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Ethiopian China-backed sugar export scheme suffers growing pains

ETHIOPIA's development of China-backed sugar plants in the country's southern region, is struggling because of a lack of funding and technical expertise, reports Bloomberg News.

A German research group said the project is also being held back by its remoteness, lack of infrastructure and failings of an engineering contractor to deliver on time.

Lenders including the Export-Import Bank of China, China Development Bank Corp and the Industrial & Commercial Bank of China, which lent Sugar Corp US$1.63 billion, according to Ethiopia's Finance Ministry.

The first repayments are due October. The corporation has so far received $835 million in dollar-denominated credit, it said in a report to lawmakers last month.

All of which casts doubt on the future profitability of the Kuraz project and whether it will succeed in transforming local fortune, says researcher Benedikt Kamski, of the Arnold-Bergstraesser Institute of Freiburg, Germany.

In a note for the Omo-Turkana Basin Research Network, he said: "Five years into the project, the sugar industry in the Lower Omo Valley is still in its infancy, raising doubts about the economic returns and the feasibility of the project.

"It remains to be seen whether the unprecedented changes already brought to the region and its people will translate into the desired local development push," said Mr Kamski.

The state-owned Sugar Corp aimed in 2011 to invest $4.6 billion in 10 new processors nationwide to annually produce 2.3 million tonnes of sugar by the end of a five-year plan.

No projects are complete and the corporation is again importing almost 200,000 tons of cane to meet domestic demand this year after a drought cut production.

Growth in Ethiopia, one of Africa's fastest-expanding economies, may slow to 4.5 per cent in the fiscal year ending July 7 from 8.7 per cent last year after the dry spell curbed agricultural output, according to the International Monetary Fund.

The government suspended offering large-scale agriculture leases in March after widespread investment failures, including that of India's Karuturi Global Ltd, whose 100,000 hectare (247,105 acre) plot in the western Gambella region was mostly on a floodplain.

The sugar project, known as Kuraz, has raised donor concern over forced evictions, dwindling resource access and the impact on Lake Turkana, which straddles the Ethiopia-Kenya border.