Steel manufacturers will no longer buy scrap metals through auctions but depend on a federal agency which will supply the industry at predetermined prices.

The Public Procurement & Property Disposal Service was granted the mandate last year to identify used vehicles at public offices to be disposed of as scrap metal. It is part of the administration's efforts to encourage import substitution as the import bill edges closer to 18 billion dollars, five times higher than export revenues.

Vehicles that have sustained severe damage; cars that have served longer than 40 years; and right-hand drive vehicles were designated for disposal as scrap through auction. Before the initiative, old government vehicles were sold to buyers for further use through auction or abandoned altogether. Last year, the Service assessed that at least 10,000 vehicles under the possession of government agencies and public universities had been mismanaged and kept around with no use.

The new scheme will be applied to vehicles from 86 institutions asking for vehicle disposal since 2015. A fifth of them is located outside of Addis Abeba.

The Metals Industry Development Institute is tasked to facilitate the supply of scrap metal based on the factories' production capacity.

“We're conducting an assessment to determine demand,” said Guta Legesse (PhD), head of the Institute.

The assessment will be completed next week, disclosed Guta. The procurement service has made 2,600tns of scrap metal available to be allocated after the Institute finalises its task.

Alarmed by severe raw material shortages, the authorities have been adjusting disposal methods and price-setting mechanisms over the past year. Highly dependent on imports, metal industries have been struggling to access foreign currency to import crucial inputs such as billet. Steel manufacturers need 12 million tonnes of billet each year. However, laying hands on the more than 1.3 billion dollars required to cover the annual demand has been challenging.

The shortages have pushed manufacturing industries' average capacity utilisation rate below 30pc. In recent years, more than two dozen factories have been forced to close their doors.

Close to 140 medium- and large-scale factories produce iron and steel products. Another 241 small firms are in the metals and engineering sector. Combined, these companies employ a total of 126,000 people.