ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE ECONOMY WIDE IMPLICATIONS OF LARGE SCALE LAND INVESTMENTS IN ETHIOPIA: A Computable General Equilibrium (CGE) Analysis 1 Seneshaw Tamru IFPRI ESSP-II Ethiopian Economic Association Conference July 19-21, 2012 Addis Ababa
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Economy wide implications of large scale land investments in Ethiopia
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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ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE
ECONOMY WIDE IMPLICATIONS OF LARGE SCALE LAND INVESTMENTS IN ETHIOPIA:A Computable General Equilibrium (CGE)
Analysis
Seneshaw TamruIFPRI ESSP-II
Ethiopian Economic Association ConferenceJuly 19-21, 2012Addis Ababa
Objectives:
• To analyze economy wide impacts of large-scale agro-investments in Ethiopia
• Look at their impacts on poverty and household welfare
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
Introduction• Heavy dependence on rain dependent
agriculture by small scale peasant farmers.
• Challenges of raising agricultural productivity
• Food prices rose above 2008 levels resulting food insecurity among poor people.
• Increasing agriculture production through extensive cultivation hence is considered central for the country’s food security problems.
• Large-scale agricultural investments and land deals have recently received considerable attention by the government.
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0
200
400
600
800
1,000
1,200
1,400
1,600
1,800White Wheat
Maize
White Teff
White Sorghum
Bir
r /
Qu
inta
l
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Status and Size of Licensed Large Scale Land Investments (Domestic + Foreign)
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)
• Different types of incentives to further attract investment:– discount on initial
lease prices,– grace period of
payment, – provision of land for
free, etc.
Table 1: Licensed Land Size per Activity (Domestic and Foreign)
5. Sugar 47,000 50,000 173,750 270,7506. Other crops (rice, etc)
65,195 67,806 295,109 428,110
Total 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
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Caveats
• The study doesn’t include investments at pre-implementation stage (which is more than 74%) i.e., 8.7 million hectares
• The implementation + Operational account for about 26% – Looked at large-scale land
investments on the six agro-sub sectors on Implemented + operational (i.e., about 32%).
• Hence, the results could be very well understated 8
Operational Implemented Pre-Implementation0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
77,424135,101
922,540
90,000
210,000
539,050
65,195 67,806
295,109
Cash crop
Cereals
Cotton
Bio-fuel
Sugar
Other crops
Area
(Ha
)
Opportunities and Risks
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Expected Benefits Risks
Capital and technology inflow DeforestationEmployment 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
DATA , MODEL, & SIMULATIONS
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Data:– 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.
Data and Methodology
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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
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• 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.
Factor market closures
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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
RESULTS
• 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
• 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
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)