Investment Opportunity Profile for
Sugar Cane Plantation and Processing
In Ethiopia(Updated 2008)

May 2008

Production and Processing of Sugar Cane
1.Background
Sugar production in Ethiopia started in 1954/55 when the Wonji Sugar Factory was commissioned
and produced 15,843 tons of white sugar in the first campaign. When sugarcane development
began in 1951, the company was owned by Dutch Company, HVA (Handlers -Vereenging
Amsterdam). The development of the sugarcane plantation was started on 5000
hectares in theupper reaches of the Awash basin, 100km. Southeast of Addis Ababa.
Currently, there are three large-scale sugar establishments in the country; two of them in theAwash Basin (Wonji/shewa and Metehara) and one (Finchaa) in the Blue Nile Basin. The present
level of national production from the three-sugar estates is about 261,041 tons of sugar and 87,257
tons of molasses per annum respectively.
These three sugar factories have a production capacity of 280,000 tons of sugar annually. The total
area developed by these factories is 23,769 hectares. The area developed at Wonji/Shewa is 7050
hectares (5930 hectares estate and 1120 hectares out grower farms) capable of producing 80,000
tons of sugar per annum. The Metehara Sugar Factory, which was brought on stream in 1969 by
HVA at Metehara, developed 9919 hectares and has a capacity to process 115,000 tons of sugar
annually. The Finchaa Sugar Factory (in East Wellega zone of the Oromia National RegionalState) which was completed in 1998, developed 6800 hectares and has a production capacity of85,000 tons of sugar per annum.
These sugar companies presently produce sugar for the local market and for export. White sugar ismainly exported to the neighboring countries such as Djibouti, Kenya, and Yemen in quantities
ranging between 30,000 to 50,000 tons per annum. Raw sugar (partially processed) is currently
exported to the EU countries under the EBA initiatives in quantities ranging from 14,000 to
15,000 tons.
At present, 11 private investors with a total investment capital of about Birr 305 million have been
issued with investment permits to invest in small-scale sugar cane production and processing
industries. Out of these, Triupat Sugar Industries PLC, an Indian Company, took 3,492 hectaresof land in Sire (East Wellega Zone) and has started plantation of sugar cane on two hectares,
which it plans to expand before embarking on the construction of the factory.

2.Resource base
2.1 Land and Water Resources
Ethiopia is endowed with large areas of suitable low lands, rivers and conducive climate forsugar cane growth. The climate and soil types in the country have both proven to be highly
conducive for sugar cane growth and productivity. Various pre- feasibility and feasibility
studies of sugar projects conducted by the Ethiopian Sugar Industry Support Center Share
Company (ESISC) have indicated that many potential sites at the main river basins are suitable
for sugar cane plantation. These include 303,500 hectares of already identified suitable net
areas in 7 sites. However, the total area developed for the production of sugar cane in thecountry is only about 8% of the total identified suitable areas. Experiences of existing sugar
1

factories show that because of the suitable soil, adequate water and conducive climate, anaverage sugar cane production per hectare per month of the land under irrigation is very highas compared to other countries (i.e.9-11 tons against 6-8 tons). This would make Ethiopia avery attractive location for private investors to invest in the production and processing of sugarcane.
Table 1. Potential Irrigation Sites For Sugar Cane Development.

Basin

Awash

Blue Nile

TekezeOmo Gibe
Baro
Nile
Omo

SiteNo.
12
3
4
5
6
7
8
910
11
12
13
1415

Site
Angelele Balhamo
Maro Gala
Kasem Kebena
Arjo Dedesa
Anger Valley
Upper Beles
Upper Dinder
Rahad
Angereb
TekezeLower Omo
Abob/Ubala
Itang
Dabus
Gojeb

Water
source
Awash
Awash
Kasem
DedesaAngerBeles
DinderRahadAngereb
Setit
Omo
Gilo
Baro
Dabus
Gojeb

Net
Gross Suitablarea
e area11,0008,600
14,7006,600
17,600 13,600
139,000 16,800
65,500 30,200
65,000 55,300
80,000 58,300
100,000
45,600 38,800
68,550 50,550
58,000 29,000
46,900 39,400
21,000
5,100
12,000Study level andRemarks
Feasibility
Pre-feasibility
Pre-feasibility
Pre-feasibility
Pre-feasibility
Feasibility
Feasibility*
ReconnaissanceFeasibility*
ReconnaissanceFeasibility

Source: ESISC, Ethiopian Sugar Industry, 2088.

