For years, the construction skyline of Addis Abeba has hinted at a promise of an industrial future. But beneath the scaffolds, domestic metal manufacturers face intense pressure from contraband trade and input shortages, threatening to slow the nascent industry. Industry leaders are raising the alarm over a deluge of untraceable reinforcement bars flooding the market, eroding their sales at a delicate time of an already depressed construction industry.

Leaders of the Association of Basic Metal & Engineering Industries (ABMEI), representing 76 steel and metal companies, convened an urgent meeting last month to respond to this grey market, which they believe is hitting their bottom line. Solomon Mulugeta, the Association’s general manager, painted a dire picture of plummeting sales resulting from supply constraints, cumbersome customs procedures, and, most prominently, a sharp increase in contraband steel.

“Despite operating at just 20pc capacity, there is excess supply in the market,” Solomon told Fortune.

Such an imbalance raised eyebrows. Ethiopia’s domestic manufacturers churn out around two million tonnes of steel annually. They retain the industrial capability to boost output six times larger should the conditions be right. Yet, the source of the contraband steel remains shrouded in mystery. People familiar with the industry point their fingers at 70/30 housing initiatives, particularly those under the Addis Abeba City Administration, serving as a cover for the shadowy imports. The alleged misuse of duty-free privileges, intended to encourage investment, also draws Solomon’s ire.

“Domestic producers are increasingly sidelined,” he asserted. “This warrants an investigation.”

Seeking redress, the Association urged officials of a triad of federal agencies - ministries of Mines, Industry, and Trade & Regional Integration for intervention.

Manufacturers’ inquiries date back to over a year ago when an ambitious directive had been in the making by the Ministry of Mines that required justifications for producing at less than total capacity. Although officials indicated the draft would be tabled for discussion, it was a shortlived ambition that vanished into thin air. Meanwhile, the problems persist.

Previous efforts to stave off input shortages saw the Ministry of Mines, under Takele Uma, the former minister, allowing manufacturers direct access to scrap metals from public institutions and the open market. A gesture that, at the time, the steel sector heralded as a significant stride forward. This move was vital for firms like the E-Brothers Steel Factory, a 15-year industry veteran.

Relying heavily on scrap metal for its substantial operation — a 350 million dollars annual revenue at full tilt — the company finds itself in dire straits, operating at a mere five percent of capacity. A two-year drought in foreign currency allocations to the company is attributed to the under performance. The Managing Director, Wondyifraw Belete, owes the factory’s lackluster existence to the limited availability of scrap metals in the local market.

“It’s the only lifeline keeping us afloat,” said Wondyifraw.

The hiatus in large-scale housing projects by the government has further eroded demand. A stockpile of 4,000tn of rebars, valued at about 480 million Br, remains unused. The competition appears formidable compared to steel imported through contraband — 15pc cheaper than its locally produced counterpart. A kilogram of reinforcement bars from the plant with 550,000tn annual capacity has a factory gate price of 120 Br.

“We’re struggling to remain competitive,” Wondyifraw told Fortune.