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MSE Development Programme Value Chain Analysis July 2005 Slide 1 Value Chain Analysis in the Food & Construction Sectors Micro & Small Enterprise Development.

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Presentation on theme: "MSE Development Programme Value Chain Analysis July 2005 Slide 1 Value Chain Analysis in the Food & Construction Sectors Micro & Small Enterprise Development."— Presentation transcript:

1 MSE Development Programme Value Chain Analysis July 2005 Slide 1 Value Chain Analysis in the Food & Construction Sectors Micro & Small Enterprise Development Programme

2 MSE Development Programme Value Chain Analysis July 2005 Slide 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: 1.Identify & analyse prospective value chains 2.Draft strategies for value chain development 3.Identify possible contributions of MSE Project to value chain development

3 MSE Development Programme Value Chain Analysis July 2005 Slide 3 Value Chain Analysis: Approach Mission 1 (June 1 – July 6, 2005): Value chain identification & analysis Data & Document Review Discussion with key actors >50 company visits (Addis, Debre Zeit & Adama) Mission 2 (September 2005): Strategy development Focus & Activities to be discussed !

4 MSE Development Programme Value Chain Analysis July 2005 Slide 4 Value Chain Analysis: Presentation Overview 1.Analysis of Selected Value Chains Cereal Processing Building Construction Furniture & Metalworks 2.Key Issues Policy & Business Environment Company Reengineering Standards & Certification HRD / TVET 3.Outlook

5 MSE Development Programme Value Chain Analysis July 2005 Slide 5 Cereal Processing Value Chain: Relevance 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 -> Changing eating habits Driver of rural growth Regional export potential (medium-term)

6 MSE Development Programme Value Chain Analysis July 2005 Slide 6 Cereal Processing Value Chain: Structure Consumers Supermar- kets, Food Retail Bars & Restau- rants Beer Brewe- ries Flour Mills Trad.Breweries (Tela) Malting Traditional Dry Food Retail Milling Service Roasting Animal Feed Cereal Farming Cleaning & Grading Storage Collec- tion Spices, Oilseeds, Pulses Pasta Cookies Seeds, Agro- Chemicals Threshing & Harvesting Services Transport Services Equipment & Spare Parts Financial & Business Services Packaging Materials Bakeries & Pastry

7 MSE Development Programme Value Chain Analysis July 2005 Slide 7 Cereal Processing Value Chain: Demand Trends... Driving Forces : Population growth -> overall demand increase Urbanisation -> 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 MSE Development Programme Value Chain Analysis July 2005 Slide 8 Cereal Processing Value Chain: Demand implications Bakeries: 3-5% annual output growth (Addis 8-10%) 600 Bakeries in Addis, room for new market entrants ~ 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 - > additional market assessment required Flour Mills: Stagnating household market, several new entrants 30% overcapacity, heavy competition, low margins Significant staff reductions, plant closures imminent ->Reorient on industrial customers; expand into baking/ pasta!

9 MSE Development Programme Value Chain Analysis July 2005 Slide 9 Cereal Processing Value Chain: Urban Demand Trends (1) Trend to home-prepared Injera Teff milled Injera

10 MSE Development Programme Value Chain Analysis July 2005 Slide 10 Cereal Processing Value Chain: Urban Demand Trends (2) Wheat bread & Pasta replace traditional bread Wheat Bread Traditional Bread Pasta

11 MSE Development Programme Value Chain Analysis July 2005 Slide 11 Cereal Processing Value Chain: Urban Demand Trends (3)Value More outgoing, factory beer slowly replaces traditional beer Factory Beer Traditional Beer ´Drinks away from home

12 MSE Development Programme Value Chain Analysis July 2005 Slide 12 Cereal Processing Value Chain: Farming 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 => Cooperation across the whole value chain (Input R&D -> Processors) required

