The high cost of doing business and lack of sector-specific incentives is costing Kenya foreign direct investment in the flower industry.
The scenario is in favour of Ethiopia where the government provides electricity and constructs roads for investors.
This, coupled with low interest government loans and favourable climate has seen the country’s flower industry grow to cover 9,000 hectares in five years, compared to Kenya’s 200,000 hectares built over the past 50 years.
Industry players are now concerned that at this rate Ethiopia — the fastest growing horticultural frontier — could overtake Kenya in the long run.
Kenya Flower Council chairman Erastus Mureithi, says that plans to convert flower farms into Special Economic Zones have stalled as a Cabinet paper to that effect awaits government ratification a year after submission.
Mr Mureithi, a member of the Parliamentary Committee on Agriculture, says that he was sent to Ethiopia by the government in 2007 to establish how much of a threat Ethiopia was to the country's lucrative flower industry, and despite his bleak findings that were incorporated in the Cabinet paper seeking the Special Economic Zones, no measures have been taken to safeguard Kenya from Ethiopia’s growing competition.
Speaking in Nakuru recently when he presented a standards certificate to Kenya’s newest flower farm, Xpressions Flora, Mr Mureithi decried the fact that the company was the only new investment in the sector in the past five years, an indication that the industry was stagnant while in Ethiopia it was expanding.
One of the largest flower growing firms in the world, Sher Agencies relocated to Ethiopia in 2007, while another four farms have followed suit.
“Competing with Ethiopia for these investors means we must address our incentive package,” he said.
Xpressions Flora is a sister company of Bidco, one of the region’s largest cooking fats and detergents processing companies.
Managing director Inder Nain said the firm paid 100 per cent of the cost of putting up the 21-hectare farm which sits on a 300-hectare piece of land for both the power connection, roads and invested millions (of shillings dollars) in constructing water collection pans.
According to Mr Murethi, flower exports earned the country Ksh43 billion ($551.2 million) last year, which is more than what was earned by garment exporters operating at the Export Processing Zones.
He said by virtue of being rural-based, flower farms stimulate grassroots development by creating employment and transfer of technology from the urban centres.
Horticulture, currently the leading foreign exchange earner, brought in Ksh71 billion ($910.2 million) in 2009, and employs an estimated three million people directly and indirectly. It also constitutes 40 per cent of agriculture’s contribution to the gross domestic product.
To sustain Kenya’s competitive edge, Mr Mureithi urged the government to expedite the process of converting flower farms into Export Processing Zones or Special Economic Zones for them to enjoy tax holidays and other rebates including duty free imports for vital inputs to reduce costs and make the country’s produce more competitive.