Economy wide implications of large scale land investments in Ethiopia

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Ethiopian Development Research Institute and International Food Policy Research Institute (IFPRI/EDRI), Tenth International Conference on Ethiopian Economy, July 19-21, 2012. EEA Conference Hall

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  • Livestock Farming given shorter period (5-35); Rain-fed , and mixed agriculture medium (30-35); while Irrigated agriculture longer period (40-45); Perennial crops longer (35-45) as compared to Seasonal crops (30-40)
  • Economy wide implications of large scale land investments in Ethiopia

    1. 1. ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTEECONOMY WIDE IMPLICATIONS OF LARGE SCALE LAND INVESTMENTS IN ETHIOPIA:A Computable General Equilibrium (CGE) Analysis Seneshaw Tamru IFPRI ESSP-II Ethiopian Economic Association Conference July 19-21, 2012 Addis Ababa 1
    2. 2. Objectives:• To analyze economy wide impacts of large-scale agro-investments in Ethiopia• Look at their impacts on poverty and household welfare
    3. 3. Introduction• Considerable economic growth over the last seven years (11%) – Industry 10%, Service 14.6%, Agriculture 8.4%. – The GTP envisages this growth to continue at the minimum.• Food Security nevertheless remains a key challenge.• Ethiopia is Africa’s biggest aid recipient, and one of Africa’s most food-insecure nations. 3
    4. 4. Introduction• Heavy dependence on rain dependent 1,800 White Wheat agriculture by small scale peasant farmers. 1,600 Maize• Challenges of raising agricultural White Teff 1,400 productivity White Sorghum Birr / Quintal 1,200• Food prices rose above 2008 levels resulting food insecurity among poor 1,000 people. 800• Increasing agriculture production through extensive cultivation hence is considered 600 central for the country’s food security problems. 400 200• Large-scale agricultural investments and land deals have recently received 0 considerable attention by the government. Feb-… Feb-… Feb-… Feb-… Feb-… Feb-… Feb-… Feb-… Feb-… Feb-… Feb-… 4
    5. 5. Status and Size of Licensed Large Scale Land Investments (Domestic + Foreign) Land size Capital Job Creation (Expected) Status (Ha) (000 birr) Permanent TemporaryOperational 1,352,111 3,476,839 20,561 127,114 % of Foreign 40.8 63.9 41.9 27.7Implemented 1,723,166 43,059,123 49,304 260,854 % of Foreign 71.6 44.5 66.1 19.2 Pre- Implemented 8,725,613 42,597,619 195,615 864,942 % of Foreign 44.3 83 66.1 38.1Source: EIA• Huge potential for increased production, capital inflow, and job creation 5
    6. 6. Minimum and Maximum Rural land lease prices and duration by Region Duration of leaseRegion Birr/ hectare/year (Years)Tigray 30-40 50 (maximum)*Oromiya 70-135 20-45Amhara 111-498 5-25Benishangul* 15-25 50 (maximum)Gambella* 20-30 50 (maximum)SNNP 38-117 25-45Somali 12-45 -Source: EIA, Factor Cost, *Rahmato (2011) • Different types ofLivestock Farming given shorter period (5-35); incentives to furtherRain-fed , and mixed agriculture medium (30- attract investment:35); – discount on initialwhile Irrigated agriculture longer period (40- lease prices,45); – grace period ofPerennial crops longer (35-45) as compared to payment,Seasonal crops (30-40) – provision of land for free, etc. 6
    7. 7. Table 1: Licensed Land Size per Activity (Domestic and Foreign) Area (Ha) Type of agricultural activity Operational Implemented Pre- Total ImplementationAll activities 1,352,111 1,723,166 8,725,613 10,884,9521. Cash crops 54,300 74,455 879,440 1,008,1952. Cereals 77,424 135,101 922,540 1,135,0653. Cotton 23,158 90,635 457,543 571,3374. Bio-fuel plants 90,000 210,000 539,050 839,0505. Sugar 47,000 50,000 173,750 270,7506. Other crops (rice, etc) 65,195 67,806 295,109 428,110Total of the six sub-sectors 357,078 627,997 3,267,431 4,252,506% (of all activities) 26.4 36.4 37.5 36.7Sources, Own calculation based on data from EIA, Regional Investment Offices, EBDD 7
    8. 8. Caveats Cash crop 1,000,000 Cereals 922,540• The study doesn’t include 900,000 Cotton investments at pre- implementation stage (which 800,000 Bio-fuel is more than 74%) i.e., 8.7 700,000 Sugar million hectares Other crops 600,000 539,050• The implementation + 500,000 Area (Ha) Operational account for about 400,000 26% 295,109 – Looked at large-scale land 300,000 210,000 investments on the six agro-sub 200,000 sectors on Implemented + 90,000 135,101 operational (i.e., about 32%). 100,000 77,424 65,195 67,806 0• Hence, the results could be very well understated 8
