Ethiopian-owned firms in the floriculture global value chain: With what capabilities?
CAE Working Paper 2017:2Ayelech Tiruwha Melese
The Ethiopian floriculture industry is relatively young and yet has rapidly expanded to emerge as the fifth largest flower exporter worldwide. The success was driven by local investment combined with foreign direct investment, and actively supported by targeted industrial policy from the government as well as development cooperation, particularly from the Dutch government. Although foreign firms dominate the industry now, local firms have participated since its inception and were involved in pioneering the sector. This paper measures and analyses the technological capabilities, competitiveness and export trajectories of Ethiopian-owned firms engaged in cut-flower production for export. It constructs a technological capability matrix that describes the specific capabilities required to enter and operate in different parts of the floriculture global value chain, adjusted for the specificities of the Ethiopian industry, and uses this matrix to design a local firm survey to assess firms’ capabilities across four categories: product and production process, input integration, linkages and end-market. The survey was carried out with almost all local firms. The aggregate technological capability scores show that all firms have developed their capabilities, as they scored medium and above in most categories. However, none of the firms except one showed a uniform score across the four capability categories, which means that firms did not build all categories of capabilities to the same level. The paper also analyses firms’ technological capabilities compared to measures of competitiveness, which underscores the complexity and dynamism of the relationship between capabilities and competitiveness. The findings show that firms can increase their competitiveness (measured in terms of unit price) by selectively deepening capabilities that are important to meeting the requirements of the targeted market channel. In sum, the different export trajectories among firms can explain some of the discrepancy between capabilities and competitiveness.
AfriCap research published in CAE Working Paper series