Final Report - Addischamber report on Electri… · Source: Estimates of GDP and other macroeconomic Indicators, MoFED, 2013 Parallel with this, the electric and water value added

Business Opportunities on the

Production and Marketing of Electric

Wires and Switches

Final Report

July 2016

Submitted to: Addis Ababa Chamber of Commerce & Sectoral

Association (AACCSA) Mexico Square, P.O.Box 2458 E-mail: [email protected] Addis Ababa, Ethiopia

Submitted by: DAB Development Research and Training

Gurd Sholla, Meher Building, 4th floor

P.O. Box 120190

Email:[email protected]/

[email protected]

Tel: +251 936 63 70 71

Addis Ababa, Ethiopia

Contents 1. Introduction .......................................................................................................................................... 4

2. Sub Sector Analysis .............................................................................................................................. 5

2.1 Major Industry drivers ................................................................................................................. 5

2.1.1 Major Macroeconomic Drivers ............................................................................................ 5

2.1.2 The State of Building Construction ...................................................................................... 7

2.1.3 The Power Sector .................................................................................................................. 8

2.1.4 The Communication Sector – Railway infrastructure.......................................................... 9

2.2 Review of the current status of the sector ...................................................................................... 9

2.2.1 Sectoral position in the economy ......................................................................................... 9

2.2.2 Major Producers and Production ....................................................................................... 11

2.2.3 Consumption Pattern of Electric wire and Switch ............................................................. 12

2.2.4 Import of Electric wire and Switch ..................................................................................... 15

2.2.5 Current condition of the supply chain ................................................................................ 16

2.2.6 Key Opportunities and challenges in the Electric wire and Switch Industry .................... 17

2.2.7 Review of Government policy and incentives.................................................................... 18

2.3.1 Key areas of opportunity and prospects for their future business development ............. 21

2.3.2 Market potentials and forecast demand and supply aspects of the sector ..................... 22

2.3.3 Barrier to entry ................................................................................................................... 23

3. Conclusions and recommendations ................................................................................................... 24

Acronyms

AACCSA Addis Ababa Chamber of Commerce and Sectorial Association

COMESA Common Market for Eastern and Southern Africa

CSA Central Statistical Agency

DAB-DRT DAB Development Research and Training

DI Danish Confederation of Industries

DFQF Duty Free and Quota Free

EIA Ethiopian Investment Agency

ETB Ethiopian Birr

FDI Foreign Direct Investment

GDP Gross Domestic Product

GTP Growth and Transformation Plan

KII Key Informant Interview

KV Kilo Volt

IHDP Integrated Housing Development Program

MoFED Ministry of Finance and Economic Development

MoI Ministry of Industry

MUDHCo Minisyrt of Urban Development and Hosue Construction

SIC Standardized Industrial Codes

SME Small and Microenterprises

1. Introduction

The Ethiopian economy continued its strong expansion during the GTP I period. Real GDP grew by 9.6

percent in 2015. Although agriculture remains an important contributor to Ethiopia’s economy, its share

of GDP has been steadily decreasing leaving its share to industry and service sectors. In 2015 agriculture

sector made up 38.8% of value-add to GDP (down from 52% in 1990).

Industry sector, the main driver of economic growth in recent years, on the other hand is slightly

increasing its contribution to GDP (from 10.5% in 2011 to 15.2% in 2015). This sector has grown by

21.7% in 2015 – more than three times as fast as the agriculture sector, and more than twice that of the

service sector. The largest industrial sub-sector underpinning this fast growth has been the construction

sub-sector. Construction sub sector contributed about 2.5 percent to the total growth scored in 2015.

Along with road, railways and dam construction, the residential buildings construction contributed to

the construction sub sector to expand by more than 35 percent only between 12012 and 2014.

