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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

Value Chain Analysis in the Food & Construction Sectors

Micro & Small Enterprise Development Programme

MSE Development Programme

Value Chain Analysis

value chain analysis in the food construction sectors2
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

value chain analysis approach
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

value chain analysis presentation overview
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

cereal processing value chain relevance
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

cereal processing value chain structure

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

cereal processing value chain demand trends
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

cereal processing value chain demand implications
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

cereal processing value chain urban demand trends 1
Cereal Processing Value Chain:Urban Demand Trends (1)

Trend to home-prepared Injera

Teff milled

Injera

MSE Development Programme

Value Chain Analysis

cereal processing value chain urban demand trends 2
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

cereal processing value chain urban demand trends 3
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

cereal processing value chain farming issues
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

cereal processing value chain cereal trade structure
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

building construction value chain structure

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

building construction value chain market overview
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

building construction value chain sector environment
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

metalworks furniture value chain structure

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

metalworks furniture value chain market overview
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

metalworks furniture value chain challenges way ahead
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

policy business environment key issues
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

business re engineering support needs
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

business re engineering proposed approach
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

standards certification key issues
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

hrd tvet key observations
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

hrd tvet integrate tvet innovation dissemination

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

value chain analysis outlook
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