Commentaries | Nov 12,2022
A storm is brewing in the steel industry, threatening the existence of domestic manufacturing and challenging the country’s industrial ambitions. At the centre of this storm are allegations of rampant contraband, unchecked duty-free imports, and the authorities seemingly oblivious to the plight of domestic producers. This complex scenario unfolds against a backdrop of economic upheaval and a growing demand for construction materials, painting a picture of an industry at a crossroads.
The Ethiopian Basic Metals & Engineering Industries Association, representing 76 members, has sounded the alarm.
Solomon Mulgeta, the general manager, forcefully warned of a looming collapse shortly.
“We’ve three months before collapse,” he said.
The evidence of this impending crisis is already visible. In the past year alone, 28 manufacturers of galvanised sheets have shuttered, and 15 producers of reinforcement bars are teetering on the brink of failure. Industry operators blame a deluge of steel from Turkiye flooding the market, undercutting local prices.
The industry’s performance in the recent fiscal year tells a tale of underachievement. Against a target of 343,105tn, only 52pc was realised, with goods worth 4.85 billion Br produced. This shortfall revealed the industry’s crisis, from large stockpiles to policy gaps. Notably, the automotive sector, closely linked to the steel industry, faces similar challenges, including a lack of transparency in government auctions and a preference for imports over local materials.
Exports, too, have been lacklustre. Ethiopia earned 30 million dollars from exporting metals, electric, and electronic products last year, falling short of its potential.
For people familiar with the industry, this crisis is not just about numbers; it is a story of investment, ambition, and potentials derailed. Having invested hundreds of millions of Br, steel producers find themselves outmatched by a market skewed in favour of imports. A recent import of 300,000tn of steel products by a single buyer was a move that has sent ripples through the industry. The price disparity was stark. Imported steel, exempt from Value Added Tax (VAT), was sold for up to 90 Br a kilogram in the construction input market, 30 Br lower than domestic manufacturers could offer.
"A domestic supply shock is abound," Solomon warned.
These differences are not a matter of economics but a reflection of a broader issue of policy and regulation—or the lack thereof, say industry leaders.
The Association has formed a sub-committee comprising managers of four companies, including industry leaders like Adama Steel Plc, to conduct an in-depth survey to combat the deluge. Yet, this initiative seems like a small step against a tidal wave of challenges due to the government’s role or its absence.
Wondifraw Belete, a member of the Association, blamed the government for ignoring the plight of steel producers. This accusation gains weight when considering importers’ alleged misuse of duty-free privileges in large-scale projects such as hotels and housing.
“Something has to be done before we disappear,” Wondifraw told Fortune.
The Ethiopian Customs Commission (ECC) finds itself at the centre of this blame whirlpool. Its Deputy Commissioner, Muluwork Derese, pointed her figures at the lack of clear definitions and specifications for raw materials in steel production. She recalled an incident a few weeks ago where steel as large as six meters was declared as input for industry. This ambiguity has opened a Pandora’s box of monitoring challenges, allowing the import of large steel materials under the guise of industry inputs, she conceded.
“The Ministry of Industry should have addressed this,” said the Deputy Commissioner, "not us."
Ministries have been drawn into the fray, after the disgruntled manufacturers addressed their plights to the ministries of Finance, Revenues, Mines, Trade and Industry a few weeks ago, urging policy intervention to aid their cause.
Last week’s meeting at the Nexus Hotel, near the Gerji Mebrat Hail area, brought on board manufacturers and officials from the ministries of Revenues and Mines.
The response from Eyob Bekele, head of mining development at the Ministry of Mines, was one of surprise and concern, revealing a disconnect between the industry’s reality and the authorities’ awareness.
“If this is happening, it’s a crisis,” Eyob said.
While expressing shock at the situation, officials of the Ministry of Mines urged that a solution may be in the offing. Prioritisation in foreign currency allocation and shifting towards local substitution of imported inputs are being considered.
“They won’t be importing billets for long,” Eyob told Fortune.
Yet, for people familiar with the industry, these measures might be too little, too late. The state of the industry is dire. Domestic manufacturers, capable of producing up to 10 million tonnes annually, operate at a fraction of their capacity.
