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

MSE Development Programme

Value Chain Analysis July 2005Slide 1

Value Chain Analysis in the Food & Construction Sectors

Micro & Small Enterprise Development Programme



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 chains2. Draft strategies for value chain

development3. Identify possible contributions of MSE

Project to value chain development



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 !



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



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)



Cereal Processing Value Chain:Structure

Co

nsu

mers

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

PastaCookies

Seeds, Agro-

Chemicals

Threshing & Harvesting Services

Transport ServicesEquipment & Spare Parts

Financial & Business Services

Packaging Materials

Bakeries & Pastry



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



Cereal Processing Value Chain:Demand implications

Bakeries:• 3-5% annual output growth (Addis 8-10%)• 600 Bakeries in Addis, room for new market entrants• ~ 320.000 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 marginsSignificant staff reductions, plant closures imminent

->Reorient on industrial customers; expand into baking/ pasta!



Urban Cereal Consumption, by Expenditure Group

0

10

20

30

40

50

60

70

80

1400 2000 2600 3400 4200 5400 6600 9000 12600 16200 20000

Total Household Expenditure (Birr p.a., 2000)

An

nu

al p

er c

apit

a co

nsu

mp

tio

n (

Kg

)

Cereals unmilled (excl.rice, ripe maize) Teff milledWheat milled Injera

Cereal Processing Value Chain:Urban Demand Trends (1)

Trend to home-prepared Injera

Teff milled

Injera




Wheat bread & Pasta replace traditional bread

Wheat BreadTraditional

Bread

Pasta

Urban Cereal Product Consumption, by Expenditure

0

2

4

6

8

10

12

14

16

1400 2000 2600 3400 4200 5400 6600 9000 12600 16200 20000


An

nu

al p

er c

apit

a co

nsu

mp

tio

n (

Kg

)

Wheat bread (traditional) Wheat bread (bakery) Pasta




More outgoing, factory beer slowly replaces traditional beer

Factory Beer

Traditional Beer

´Drinks away from home

Urban Beverage Consumption, by Expenditure Group

0

5

10

15

20

25

1400 2000 2600 3400 4200 5400 6600 9000 12600 16200 20000


An

nu

al p

er c

apit

a co

nsu

mp

tio

n (

l)

Tela, Borde, Korefe Beer Alcoholic drinks aw ay from home



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



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



Building Construction Value Chain:Structure

Private/ P

ub

lic Co

nstru

ction

Transport Services, Energy & WaterEquipment & Spare Parts

Financial & Business Services

Packaging Materials

General Contractors

Special Contractors

Consultants

Retail Trade

Concrete PipesHollow BlocksConcrete 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)



Building Construction Value Chain:Market Overview

Growing demand:Population growth -> Public & private housing projectsPublic construction: Universities, schools, hospitals etc.Industrial & warehousing investment, office constructionNew 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 standardLow market transparencyNo „pulling“ of local suppliers



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 supervisedStandards:

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. BankDifficult access to land for expansion / mining sitesNo VAT refund on imported equipment for construction materials



Metalworks & Furniture Value Chain:Structure

Transport Services, Energy & WaterEquipment & Spare Parts

Financial & Business Services, Designers

Bamboo & Rattan

Ho

useh

old

s &

Institu

tion

s

Co

ntracto

rs

Forestry Logging Sawmills

Steel Structure Buildings

Fences & Grills

Doors & Windows

Carpentry, ParquetRoom Ceilings

Furni-ture

RetailFurni-ture Ma-kingChip-

boardWoodTrade

Upholstry

PaintsFittings

Metal Import&Trade

Raw

Ste

el

Impo

rt

Iron Hardware Import

Steel Wire

Ste

el M

ills

Reinforcement bars

Nails, nuts & bolts

Fencing

Iron Sheet

ProfilesTubes Roofing G

alva

nisi

ng



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 limitWorldwide increase of steel price ->Working capital

shortage of metal processingPaints and lacquer well developedAll fittings imported



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

bambooIntroduce & monitor minimum standards for metal

hardware Enhance market research and design capabilities Strengthen efficiency of local metal processors



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



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



Business Re-engineering: Proposed Approach

Large Enter-prises

Medium Enterprises

MSEs

International Consultancy Facility

Commercial BDS Provision

BDS Facilitation

Twinning

Linkage



Standards & Certification:Key Issues

Lacking (enforcement of) standards:Cereal grades & quality, flour, breadConstruction 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



HRD & TVET:Key Observations

TVET/HRD needs named by discussion partners:Project managers, claims & contract handling (contractor) Furniture designers Food quality control / laboratory staffEquipment maintenance Automated equipment operators Millers, bakers, brewersWood processingMetal casting -> fittings, spare partsHeat 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 yeastKadisco: Wall painting training, adhesive application in shoe makingKaleb (Claas): Maintenance of agricultural machinery

=> How can such practices be supported???



HRD & TVET:Integrate TVET & Innovation DisseminationTVET alone may not result in effective change Decision makers need to be informed about new

techniques as well !

Consultants

Contractor’s Head Office /

Engineers

Supervisors

Craftsmen

Information seminar

(0.5 days)

Short Training (2-3 days)

Extensive Training /TVET (2 weeks ++)

Building Construction Example



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 ?

Documents

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