EDITOR: | December 8th, 2014 | 23 Comments

Eurobonds and potash will boost Ethiopia and Africa’s food security

| December 08, 2014 | 23 Comments
image_pdfimage_print

imagesS53K6I3ZEthiopia issued a dollar based bond to fund its development goals focused on increasing agricultural production, power generation and transportation infrastructure including the 6,000 megawatt Millennium Dam hydroelectricity project on a Nile river tributary. Deutsche Bank and JP Morgan will be handling the sale of the ten year bond (yielding 6.75%). Ethiopia has been Africa’s fastest growing economy for the past few years; it follows in the lead of other African countries that have issue similar bonds (Eurobonds) recently, including Kenya, Ivory Coast, Senegal and Ghana. Ethiopia’s bond issue reflects both the scope of its development ambitions – needing to raise at least USD$ 50 billion before the end of the decade to complete its development targets – and foreign investors’ growing interest in the country and Africa in particular. The Millennium Dam is seen as crucial to boosting agriculture in Ethiopia as well as some of its neighbors such as South Sudan, Kenya and Uganda. Indeed, Ethiopia has taken full responsibility for funding the Millennium Dam in order to establish greater control over the flow of the Nile waters and its power will allow Ethiopia to become a regional hydro-electricity hub.

It was exactly 30 years ago when the world learned of a terrible famine in Ethiopia, which also included present day Eritrea at the time prompting worldwide relief campaigns punctuated by songs like ‘Do they know it’s Christmas’ and ‘We are the World’. Much has changed today: Ethiopia is home to the third largest agricultural industry on the African continent and it is on track to achieve food security. Despite the huge challenge of expanding agriculture in a country that was not long ago on the brink of famine to ‘Africa’s bread basket’ is a huge challenge but thanks to farming method innovations and research, the country will, in the very near future, achieve food security. But Ethiopia’s ambitions reflect the wider agricultural growth phenomenon that has been occurring throughout Africa, which have been fueling the enthusiasm of local populations and private investors alike. With increasing urbanization and an exponential growth of the middle class, the African food market just waiting to grow and is expected to triple by 2030 according to a study by the World Bank in 2013. There is also a growing food deficit between demand and regional supply, which has contributed to interest in agriculture. Ethiopia and Africa will gains benefits in development and wealth creation along with agricultural best practices, better yield per hectare, and more intense trade links to developed countries. Recently a US private equity fund (KKR & Co) has made its first investment in Ethiopia.

The international investment and financing such as today’s aforementioned bond issue will help to address the technical challenges to agriculture throughout Africa as multiple land expansion projects are being planned all over the continent.  Thus, the enthusiasm of the private equity companies for Sub-Saharan Africa is accelerating, agriculture appears as a natural investment sector. An international law firm, Freshfields, has pointed out that agriculture investments in Africa have increased by 137% in the first half 2014 compared to the same period in 2013, facilitated by improving political risk and easier transactions. It should be reminded that Africa is huge, covering the second largest area after Asia, holing the second largest population. Moreover, the UN has noted that Africa has 17% of the world’s arable land and agriculture accounts for more than 20% of the Continent’s GDP. Farming now occupies 60% of the workforce in Africa.

African agriculture has tremendous growth potential because the continent still has many reserves of uncultivated land, counting 226 million arable land but being able to reach almost 500 million. Much of Africa is well irrigated and the climate is favorable to the production of maize, soya and sugar cane. The Chinese are well aware of this potential and have signed leases in the long term, using already 2-3% of the resources and Ethiopia is one of their leading targets. Africans will need more arable land and implement agriculture to increase food production yields. Production costs are low and the workforce is young and plentiful. If over the past 15 years, it has been Brazilian agriculture’s turn to shine, now is the time of Africa and it is estimated that the continent will become a net exporter of corn and soybeans in the next ten years. Other cereals include barley, sorghum, cotton, sugar cane, groundnut, millet and cassava. However, investment in infrastructure is not enough. African agricultures needs the right soil and productivity to flourish.

Potash and other mineral fertilizers are one of the keys to the Continent’s agricultural growth strategy. To this effect, Allana Potash (TSX: AAA | OTCQX: ALLRF) could become one of the largest potash producers in Africa thanks to a promising project in Ethiopia, addressing domestic, African and Asian potash demand. The Horn of Africa, from where Allana’s potash will be shipped, is strategically located to serve India, China and more importantly, all of the markets where potash demand is rising fastest such as Indonesia, Malaysia and Laos – all countries featuring potash intensive palm oil production. But it is Africa, where potash consumption, now among the lowest in the world, is slated to increase the most. Ethiopia alone will guarantee significant sales for Allana. Indeed, Ethiopia, which is home to some 90 million inhabitants, has ambitious economic growth plans and agriculture is its highest priority given that some 85 percent of the people work in that sector.

