numerous instances, proven
illusory. In 2010, the Ethiopian Government renegotiated Karuturi’s lease, reduced the size of
the farm to 100,000 ha and mandated that the company develop the land in two years, but s of
June 2013, Karuturi had cultivated only 5 per cent of this area. The experience prompted the
government to take control of land allocation from the regional governments to subject potential
investors to greater scrutiny, while reducing land allocations to plots of 5,000 to 10,000 ha
rather than the much larger tracts offered to Karuturi and other investors, with the intention,
once an investor develops its initial allocation, to make additional land available if the investor
seeks to expand further.120
Emami Biotech in 2012 pulled out of its investment, citing conflicts with local government and
confusion over land allocation, while CLC Industries, a subsidiary of Indian textile major CLC
Enterprises, withdrew from Ethiopia after promising to invest $100 million in a 25,000 ha
cotton farm and spinning plant in 2011. In late 2012, the government terminated the company’s
lease, claiming CLC had not fulfilled its contractual obligations. For its part, CLC claims It was an
illegal breach of contract by the government. According to the Operations Manager of CLC’s
Ethiopian subsidiary, three months after signing the contract, the government reclaimed 5,000
ha claiming the land was not part of the lease area, and took the land by force using the police.
117 L. Adenäuer (2012), “The Impact of Foreign Direct Investment on the Future SustainableDevelopment of Ethiopia,” Institut
fü r Lebensmittel- und Ressourcenökonomik, Universität Bonn, September 2012, pp. 3-4.
118 FAO (2011), “Foreign Agricultural Investment Country Profile : Ethiopia”.
119 Adenäuer, (2012)
120 The Hindu (2013), “Karuturi debacle prompts Ethiopia to review land policy,” June 1, 2013.