[Column] Bob Koigi: Flower industry redefines Kenya-Ethiopia market rivalry and supremacy wars
That Kenya is in protracted competition with Ethiopia to entice investors and maintain the lead as the East African regional powerhouse is an open secret.
But recent happenings continually indicate that Kenya is losing this grip, and fast. And no sector does this ring true than in floriculture where Kenya has traditionally claimed dominance. The numerous flower trade expos happening in Ethiopia and congregating high level delegates from across the globe continue to tell the African story.
But beyond the blooming rows of velvety roses and a classic display of innovations in the flower industry, the expos have brought home new truths about the direction the competition is now heading.
Traditionally as one of the prime flower producers and exporters, Kenya has sat comfortably at the top, unfazed, and unperturbed. But neighbouring countries are coming up so fast and it is only a matter of time before they overtake the East African economic giant. In Ethiopia, the streamlining of its flower production value chain is impeccable, ensuring that all loopholes that might put brakes on optimum production are nipped before they even sprout.
For starters Ethiopia has managed to extensively address cost of production, compliance bottlenecks and taxes that Kenya is still grappling with.
In Kenya, production costs have gone up by more than 30 per cent over the past year; mainly on labour, power, fuel, chemicals, fertilisers and other inputs. The sector currently pays 41 different taxes and levies to various government bodies, including the Kenya Revenue Authority (KRA) and the Horticultural Crops Directorate, HCD. Data from KenInvest shows that the cost of fertiliser rose 153 per cent to $0.44 per kg in 2014 from $0.17 per kg in 2008. In the same period, power tariffs rose 27 per cent while the cost of chemicals per litre has increased by 55 per cent; monthly cost of labour has risen 65 per cent.
The cost of compliance could go up with the devolved system of government that is proposing to introduce a cess on farm produce.
Ethiopia however has been recording fast growing numbers, helped by low cost of production and favourable business and weather conditions. Ethiopia even has an investment code which it revises constantly to incentivize flower growers. The floricultural sector in particular has had strong backing from the government. Incentives such as a five-year tax holiday, duty-free imports of machinery and easy access to bank loans and land have attracted much investment into the sector. As a result of these and other incentives, the booming flower sector has overtaken coffee as a leading export commodity in that country.
Furthermore raw materials necessary for production such as chemicals and pesticides are also granted duty free access to Ethiopia. This is what has seen flower companies dump Kenya for Ethiopia. You will recall Sher Agencies, which was once the world’s largest rose’s producer and which moved to Ethiopia after selling its Kenyan business to Karuturi. Several other companies with operations in Kenya are said to be looking north, taking the cue from Sher.
But what is perhaps of key importance and where Kenya can borrow a leaf from Ethiopia, is how the country has perfected the art of market diversification. Kenya’s share of the global cut-flower market is more than 30 per cent, competing with exporters like Columbia, Ecuador and Ethiopia.
Though traditionally Ethiopia’s source market, just like Kenya, remains UK, the country has made major inroads in diversifying its flower markets to virgin markets including Asia, US, and Africa. The argument is that a growing middle class in Africa with an affinity for spending will drive consumption of flowers in coming years. Exports to Nigeria, Sudan and Oman seem to be bearing fruit.
Kenya still seems on course in this regard. With the realization that over reliance on traditional markets alone could greatly hurt the industry, the country has entered into markets in Japan, Asia and US. But the difference with Ethiopia is that Kenya hasn’t been aggressive enough in its agenda.
The Ethiopian flower Expo, just like the Kenya flower expo, brings together growers, breeders and buyers together and bypasses the traditional auctions. Ethiopian government and flower producers already seemed set on what they wanted, and they sought to go after it, aggressively with set timelines. This is a huge lesson Kenya can borrow. In a world where market dynamics change overnight, there can never be room for second guessing or pussyfooting.
Market predictions point to an untapped potential in exporting flowers to African nations. Ethiopia has seen huge potential, Kenya hasn’t yet. In a continent poised to be the fastest growing globally with a meteoric rise in middle class who have an affinity for spending our focus should be in diversifying to these markets. Because flowers, just like a game chess calls for getting into the mind of a competitor and acting before you are eclipsed.
Multiple award winning Kenyan journalist Bob Koigi is the Chief Editor of East Africa at Africa Business Communities