13 MSE Development Programme Value Chain Analysis July 2005 Slide 13 Cereal Processing Value Chain: Cereal 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 MSE Development Programme Value Chain Analysis July 2005 Slide 14 Building Construction Value Chain: Structure Private/ Public Construction Transport Services, Energy & Water Equipment & Spare Parts Financial & Business Services Packaging Materials General Contractors Special Contractors Consultants Retail Trade Concrete Pipes Hollow Blocks Concrete Tiles Metal Hardware ( Production/ Import /Wholesale) Sanitary Ware Electricals Paints&Lacquer Marble Production Metalworks & Furniture Cement Industry Sand, Earth & Gravel Mining (Limestone, Gravel stones, Marble)

15 MSE Development Programme Value Chain Analysis July 2005 Slide 15 Building Construction Value Chain: Market Overview Growing demand: Population growth -> Public & private housing projects Public construction: Universities, schools, hospitals etc. Industrial & warehousing investment, office construction New infrastructure: Dams, roads, bridges, water&electricity 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->bitumen, cement, transport) Wholesale trade weakly developed: Limited product range, mostly lowest standard Low market transparency No pulling of local suppliers

16 MSE Development Programme Value Chain Analysis July 2005 Slide 16 Building Construction Value Chain: Sector Environment Public projects: ~20% of projects obtained through corruption (Contractors association estimate) Partly run under youth employment creation objectives => 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 -> 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 MSE Development Programme Value Chain Analysis July 2005 Slide 17 Metalworks & Furniture Value Chain: Structure Transport Services, Energy & Water Equipment & Spare Parts Financial & Business Services, Designers Bamboo & Rattan Households & Institutions Contractors ForestryLoggingSawmills Steel Structure Buildings Fences & Grills Doors & Windows Carpentry, Parquet Room Ceilings Furni- ture Retail Furni- ture Ma- king Chip- board Wood Trade Upholstry Paints Fittings Metal Import &Trade Raw Steel Import Iron Hardware Import Steel Wire Steel Mills Reinforcement bars Nails, nuts & bolts Fencing Iron Sheet Profiles Tubes Roofing Galvanis ing

18 MSE Development Programme Value Chain Analysis July 2005 Slide 18 Metalworks & Furniture Value Chain: Market 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 ->Working capital shortage of metal processing Paints and lacquer well developed All fittings imported

19 MSE Development Programme Value Chain Analysis July 2005 Slide 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 MSE Development Programme Value Chain Analysis July 2005 Slide 20 Policy & Business Environment: Key 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 MSE Development Programme Value Chain Analysis July 2005 Slide 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 MSE Development Programme Value Chain Analysis July 2005 Slide 22 Business Re-engineering: Proposed Approach Large Enter- prises Medium Enterprises MSEs International Consultancy Facility Commercial BDS Provision BDS Facilitation Twinning Linkage

23 MSE Development Programme Value Chain Analysis July 2005 Slide 23 Standards & Certification: Key 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: 1.Consumer protection (e.g. bread, furniture) => Cooperation with consumer associations in standard setting & supervision ? 2.Enhance market transparency & efficiency; lower investment risk, => Integrate industries in standard development, promote industry standards, orient on international standards

24 MSE Development Programme Value Chain Analysis July 2005 Slide 24 HRD & TVET: Key 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 -> fittings, spare parts Heat treatment, galvanising, electroplating Innovation: No R&D/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 => How can such practices be supported???

25 MSE Development Programme Value Chain Analysis July 2005 Slide 25 HRD & TVET: Integrate TVET & Innovation Dissemination TVET alone may not result in effective change Decision makers need to be informed about new techniques as well ! Consultants Contractors Head Office / Engineers Supervisors Craftsmen Information seminar (0.5 days) Short Training (2-3 days) Extensive Training /TVET (2 weeks ++) Building Construction Example

26 MSE Development Programme Value Chain Analysis July 2005 Slide 26 Value Chain Analysis: Outlook Strategy development Drafting implementation mechanisms & structures Defining performance indicators ? Validation workshop with main stakeholders Report preparation 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 ?


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