Construction activity is undertaken by all institutional sectors, with the public and private sector shares

being 51.6 percent and 45.9 percent respectively during 2015. Another important economic activity

contributing to residential buildings construction is the Real Estate contributing about 96.4 percent to

Real Estate and Business Services sub sector of the service sector. Real Estate and Business Services sub

sector contributes about 7.4 percent value-add to GDP and has grown by 4.1 percent in 2015. Growth in

residential buildings construction drives growth in the demand of electrical materials.

Cognizant of the considerable boom of the construction and real estate subsectors, AACCSA is imitated

to conduct pre-feasibility study on production and marketing of electric wire and switch (electrical

products industry) so as consult members to invest in the sector. Thus, this study is a pre-feasibility

study on “Business Opportunities on the Production and Marketing of Electric Wires and Switches.

2. Sub Sector Analysis

2.1 Major Industry drivers

2.1.1 Major Macroeconomic Drivers1

There exist a multitude of environmental factors in Ethiopia since the last two decades that drive

development actors to deeply explore the electric wire and switch industry. The most evident are the

fast growth in industry sector in general and the boom in construction and broad based expansions in

power and communication sectors in particular.

Figure 1: Growth of GDP and its Sub sectors

Source: Estimates of GDP and other macroeconomic Indicators, MoFED, 2013

During the GTP I period remarkable achievements in economic growth specifically in the growth of

industry sector has been scored. In this planning period, the Ethiopian economy continued its strong

expansion at an average rate of 10.5 percent and industry sector score the highest average expansion of

20.4 percent per annum - more than three times as fast as the agriculture sector, and more than twice

that of the service sector (Figure 1). In 2012/13 the industry sector has enjoyed its highest expansion

growing at a rate of 24.1 percent compared to the base year (2011/12). Due to this fast expansion the

share of industry sector to GDP is continuously increasing and reached 15.2 percent in 2014/15 from

10.5 percent in the base year.

In this GTP I period, construction value-added increased by an average of 32.7 percent per annum and

was the major driver of the industry sector scoring higher growth of 38.7 percent in 2012/13 and 36.8

percent in 2014/15 (Figure 2). With this, construction contributed an average of 1.5 percentage points

to GDP growth and accounted for 62.5 percent of the total growth contribution of the industry sector.

1 Growth rates are calculated using 2010/11 as base period

8.6

10.6 10.3 9.6 9.8

4.9

7.1 5.4

6.4 6.0

18.7

24.1

17.0

21.7 20.4

9.6 9.0

13.0

10.2 10.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2011/12 2012/13 2013/14 2014/15 GTP I AverageGDP Growth Agriculture Growth Industry Growth Service Growth

Figure 2: Industry Sector Value Added Growth (%)


At the end of this planning period, construction sector enjoyed its highest contribution of 2.5 percentage

points to GDP growth accounting about 83.3 percent of the total growth contribution of the industry

sector (Figure 3). As a result this fast expansion, the share of the construction to the GDP has raised

form 4 percent in the base year to 8.5 percent at the end of GTP I period.

Figure 3: Industry Sub Sectors Contribution to the Industry Growth


Parallel with this, the electric and water value added of the industry sector has scored an average of 8.7

percent annual expansion in the last five years. Moreover, the real estate value added and transport and

2011/12 2012/13 2013/14 2014/15GTP I

Average

Industry Growth 18.7 24.1 17.0 21.7 20.4

Large and Medium Scale Manufacturing 15.9 24.2 21.6 20.3 20.5

Electricity and Water 13.5 10.0 6.8 4.5 8.7

Construction 31.5 38.7 23.9 36.8 32.7

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

SUB

SEC

TOR

GR

OW

TH (

%)

0.4 0.4

0.7 0.7 0.7 0.6

0.2 0.1 0.1 0.1

0.0 0.1

0.5

1.3

1.9

1.5

2.5

1.5

0

0.5

1

1.5

2

2.5

3

2010/11 2011/12 2012/13 2013/14 2014/15 GTP I Average

Large and Medium Scale Manufacturing Electricity and Water Construction

communication value added have continuously grown at an average growth of 3.9 and 13.8 percent

respectively contributing a respective average percentage points of 0.3 and 06 to the GDP growth.