Getnet Endazenew, marketing manager at Steely RMI Plc, expressed severe disappointment at the Ministry of Mines for failing to address the industry’s problems over the past few years.
“You haven’t been paying attention while we were left stranded,” he said at the meeting, pointing to several issues.
Companies struggle with foreign currency shortages, skyrocketing prices for raw materials like scrap metal, and a lack of inputs.
These have pushed companies like Sentinel Steel Plc to the brink, struggling to pay wages to their workforce. Its story is symbolic of the industry’s woes. Despite a capacity of 120,000tn, the company’s sales have seen a decline for three consecutive years despite production flattening out at 20pc, a clear sign of the distress rippling through the industry.
Demssie Shibru, director of Sentinel, attributed the company’s struggles in paying wages for its 1,000 workers to the poor performance of the construction industry, compounded by a grey market of contraband and duty-free steel.
“It has gotten tough to compete,” he said.
He blamed the cash flow shortage for buying scrap metal from local markets as prices tripled to 76 Br a kilo, and general input shortages brought his company down to its knees.
“We’re hanging by a thread,” he told Fortune, noting that problems would persist until action is taken against the rising influx of ‘unaccounted for steel’.
Customs officials recognise the impact of contraband trade on the market and expressed a willingness to collaborate with the industry to address these issues.
Mule Abdisa, the head secretariat of the Commission, concurred that rising contraband imports presented the most significant burden to the steel industry.
“It requires serious effort to deal with the problem,” he said.
It has yet to translate into practical action, experts urged.
Voices such as those of Abebe Dinku (Prof.), a veteran civil engineer, provide a broader perspective. He was dumbfounded at how loads of several meters of metal rods were imported into the country without getting noticed by customs officials.
“It’s a blind eye with a political motive,” he told Fortune. “Control mechanisms need to be in place.”
The high price of steel in the local market, driven by input shortages, has inadvertently made imports more appealing, mainly as urban expansion drives demand for construction materials. Abebe, while not opposing the import of duty-free steel per se, advocates for a more balanced approach that considers the growth of domestic industries.
From an academic standpoint, the situation is equally complex.
Experts like Abiy Alene, a mechanical engineer, noted high production costs, frequent power outages, and technological underdevelopment as critical factors hindering local manufacturers.
“Abundant and cheap labour is the only thing helping them survive,” he said.
His call for long-term public investment and a political commitment to developing the industry strikes at the heart of the problem.
PUBLISHED ON Nov 11,2023 [ VOL 24 , NO 1228]
Commentaries | Nov 12,2022
Fortune News | Apr 10,2023
Fortune News | Nov 26,2022
Agenda | Mar 09,2019
Viewpoints | Jun 18,2022
Fortune News | Mar 19,2022
Radar | May 21,2022
Radar | Dec 19,2018
Fortune News | Feb 22,2020
Fortune News | Feb 08,2020
Dec 24 , 2022
Biniam Mikru heads the department of cabinet affairs under Mayor Adanech Abiebie. But...
Jul 2 , 2022 . By RUTH TAYE
On a rainy afternoon last week, a coffee processing facility in the capital's Akaki-Qality District was abuzz with activ...
Nov 27 , 2021
Against my will, I have witnessed the most terrible defeat of reason and the most sa...
Nov 13 , 2021
Plans and reality do not always gel. They rarely do in a fast-moving world. Every act...
Leaders of the National Election Board are in a charm offensive mood, of a sort. Last week, they organised a rare tour for members of the me...
When the country's most senior diplomats and envoys return back to their posts after two-week debriefings, they leave behind a point or two...
Dec 2 , 2023
The symphony of traffic noise in Addis Abeba is not just a sign of life, but a siren...
Nov 25 , 2023
Ethiopia's quest to develop a functioning capital market is a demanding yet not unach...
Nov 18 , 2023
Prime Minister Abiy Ahmed (PhD) has made a fervent call for landlocked Ethiopia to ga...
Nov 11 , 2023
In November last year, a ray of hope pierced the gloomy skies of Ethiopia as the Pret...
I have a love-hate relationship with my phone. It is my go to source for information. I enjoy interacting with text messages and browsing t...
Over the weekend, I attended a wedding where my husband was one of the protocols. Despite the typical joy...
Or see contact page