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Ethiopia Terminates Indian Karuturi Global Agreement, Citing Insufficient Progress

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(Credit: Sean Gallup/Getty Images) LALIBELA, ETHIOPIA - MARCH 19: A little boy oversees goats in the Lasta mountain range on March 19, 2013 near Lalibela, Ethiopia. Ethiopia, with an estimated 91 million inhabitants, is the second most populated country in Africa and the per capita income is $1,200. Everyday Life In Ethiopia
January 18
5:40 AM 2016

Ethiopia's Agriculture Ministry cancelled Karuturi Global Ltd.'s lease last month and now the Indian company is challenging the government on the reasons why they terminated the project. The company, a cut flower exporter, had been involved with Ethiopia's agricultural industry since 2010.

Karuturi Global claims that the government broke the terms of the agreement, saying that the cancellation did not follow procedure, violated an investment agreement between the two countries, and were wrongly accused. They also said the termination was not accompanied by market-value compensation, which was stated as part of the bilateral investment treaty.

The Ethiopian government stated that it terminated the agreement because after two years, the actual amount of land under development, only 1,200 hectares, fell short of the agreed upon size of 100,000 hectares.  The ministry had given a warning to Karuturi about the inadequate state of progress in April 2012.

Speaking with Bloomberg, Getachew Reda, Ethiopian Communications Minister, discussed the termination. "If you cancel a project, what's the point of negotiating? If he thinks he has a legal option, let him try it, but the government has been giving Karuturi extensions for a long time."

Karauturi claims that the work it did in clearing 65,000 hectares and constructing 100 kilometers of dykes to control floodwaters should be considered development. Along with their $100 million investment, the company felt that it should be evidence enough of progress and that government action stopped any further development.

The Indian company was planning to grow and process crops such as corn, sugar cane, and palm oil. But because of the Trade Ministry's 2012 ban on cereal exports, the company was unable to earn enough foreign money to pay back the $180 million loan from Indian banks.

According to Human Rights Watch, an advocacy group based in New York, none of the farms that were implemented from this agreement were successful in exporting crops, reported CCTV Africa. Instead, the program deprived residents by relocating them.

Karuturi Global is based in Bengaluru, India. After the government offered incentives to lease land in Ethiopia, the company was one of the first foreign investors to attempt to farm some of the total 3.3 million hectares originally identified for commercial farming.

Business Insider noted that despite the promise of prosperity, there is a danger in investing money into an authoritarian state. Ethiopia's leadership is descended from the militia that overthrew the communist state in 1991.

Karuturi Global has taken legal action, obtaining a court order to protect the lease and will seek international arbitration. With the current dictatorship in Ethiopia, it is hard to say how far such legal actions will help the Indian company regain any of their prior investment. 

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