Ethio Lease to mechanise the agriculture sector
To supply USD 150 million agricultural machineries
The first foreign-owned leasing company, Ethio Lease, yesterday signed Memorandum of Understanding (MoU) with the Ministry of Agriculture and the Agricultural Transformation Agency (ATA) enabling it to lease agriculture machineries to ATA sponsored farmers’ mechanisation centres.
The MOU was signed by Sani Redi, State Minister of Agriculture, Chimdo Anchala (PhD), ATA’s Senior Director, and Girma Wake, Ethio Lease Board Chairman.
Ethio Lease is a subsidiary of Africa Asset Finance Company Inc. (AAFC), a US-headquartered firm that owns and operates a group of companies that provide asset backed lending (ABL) and leasing services throughout Africa. Ethio Lease began operations in August 2019 after receiving a licence from the National Bank of Ethiopia.
After signing the agreement, Sani Redi said that Ethiopia’s agriculture sector uses backward mode of production. “The utilization of modern agricultural equipment and machineries is less than ten percent. Studies indicate that mechanization improves productivity by 50-60 percent,” Sani said.
Similar effort by the Development Bank of Ethiopia could not be successful in the past. According to Sani, the new tripartite agreement will have a great impact in transforming the country’s agricultural productivity.
With a population of 110 million people and 74 million hectares arable land Ethiopia imports food in bulk due to low agricultural productivity.
Sani said farmers could not afford the high cost of agricultural machineries and they have not been able to use machineries on small plots of land they possess. “A smallholder farmer cannot afford to buy agro-mechanization equipment by himself. Lease financing brings solutions through agro-mechanised service providers.”
Chimdo Anchala said that ten mechanization centers have been established in the Amhara, Oromiya, Southern Nations, Nationalities and Peoples Regional State and Tigray Regional Sates. Each mechanization center costs 9.1 million birr. “One of the challenges in applying agricultural machineries is the small plots of land the farmers have. ATA is organizing farmers to pull their resources together,” Chimdo said.
“If the ten model mechanization centers succeed we will work on more centers in all the regional states. And this cannot be done by the government alone. The involvement of the private sector is crucial,” he added.
Girma Wake said that Ethio Lease, the Ministry of Agriculture and ATA agreed in unison to transform the agriculture sector and boost productivity by the use of modern equipment and machineries. Girma said after securing its license in August 2019 Ethio Lease became operational in November. So far, the company delivered nine tractors and 48 more are on the way. Heavy duty generators, harvesters and modern medical equipment are being imported.
Under the new agreement, Ethio Lease will import and deliver machineries and equipment worth 150 million dollars over the next three years. “We will not request collaterals from the farmers. We will raise the required capital and deliver the machineries. The farmers must properly handle the machineries, use them to boost their productivity and pay back the money,” Girma said. “This is the first time that a company has been able to provide this kind of support. Leasing equipment to the mechanization centres has the potential to positively impact the agriculture sector, increase productivity among farmers and ensure significant financial gains for Ethiopia,” he added.
However, Girma seems to be frustrated by the extended bureaucracy at the government offices. He said that Ethio Lease secured all the required licenses but still has to go through unnecessary prolonged bureaucracy at various government offices to import the machineries. “We hold good discussions but when we start the work we face bottle necks in government offices. We must note that investors have choices. Capital is not a problem. But the money goes to a country where the people know to receive it,” he said.
Girma requested the government officials help in resolving the bureaucratic red tape. Sani assured Girma that his ministry would exert the utmost effort to address the impediments.
Ethio Lease was formed to address the equipment and forex shortages in Ethiopia by providing capital goods financing and a wide range of leasing services for multiple sectors such as agriculture, healthcare, energy, food processing (coffee processing), and manufacturing, among other verticals.
Ethio Lease CEO, Girum Tsegaye indicated that initially the company will be working with most of the 10 mechanization centres for the pilot phase. “The collaborative agreement has the potential to reach over 60 centres in the next two to three years, with Ethio Lease providing over 150 million dollars’ worth of agriculture equipment to ultimately support smallholder farmers, with support from the Ministry of Agriculture and ATA,” Girum said.
During the occasion, two institutions—Sekomando from Bale Robe and Hiwot Agriculture from Mekelle—signed equipment lease agreements with Ethio Lease valued at 50 million birr in aggregate.
Ethio Lease decides what equipment to purchase and lease to the centres based on a need assessment conducted in collaboration with ATA and will oversee the maintenance and proper use of the equipment throughout the lease period, providing the lessee with the option to buy the equipment for a symbolic price, at the end of the lease period.
AAFC CEO and Ethio Lease Vice Chairman, Mr Frans VanSchaik stated that if the various government agencies do not create too many hurdles, the MOU will have a significant impact on smallholder farmers. “By deploying agriculture equipment such as tractors, and combiners in significant numbers, we will be able to have a meaningful impact on the lives of farmers and their families. This agreement will not only benefit farmers, but is an efficient and practical solution to address the current equipment challenges in the agricultural sector,” VanSchaik said.
Since its launch, Ethio Lease has provided leasing services to address equipment shortages in the agriculture, healthcare, energy and food processing sectors, including some in manufacturing. To date, Ethio lease has signed leasing agreements with more than 46 lessees, and this week delivered 9 tractors to various farmers in the country.
Ethio Lease is a subsidiary company of African Asset Finance Company Inc (AAFC), which was launched in 2017 to address Africa’s underserved market for equipment leasing and asset-backed lending, with Ethiopia as its first market.
Head quartered in New York AAFC owns and operates a group of companies that provides asset-based lending (ABL) and leasing solutions for businesses in Ethiopia and other African nations. Its fully-owned Ethiopian platform company, Ethio Lease, specializes in providing leasing solutions to open new avenues for growth and profit for mid-sized businesses and smaller businesses with the proven potential to grow. The signing ceremony was attended by Girum Tsegaye, CEO Ethio Lease, Frans VanSchaik, CEO of AAFC, Gabriel Negatu, board director Ethio Lease.