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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:

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Value Chain Analysis in the Food & Construction Sectors

Micro & Small Enterprise Development Programme

MSE Development Programme

Value Chain Analysis


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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


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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


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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


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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


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Spices, Oilseeds, Pulses

Roasting

Traditional Dry Food Retail

Milling Service

Supermar-kets, Food Retail

Cookies

Flour Mills

Collec-tion

Cleaning & Grading

Pasta

Cereal Farming

Bakeries & Pastry

Storage

Animal Feed

Beer Brewe-ries

Bars & Restau-rants

Threshing & Harvesting Services

Seeds, Agro-Chemicals

Malting

Trad.Breweries (Tela)

Packaging Materials

Transport Services

Equipment & Spare Parts

Financial & Business Services

Cereal Processing Value Chain:Structure

Consumers

MSE Development Programme

Value Chain Analysis


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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


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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 margins

      • Significant staff reductions, plant closures imminent

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

MSE Development Programme

Value Chain Analysis


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Cereal Processing Value Chain:Urban Demand Trends (1)

Trend to home-prepared Injera

Teff milled

Injera

MSE Development Programme

Value Chain Analysis


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Cereal Processing Value Chain:Urban Demand Trends (2)

Wheat bread & Pasta replace traditional bread

Wheat Bread

Traditional Bread

Pasta

MSE Development Programme

Value Chain Analysis


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Cereal Processing Value Chain:Urban Demand Trends (3)

More outgoing, factory beer slowly replaces traditional beer

Traditional Beer

´Drinks away from home

Factory Beer

MSE Development Programme

Value Chain Analysis


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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


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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


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Metalworks & Furniture

Mining (Limestone, Gravel stones, Marble)

Metal Hardware(Production/ Import /Wholesale)

Consultants

Sand, Earth & Gravel

General Contractors

Cement Industry

Concrete PipesHollow BlocksConcrete Tiles

Sanitary Ware ElectricalsPaints&Lacquer

Special Contractors

Marble Production

Retail Trade

Packaging Materials

Transport Services, Energy & Water

Equipment & Spare Parts

Financial & Business Services

Building Construction Value Chain:Structure

Private/ Public Construction

MSE Development Programme

Value Chain Analysis


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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


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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

    => Qualitynot 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


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Households & Institutions

Bamboo & Rattan

Furni-ture Ma-king

Furni-ture Retail

WoodTrade

Forestry

Logging

Sawmills

Chip-board

Iron Sheet

Upholstry

Iron Hardware Import

Steel Mills

PaintsFittings

Contractors

Profiles

Tubes

Reinforcement bars

Metal Import&Trade

Roofing

Carpentry, Parquet

Room Ceilings

Steel Wire

Nails, nuts & bolts

Doors & Windows

Steel Structure Buildings

Raw Steel Import

Galvanising

Fencing

Fences & Grills

Transport Services, Energy & Water

Equipment & Spare Parts

Financial & Business Services, Designers

Metalworks & Furniture Value Chain:Structure

MSE Development Programme

Value Chain Analysis


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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


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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

MSE Development Programme

Value Chain Analysis


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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


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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


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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


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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


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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


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Consultants

Information seminar (0.5 days)

Contractor’s Head Office / Engineers

Supervisors

Short Training (2-3 days)

Craftsmen

Extensive Training /TVET (2 weeks ++)

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

MSE Development Programme

Value Chain Analysis


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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


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