There is room for growth because most agricultural production revolves around a vast number of small rural areas with operations smaller than one hectare. Now, there are 12.5 million hectares of arable land in Ethiopia but the potential is 50 million hectares. The country has already sought international cooperation to help improve land productivity and make fallow land available for farmers. There is no more effective way to achieve this process than through a greater use of potash, which is essential to increasing yields and providing the kind of nutrients that African soils are known to lack. In the 1960’s-70’s, the use of mineral fertilizers grew considerably in Latin America while dropping in Africa. Not surprisingly, those decades (and until now) saw various famines in Africa, while food production increased in Latin America. Now, the International Fertilizer Industry Association suggests that African potash use could reach five million tons over the next few years. It is now not even close to a million tons. Allana is edging ever closer to production phase having been granted all relevant mining permits from the Ministry of Mines of Ethiopia; its strategy is to help develop and expand the mineral fertilizer market in Ethiopia and Africa in general – even if the initial focus will be East Africa. The African continent presents tremendous market potential for mineral fertilizers and potash in particular, given that it has the potential to attract 880 billion dollars of investment in agriculture by 2030, which will drive demand for products such as fertilizers, seeds, pesticides and machinery as Africa develops its own production of biofuel, grain refinement and food.


Editor:


Copyright © 2016 InvestorIntel Corp. All rights reserved. More & Disclaimer »


Comments

  • John Mandziuk

    Excellent article. I too believe Allana has some great potential because of Africa’s potential and the future need of food for this worlds growing population.

    December 9, 2014 - 12:27 AM

  • Summii Diina

    The reporter is just reporting like Ethiopian TV and Radio journalist making such investment a bright future for the people while the reality is opposite. It impoverish the poor by evicting them from their land with out any solution as alternative. He did not dare to ask or due diligent about other side. The land grabbing is not investment but another way of colonization by west and Asia jointly.

    December 9, 2014 - 2:26 AM

  • Alessandro Bruno

    Dear Mr. Diina,

    From you are probably Ethiopian – or maybe Eritrean – and, therefore, you are familiar with the region’s history and problems. There is no question that Ethiopia is better off today than at any point in its modern history. Or would you rather return to the “great” days of the DERG, hunger as a political weapon and mass deportation? Or would you, perhaps, enjoy military service until the age of 50 in Eritrea (from where most of the refugees crossing the Mediterranean from Libya in dangerous boats are reaching European shores)?

    December 9, 2014 - 3:06 AM

  • fad

    Is Bruno TPLF goon or an Italian Journalist. If he is TPLF goon with Italian ghost name, I understand that Ethiopia is always better if not the best country as long as you milk it from its dead or dying people. But for Ethiopians like myself, the writing style as well as the substance smells an ordinary TPLF cadre, who are known to have neither shame nor sound understanding in any subject let alone the subject under discussion which requires some basic business concept in Agricultural industry.

    December 9, 2014 - 4:26 AM

  • Ernesto

    “From you are probably Ethiopian – or maybe Eritrean ” unfortunately the flip side of that comment is either you are some one who grew up in Ethiopia who has a soft-spot for the government,or you have Ethiopian blood like so many of us just on the other side (Eritrea). You could have Addressed adequately Diina’s comments with out mentioning Eritrea.
    Buon Natale

    December 9, 2014 - 4:46 AM

  • ted

    Dear Bruno,
    I wish my country is as blessed now as it was 30 years ago as you tried to SAY SO. Unfortunately we are not better off today than 30years ago. We are still dying in the oceans looking for better life, dying by the security bullets of another dictator, imprisoned with a kangaroo court or without, state terrorism is high, our land is being sold, we are being extremely indebted, we are no more think together as we are more divided by ethnicity now than we were 30 years ago, corruption and nepotism is rampant, Mafia style governance is being applied etc… The problems are many. We are not sure who will benefit from the bond dollar… but we are sure we are required to pay it!

    December 9, 2014 - 4:49 AM

  • Ermyas

    Dear Alessandro
    Good Work!
    Diino, Fad, ted … Grow up

    “You are entitled to your opinion. But you are not entitled to your own facts.” Daniel Patrick Moynihan

    December 9, 2014 - 5:16 AM

  • Geremew

    Enjoyed the discussion more than the article. Alessandro, great you are involved in the discussion instead of just throwing an opinion as most “west” media is doing! Thank you!

