Despite being a controversial stimulant leaf criminalized in many parts of the world, khat has held the position of Ethiopia’s second-most valuable export commodity for years after coffee, a crop the nation is renowned for worldwide. However, khat trade is facing a steep decline, with exports registering some of the least impressive performances in almost a decade.
The first nine months of the current fiscal year have been particularly challenging, with Ethiopia earning only USD 138 million from khat exports. This is a drastic shortfall compared to the government’s target of USD 338 million and represents a 32.6 percent decrease from the performance registered over the same period last year.
The figures bode ill for the federal government’s ambitions to see USD 450 million from khat exports by the end of the financial year.
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In 2021, Ethiopia achieved its highest ever revenue from khat exports, earning USD 402 million. However, this success was short-lived. In 2022, the revenue dropped to USD 391 million, and by 2023, it had plummeted further to just USD 248 million.
Khat exporters point to contraband as a major factor behind this dramatic decline. They claim that illicit khat traders have monopolized the market, making it increasingly difficult for legal exporters to compete.
According to the available data at central statistics agency, more than 3.8 million farmers in Ethiopia cultivate khat, yielding over 2.4 million quintals each year across more than 300,000 hectares of land.
Communities across regions, particularly in the Hararghe zones of Oromia and the Harari Regional State, heavily rely on khat agriculture.
Contraband has been a major concern for both traders and the government. In May 2022, the Ministry of Trade and Regional Integration revoked 830 khat export permits for alleged involvement in illicit activity, failure to renew licensing, and misusing services.
In November 2023, the Ministry introduced a rigorous pre-registration process and mandatory GPS tracking on trucks to combat the growing contraband trade. However, exporters argue that despite these government measures, contraband is worsening instead of declining.
A khat exporter from Aweday, Oromia Regional State, speaking to The Reporter Magazine anonymously, highlighted the severe impact contraband has had on his business and the industry at large.
Having been in the khat export business for the past decade, the exporter noted that the khat exporters association he belongs to, which previously exported up to 20,000 kilograms of khat daily, now struggles to export more than 5,000 kilograms a day.
He expressed his frustration, stating, “We are only renewing the license. We can’t export because of the market monopoly by contraband khat trade.”
The problem is exacerbated by allegations of government complicity. Exporters claim that some officials collaborate with contraband traders, indirectly supporting illegal trade and profiting from it.
“This doesn’t mean the officials are directly involved in the trade like other trades. They work together with contraband traders. These traders have the backing of government officials,” the exporter from Aweday explained.
Legal khat exporters find it nearly impossible to compete with the illicit traders.
“It’s almost as if contraband is legal,” the exporter remarked.
The traders primarily export khat to Somalia, Somaliland, and Djibouti. According to him, there is no issue with production, supply, or demand; the only problem is contraband.
Contrary to claims about multiple taxation by domestic traders, the exporter clarified that taxes are minimal and are not the main issue for exporters.
Khat trade remains highly lucrative, with fresh khat bought domestically for USD 10 per kilogram and sold for between USD 25 and USD 40 in Somalia, Somaliland, and Djibouti. Dried khat sells for 35 to 40 USD per kilogram, making the trade very profitable.
Khat exporters pay annual taxes, with PLCs paying 30 percent and individual exporters paying 35 percent of their revenue. They also pay service fees at city gates, which are nominal. For instance, exporters in Aweday pay service fees to the municipalities of Aweday town, and the cities of Harar and Jijiga, which are usually below six birr per kilogram of khat.
The primary motive behind the contraband khat trade is to retain foreign currency, observe exporters.
Exporters must surrender 70 percent of their foreign currency earnings to the government, leading to a significant disparity between the official bank exchange rate and the informal market rate. For example, a dollar sells for around 57 birr at the bank rate but close to 120 birr in the informal market. This means an exporter surrendering USD 1,000 would receive 57,000 birr officially, while contraband traders would get 120,000 birr for the same amount in the informal market.
Illicit traders employ various tactics to evade customs checkpoints, according to the exporters who spoke with The Reporter Magazine. One common route is from Aweday to Jijiga via Harar city and the small town of Kombolcha. However, contraband traders use alternative, irregular roads to avoid detection. They also obtain permits to trade khat in border towns but then proceed to neighboring countries, such as Somaliland, instead of selling the khat locally as intended.
Another khat exporter from Aweday, speaking anonymously to The Reporter, highlighted that he previously could export up to 300 kilograms of khat daily. Now, due to the overwhelming influence of contraband, he can only manage to export 60 kilograms a day.
The exporter indicated that khat is being smuggled into Djibouti, Somaliland, and Somalia via the Werder Zone of the Somali region. He blamed government officials for facilitating this illegal trade, stating, “Higher officials are behind it [the contraband].”
The exporter explained that contrabandists exploit permits meant for domestic trade. They obtain authorization to trade khat in border zones and towns such as Gashamo, Wochale, Aware, Werder, and Aysha, but instead, they smuggle the khat into neighboring countries. This tactic is a typical way to bypass legal export channels.
Additionally, the exporter who spoke to The Reporter Magazine mentioned that there is a quota system for how much khat each woreda (district) and zone can export. He alleged that government officials often allocate these quotas to relatives or friends, favoring them in the trade.
The exporter emphasized that legal khat exporters cannot compete with the illicit market, which is so dominant that the price of legally exported khat cannot match the lower prices of contraband khat. Consequently, the legal trade is severely disadvantaged.
While khat exporters cite contraband as the primary problem, domestic khat traders believe that multiple taxation is the main issue.
A khat farmer from Hararghe voiced his concerns about the multiple taxes imposed on khat. He sells khat in the Somali region, Oromia region, and Addis Ababa, facing numerous taxation checkpoints along the way.
The Oromia regional government has set rules to tax khat, resulting in duties ranging from 17 to 35 Birr per kilogram at multiple points. These checkpoints are located in places like Aweday, Dire Dawa, Bardoode (West Hararghe), Babile, Karamara, and Dengego. Additionally, the khat grower says that the Somali Regional State imposes its own taxes, and the federal government levies an eight percent excise tax on domestic khat trade.
He explains that these multiple taxation points have pushed many khat traders out of business and forced some to turn to contraband as a means of survival.
In July 2023, the federal government initially ordered regional governments to dismantle the ‘illegal’ taxation checkpoints. However, these checkpoints were reinstated shortly after being removed.
In January 2023, the federal government imposed a quota system to limit the supply of locally sold khat to combat contraband. The quota allowed only 17,000 kilograms of khat to be transported daily from Oromia to the Somali regional state. Growers note that the measure has heavily disrupted the khat business and caused a shortage in the Somali regional state.
By May 2023, the quota restriction was lifted, but the damage had already been done.
The fluctuating policies and multiple taxes have led to a sharp decline in khat prices, significantly hurting farmers. Although prices have recently increased, the sudden declines have caused considerable economic hardship for many khat farmers.
The Oromia regional government is establishing three khat trade centers in Bedessa, Aweday, and Addis Ababa. Once operational, all khat farmers, suppliers, and exporters will be required to conduct their transactions within these centers.
The controversial stimulant leaf has a wider place in East Africa, with millions of people depending on its cultivation and trade for their livelihoods.
In Kenya, President William Ruto recently reversed a contentious ban on khat imposed in May in coastal counties such as Mombasa, Kilifi, Taita Taveta, and Kwale. The ban was initially implemented due to health concerns and social issues associated with khat use. The ban had the support of religious leaders, too. But the President reversed the ban for its economic value. Available figures show Kenya used to send up to 15 cargo planes of the stimulant leaf to Mogadishu each day.
