20 September 2017

Ethiopia: Nationwide Socio-Economic Implications of Aluminum Exporting

Very recently, an Ethiopian aluminum company, B&C Aluminum PLC, has started exporting aluminum products to Egypt. And in light with that, this article will probe around the implications of this in terms of the metals and engineering sector's role in saving foreign currency for the country through import substitution, in interlinking with the micro and small enterprises, and the government's role in supporting the industry.

Industrial development has an important role in the economic growth of countries through creating massive employment opportunities for citizens. and lessening the burden of poverty.

In light of this fact, hence the metals and engineering sector is one of the single most important sub-sectors of the manufacturing sector and the key driver for rapid economic growth.

Ethiopia is currently experiencing a rapid economic growth, which is primarily driven by its infrastructure investment, development. And in such economic growth, aluminum consumption is expected to pick up growth. So, it is important for the local economy to produce the needed level of aluminum to feed the economy. But, it is not only about that.

In Ethiopia, the metals and engineering sector is not only one of the most vital sub-sector in the industry sector, but the sector is earmarked by the government to substitute imports and save foreign currency.

Regarding the plan to develop the country's metals and engineering sector, the government's aim and goal is to support the sector by supporting the capacity building and market linkage of the sector, and the effort of the local investors involved in the sector.

Given how important aluminum is as a product to an economy, whether it is being used in transportation vehicles, packaging, construction, household use and so on, it is paramount for a developing economy like Ethiopia to be able to manufacture it locally and substitute foreign imports in the process.

As Industry State Minister Alemu Sime (PhD) said in relation to the commencement of aluminum export by B&C Aluminum PLC to Egypt, the metals and engineering sector is expected not only to deliver economic output by saving foreign currency, but also by substituting the importation of similar products into the country.

Foreign currency is vital for developing countries as its pivotal in reducing poverty and enhancing productive activities of a country, either directly or indirectly. Of these implications, Alemu said that as the country's foreign currency demand is increasing hugely due to its rapid economic growth, it would be important for every sector to generate foreign currency by exporting their products to foreign market.

According to Haimanot Abate, Chief Executive Officer of B&C, the Company has 30 to 40 percent share in the local aluminum market, and in that regard, he added, "the Company is also helping the country to save significant amount of foreign currency, which the nation would have spent to import aluminum products."

Not only that. He further pointed out that the Company contributes hugely in terms of supporting the construction sector, and given the fact that its production method involves recycling, it also creates economic value.

Furthermore, the State Minister mentioned how exporting aluminum products will help improve the productivity and competitiveness of the aluminum, and by extension, the metals and engineering sector of the country. He said: "exporting our aluminum products to foreign market will enable the country to see and assess where it is in terms of the international quality standard, the international market demand for aluminum, and the sector's overall competitiveness."

Also, it creates the environment where the local investors involved in the sector enrich their experience by being an active protagonist in the international market, and thereby increase its products and productivity.

The recycling manner of its production in terms of creating economic value

The manner in which the B&C Company produce its outputs, and creates economic value through the inter-linkage it has established with micro and small enterprises and the government is one of the economic benefits that it provides to the country.

In this regard, Haimanot mentioned the linkage they have with various small and micro enterprises, and the government's support has bore fruit to the consumers.

The Company uses recycling process to manufacture its aluminum outputs, by utilizing scrap aluminum material and reusing it after its initial use.

This process enables the Company to produce in a far less expensive and energy-intensive manner - after all, according to various experts of the field, "Recycling scrap aluminum requires only 5% of the energy used to make new aluminum".

And this is where the inter-linkage with small and micro enterprises and the government occurs.

Haimanot says that various small and micro enterprises are involved in bringing the scrap material to the assembly of the Company, and in segregating out the wire out of the scrap material, since many part of the scrap material comes from the electric company. According to him, many women that are involved in small and micro enterprises segregate the wire out because the output has to be 99 percent pure aluminum.

In this way, the Company and the recycling manner of its production creates a link with the local micro and small enterprises to create an economic value and chain. And such linkage between domestic industrial companies and local small and micro enterprises is pivotal in the context of socio-economic development and investment for development.

In Ethiopia's case, small and micro enterprises holds paramount role in the economic sector. So, creating linkage between the country's industry sector and small enterprises is of great developmental importance. Such beneficial inter-linkage can maximize the social and economic benefit of the country.

The linkage between the company and the government is also one of the avenues that is maximizing the benefit for the public. According to him, the Company purchases the government's scrap aluminum material it would otherwise dump.

Haimanot further said that with a view that the industries will use scrap as raw materials and create value out of it, the government is supplying the scrap it has on its hand as per the demands of each sector. The government is deposing its unwanted materials in this line of thinking [creating value out of its unwanted material by helping it be recycled by the industry sector], he added.

According to the owner and Manager of the Company, Biruk, such economic relationship with the government brings huge economic dividends to the country. "We purchase the scrap the government would have otherwise dumped, and create economic value that would benefit the consumers." And this has other additional beneficial implications for the country.

Biruk calculates that they have helped the government save up to 300 million ETB from the 40/60 Condominium Housing Project, which they are involved in the 'Crown' and 'Senga Tera' sites. Not only that; he said that they have helped lessen the price pressure that would have came otherwise by selling their product at a reasonable price, because they can afford to do so as the goods are not imported but rather produced here.

While the Company plans to boost up its local market share and export portfolio by exporting as far as Europe in the future, it is expected that it would help the country expand the benefits it gets from this sector in the process. According to Biruk, a local company starting to export aluminum products to countries like Egypt with century old extrusion industry should encourage the rest of Ethiopian industrialists that they can do it as well as long as they are committed, enthusiastic and willing to work hard.

In general, the heart of the article is twofold in that a local private company involved in the metals and engineering sector starting exporting will deliver economic output in terms of saving foreign currency by substituting imports, and in satisfying the local demand for aluminum. The start of export will also help the Company elevate its competitiveness and productivity, driven by the competition of the international market. Furthermore, the recycling manner of the Company's production process has opened a linkage with local micro and small enterprises and with the government that helped maximize the socio-economic benefit for the general public.

The linkage is a show that if other local companies in other projects are able to take in the raw material locally and import cheap technologies, it is possible to benefit the consumer/public in terms of making prices fair as they would help the government save or lessen its hard currency expenditure, and thereby the country's inflation rate.

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