Political Stability: A Key Driver for Africa’s Economic Growth and Potential

By Danilo Desiderio

As Kenya launches a pilot project to transport flowers by rail via refrigerated containers from Naivasha to the Mombasa port for export to the Netherlands, Ethiopia faces a starkly different reality. Political instability is driving international flower companies out of the country, dealing a significant blow to one of its key export sectors.

According to Semafor Africa, the northwestern Amhara region – an important hub for Ethiopia’s flower industry – has been particularly hard-hit. Several companies have already left, with Kenya and Uganda emerging as alternative destinations.

Five Dutch firms – Tal Flower Farms, Tana Flora, Abyssinia Flowers, Dutch Flower Group, and Alpha Flora – have already pulled out. Now, German company Selecta One is preparing to follow suit, potentially leaving over 1,000 Ethiopian workers unemployed.

Ethiopia’s Flower Industry: A Vital Economic Sector

Ethiopia’s cut-flower industry is the country’s second-largest export sector after coffee and a major source of foreign exchange. In 2024, it generated over US$500 million in revenue and accounted for 5.5 percent of the global market share.

However, Ethiopia still lags behind Kenya, Africa’s leading exporter of rose cut flowers, which holds a 16 percent global market share and supplies 38 percent of the European Union’s flower imports.

Back in May 2021, we highlighted on our blog that political instability poses a major threat to Africa’s industrialization efforts, a key pillar of the African Continental Free Trade Area (AfCFTA). Ethiopia is a prime example of this challenge.

Investors seek stability and predictability, and when those conditions are not met, they quickly move to safer markets.

Rising Security Concerns and Economic Repercussions

Companies in Ethiopia’s flower sector report escalating security threats, including frequent hijackings of trucks and staff for ransom. These challenges are not only disrupting operations but are also harming the country’s tourism sector, another crucial source of revenue.

Moreover, Ethiopia is struggling to attract foreign investors across various industries, including telecommunications, construction, and real estate. Despite introducing reforms to encourage foreign investment, such as easing regulations for international businesses, the country’s volatile security situation remains a major deterrent.

Ethiopia is not alone in facing these challenges – more developed African markets, like South Africa, also grapple with security risks. In the first three months of 2023 alone, South Africa reported over 2,300 hijackings.

Can Ethiopia Still Attract Investors?

Despite these setbacks, Ethiopia retains some competitive advantages. Recent exchange rate liberalization has made it easier for foreign companies to repatriate profits, enhancing the country’s appeal.

Additionally, Ethiopia offers lower labor and electricity costs compared to many other African nations, making it an attractive option for cost-conscious investors.

However, these advantages alone may not be enough. Political instability creates uncertainty, which is a major red flag for investors – particularly multinational corporations that prioritize security, legal stability, and contract enforcement.

Without these assurances, industrialization and job creation cannot thrive.

The Path Forward

For Ethiopia – and Africa as a whole – to unlock its economic potential, political stability must be a top priority. Without a secure and predictable environment, foreign and local investors alike will remain hesitant to commit capital.

Stability is not just a desirable goal; it is essential for sustainable development, job creation, and long-term economic growth. Until meaningful progress is made in this area, Africa’s path to industrialization will remain an uphill battle.

Danilo Desiderio serves as the CEO of Desiderio Consultants Ltd in Nairobi, Kenya, specializing in African customs, trade, and transport policies. He is a customs and trade expert at the World Bank and a senior associate to the Horn Economic and Social Policy Institute (HESPI).