In addition to the above-mentioned irrigable areas, there are also about 10,000 hectares of land
suitable for rain-fed sugar cane plantation in the Country (See Table 2 below).
Table 2. Potential Rain-Fed Sites For Sugar Cane Development(in ha)
Sites
Yayu (Ilubabor)
Duko (GojebValley)
Tepi
Serbo (Jima)
Bure (Ilubabor)

Gross area
12,40012,000Suitable area
5,000
1,400

8,500

1,650
1900
N.A

12,000N.A

Source: ESISC, Indicative Sugar Cane Potential Sites & Irrigation Agriculture and Background Informationof Previous Studies for Identification of Irrigable Cane Agriculture, Irrigation Development andSmall Scale Rain Fed Agriculture, Addis Ababa, March 2003,P.31-34

2.2 Climate2

The identified irrigation sites for sugar cane plantation lie within Kola or warm zones ofEthiopia with dominant sub-tropical climate and with mean annual rainfall ranging from400-2000 mm (Table 3). This agro-climatic condition is highly suitable for irrigatedsugar cane plantation.
Table 3. Climatic Conditions of the Potential Irrigation Sites

NoSite

12
34
5678
910
11
12
13
1415

Angelele-Bohamo
Maro Gala
Kesem Kebena
Arjo-Dedessa
Anger
Upper Beles
Upper Dinder
RahadAngereb
TekezeLower Omo
Abobo/vbala
ItangDabusGojob

Altitude(meters abovesea level)
650-700
600-650
700-750
1300-1600
1000-1350
1000-1300
900-1100760*
650-670
650-695
400*
425-460
420-430

Temperature
Range
(oc)
25.1-27.5
25.1-27.5
15-38
22*
20-22
8-35
26-27
26-27
14-41
13.2-40
21*
10.3-44.9
28.8
24
19.9-21.5

MeanAnnualRainfall
(mm)
550
400
470
1477
1367
N.A
1000
900
840
N.A
400
680-2000
680-2000
1000
1631

Source ESISC,2008.

2.3 Soils
Sugar cane flourishes in a wide range of soils with textures from very heavy clays tosands. A soil that has a PH range of 4.5 to 8.5 and low toxic salt concentration isnecessary. Most of the soils of the identified sites are fertile, freely draining and havegood structure with sufficient mechanical strength to support mature sugar cane. Thetable below shows the type of dominant soils of these sites.

3

Table 4. Soil Types of the Potential Irrigation Sites
No12
34567891011Site
Angelele-Bolhamo
Maro Gala
Kesem Kebena
Arjo Dedessa
Anger
Upper Beles
Upper Dinder
RahadAngereb
TekezeLower Omo

12131415

Abobo ubalaItang
Dabus
Gojeb

Dominant Soil Type
Eutric fluvisol and alluvial
Eutric fluvisol
Eutric fluvisol
Vertisols few red Latosols
Alisols & Acrisols
Vertisols and Grumosols
Vertisols
N.A
Vertisols & Lithic Leptosols.
Vertisols
Sandy with some loams and vertisols
associated with alluvial fans
*Cambisols, Eutric vertisols,
Red Latosols
Reddish brown

Source: ESISC, 2008.

2.4 LabourWith a population of over 80 million, Ethiopia has abundant, hard-working, inexpensive
and easily trainable labour force. The average wage for unskilled labour generally
ranges from Birr 12-15 (US$ 1.24-1.55-1.15) per day. The salaries of fresh university
graduates normally range from Birr 1000-1300 (US$ 104-135) per month.

3. Market
3.1 Domestic
Sugar in Ethiopia, serves for direct household consumption and as an intermediate input
for other industries like pastries, bottling companies and breweries. The per capita
consumption in Ethiopia is one of the lowest in the world. The current level of per capita
consumption is estimated to be about 3.6 kg, which is even below the world averageminimum of 5 to 6 kg. The Ethiopian consumption of sugar was forecasted for the coming
10 years, taking into account the Ethiopian population of 80 million in 2007/2008,
population growth rate per annum of 2.9% and an annual average economic growth rate of
9%. It is assumed that the per capita sugar consumption could increase at the rate of theeconomic growth of the nation.

4

Table 5. Sugar Demand Projection (2001/02-2012)

Year

Projected
population

Project
ed percapitalsugarcons.
(kgs)

2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/102010/112011/1265,018,880
66,904,428
68,844,656
70,841,151
72,895,544
75,009,515
77,184,791
79,423,150
81,726,421
84,096,488
86,535,286

3.60
3.78
4.03
4.29
4.57
4.86
5.18
5.52
5.87
6.26
6.66

Projected
sugar
demand(tons)

Productionof existing
factories(tons)

234,068
252,899
277,248
303,722332,845364,759
399,734
438,063
480,067
526,098
576,543

261,041
265,000
267,500
275,000
280,000
280,000
280,000
280,000
280,000
280,000
280,000