In its path to middle income economy, Ethiopia has planned to sustain such macroeconomic expansion

for next consecutive growth and transformation plan periods. In the next GTP II, the economy is planned

to expand by 10 percent per annum and industry sector to continue its fast growth at an average rate of

19.8 percent per annum – about twice of the growth in agriculture and service sectors. The construction

sub sector is also expected to continue its fast expansion in the coming five years (an average of 33.11

percent growth per annum).

2.1.2 The State of Building Construction

It is outlined above that growth of the Ethiopian economy is mainly driven by the boom in construction

sector. As per the contract construction survey (CSA, 2011), there were 3,676 construction enterprises

operating constructions with total construction output value of ETB 26.03 billion. Out of the total

enterprises, majority of them (98 percent) were general construction2 and building construction3

enterprises with a total construction output value of ETB 25.05 billion of which 43.4 percent used for the

purchase of raw materials. As per the study from ministry urban development and construction, cost of

finishing raw materials (electric materials, ceramics, paint, plastic materials and glass) is estimated to

cover about 35 to 45 percent of the total cost of construction (MUDC, 2003 EC).

While considering building construction, house construction takes of great importance in relation to the

electric wire and switch industry. With respect to the housing, there exist huge gap between demand for

and supply of housing. The housing deficit is expected to rise concurrently with the foreseen high

population and urbanization growth. Ethiopia’s population has reached 81.2 million in 2007 and it is

projected to more than double by 2050 (CSA, Population and Housing Census, 2007). In addition to this

fast population growth, over 44% of the existing housing units are of slum quality that need replacement

with about 44.9% of the units single roomed (MUDHCo & ECSU, 2015). To narrow up this gap the

government of Ethiopia has been working since 1991 and intensified its work by undertaking integrated

housing development programs (IHDP) since 2006.

In its effort to narrow up the gap, a total of 456,974 housing units were constructed during the period

1995/96 to 2002/03 out of which significant share (80.75 percent) was of condominium type. During this

period considerable housing units were also constructed by individuals, cooperatives, private real estate

developers and municipality representing respective percentage shares of 4.86, 5.43, 0.77, and 1.67 in

the total housing units constructed. Moreover, about 6.56 percent of the total housing units constructed

during this period were informal housing units (UN-HABITAT, 2011).

Figure 4: Housing Supply during 1995/96 – 2002/03 and 2007/08 – 2013/14

2 General construction is the construction of dwellings, office buildings, farm buildings, stores, and public & utility buildings, etc., or motorways,

streets, bridges, tunnels, railways, airfields, harbours, etc.

3 Building construction is the construction of buildings of all kinds. It includes new work, repair, additions, and erection of prefabricated buildings or structures on the site and also construction of temporary nature.

Source: UN-HABITAT (2011) Condominium Housing in Ethiopia: The Integrated Housing Development Programme.

United Nations Human Settlements Programme: Nairobi and "Ministry of Urban Development, Housing and

Construction (MUDHCo): State of Ethiopian Cities report, 2015"

During the period 2007/08 – 2013/14 additional 455,473 housing units were constructed out of which

51.1 percent were of condominium type, 30.2 percent were informal housing units and 15.5 percent

were formal housing units constructed by individuals (MUDHCo & ECSU, 2015). Moreover, in 2014/15

alone 157,070 urban residential housing units were constructed.

This higher commitment of government to construct more housing units is expected to continue in the

next growth and transformation plans and in the next GTP II a total of 750,000 urban residential housing

units are planned to be constructed. Moreover, additional residential housing units for sugar industries,

fertilizer industries and industrial parks and new buildings for government offices and for 10 new

universities to be opened are under the frame of GTP II.

2.1.3 The Power Sector

Another important factor that need to be brought to attention while considering electric wire and

switch industry is the power sector. Ethiopia, considering energy as key in ensuring rapid and

sustainable development, has been investing in energy infrastructure quit significantly. Beyond raising

access to electricity with in the country, Ethiopia has planned to export power to the world market.

