MSE Development Programme

1
Value Chain Analysis in the Food Construction
Sectors

• Micro Small Enterprise Development Programme

2
Value Chain Analysis in the Food Construction
Sectors

• Rationale
• ECBP orients on Value-Chain Approach
• MSE dominate many steps in the value chain

• Objectives
• Identify analyse prospective value chains
• Draft strategies for value chain development
• Identify possible contributions of MSE Project to
  value chain development

3
Value Chain Analysis Approach

• Mission 1 (June 1 July 6, 2005)
• Value chain identification analysis
• Data Document Review
• Discussion with key actors
• gt50 company visits (Addis, Debre Zeit Adama)

• Mission 2 (September 2005)
• Strategy development
• Focus Activities to be discussed !

4
Value Chain Analysis Presentation Overview

• Analysis of Selected Value Chains
• Cereal Processing
• Building Construction
• Furniture Metalworks
• Key Issues
• Policy Business Environment
• Company Reengineering
• Standards Certification
• HRD / TVET
• Outlook

5
Cereal Processing Value ChainRelevance

• Dominating Processing Sector
• 53 of all Micro Enterprises
• 87 of all Small Enterprises
• 23 of all Medium Large Enterprises
• 53 of total manufacturing employment

• Base for national food security
• Population growth
• Urbanisation -gt Changing eating habits
• Driver of rural growth
• Regional export potential (medium-term)

6
Cereal Processing Value ChainStructure
Consumers
7
Cereal Processing Value ChainDemand Trends ...

• Driving Forces
• Population growth -gt overall demand increase
• Urbanisation -gt Changing eating habits
• (Urban) income growth
• Urbanisation
• More cereal products less unmilled cereals
  wheat flour
• Caterers (Army, Universities) switch from Injera
  to Wheat bread
• Urban medium upper class trends
• Home-produced Injera
• Wheat bread pasta replace traditional bread
• Factory beer replaces traditional beer
• More food drinks consumed outside from home

8
Cereal Processing Value ChainDemand implications

• Bakeries
• 3-5 annual output growth (Addis 8-10)
• 600 Bakeries in Addis, room for new market
  entrants
• 320.000 t wheat flour demand p.a., growing
• Breweries
• Strong growth (20-25 p.a.)
• Major capacity expansion projects under way
• Local malt supply insufficient 40-50 of malt
  imported
• Pasta Cookies
• Market growth, new domestic entrants, but imports
  still dominate -gt additional market assessment
  required
• Flour Mills
• Stagnating household market, several new entrants
  
• 30 overcapacity, heavy competition, low margins
• Significant staff reductions, plant closures
  imminent
• -gtReorient on industrial customers expand into
  baking/ pasta!

9
Cereal Processing Value ChainUrban Demand
Trends (1)
Teff milled
Injera

• Trend to home-prepared Injera

10
Cereal Processing Value ChainUrban Demand
Trends (2)
Wheat Bread
Traditional Bread
Pasta

• Wheat bread Pasta replace traditional bread

11
Cereal Processing Value ChainUrban Demand
Trends (3)
Traditional Beer
Drinks away from home
Factory Beer

• More outgoing, factory beer slowly replaces
  traditional beer

12
Cereal Processing Value ChainFarming Issues

• Production short of industrial demand
• Undersupply of hard cereals (for baking, Pasta)
• Insufficient supply of cereals for malting (?)
• Input trade
• Develop introduce high-productivity seed
  varieties (e.g. Triticale)
• Provide effective yet harmless agro-chemicals
• Farmers
• Ensure compliance with processors standards
• gt Cooperation across the whole value chain
  (Input RD -gt Processors) required

13
Cereal Processing Value ChainCereal Trade
Structure

• Absence of generally accepted, certified
  standards grades (Cereals, Flour)

• Farmers
• Unable to incorporate margins for cleaning
  grading (except large state farms)
• Collectors / Wholesalers
• High costs for multiple sacking inspection
• Additional transport cost (10-12 impurities)
• Insecurity inhibits inter-regional trade
• Millers
• Additional cleaning costs (unreliable equipment)
• Unable to guarantee flour quality
• Bakers / Pasta makers
• Flour-related quality problems (additional costs)
• General
• Lack of base for market information systems,
  warehouse receipts and cereal commodity exchange

14
Building Construction Value ChainStructure
Private/ Public Construction
15
Building Construction Value ChainMarket Overview

• Growing demand
• Population growth -gt Public private housing
  projects
• Public construction Universities, schools,
  hospitals etc.
• Industrial warehousing investment, office
  construction
• New infrastructure Dams, roads, bridges,
  waterelectricity

• Supply issues
• Construction is slow, costly, and of varying
  quality
• Limited availability of skilled manpower
  specialised contractors
• Shortage of domestic inputs (cement, sand,
  gravel, marble etc.)
• Most finishing materials are imported
• World market price pressure (Steel, oil-gtbitumen,
  cement, transport)

• Wholesale trade weakly developed
• Limited product range, mostly lowest standard
• Low market transparency
• No pulling of local suppliers