    December 9, 2014 - 5:32 AM

  • Mick

    Dear Alex!

    Thumbs up Bro! Good insight with the contemporary changes and previous comparisons. keep in mind that people can have different thoughts. you did what you could do. that’s all.

    December 9, 2014 - 5:47 AM

  • Jojo

    Dear Ted,

    It seems that you’r going against visible facts on the ground. No one with reasonable thinking denies these positive developments in Ethiopia over the past few years. It is, however, equally true that there are still unsolved problems that have been prevailed for years in mother Ethiopia. Are there still corruptions? Of course, Yes. Is there full democracy in Ethiopia? who would on the right mind say Yes? Do we have ethnicity problems? no one would deny this too.Is there still poverty? the government of Ethiopia does not even deny it. Surprise surprise, if you happen to see the Foreign Policy Strategy document of Ethiopia, Poverty is mentioned as public enemy number one. Not Egypt nor Eritrea, but Poverty.

    So what’s all the fuss then?
    The problems you have mentioned are not endemic to Ethiopia nor have they solely created by the incumbent government of Ethiopia. There were there for centuries which they we should fight them may be for centuries to come. Where ever you go (in developing countries in particular) you would find them irrespective of theirs level of seriousness.

    But the underlining fact is that despite all the problems, Ethiopia has shown significant improvements in every aspects of life, be it economic, political or social. To prove this you do not have to necessarily refer to statistics presented by the government (whom you seem you hate) and international organisations which I think they make your argument feeble, but go to the rural Ethiopia-to the country side, and have the courage to visit the number of schools, clinics, roads etc. have been built over the past two decades. Go to the universities and observe the number of students being enrolled there and give attention to the types of the student body in these universities etc. Above all please stop by and pay a visit to the lives of farmers and try to ask where their children currently are. I bet you, they would say in schools not looking after the tails of their cattle, which has been the case for centuries. Not to mention the industrial booms and the overwhelming infrastructure development.

    Are these developments enough for Ethiopia? No!!! we are far far away to be proud of. I think and believe that the way forward for Ethiopians is not to play a zero-sum game, but to positively engage at every affairs of the country and pay the necessary sacrifice.

    Whatever name you give it, I believe that we Ethiopian are now relatively in a good position to see the light at the end of the tunnel.

    December 9, 2014 - 6:13 AM

  • Dt

    Dear All

    I would really love to know the age of people like ted and summii. It is because it give us some context and perspective. I am wondering whether the reference to ’30 years’ is made sarcastically or not. 30 years ago Ethiopia was in the middle of the most terrible famine. The one that has put us in the dictionary as the definition of famine. 30 years ago DERG was establishing the organising committee for the workers party and celebrating its tenth anniversary in a controversial manner. DERG has just finished war with Somalia but was involved in an active war with Eritrean and other separatists. And all young people were at risk of conscription either by the government or any of the separation movements. This is the picture we are trying to compare todays Ethiopia with. We are comparing the incomparable whatever our feelings about the current administration are.

    December 9, 2014 - 7:53 AM

  • ezana

    Very objective and unbiased report Mr Alessandro!! From your article and analysys you seem to be well educated, informed and most importantly you are aware of politico-economic and recent history of the people in the horn of Africa.
    Please ignore and don’t take seriously some ignorant comments by hate monger wanna be ” politician ” Ethiopians and envious Eritreans neighbours.

    December 9, 2014 - 8:50 AM

  • Hngidu

    Dear Alessandro Bruno,
    Thank you for your unbiased report. It really is good to read such positive things about Africa on the western media.

    Am amazed by people like Summii Diina. People should appreciate the good things and criticize areas where there are problems. Blindly criticizing everything like that of Summii Diina won’t help anyone.

    keep the good job, sir.

    December 9, 2014 - 9:24 AM

  • Adwa1896

    Dear Alessandro bruno.I’ll like to thank you for your fair report.
    People like so-called Summii Diina (undercover eritrean) never accept any development in Ethiopia.Seeing is believing.Thanks again.
    God Bless You.

    December 9, 2014 - 10:39 AM

  • Bruk

    Dear Bruno,
    Thanks for the article. There is people who oppose whatever being said. I believe, building a country is not like baking a bread which can be done in 24hrs. The country is making undeniable progress. And there is some people who shush to continue the dark age and who want the agree culture to run on small scale farmers shoulder. BUT they should learn there is no development with out sacrifices. If we have to build a large scale infrastracture like the GERD, it is more likely people will displace from their land, but which has more benefit for the country??? Few people may displace from land for large scale farm, but the 90 million Ethiopia population will be benefited.?
    SO WELL SAID AND WELL DONE. Thanks for the article.

