Ethiopia’s manufacturing Malaise

18 Feb

Editor’s Note:

If there are two sectors to which TPLF officials have, in their interests, devoted their policy attention and their party’s physical energy and soul, it is agriculture and manufacturing. Unfortunately, to both the people of Ethiopia and to them both have proved empty promises, at no time the beef arriving on the table.

In fact, with the promises (food security, employment and reasonable income) never realized for ordinary citizens and the society at large, these two sectors have become what industry used to be to the workers of England in the early period of the Industrial Revolution. Consequently, today agriculture and manufacturing are the two sectors, where Ethiopian farmers and workers have been reduced into indentured slaves of a bygone era and thus humiliated like the real slaves.

Our farmers are suffering from being forced by ruling party cadres to purchase fertilizers that do not do the tricks on the production front. Therefore, many were forced to run debts and had to commit suicides and also due to the new punishment of alienation now started by political cadres. Since 2008, there came commercial investors in agriculture; the regime in power lowered itself as if it were employee for them as security guard, sending its militia for a pay to forcibly displace individual owners of plots and communities off their traditional lands.

This happens because foreign investors and the ruling party’s cadres were given all the privileges and the right to treat our people as nuisance, only subjects by their mere presence. This is the story that of late the US Congress has also strongly reacted to it in its Appropriations Bill for 2014 barring use of US money in dislocating Ethiopian farmers. I am making reference to it not because it could make an iota of a difference but simply because there are voices in big powers which they must make others hear that they are trying to do something about it.

As far as manufacturing is concerned – if it were up to the TPLF policies – the campaigns, and the massive support investors receive (no taxes or very low taxes, free land for factories, slave wages to workers, and etc.), production would have boosted and all Ethiopians would already have had good incomes, been dressed well, fed and living the decent life.

Instead, our country finds itself in a situation others commiserate it, for agreeing to turn our people into slaves to Western and Eastern interests, as France’s TV 2 documented at the end of September 2013 (video below). In all this, the only beneficiaries have been investors and the TPLF big bosses and their potted plants – through the political support and recognition they enjoy to continue their repressive policies against the Ethiopian people. They and their kits are the ones enjoying the high life with weekend in the Seychelles, bank accounts in the Middle East, Malaysia, India, Hong Kong, Singapore and/or properties and other assets in Western countries under various subterfuges.

How could, under such policy environment agriculture, manufacturing and industries thrive and benefit human beings?


 

Unfortunately, in this time of opportunities the problems with Ethiopian agriculture and manufacturing are the politics, with the ignoramus designing and implementing policies and the belief that power can indefinitely sustain itself through deception, the cruelty of state violence and repression and foreign supports – political, diplomatic, military, intelligence or financial.

When I watched the release of the usual media fanfare around the UN report on North Korea this afternoon on BBC television, I squirmed – especially by the interview of Human Rights Watch representative in London. The guy was sincere and hopeful, when he spoke about this being the only time the UN showed teeth in biting a ‘member state’.

However, I could not be sure if he got my telepathic message to him what we say in my country in such circumstances: it is easier to find axes against a fallen tree.

If those at the apex of the international system are serious in what they say about North Korea, they could have also applied the same standard equally fighting against much worse records of crimes against humanity in today’s investor darlings. No less, in such places they could also see, if they have not – they too practice far more shocking forms of tortures, sexual punishments against kidnapped male opponents of regimes, routine imprisonments and beatings at any time of citizens; crossborder assassinations, disappearances, destruction of homes, denial of medical treatments to prisoners, denial of visits by families to prisoners, etc.

Today, in Ethiopia investor is the king, even above some ministers and senior political cadres, despite the pretenses of state statures. Ethiopians are changing because of that, turning against foreign interests in their country. This is not good for anyone today and especially tomorrow. It would only bolster the camp of the enemies the world already knows and is trying to fight. Therefore, no matter how one dices it, the investor is king only to the regime not for the people of Ethiopia, if you take the recent attacks against foreign managers in the city itself and in farms.

Treating investors right for the TPLF has become the criteria on which a country should be judged by donor governments. The regime does not seem to notice that this is no comparable virtue to bread on every citizen’s table or the rule of law and respect for the fundamental human rights of the people and implementing policies that improve the lives and dignities of citizens.