In the last five years energy generating capacity of Ethiopia has increased from 2,049 MW in 2010/11 to

2,169 MW in 2014/15 registering only an average of 2.6 percent growth. With this, the electricity

coverage has reached 60 percent from 45 percent in 2010/11 scoring an average annual growth rate of

8 percent (Table 1). However, considering the big investments on power generation plants which are

commenced and expected to be finalize in the near future and additional generation plants to be

commissioned in GTP II, the energy generation capacity is planned to reach 17,346 MW by the end of

GTP II (almost 7 fold of the current generating capacity) (MoFED, 2015).

Table 1: Energy Sector in Ethiopia

22

,22

5

70

,55

9

24

,82

0

11

,48

7

3,5

20

1,3

63

7,4

09

1,3

93

36

9,0

00

23

2,9

15

30

,00

0

13

7,7

56

45

6,9

74

45

5,4

73

1 9 9 5 / 9 6 - 2 0 0 2 / 0 3 2 0 0 7 / 0 8 - 2 0 1 3 / 1 4

Individual Cooperatives Private Real Estate Municipality Condominium Informal Units Grand Total

Main Indicators 2010/11 2011/12 2012/13 2013/14 2014/15 GTP I

Average GTP II Plan

Electricity coverage (%) 45 49 54 54 60 52 90

Energy generating capacity(MW)

2,049 2,177 2,177 2,177 2,267 2,169 17,346

Distribution lines construction (KM)

12,794 14,398 1,457 12,825 12,825 10,860 108,640

Rehabilitation of transmission line (KM)

967 1,688 3,071 5,587 10,165 4,296 21,480

To bring power from a number of generation stations to inland consumers and to export power to the

world market, a number of transmission grid expansion program was undertaken in the first GTP. In GTP

I period an average of 10,860 KM distribution line has constructed annually. Moreover, an average of

4,296 KM transmission line was rehabilitated in the last five years (Table 1). In the next GTP period a

total of 108,640 KM (an average of 21,728 KM per annum) construction of additional distribution lines

and a total of 21,480 KM (an average of 4,296 KM per annum) rehabilitation of transmission lines are

planned (MoFED, 2015).

2.1.4 The Communication Sector – Railway infrastructure

In its green economy development, Ethiopia has been developing electricity power sourced railway

network throughout the country. In GTP I a total of 2,395 KM railway lines were planned to be

constructed. However, only Addis Ababa Light Rail Transit (34KM) and Addis Ababa-Djibouti national

railway line (656 KM) are accomplished in GTP I. In the early GTP II period, Awash–Woldiya/Hara Gebeya

(389KM), Woldiya-Hara Gebeya-Mekele (268KM) Woldiya/Hara Gebeya-Semera-Asaiyta (229KM and the

Asaiyta-Tajura (210KM) railway projects are expected to be finalized. Moreover, additional 1,545 KM

railway lines construction is planned in GTP II.

2.2 Review of the current status of the sector

2.2.1 Sectoral position in the economy

Ethiopia’s Growth and Transformation Plan seeks to transform the economy from a predominantly

agrarian to a modern and industrialized economy. Each consecutive GTP plans provide the medium-term

strategic framework that guides the country’s efforts towards accelerating GDP growth and employment

creation. The GTP seeks to transform Ethiopia to an industrialized economy and increase the per capita

income of its citizens to middle-income levels by 2025. Integral to the achievement of a vibrant and

competitive industrial sector is a deliberate policy focused on the development of the manufacturing

sector, for instance through the use of Industrial Parks (IP) to attract Foreign Direct Investment (FDI). To

bundle efforts and facilitate this transformation the Government puts special focus on six sectors

thought to maximize the country’s endowment and comparative advantage in the manufacturing sector:

Textiles & Garments/Apparel, Leather & Leather Products, Agro-processing, Chemical and Construction

Material Products, Pharmaceutical Products, Metal Fabricated Products industries. However, the share

of the manufacturing sector in GDP remained stable at a rather low level. In GTP I the share of

manufacturing sector remain stagnant between 4 and 5 percent and averaged to be 4.4 percent (Figure

5).

