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

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
MSE Development Programme
Value Chain Analysis

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 !
MSE Development Programme
Value Chain Analysis

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
MSE Development Programme
Value Chain Analysis

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)
MSE Development Programme
Value Chain Analysis

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

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
MSE Development Programme
Value Chain Analysis

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!
MSE Development Programme
Value Chain Analysis

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

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

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

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 processor‘s standards
=> Cooperation across the whole value chain (Input R&D -> Processors) required
MSE Development Programme
Value Chain Analysis

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
MSE Development Programme
Value Chain Analysis

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

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
MSE Development Programme
Value Chain Analysis

16. Building Construction Value Chain: Sector Environment
Public projects:
~20% of projects obtained through corruption (Contractor‘s 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
MSE Development Programme
Value Chain Analysis

17. Metalworks & Furniture Value Chain: Structure
Furni-ture Retail
Furni-ture Ma- king
Households & Institutions
Contractors
Bamboo & Rattan
Wood Trade
Forestry
Logging
Sawmills
Chip-board
Upholstry
Metal Import &Trade
Raw Steel Import
Iron Hardware Import
Paints Fittings
Carpentry, Parquet
Room Ceilings
Steel Wire
Steel Mills
Reinforcement bars
Nails, nuts & bolts
Fencing
Iron Sheet
Profiles
Tubes
Roofing
Galvanising
Steel Structure Buildings
Fences & Grills
Doors & Windows
Transport Services, Energy & Water
Equipment & Spare Parts
Financial & Business Services, Designers
MSE Development Programme
Value Chain Analysis

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
MSE Development Programme
Value Chain Analysis

19. Metalworks & Furniture Value Chain: Challenges & Way Ahead
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
MSE Development Programme
Value Chain Analysis

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
MSE Development Programme
Value Chain Analysis

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
MSE Development Programme
Value Chain Analysis

22. Business Re-engineering: Proposed Approach
International Consultancy Facility
Large Enter- prises
Twinning
Commercial BDS Provision
Medium Enterprises
Linkage
MSEs
BDS Facilitation
MSE Development Programme
Value Chain Analysis

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

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???
MSE Development Programme
Value Chain Analysis

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 !
Building Construction Example
Consultants
Information seminar (0.5 days)
Contractor’s Head Office / Engineers
Supervisors
Short Training (2-3 days)
Craftsmen
Extensive Training /TVET (2 weeks ++)
MSE Development Programme
Value Chain Analysis

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
MSE Development Programme
Value Chain Analysis