For the people of Ethiopia, everything they see is increasingly becoming something they very much resent. They see that this has only enabled the regime, to hide stories of hunger and sufferings and its violence against innocent individuals.

Indeed donors know that the situation in Ethiopia is good only as deep as the veneer. The public hostility against the regime – they know – is function of abusive behavior by the state, which they have encouraged to ensure that their interests are protected. Therefore, their conscience is presumably accommodating, as long as they throw alms at the ‘government’ itself to subsidize its budget, despite the fiction of double-digit growths. They also throw alms at the desperately poor, those muzzled under the Productive Safety Net Programs (PSNP) to sop families and children from dying of hunger.

In return, their companies reap handsome profits from manufacturing and agricultural processing or when they change careers and become infrastructure builders in Ethiopia!
 

Posted by The Ethiopia Observatory
By Binyam Alemayehu, Addis Fortune Staff Writer

With only a year and a half to go before reaching the end of Ethiopia’s Growth & Transformation Plan (GTP), the manufacturing sector is showing only a laboured growth in Ethiopia. The industry’s share in total exports has declined from 14pc in 1981 to nine percent in 2012/13. In the same year, agriculture accounted for 71 percent of the total exports.

Manufacturing in Ethiopia started in the 1920s with a simple processing technology that produced agriculture-based products. But the sector is still in its infancy, predominantly semi-processing and performing at an average of around 43pc capacity.

“Manufacturing has neither transformed itself into a high tech processing industry, nor is it competitive in the international market,” says a lecturer at the Department of Mechanical Engineering at the Addis Abeba University (AAU).

The industry has persistently faced high production costs, and a severely constrained supply and poor quality of raw materials and technology, both mainly imported. These areas have witnessed little improvement over the years.

The contribution of the industry for gross domestic product (GDP) has been stagnated at less than five per cent for the last 20 years. Existing technology transfer mechanisms are poorly institutionalised.

Under the GTP, the government envisions the creation of a foundation for the industrial sector to take a leading role in the economy. But the manufacturing industry is still struggling with the same challenges that gripped it for decades.

An inadequate and poor quality of imported raw materials and technologies, along with the low level of technical skills, tops the list of the problems facing the industry. A series of surveys conducted by the Central Statistics Agency (CSA) on the manufacturing sector consistently reported that more than 50pc of firms claim that their major reason for low capacity utilisation is the inadequate supply and poor quality of raw materials.

Local engineering companies, part of the manufacturing industry, are complaining of bottlenecks. Such issues include the large pile up of stock, the absence of an automotive policy and a lack of transparency in government auctions, among others. These are deemed to be constraining their competitiveness in the market.

The state-owned Metal & Engineering Corporation (MetEC) is at the forefront of the grumbling about being unable to become competitive in the market. This is despite a huge product inventory worth ETB 13.6 billion [$705.6 mil] waiting for potential buyers. Its private counterparts, comprising, among others, of Maru Metal Industry Plc, Mesfin Industrial Engineering (MIE), Belayab Engineering Plc and the Automotive Manufacturing Company of Ethiopia (AMCE), have joined it in complaining of market constraints. These industrial companies also have a production inventory worth 89 million Br. The MIE has an inventory of 12.2 million Br, while Belayab, Amiyo and the AMCE have 55.2 million Br, 928,000 Br and 20, 6339 million Br, respectively.

“We have over 9,000 tractors sitting idle while millions of farmers are in need of them,” Kinfu Dagnew (Brig. Gen.), the MetEC’s director general, says.

The MetEC has manufactured 479 buses of varying sizes, 524 trucks, 772 light vehicles, 197 forklifts and 90 motorbikes between 2011 and 2014.

Born in 2010, emulating the experiences of South Korea and Sweden, the MetEC incorporates close to 70 state-owned enterprises in the engineering sector, alongside seven military hardware manufacturing entities, while commanding over 12,000 employees.

A huge amount of product inventory remains in stock, representatives of the engineering companies complained, due to considerable import at lower prices.

“Many potential and real customers still have proclivity towards importing, rather than purchasing locally made materials,” a representative of one of the companies said.

