Addis Fortune (Addis Ababa)

31 August 2014

Ethiopia: Govt Introduces Br4 Billion Enterprise to Supply Manufacturing Inputs

Enterprise will open factories in neighbouring countries to export inputs home

Eager to boost manufacturing export from Ethiopia, the government is planning to open factories outside the country to export inputs that manufacturers in the country will need.

This will be part of the job for the four-billion Birr Ethiopian Industrial Inputs Development Enterprise (EIIDE), whose job will be supplying inputs to some parts of the manufacturing sector both by producing them and by procuring from local and international markets and by manufacturing them. The government expects this enterprise to undertake its manufacturing activities through factories it will establish both in Ethiopia and outside.

The bill for the establishment of this enterprise, which will come with the dissolution and take over of the resources of the Merchandise Wholesale Import & Trade Enterprise (MWITE), was approved by the Council of Ministers two weeks ago.

The new enterprise is meant to rescue the ever failing performance of the manufacturing industry, which has been largely challenged by the shortage of supply of inputs leading to continuously disappointing records, despite an ambitious Growth & Transformation Plan (GTP).

Ever since the beginning of the GTP in 2010/11, government plans have grown contrary to its actual delivery, with performance falling progressively short of targets - from 58.6pc in the first year to 54pc and 51.8pc over the following two years. It has now reached a new bottom of 25pc. During these four years, Ethiopia's export revenue has been growing sluggishly - up from 207.9 million dollars to 255.4 million dollars, then 281.1 million dollars and finally 398 million dollars - up by nearly 117 million dollars from the previous year.

The performance of the three categories where the government had pinned its hopes and to which the new enterprise is going to supply inputs were textiles and garments, with a target of 350 million dollars; leather and leather products with 347 million dollars, and agro processing with 250 million dollars for the 2013/14 fiscal year. The performances in these areas, all below 40pc, were 111 million dollars, 133 million dollars and 76 million dollars, respectively.

Accordingly, the Enterprise will establish three leather processing factories in Sudan and one in Somali land, which will process raw leather at a pickle and wet blue level and export to Ethiopia, according a source close to the issue.

"The government has already conducted a study for the import of semi processed leather," this source told Fortune. "Sixty million Birr budget is proposed for the establishment and operation of these factories."

The bill, which was prepared by the Ministry of Industry (MoI), has counted on the experience of the India and China on the idea of investing abroad and importing semi processed inputs that the factory established abroad will produce, in order to match the growing demand of domestic industries, according to a source with knowledge of the drafting process.

The new enterprise will also have a 200.5 million Br budget to grow cotton in partnership with private investors, with the enterprise owning 51pc share, according to a document that Fortune has acquired.

A little more than half a billion Birr will also be allocated to the enterprise for the purchase and transportation of inputs for leather and leather products and agro-processing industries as well as cotton for textile industries that will be used for the running fiscal year of 2014/15, according to sources close to the issue.

This is a "principled approach" by the MoI, says Fasil Tadesse, president of Ethiopian Textile & Garment Manufacturers' Association (ETGMA).

"It will make sure that inputs are delivered to the textile and garment manufacturers appropriately," he told Fortune. "Stabilising the market, it will enhance the competitiveness of the sector in the international market."

Out of the close to four billion authorised capital for the new enterprise 1.4 billion Br is paid up both in cash and in kind, according to the constituting law of the enterprise. Close to half of this is an amount that is transferred to the new enterprise from the dissolved MWITE, according to sources. In addition to its assets and capitals the liabilities and rights of MWITE are also transferred to the new enterprise, according to the establishment regulation, which has also repealed the law that established MWITE.

Established in 1993 by the merger of two previous trading corporations, the Ethiopian Domestic Distribution Corporation (EDDC) and the Ethiopian Import Export Corporation (EIEC), MWITE currently has 83 branch offices in Ethiopia, out of which 35 supply basic commodities. Its authorized capital is set at 90 million Br, out of which 50 million is paid-up. The products it supplies are also more varied, ranging from basic commodities like sugar and palm oil to building materials, foodstuffs, paper, stationery items, textiles and government.

On top of ensuring the availability and adequate supply of industrial inputs for the sectors that the government has pinned its hope in the transformation of the country's economy, the new enterprise will also engage in the export of the inputs, which are found to be in excess of the domestic industries consumption.

This has to do with the experience of the country in 2011/12 when the production of cotton had by far exceeded the domestic demand of textile factories. A total of 29,710tn of cotton were found to be a surplus out of the 79,710tn produced in the year. That had led to many cotton growers shifting to other cash crops such as sesame, which in turn led factories to import cotton from India, China and Turkey. Three textile factories have imported an aggregate of 3360tn of processed cotton from these countries, according to the latest data available from the TIDI.

This is also welcome news for the cotton growers though with uncertainties.

"The existence of an entity that will make timely purchase at times of excess production will solve the marketing problem we have been facing for the last two years," said Yusuf Umer, managing director of Amibara Business Group and a board member of the Ethiopian Cotton Producers, Ginners & Exporters Association (ECPGEA).

The price at which the Enterprise will buy from them will be an issue to worry about when the time comes, he adds.

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