Surplus/
Deficit
without
Expansion(tons)
26,973
12,101(9,648)(28,722)(52,845)(84,759)(119,734)(158,063)(200,067)(246,098)(296,543)

Production
increasefromplanned
Expansion(tons)

Total
production after
expansion(tons)

Surplus/
DeficitwithExpansion(tons)

00
0
0
15,00045,00075,000110,000
140,000
140,000
140,000

261,041
265,000
267,500
275, 000
295,000
325,000
355,000
390,000
420,000
420,000
420,000

26,973
12,101(9,648)(28,722)(37,845)(39,759)(44,734)(48,063)(60,067)(106,098)(156,543)

Source: ESISC, Ethiopian Sugar Industry, Background Information & Investment Opportunities, Op.cit, P.6

From the above table, it can be concluded that:•

there is a consistent deficit in domestic sugar supply starting from 2003/04
provided that the players in the sugar industry remain the present three sugar
factories and no expansion is foreseen;•the deficit grows from 3.6% in 2003/04 to 106% in 10years time (2011/12);•even assuming that the existing sugar factories will be expanded as planned there
will be deficit of sugar to fulfill the demand of local sugar consumption ranging
between 37845 and 156,543 tons in the years 2005/06 and 2011/12 respectively;Thus, the consumption of sugar as an intermediate input and the household consumption
indicates that the existence of enough local market that commercially justifies investmentin the sector.
3.2 World
Total world sugar trade is predicted to increase by 3%, from 32 million metric tones ion
2005 to 33 million metric tones in 2015. The price of Caribbean sugar is expected toincrease about 59% from 11.35 cents/lb in 2005 to 18.05 cents/lb in 2015, because
substantial increase in ethanol production from sugarcane in Brazil. The whole sale priceof U.S. sugar is projected to increase 20.9% from 27.04cents/lb in 2005 to 32.7 cents/lb in
2015. If Mexico allowed exporting additional sugar to the U.S., that price increase could
be smaller.
Exports are expected to increase for Australia, South Africa, the EU, and Thailand due
mainly to increase sugar price.
5

Imports by most importing countries predicted to increase from the 2003-2005 average to2015 China's imports are predicted to increase217%, while Japan's imports are predicted toincrease1.4%. Imports by south Korea and Algeria predicted to increase 11.5% and 24.2%
respectively. U.S. sugar consumption is predicted to increase 7.2% for the forecastingperiod, while production is expected to increase9.9%. Imports are predicted todecrease2.2% for the period because of higher world sugar prices.

4. Other Favourable Conditions for Investment in the Sugar Industry•

The sugar industry structure analysis reveals that there is no fierce competition inthe Ethiopian sugar industry that prohibits potential investors from investing in thesector.

•The industry requires a huge capital investment and the payback period is longer(12 years). Therefore, the threat of new entrants in the short- run is minimal.

•Customers have no strong substitute for sugar. Sugar substitutes (e.g. honey) are in
short supply in the Country. They have strong preference for local sugar.

•Investors have the right to totally invest in and own sugar factories, or they can also
enter the sector with local co-financers. Government will also take part in thedevelopment of the sector in case local private co-financers fail to humiliate.

Hence, foreign investors can invest both in existing factories, or in the development of new
sugar estates. The investment in the existing sugar factories takes two forms:••

investment to enhance the sugar production capacity of factories; andconversion of the by- product (molasses) to Baker’s yeast and Power Alcohol(Ethanol)

5. Investment Incentives
To encourage private investment, the Ethiopian Government has developed a package ofincentives under Regulations No.84/2003 for investors engaged in new enterprises andexpansions, across a range of sectors. These incentives are available both to foreign and domestic
investors and the said Regulations doesn’t discriminate between a foreign and domestic investor or
between foreign investors of different nationalities. The type of incentives that are available bothto foreign and domestic investors are the following:
5.1 Customs Duty Exemption•A 100 percent exemption from the payment of import customs duty and other taxes
levied on imports is granted to investment capital goods and construction materials
necessary for the establishment of a new enterprise or for the expansion or
upgrading of an existing enterprise as well as spare parts worth up to 15 percent ofthe value of the imported capital goods;
6•

Investment capital goods imported without the payment of import customs duties
and other taxes levied on imports may be transferred to investors enjoying similar
privileges;•

Exemptions from customs duties or other taxes levied on imports are granted for
raw materials and packing materials necessary for the production of export goods.
Taxes and duties paid on raw materials and packaging materials are drawn back at
the time of exports of finished products. The voucher system and bonded
manufacturing warehouse facilities are also in place.

•

All goods and services destined for export are exempted from any export and othertaxes levied on exports.

5.2 Income Tax Exemption•

Any income derived from an approved new manufacturing, agro-industrial oragricultural investment is exempted from the payment of income tax ranging from
2-8 years depending up on the area of investment, the volume of export and thelocation in which the investment is undertaken.

