Full title: Transnational Large Scale Agricultural Firms in Gambella Regional State, Ethiopia: Local Potentials, Opportunities and Constraints for Market Linkage and Contractual Farming Schemes

Adil Yassin
January 2014

Even though Transnational Corporations (TNCs) yield a huge potential in supporting the local economy, this opportunity is not realised yet. Concerns on weak market linkage with TNCs are not keenly explored in the literature, if weak linkages result from TNCs failure to utilise local market opportunities or if it is associated with weak local capacity with regard to labour availability, institutional capacity, market demand, and legal support. This study, based on annual import data, discovered that that there is potential demand for TNCs’ products (particularly rice, palm oil, maize, sugar and wheat) to establish forward linkage. Hence, high foreign currency expenditure might be cut, if imports can be substituted by TNCs supply to local market. The government, however, seems to focus on acquiring foreign currency more than reducing its expenditure through local transaction with TNCs. On the other hand, local economy’s capacity in providing inputs for TNCs is weak indicating challenge in backward linkage. Since the introduction of TNCs in Gambella, five years down the line, the most dominant and visible linkage happened in the form of labour [unskilled] employment. The volume of jobs created is insignificant compared to other countries’ standards. Thus far, due to the poor performance of TNCs, government’s expectation of employment generation, infrastructure development, market linkage and foreign currency acquisition are not realised adequately; as a result, it has regarded them as ‘failed’ projects. An absence of linkages with the local economy may lead to enclave development in the near future where there is limited market or economic benefit. Contract Farming (CF), if managed well, can be a viable means to enhance linkage with the local economy. However, there are considerable challenges to establish and facilitate CF in the Gambella region. Undefined land tenure system in the region, less government emphasis on CF in low land areas, TNCs business interest and financial problems, quality of farmers products and lack of modern inputs, and limited experience in CF, among others, are the main current and future challenges. It is concluded that weak linkage happens from both corners due to: lack of TNCs realisation and interest of local potentials and inadequate local capabilities.

This paper was produced with support from the Early Career Fellowship Programme.