    9. 9. Opportunities and Risks Expected Benefits Risks Capital and technology inflow Deforestation Employment opportunity to local people Loss of land use right for Peasant Farmers Overall increase in income especially to local people Food outflow from food insecure areas Rural infrastructure (i.e., health stations, schools, roads, electrcity etc) Increasing inequality & social unrest Better (Increased) food supply and food security Rent-seeking and corruption• Given the benefits, many researchers (Rahemato, 2011) and International activists (e.g., Okland Institute, Green etc.) mainly link the risks with: • displacement of the local people and subsequent effect of • denying them access to water, grazing, and hunting area 9
    10. 10. DATA , MODEL, & SIMULATIONS 10
    11. 11. Data and MethodologyData: – Secondary data from EIA & Regional Inv Authorities, MOA, EBDD, Journals, books, and – the updated version of the EDRI Ethiopia 2009/10 SAM• The SAM is disaggregated into: – 118 activities (with 77 agri. activities by AEZ’s, 26 industry, 14 service), – 65 commodities, – 17 factors (by AEZ’s except capital), and – 13 institutions including 12 households. – The SAM also has accounts for various taxes, saving-investment, and the Rest of the World. 11
    12. 12. The Model: Dynamics• The recursive dynamic version of the standard IFPRI CGE model (Dorosh, Robinson and Ahmed, 2010) is used for this study• The model includes three macroeconomic balances: o Government balance: • Flexible gov’t savings, and fixed direct tax rates ; o External (current account) balance: • Flexible exchange rate with fixed foreign savings ; o Savings-Investment balance: • Savings driven investment -fixed marginal propensities to save for all non- government institutions 12
    13. 13. Factor market closures• Skilled labor and Capital are assumed to be fully employed and activity-specific.• Semi-skilled and Un-skilled labor are assumed to be unemployed and mobile across sectors.• Total land supply of each type is exogenous; for each land type, land is fully employed and mobile across sectors. 13
    14. 14. The Simulations• Three Simulations: – GTPL- • which is the lower case scenario of the Growth and Transformation Plan (2009-14) as is found in Dorosh et.al (2011) – LAND-INV- • The GTPL simulation PLUS land area expansion for the six selected sub-sectors – Foreign Capital inflows are added to the calibration in the form of increased FOREIGN SAVINGS – LAND-NEGATIVE- • The LAND-INV simulation PLUS negative shock to existing activities (i.e., Displacement effect) – Assumed that 25% of land area given is from local peoples’ crop land – Reduced land area of the local people 14
    15. 15. RESULTS
    16. 16. Changes in Macro Variables INITIAL Annual Growth Rate Variables (2009/10) in LAND- Billions Birr GTPL LAND-INV NEGATIVEPrivate Consumption 340.00 10.55 10.70 10.42Absorption 460.91 11.17 11.39 11.33Fixed Investment 85.93 13.24 13.77 14.47Real Ex.Rate 78.03 -14.63 -14.84 -14.26Exports 52.44 18.45 18.28 18.53Imports -126.66 14.73 14.98 15.09GDP at Factor Cost 357.43 11.08 11.21 11.14GDP Change 0.13 -0.07 Agriculture 176.72 7.47 7.59 7.31 Industry 17.41 21.82 21.78 21.87 Services 163.30 13.27 13.42 13.52• Large scale land investments on the six agro-sub sectors (i.e., about 32% of Implemented + operational investment) will increase GDP by about 0.7 percent over the next five years 16
    17. 17. 12.5% Change in Household Income • Positive change in12.0% RURAL income of households under11.5% LAND-INV • Considerable decline11.0% in rural and urban income under10.5% NEGATIVE Scenario10.0% • Rural and urban poor seem to benefit from 9.5% large scale land investments • Urban poor benefit GTPL LAND-INV LAND-NEGATIVE while the NPr don’t 17
    18. 18. Poverty LevelPoverty Level (Head Count Ration): 2590 Birr/Year Poverty Level at the End of 2014/15 Initial Level (2009/10) GTPL LAND-INV LAND-NEGATIVENATIONAL 30.3 20.5 20.2 20.7RURAL 30.7 20.6 20.3 20.8URBAN 23.9 18.7 18.5 18.8• Poverty level significantly declines at the end of 2014/15 under all the simulations.• Considerable decline in urban poverty level 18
    19. 19. Conclusion• Large-scale land investments on the six agro-sub sectors (i.e., about 10% of total licensed investments) will increase GDP by about 0.7 percent over the GTP period;• Displacement however, decreases the GDP by about 0.4 percent over the five year period• High income to rural households, especially to the poor• Has small positive effect on national, rural and urban poverty levels 19
    20. 20. Implications• Large scale land investments bring considerable positive effects on the national economy• However, results also indicate substantial negative effect on national and household level income in case of displacement• Hence, proper care must be taken before leasing out large scale land investment deals and proper compensation if there is expropriation• Follow up the implementation and operations of large scale investors and check if they live-up to their promise (i.e., school, jobs, infrastructure) 20

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