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MSE Development Programme
Value Chain Analysis July 2005Slide 1
Value Chain Analysis in the Food & Construction Sectors
Micro & Small Enterprise Development Programme
MSE Development Programme
Value Chain Analysis July 2005Slide 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:1. Identify & analyse prospective value chains2. Draft strategies for value chain
development3. Identify possible contributions of MSE
Project to value chain development
MSE Development Programme
Value Chain Analysis July 2005Slide 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 July 2005Slide 4
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
MSE Development Programme
Value Chain Analysis July 2005Slide 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 July 2005Slide 6
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
MSE Development Programme
Value Chain Analysis July 2005Slide 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 July 2005Slide 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• ~ 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!
MSE Development Programme
Value Chain Analysis July 2005Slide 9
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
MSE Development Programme
Value Chain Analysis July 2005Slide 10
Cereal Processing Value Chain:Urban Demand Trends (2)
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
Total Household Expenditure (Birr p.a., 2000)
An
nu
al p
er c
apit
a co
nsu
mp
tio
n (
Kg
)
Wheat bread (traditional) Wheat bread (bakery) Pasta
MSE Development Programme
Value Chain Analysis July 2005Slide 11
Cereal Processing Value Chain:Urban Demand Trends (3)
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
Total Household Expenditure (Birr p.a., 2000)
An
nu
al p
er c
apit
a co
nsu
mp
tio
n (
l)
Tela, Borde, Korefe Beer Alcoholic drinks aw ay from home
MSE Development Programme
Value Chain Analysis July 2005Slide 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 July 2005Slide 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 July 2005Slide 14
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)
MSE Development Programme
Value Chain Analysis July 2005Slide 15
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
MSE Development Programme
Value Chain Analysis July 2005Slide 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 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
MSE Development Programme
Value Chain Analysis July 2005Slide 17
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
MSE Development Programme
Value Chain Analysis July 2005Slide 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 limitWorldwide increase of steel price ->Working capital
shortage of metal processingPaints and lacquer well developedAll fittings imported
MSE Development Programme
Value Chain Analysis July 2005Slide 19
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
MSE Development Programme
Value Chain Analysis July 2005Slide 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 July 2005Slide 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 July 2005Slide 22
Business Re-engineering: Proposed Approach
Large Enter-prises
Medium Enterprises
MSEs
International Consultancy Facility
Commercial BDS Provision
BDS Facilitation
Twinning
Linkage
MSE Development Programme
Value Chain Analysis July 2005Slide 23
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
MSE Development Programme
Value Chain Analysis July 2005Slide 24
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???
MSE Development Programme
Value Chain Analysis July 2005Slide 25
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
MSE Development Programme
Value Chain Analysis July 2005Slide 26
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 ?
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