Ethiopia: Factors Testing Development of Domestic Metal Engineering

The major constraints for metal and metal products industry can be broadly categorized into policy technical, institutional, and environmental aspects.

Despite the long history of iron casting and blacksmithing, Ethiopia’s metal and engineering industries have not yet reached the level of development to meet the demands of the rapidly growing economy.

The industry is fraught with low productivity and slow growth both in terms of output and employment. Econometric results showed that average annual efficiency of basic metal and engineering industries had been low.

Then again, the metal engineering sector is expected to be the backbone of the country’s industry development through bringing dynamic industrial change. While previously, Ethiopia has been importing various metal products from Europe and Asia, it sets a vision in its industrial development policy that the metal and metal products sector would substitute imports in the sector.

Considering the limited capacity, the development of the industry needs commitment and sustainable effort of the government and stakeholders to create conducive environment for domestic companies.

Recently, representatives of the Ethiopian Basic Metal and Engineering Association (EBMEA) have briefed the Industry Affairs Standing Committee of Parliament regarding the major challenges facing the sector, particularly of domestic firms.

On the occasion, EBMEA General Manager Solomon Mulugeta, told The Ethiopian Herald, the major constraints for metal and metal products industry can be broadly categorized into policy technical, institutional, and environmental aspects.

Lack of clear policies or direction that enhance competitiveness of the industry and low level of investment in research and development which focuses on the industry are policy challenges, while weak innovation and product diversification and high dependency on customers’ order are technical challenges.

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Inability to produce iron ore domestically, lack of working capital, inability to cope with foreign competition, tariff gaps between imported raw materials and finished goods and lack of quality monitoring on imported products, shortage of skilled labor, power fluctuation, fragile linkage with universities and research institutions, and poor infrastructure in iron ore manufacturing areas are the major institutional, and environmental challenges.

The government should create conducive environment to make the industry competitive in domestic and international market. For this, easy credit access should be arranged to buy the necessary technology which would facilitate product diversification, he said.

Indicating that shortage of working capital is one of the major challenges that Ethiopian metal and metal product industries have been facing so far, he added that, that is why they are not able to allocate extra budget for research and development activities.

Ethiopian Metal Industry Development Institute was reestabl ished in 2010 to provide all the necessary support for metal and metal products industries and support local companies in a bid to be competitive internationally.

According to its Deputy Director Mesayneh Wubshet, due to many reasons, the sector has been facing with various difficulties to come up with informed decision that makes the sector vibrant.

With regard to capacity utilization, there exists a potential to increase output in the industry by improving efficiency in the utilization of existing resources as well as tackling external problems that hinder the development of the sector, he added.

Recognizing that research has its own impact in developing the sector, the industry would be allocated budget to do so. In the short-term, however, the existing stakeholders need to create strong bond among them.

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The Institute has been working towards utilizing local iron ore. Moreover, it has been working to improving product quality with better technology, upgrading manpower and managerial skills and other alliances that will have considerable effect in the development of the sector, he added.

Other than this, no public institution has been fully engaged in conducting researches so far that enhance competitiveness among metal industries. Due to this, innovative ideas and strong competitiveness have not been observed. In this case, the association should also be strong in lobbying and creating public-private linkage.

EBMEA Executive Officer Mesfin Mengesha on his part said that the Ethiopian government should provide extensive support for the development of domestic industries rather than working only to attract foreign investment. Otherwise, it would be impossible to build domestic companies that can compete with companies in other countries.

Previously, there was no clear direction that showed how the private sector should boost its involvement in the sector. These days, though it is not applicable, the direction has prepared to encourage the private sector.

Taking the long tradition of iron casting and blacksmithing, the economic boom and the market potential at hand, there is a lot of room for the metal engineering sector to grow and become a major contributor to the economy once these challenges are addressed. By substituting expensive imports with domestic production, the industry would reduce foreign exchange dependency. Hence, the representatives and the Standing Committee members agree that all concerned bodies especially the government should provide priority for domestic industries.

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