    December 9, 2014 - 11:36 AM

  • Summii Diina

    The reporter response is just the same as woyanne who question their evil dead accuse as Eritrean or anti-development. If you are really reporter where is the opinion of farmers, or human right adevocators like Human right watch and Okland institutes who done extensive research with adequate evidence? Have seen the Gambella, Benshangul and Omo valley or you find your information from the political cadres desk?
    He only ask Government officials like ETV and Radio. You simply exposed yourself who you are!

    December 9, 2014 - 11:38 AM

  • Gezaee

    Development at the expense of whom? It is the beneficiaries who are clambering development theory. Even if there is change or development? who is benefitting from it people are disowned their land or if national assets are sold . Remember South Africa is a developed country but the benefits go to few people only. The majority languish in misery. Remember America is a developed country, but the economy is controlled by one percent of the population, concentrated in the hands of few corporations. Whatever is being achieved in Ethiopia as I hear it now and then, it is not Ethiopians developing, but investors making quick money by taking chances of grabbing Ethiopia’s resources which was untouched and EPRDF gets scraps from the investors. Almouldi has 50 companies ? how can one person own 50 companies in a country of 96 million people? His wealth is swelling because of the chances he is taking because he is close to the ruling party and can do any business with no regulation, completion, control.
    As such I never heard any Ethiopian developing or establishing any business. Ethiopians are marginalized in their country, TPLF is the sales man of Ethiopian resources, of course the sales man gets promotion pay. I am not saying everything is bad because for instance the dam building a good thing to be proud. But my point is too much corruption and whatever is achieved is not sustainable. AN empty house is better than a house full of bread plus corruption. Your main enemy is your own corruption. Investors are flowing because they see cheap give- away of Ethiopian resources for temporary gain. We need a just, fair, equitable political system in our country. We do not want to have Ethiopia ruled by few filthy rich sales men. Let Ethiopians say there is development in Ethiopia, we do not want this theory or news from the guys who are getting the milk by being served by the people. This is my concern now, anyone can build infrastructure which Mussoloni did in Ethiopia in five years, not in 20 years. I am not cynical, but I am afraid that there is no equality, fairness, impartiality, regulation, … in Ethiopia. We do not want another America in Ethiopia where the economy is controlled by few and the rest owns nothing. Besides, there is ethnicism which is a danger for the country too.

    December 9, 2014 - 12:44 PM

  • Ephrem Madebo

    You said: “the country will, in the very near future, achieve food security”

    The Prime minister told his parilaiment and the national and international media that Ethiopia has become sefl suffencint in food produciton. Who should we trust? You, the PM, or none of the above?

    December 9, 2014 - 1:22 PM

  • Yonus

    Not Mr.Diina, Mr.Bruno
    Don’t listen to these negative people. For them any good news from Ethiopia is bad news and any bad news from Ethiopia is good news. You can’t win any arguments.
    Thanks very much for your reporting! – See more at: http://investorintel.wpengine.com/potash-phosphate-intel/eurobonds-potash-will-boost-ethiopia-africas-food-security/#comment-381133

    December 9, 2014 - 1:52 PM

  • Asefa

    Hello Alessandro,

    First I would like to thank you for writing such an honest and insightful article about the progress going on in Ethiopia. The more individuals like yourself write articles which highlight the development of Ethiopia the better. Unfortunately there are those in the Ethiopian diaspora who have wasted time and energy trying to discredit the development of their own country from the comfort of a different country rather than contributing to the progress of the country. Thanks to the visionary leadership of the late Ato Meles Zenawi Ethiopia is on the correct economic path. The large infrastructure projects have several purposes such as creating jobs for Ethiopians, transforming our economy from a predominately agricultural economy to an industrial economy, and uniting the Horn of Africa to ensure economic interdependency is created to lessen the likelihood of war breaking out between countries. We will prevail against our greatest enemy poverty. Thank you again for the article and may God bless you!

    December 9, 2014 - 8:37 PM

  • Fresenbet

    Thanks dear Alessandro

    December 11, 2014 - 4:34 AM

  • Fresenbet

    Dear Ephrem Madebo … I think for you it is high time to come out of your cage, repent and enjoy what the nation is achieving.

    December 11, 2014 - 4:39 AM

  • food security in ethiopia – RTH

    […] Eurobonds and potash will boost ethiopia and africa’s food […]

    January 2, 2015 - 3:18 AM

Leave a Reply

Your email address will not be published. Required fields are marked *