•Income derived from an expansion or upgrading of an existing manufacturing,agro-industrial or agricultural enterprise is exempted from income tax for a periodof two years if it exports at least 50% of its products and increases, in value, its
production by 25%.

5.3 Loss Carry forward
Business enterprises that suffer losses during the tax holiday period can carry forward suchlosses for half of the income tax exemption period, after the expiry of such period.

6. Remittance of Funds
Foreign investors are entitled to make the following remittances out of Ethiopia in convertible
foreign currency at the prevailing rate of exchange on the date of remittance:••••••

Profits and dividends accruing from investment;
Principal and interest payment on external loans;
Payments related to a technology transfer agreement;
Proceeds from the sale or liquidation of an enterprise;
Proceeds from the transfer of shares or of partial ownership of an enterprise to adomestic investor;
Expatriate employees may remit, in convertible foreign currency, unspent salaries andother payments accruing from their employment in hard currency.

77. Investment Guarantee and Protection
In Ethiopia both the Constitution and the investment Code protect private property. Ethiopia isalso a member of MIGA, which issues guarantees against non-commercial risks to enterprises thatinvest in signatory Countries. Besides, the Country has signed bilateral investment promotion andprotection treaties with a number of Countries and is also in the process of signing such treaties
with a number other Countries.

8. Cost of Land and Utilities ∗8.1 LandIn Ethiopia land is public property. Both urban and rural land is available forinvestment on leasehold basis. Lease right over land can be transferred, mortgaged or
sub-leased together with on-build facilities. The period of lease may also be renewed.
The rental value and the lease period of rural land are determined and fixed by land use
regulations of each regional state. The cost of rural land in four regional sates areshown below:••••

Oromia…………………..……US$ 7.28 – 13.97 per hectare per year
Amahra……………………….US$ 1.47 – 8.21 per hectare per year
Southern Nation,Nationalities and Peaples’
Region………………………..US$ 3.10 – 12.11 per hectare per year
Tigray……………………….. US$ 3.10 – 4.14 per hectare per year

8.2 Utilities
The cost structure of utilities is as follows:a) Electricity•

Low voltage time-of-day industrial:
Equivalent flat rate…………..…US$ 0.06 per KWh•

High voltage time-of-day industrial 15kv:
Equivalent flat rate …………….US$ 0.042 per KWh•

High voltage time-of-day industrial 132kv:
Equivalent flat rate……………. US$ 0.039 per KWh.

b) Telephone••∗

Fixed telephone………………….US$ 0.02 per six Minutes
Mobile telephone− Mobile to mobile………....US$ 0.074 per minute− Mobile to fixed………...…US$ 0.155 per minute

1US$ = Birr 8.7923 (as of May 25,2004)8c) Water (in Addis Ababa)•Residential− 0-7 m3…………………....US$ 0.18 per m3− 7-20 m3……….……….…US$ 0.27 per m3− above 20 m3 …………….US$ 0.34 per m3•

Non-residential……………..……US$ 0.34 per m3

9. Taxation
The principal tax rates of the Country are as follows:
••

•
•
•
•
•
•
•
•

•

Corporate income tax…………..……….30%
Turnover tax− From goods supplied to thelocal market and renderingof construction, grain mill,
tractor, combine harvesting
services undertaken in theCountry……………………….2%− On other sectors……………..10%
Excise tax………………….……..…..10-100%
Customs duties……………….…..……0-35%
Export tax………………………………..nil
Withholding tax………………………….2%
Value added tax…………………..…….15%
Dividend tax…………………………….10%
Royalty tax…………………………...…..5%
Capital gains tax− Shares of companies…………….30%− Building held for business,factory and office………………15%− Building held for residence.. …....nil
Income tax from employment … ……..0-35%

10. One-stop Shop Service
Foreign investors obtain pre-and post-approval services from the Ethiopian Investment
Agency (EIA). In addition to facilitation and promotional services, the EIA offers thefollowing services under the one-stop shop arrangement:•

issuance of investment permit……………………….…….….in 6 hours
9•
•
•
•
•
•

issuance of commercial registration certificate ………………» 6 »issuance of business license ………………………………….» 6 »issuance of work permit…………………………………….…» 2 hourregistration of technology transfer agreement………….……..» 1 hours
registration of export oriented non-equity based
foreign collaboration………………………………………….» 1 hourfacilitation of the acquisition of land and utilities .

Thus, all the above factors combined with the Country’s favorable agro-climate conditions forsugar cane growth, rising demand for sugar, supporting policy environment for investment and theexistence of relatively cheaper labour provide an attractive ground for investment in the sugar
sector.

10