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Govt carves new corporation to support agriculture

ETHIOPIA - As it struggles with heavily weather-dependent subsistence agriculture, now facing a threat of drought, government declares the amalgamation of five state-owned enterprises engaged in agriculture under a corporate structure – the Ethiopian Agricultural Business Corporation (EABC).

The official announcement of the measure came at a press briefing held at the office of the Corporation, located around Kality, off Debre Zeit Road, on March 15, 2016.

The decision that came while the government is vying for resources to feed 10.2 million Ethiopians, brought together Ethiopian Seeds Enterprises, Natural Gum Processing & Marketing Enterprise, Agricultural Inputs Supply Enterprise, Agricultural Mechanization Services Enterprises, and the Agricultural Equipment Technical Service S.C. under the new entity.

Underpinning the decision is the government’s requisite to bring efficiency by streamlining the potential of the enterprises and avoiding repetition of mandates, according to Kefyalew Birhanu, chief executive officer of the new corporation.

“The way the enterprises were operating was counterproductive at times,” Kefyalew noted at the press briefing.

With close to 2,000 employees, the Corporation will operate under the auspices of the newly reorganised Ministry of Public Enterprises, headed by Damitu Hambissa, as per the Council of Ministers Regulation No. 368/2015, issued on December 22, 2015.

According to data from the Privatization & Public Enterprises Supervising Agency (PPESA), in the fiscal year 2011/12, Agricultural Mechanization Services and the Agricultural Equipment Technical Services, two of the companies involved in the amalgamation process, registered a profit level in excess of four million Birr and 17 million Br, respectively.

In the same fiscal year, the Agricultural Input Supply Enterprise had registered a profit in excess of 35 million.

Assigned as the first CEO of the Corporation, with the responsibility of overseeing the amalgamation, Kefeyalew is no novice to the corporate world. He had worked as a manager for Ethio-Plastic, before the company was restructured into Ethiopian Military Corporation’s realm in 2011.

Since then, he had been working in the Privatization & Public Enterprises Supervising Agency (PPESA), including in the Fertilizer Complex Office set up back in 2012.

Regulation 368/2015, which outlines the mandate of the Corporation, states that the new body will be engaged in supplying, processing and mechanization of agricultural inputs and equipment at reasonable prices.

The entity is also mandated to engage in personnel training and research, manufacturing and financing agricultural processes. This came in the context of a sector marred with inefficiency and under-performance.

Under the first Growth & Transformation Plan (GTP I), the agriculture sector grew at an average annual rate of 6.6pc, way lower than the , 10.1pc rate for the overall gross domestic product (GDP).

Its share from GDP, which was at 46pc during the start of the GTP I, declined to 40pc by the end of the plan.

Issues ranging from low mechanization absorption to poor supply of improved high yielding disease resistant seeds, are typical features of the largely small-scale farming of the country, employing about 80pc of the labour force and accounting for 90pc of the country’s exports.

Fertilizer usage is, for instance, registered as low as 19.2 kg/hectare in 2014/15 against the ideal rate of 200kg/hectare, while tractor accessibility stands at 0.044 per 1,000 people, according to the Ethiopian Development Research Institute, a think tank.

Foreseen to solve some of these standing problems, the newly amalgamated Corporation will be commanding 2.4 billion Br capital, of which 610 million Br is paid-up in cash and in kind, whereas the rest is expected to be released from governmental funds soon.

The rationale behind the new entity is, however, met by a combination of applause and scepticism from experts in the sector.

“This is good news” claimed Bayou Belayneh, owner of Bnyse Agriculture & General Pest Control “It will create a better financial standing for the enterprises which were so weak.”

Bayou’s company was among the many pesticide suppliers involved in the market that are not financially strong enough to bridge the gap on their own.

Abraham Endrias, owner and general manager of Green Agro Mechanization, which has been providing sowing, tilling and harvesting based agricultural services to farmers in the Arsi zone for the last couple of years, anticipates better operational efficiency and financial standing under the new corporate structure.

But Million Kibret, managing partner at BDO International, a corporate consulting firm, disagrees. He is of the view that when amalgamating enterprises, the first consideration should be similarity of purposes and processes.

“Bringing together entities with a wide array of different operations and levels of revenue will be an uphill journey. Outsourcing the operations that appear to be the bottlenecks for efficiency is the viable solution,” he recommended.

But the government opted for a corporate structure, with which the enterprises can have access to capital from local and foreign capital markets. And Kefyalew will be busy making sure the plan works right.

March 28, 2016; http://addisfortune.net/articles/government-carves-new-corporation-to-support-agriculture/