Several government institutions, the companies said, do not pay on time, thus causing them to wait for a long time without payment.

Combined production from Maru, the MIE, Belayab and the AMCE amounted to 751.6 million Br at the end of the 2012/13 fiscal year, up from just 128.5 million Br in the previous year. Production at the four engineering companies has reached 357.9 million Br during the first quarter of the current budget year. The volume of sales at the four companies registered a whopping increase during the 2012/13 fiscal year, reaching 742.5 million Br, up from 113.9 million Br. During the first quarter of the 2013/14 fiscal year, 425.6 million Br sales were registered.

Mesfin is particularly known for the manufacturing of dry cargo body mounted trucks, three-axle fuel draw bar trailers and three-axle dry cargo semi-trailers, among others. Maru has been penetrating the market by manufacturing van and cargo bodies and factory equipment. Belayab, on the other hand, manufactures station wagons, pickups and sedan automobiles. The AMCE’s specialisation has been in trailers and cargo bodies.

The manufacturers’ other concern was the disparity in excise tax between imported and locally manufactured vehicles. The excise tax paid for the latter is higher than the former, they complained. Excise tax for imported vehicles is only paid once, whereas manufacturers are required to pay excise tax twice for locally manufactured vehicles. The manufacturers also grumble about similar prices in some cases, which they say discourages buyers from going for locally manufactured cars.

“The same amount of excise tax is required to be paid for purchasing vehicles from abroad and buying locally manufactured ones,” says an official at Maru. “This dispirits local manufacturers.”

Other worries from the manufacturers are related to delays in customs clearance. When imported ingredients are delayed, manufacturers are subjected to unplanned costs. This is in addition to delays at ports, according to the manufacturers.

The manufacturers also had issues with customs. They requested a tax reduction for companies engaged in assembly work.

For deputy director general with the Ethiopian Revenues & Customs Authority (ERCA), Kaydaki Gezahegne, a timely customs service will extricate delays in customs clearance. He underlined the urgency of halting accounting errors committed by some staff members and unnecessarily postponing decisions.

Where he disagreed was with the excise tax. The Authority does not regard excise tax as constraining manufacturers. Since withholding tax and VAT are paid by users and not manufacturers, the latter should not complain about multiple taxes.

But for some in the manufacturing industry, the over taxation emanates from deviation on the part of some customs officials from established procedures.

“Although we have to be taxed in accordance with the commercial invoice we submit, a different scenario is taking place,” complains one. “Established procedures are not respected.”

The need to develop appeal and pride in domestic products is of paramount importance, says the official from Maru.

“Preference for imported over locally manufactured cars has contributed to the failure to become competitive,” he complained. “This has to do with prices of imported cars being taxed less than their imported counterparts.”

But the low level of confidence in locally manufactured cars also leaves much to be desired, he says.

Another issue – one on which the engineering giants quickly won the nods and appreciation of the government – was with the need for an automotive policy for the country. A representative from the MIE called for a rethinking of the transport regulation system in the country, calling for the legislation of an automotive law.

“The market is being infested by low-cost, older model cars,” he grumbled. “We need a legislation to protect local industries and ensure safety.”

Data obtained from the Ministry of Transport (Mot) in late 2013 indicates that 58pc of vehicles in the country have been in use for over 16 years.

Some in the government agree that there is a need to draft a policy guiding the automotive market in the country. Representatives of the MoT, who supported the idea, said that their Ministry was in the midst of a study designed to find ways of limiting the importation of used and old model cars into the country. But some among the government circle seemed to find the idea of limiting older models unfeasible.

“We need to consider that millions of people eke out their living from commercial activities by using old vehicles,” protested Teklewold Atnafu, governor of the state-owned National Bank of Ethiopia (NBE). “So the idea of clearing the country of older cars is really not feasible.”

During the current budget year, the Ministry has targeted earning over USD one billion from the manufacturing sector. Even though the current year’s projection is very high compared with the past year’s achievement, it is still below the original GTP target for this year, which is only two thirds. The original plan indicated that the sector has to generate about 1.6 billion dollars in the 2013/14 fiscal year.

*Updated.
 

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