Ethiopia: Agricultural enterprises set to flourish after removal of taxes on mechanisation

When Ethiopian Abraham Endrias founded agro-mechanization company Green Agro-Solution Plc six years ago, he was only one of a few entrepreneurs offering the service. 

That was because the hefty taxes (35-45%) at the time made it costly for businesses to import farm machinery and other equipment, a charge that leasing service providers like him passed on to farmers. 

Consequently, while the demand existed for mechanization services, the involved costs were beyond the reach of many farmers. 

Today, however, following the removal by the Ethiopian government of importation taxes on agricultural machinery, the cost of equipment has significantly gone down, allowing Endrias and others in the industry to offer cheaper leasing services.

Financial lenders, too, are now warming up to providers of agricultural mechanization services, following the apparent increase in demand for their business, making it easy for enterprises like Green Agro-Solution to secure asset loans. 

“It used to be very hard to easily access foreign currency from financial institutions to import the mechanization machinery,” Endrias said.

“But now there is fairly sufficient access to loans and foreign currencies as foreign lease-finance companies are coming to the sector.” 

The removal of taxes on agricultural equipment and machinery was supported by an Alliance for a Green Revolution in Africa (AGRA) study on the mechanization and adoption of agricultural technologies by Ethiopia’s farmers. 

The study informed the Agricultural Transformation Council’s direction to facilitate farmers’ access to agricultural technologies by tax wavering, a request that was formally accepted by the Ministry of Agriculture in December 2018. 

“It was important to conduct a wholesome evaluation of the agricultural industry in Ethiopia to produce the data needed for effective decision-making,” said Nega Wubeneh, AGRA’s Ethiopia country manager and advisor to the vice president for program innovation and delivery.

Afterward, policy reforms were enacted to remove import duties and taxes on over 94 types of mechanization and irrigation equipment, animal feed additives and poultry equipment. The bill was passed in 2019 and directives were approved in April 2020. 

Following the legislation, between April and June 2020 there was a 30% increase in the importation of agricultural equipment, which is projected to contribute to rising interest in private sector investment on mechanization, irrigation, animal feed production and poultry production. In three months, the number of licensed equipment importers grew to over 170, representing  a 43% increase. 

“In the long run, increased mechanization is expected to raise labor productivity and product quality and attract the youth to agriculture. Irrigation use is also expected to increase farm productivity and allow farmers to grow multiple crops per year. The supply of animal feed is expected to increase and encourage investment in dairy, beef and poultry production,” said a report by the Partnership for Inclusive Agricultural Development in Africa (PIATA)

Meanwhile, AGRA continues to train farmers in Ethiopia on the importance of agricultural technologies through an established network of agrodealers and village-based advisors.  

This is in addition to investments for increasing the capacity to purchase the equipment through a $4.5 million credit guarantee scheme targeting 13 million smallholder farmers. The scheme is expected to guarantee lending of up to $45 million at any one time.

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