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Tales from the Development Frontier
to summer flowers that can be grown outdoors and do not require a heavy investment in greenhouses and other sophisticated technologies (Bolo 2006). The larger growers invest in the postharvest supply chain, including refrigerated transport trucks. Most growers use only a few specialized airfreight forwarders and are able to negotiate cargo rates. The small growers also use these freight forwarders by consolidating their flowers with other commercial products. Kenya’s cut flower industry presents an interesting comparison with the industry in Ethiopia. While the two countries are similar in terms of the structure of the industry, there are a few differences. First, Kenya has higher-quality seed inputs and product variety relative to Ethiopia. In Kenya, farmers can breed seeds themselves or purchase them from seed companies, while, in Ethiopia, most of the innovation in seeds is generated by foreign investors, and only a small number of firms sell directly to wholesalers and the supermarket channel. Second, there is better access to capital among small-scale farmers in Kenya relative to Ethiopia. However, an important factor that is starting to favor Ethiopia over Kenya is the latter’s higher labor and transport costs. On the whole, both countries have performed well in recent years despite unstable global market conditions. The Role of Government The Kenyan government has sought to facilitate the cut flower industry rather than directly intervene. A supportive trade and fiscal regime has alleviated some of the financing constraints of firms and has eased licensing and other regulatory constraints with the aim of allowing the private sector to flourish. Firms in the export processing zone receive a 10-year tax holiday on domestic taxes and on withholding taxes on repatriated dividends, plus exemption from the value added tax. The government also allows cut flower exporters to import plants, machinery, equipment, and raw materials free of tax. Investors are able to obtain allowances on capital investments, including wear-and-tear allowances on items such as vans, tractors, other motor vehicles, aircraft, computer hardware, copiers, and plant machinery; industrial building allowances cover all industrial buildings; and farm work allowances cover all structures necessary for a farm to function properly. The new Investment Promotion Act requires a minimum foreign investment