2 December 2012

Ethiopia: Profitable Tobacco Enterprise Seeks 100 Million

The National Tobacco Enterprise (NTE) is seeking financing to procure a new cigarette-making machine that will produce 20,000 pieces of cigarette a minute, at a cost of around 142 millionBr.

TheEnterprise, which started production with a single machine in 1941, now has two machines, procured in 2003, that have the capacity to produce 7,000 sticks a minute, according to Ayele Alebel, public relations officer of theEnterprise.

"We can neither satisfy the demand with our current capacity nor be competitive in the market with the current machines," Ayele said.

One of the cigarette making machines of the National Tobacco Enterprise (NTE) located atRoosevelt Street, in making normal Nyala brand, the highly consumed product of the enterprise on Thursday, November 28, 2012.

Though the enterprise has an exclusive right to manufacture and distribute tobacco products in the country, it only has 62pc market share. The remaining share of the market is taken by contraband tobacco products.

The NTE says that the annual demand could be around 6.5 billion pieces of cigarettes in 2012, currently the company is producing only 3.7 billion sticks.

The NTE's profit for 2011/12 was 246 million Br from the sale of 3.7 billion sticks.

ETE has applied to the Development Bank of Ethiopia (DBE) and two other financial institutions, seeking 100 million Br for new machinery that could help it fill the demand gap. The DBE, though, may not extend the loan, according to a source at the Bank, as theEnterpriseis considered profitable. The bank offers loans to companies in government priority areas, mainly those in the manufacturing sector.

TheEnterprisedeclined to reveal the two other banks it has approached.

The cigarette factory that started its production with a single brand called Nigusu, is currently producing four filter-tipped and one non-filtered brands. The filtered brands are Normal Nyala, Premium Nyala, Delight and Elleni. The non-filtered brand of the company is called Gissilla.

The enterprise, however, also imports and distributes Rothmans and Marlboro, produced inUKand US, respectively, for the diplomatic community.

Out of the local brands, Nyala Premium and Delight, packed in a hard box, are the company's premium brands; the cheaper brands are packed in soft boxes. Of these the normal Nyala is highly smoked, followed by Delight and Nyala Premium, according to the data of the enterprise.

The non-filtered Gissila on the other hand has a low level of demand. TheEnterprisehowever is planning to filter its Gissila brand, as well.

Nevertheless, because the machine uses old technology, the factory wastes a lot of time when switching from manufacturing one brand to another and hence limits the production capacity of the factory.

For instance the company wastes 4,320 minutes annually just changing from Nyala to Elleni because of the inefficiency of the current machines, according to a study made by theEnterprise. It could produce 30.4 million sticks during the same time.

TheEnterprisegets 30pc of its tobacco supply from a farm in Shewarobit in theAmharaRegionalState, and three farms in Hawassa, Welayta and Belate in the Southern Regional State, where it has contracted the supply. The remaining 70pc is imported.

It imported 72tns of tobacco for 220,752 dollars in the 2011/12 fiscal year, mainly fromBrazilandIndia. Both the quantity of the product and the price have shown a 27pc and 59pc reduction when compared to the previous fiscal year.

"It is not because we are not able to harvest the leaf at home, it is because the regional governments want the farmers to produce grain only," Ayele claimed. "They think that the farmers will feed themselves if they only produce grain, which is totally wrong."

The Enterprise is 78pc owned by the Ministry of Finance & Economic Development (MoFED) and the rest is held by Sheba Ethiopia Investment Plc, which is owned by foreign investors.

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