Profitability of bioethanol production: the case of Ethiopia

Abstract

This research investigates the profitability of bioethanol production in Africa, taking Ethiopia as a case in point, and suggests an oil price threshold beyond which biofuels may be profitable. Specifically, the study analyzes the viability of producing bioethanol from molasses in the context of Ethiopia, using data from a biofuels investment survey by EEPFE/EDRI in 2010. We draw on investment theory as our underlying conceptual framework and we employ unit cost analysis for our empirical analysis. Findings reveal that bioethanol production (from molasses) in Africa/Ethiopia can be quite viable and the biofuels industry can be viewed as a way out of poverty. This is a case study involving a few observations because of the small size of the universe of producers studied; hence the need for further analysis as the sector expands.

Key words: profitability; bioethanol; oil price threshold; Ethiopia; Africa

JEL Codes: Q56, Q42