16
Building Construction Value ChainSector
Environment

• Public projects
• 20 of projects obtained through corruption
  (Contractors association estimate)
• Partly run under youth employment creation
  objectives
• gt Quality not always adequately supervised

• Standards
• Lack of standards control for fittings
  finishing (electricals, sanitary ware, windows,
  furniture etc.)
• Substantial entry risk for domestic investors
• Discretionary decision power of consultants on
  non-standardised components -gt risk of corruption
  misappropriation
• Public security risks high maintenance costs
  thrugh inferior components

• Investment
• Equipment supplier credit not allowed by Nat.
  Bank
• Difficult access to land for expansion / mining
  sites
• No VAT refund on imported equipment for
  construction materials

17
Metalworks Furniture Value ChainStructure
18
Metalworks Furniture Value ChainMarket
Overview

• Increasing demand
• Population increase and urbanisation
• Public investment in schools, universities and
  hospitals
• Increasing private investment (office furniture,
  restaurant furniture, etc.)
• Low-cost housing requires different furniture
  design

• Supply issues
• Decreasing availability of local wood
• Local chip wood manufacturing has reached
  capacity limit
• Worldwide increase of steel price -gtWorking
  capital shortage of metal processing
• Paints and lacquer well developed
• All fittings imported

19
Metalworks Furniture Value Chain Challenges
Way Ahead

• Challenges
• Strong import competition for office and
  household furniture
• Imported metal hardware competes on lower quality
  and price

• Way ahead
• Replace wood by laminated chip wood, metal and
  bamboo
• Introduce monitor minimum standards for metal
  hardware
• Enhance market research and design capabilities
• Strengthen efficiency of local metal processors

20
Policy Business EnvironmentKey Issues

• Review VAT System
• Integrate MSE into VAT system (not TOT)
• Expedite VAT refunding
• Simplify VAT invoices
• Check for inconsistencies (e.g. flour VATable,
  whereas bread VAT-exempt)

• Liberalize foreign trade
• Remove obligatory shipping with Ethiopian
  Shipping Lines
• Allow for international supplier credit
• Allow for customs refund on imported products
• Enhance investment and access to finance
• Re-vitalise privatisation efforts to supply
  additional investment capital
• Create infrastructure for share exchange market
• Review exclusion of foreign banks from Ethiopian
  market
• Conduct investment fairs to bring together
  business ideas and capital

21
Business Re-engineering Support Needs

• Marketing Strategies
• Adapt to changing demand (e.g. Milling, dry food,
  injera, bakeries, furniture)
• Increasing production efficiency
• Workflow management, maintenance, quality
  management (e.g. metal industry processing,
  construction inputs)
• New technology
• Using Triticale wheat in cereal processing
• Laminated chip board in furniture making
• Operating automated (computerised) machinery
• Waste management and treatment
• Financial Management and Planning
• Investment planning
• Working capital management (increased input
  prices of cereals, steel, wood, gravel, cement
  etc.)
• Others, e.g.
• Change management and creativity
• Team building and multitasking,
• IT-based business management solutions

22
Business Re-engineering Proposed Approach
International Consultancy Facility
Large Enter-prises
Twinning
Commercial BDS Provision
Medium Enterprises
Linkage
MSEs
BDS Facilitation
23
Standards CertificationKey Issues

• Lacking (enforcement of) standards
• Cereal grades quality, flour, bread
• Construction finishing components (electrical,
  fittings, sanitary wares, etc.)
• Furniture (minimum weight/load bearing, etc.)

• Two functions of standards certification
• Consumer protection (e.g. bread, furniture)gt
  Cooperation with consumer associations in
  standard setting supervision ?
• Enhance market transparency efficiency lower
  investment risk,gt Integrate industries in
  standard development, promote industry standards,
  orient on international standards

24
HRD TVETKey Observations

• TVET/HRD needs named by discussion partners
• Project managers, claims contract handling
  (contractor)
• Furniture designers
• Food quality control / laboratory staff
• Equipment maintenance
• Automated equipment operators
• Millers, bakers, brewers
• Wood processing
• Metal casting -gt fittings, spare parts
• Heat treatment, galvanising, electroplating

• Innovation
• No RD/Training/Information Centre for cereal
  processing and for furniture making
• Sector associations weak how can they be
  strengthened?
• Chambers and EMIA as alternative platforms for
  innovation generation exchange?

• Training by Suppliers
• Petram Baking with imported yeast
• Kadisco Wall painting training, adhesive
  application in shoe making
• Kaleb (Claas) Maintenance of agricultural
  machinery
• gt How can such practices be supported???

25
HRD TVETIntegrate TVET Innovation
Dissemination

• TVET alone may not result in effective change
• Decision makers need to be informed about new
  techniques as well !

Building Construction Example
26
Value Chain Analysis Outlook

• Mission 2 (September 2005)
• Completing research
• Review MSE Pro experience
• Additional value chain research (e.g. bamboo,
  logging sawing, linseed linnen) ?
• Field research in other regions ?
• Analysis of potential implementation partners
  (e.g. sector associations) ?
• Assess activities of other donors related
  ministries ?

• Strategy development
• Drafting implementation mechanisms structures
• Defining performance indicators ?
• Validation workshop with main stakeholders
• Report preparation