Figure 5: Share of Manufacturing

Source: MoFED (2013), Estimates of GDP and other Macroeconomic Indicators, Addis Ababa

As per the International Standard Industrial Classification of All Economic Activities adopted by CSA,

electric wire and switch manufacturing is categorized under manufacture of electrical equipment.

However, as the share of electric wire and switch in the economy is so insignificant, the production of

electric wire is reported under manufacture of chemical and chemical products in the CSA’s annual

survey of Manufacturing and Electricity industries. According to the consecutive surveys (2008/09 to

2012/13), the production of electric wire was so low and stagnant at average of 2,283 KM per annum

except for its pick at 2009/10 to reach 29,152 KM.

Figure 6: Production of Electric Wire

Source: CSA (2013), Annual Manufacturing and Electricity industries Survey, Addis Ababa

0.0

1.0

2.0

3.0

4.0

5.02010/11

2011/12

2012/13

2013/14

2014/15

GTP I Average

Share of Manufacturing in GDP

2008/09 2009/10 2010/11 2011/12 2012/13

ELECTRIC WIRES(metres) 2,829,000 29,152,000 2,101,000 2,101,000 2,101,000

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

Ele

ctri

c W

ire

in M

etr

e

During the same periods, the value added of the electric wire and switch manufacturing is reported

under the chemical and chemical products category with sub group of value added of other chemical

and chemical products. Accordingly, the share of other chemical and chemical product in manufacturing

is averaged to be 0.59 percent during 2008/09 to 2012/13 showing an insignificant share (an average of

0.084 percent of GDP) of electric wire and switch manufacturing in the economy (Figure 7). It is,

therefore, clear that in situation where the industry sector is scoring fastest growth, Manufacturing and

specially the electric wire and switch manufacturing is remain insignificant.

Figure 7: Share of other Chemical and Chemical Products

Source: CSA (2013 and 2014), Annual Manufacturing and Electricity industries Survey, Addis Ababa

2.2.2 Major Producers and Production

As per the KII conducted with line minister offices (Ministry of industry and Ethiopian investment

agency) and major customers of electric wire and switch industry, the major producers of electric wire

and switch are METEC (Government), EURO cables and BELAYAB cables (Local Private) and ELSWEDY

cables and BMET engineering (Foreign private). KII with producers also reveal that producers are

engaged in producing power cables (380 mm and 450 mm cable tie), copper communication cables,

fiber optics communication cables and distribute their products through direct marketing using their

own sales stores, wholesale marketing using marketing channels to avail their product to far away

customers and exporting their product to international market (BMET Engineering). Products of each

manufacturing industries differ in terms of quality and there is no standardization for electric wire and

cable industry products which can specify product quality and other relevant specifications. As a result

there exist huge price variation among producers.

The total installed production capacity of the major producers of electric wire and cables considered in

this study is about 83,371 tons per annum. However, in 2014/15 production year only 4,889.78 tone (5.9

percent of the capacity) of electric wire and cables is produced showing these major producers are

operating in under capacity (Table 2).

2008/09 2009/10 2010/11 2011/12 2012/13

Share of other Chemicals & Chemicalproducts in Manufacturing

1.46 1.20 0.12 0.14 0.52

Share of other Chemicals & Chemicalproducts in GDP

0.206 0.184 0.003 0.004 0.021

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

Table 2: Production of Electric Wire and Switch by Major Producers, 2014/15

Producer

Production (Tone) in 2014/15 Production Year

Electric Tubes Wires and Cables Junction/Switch Box

Potential Production Potential Production Potential Production

METEC* 560.00 407.50 2,471.00 1,849.78 20.51 9.42

EURO cables 3,200.00 1,600.00

BELAYAB cables 10,500.00

ELSWEDY cables 7,200.00 1,440.00

BMET Engineering 60,000.00

Total 560.00 407.50 83,371.00 4,889.78 20.51 9.42

Est. Cost 2,683,064,697 157,364,025 4,638,789 2,130,540.90

Source: MUDHCo (2015), Research on Ways to substitute imported Construction Materials, Addis Ababa: Amharic Version

