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The case for industrial policy and its application in the Ethiopian cut flower sector

Florian Schaefer and Girum Abebe ()
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Florian Schaefer: Department of Development Studies, SOAS, University of London

No 12, Working Papers from Ethiopian Development Research Institute

Abstract: The floriculture industry has been one of the most spectacular growth successes in Ethiopia. It has been driven by a dynamic mixture of government action, foreign investment, and local entrepreneurship. We build the case for the use of innovate industrial policy regimes to support processes of structural transformation in low income countries. Further to this, we demonstrate how a complex array of state institutions helped support private-sector engagement and success in floriculture. However this success in floriculture has been erratic, and at times, very costly. Using a mixed methods approach, we trace past and present bottlenecks in the evolution of the sector. In particular we show that the regulatory framework facing the sector needs continuous reform in order to meet the requirements at each specific stage of growth. Moreover, the sector faces an increasingly challenging external environment in international markets and will need substantial levels of government support in the medium and future term, in particular to access new markets, and to defend and expand market share in existing ones. High labour turnover, driven mostly by the lure of labour migration to the Middle East, shortage of land for expansion around Addis Ababa, and the unpredictability of the regulatory environment, all remain challenges for this sector. We assess the severity of each major bottleneck for future growth and performance of the flower sector, and propose ways to alleviate them. We recommend that the government strives to make sector regulation more transparent, predictable and responsive, and that support in marketing and market research is raised to a higher level. For firms in the sector, we recommend strengthening the dialogue with the labour force and to improve working conditions in order to retain workers, which we believe could be achieved without significant reduction in profitability given the extremely low share of wages in total production costs.

Keywords: Ethiopia; Industrial policy; floriculture; political economy; government capacity; markets (search for similar items in EconPapers)
JEL-codes: P16 O25 L52 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2015-02
New Economics Papers: this item is included in nep-agr
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