*METEC operates in its two industries: Ethiopia Power Engineering Industry and Ethio Plastic Industry

The major inputs in the production electric wire and cables of these major producers are steel, copper,

aluminum and Plastics and chemicals mainly cross-linked polyethylene (XLPE) and Polyvinyl chloride

(PVC). Majority of the input supply to all producers is from aboard except that the METEC uses locally

produced plastics and chemicals from its own sister company - Ethio plastics industry and ELSWEDY

cables. Through this METEC play its role in creating some room to substitute imports and impacted price

competition and saving of foreign currency.

2.2.3 Consumption Pattern of Electric wire and Switch

KII with the line minister offices and major producers outlined that the main consumers in the electric

wire and switch industry are real estate developers, cooperative housing developers, government

organizations, Households and other private organizations. Out of these main consumers, the Ethiopian

electric service, Ethiopian contractors association, AYAT and SUNSHINE real-estates and ADDIS ABABA

housing development bureau are selected to represent the major consumers.

Figure 8: HH Expenditure on Construction materials and on furnishing & HH equipment maintenance

Source: CSA (1998, 1992 and 2003), HICE Surveys, Addis Ababa

1995/96 1999/00 2004/05 2010/11 Average

Construction Materials-Expenditure per HH(Birr)

31.70 66.36 122.83 2,025.76 561.66

Furnishing, HH equipment maintenance-Expenditure per HH (Birr)

201.56 251.91 348.90 984.22 446.65

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

Exp

en

dit

ure

(B

irr)

According to the Household Income Consumption Expenditure (HICE) Surveys (CSA, Household Income

Consumption Ecpenditure Survey , 1988,1992,2003 EC ), Ethiopian households consume electric wire

and switch for construction and furnishing and maintenance purposes. During the last 15 years (1996 to

2011) an average Ethiopian household expend an average of ETB 561.66 on construction materials and

an average of ETB 446.65 on furnishing and HH equipment maintenance in which both expenditure

categories include expenditure on electric wire and switch among others (Figure 8). According to Figure

9 below expenditures on construction materials and furnishing and HH equipment maintenance

constitute 4 to 5 percent and 1 to 2 percent of total household consumption expenditure respectively.

This household expenditure on construction materials and furnishing and HH equipment maintenance

have increased from a respective lower level of ETB 31.70 per HH and ETB 201.56 per HH in 1995/95 to

ETB 2,015.76 per HH and ETB 984.22 per HH in 2010/11 scoring an average growth of 581.22 and 81.86

percent respectively. This in general implies a growing Ethiopian household demand for the sector.

Figure 9: Share of Construction material and Furnishing and HH equipment maintenance expenditures on Total Expenditure

Source: CSA (1998, 1992 and 2003), HICE Surveys, Addis Ababa

Addis Ababa housing development bureau is also another major consumer of electric wire and switch.

As per the 2010 Integrated Housing Development Program (IHDP) implementation report (MUDHCo,

2010 Plan Implementation Report , 2014) the bureau on average expend an estimated cost of ETB 1,371

on electric materials per room. Accordingly, housing development in Addis Ababa incur the city an

estimated total cost ETB 267,000,879 to construct a total rooms of 194,749 during the last five years

(2010 to 2015).

Table 3: Estimated Cost of Electric materials (Birr) – Addis Ababa Housing Development Bureau

Round 2010/11 2011/12 2012/13 2013/14 2014/15 Total (2010 -2015)

Number of Rooms Constructed

17,171 44,876 39,126 52,245 41,331 194,749

Estimated Cost of electric materials 23,541,441 61,524,996 53,641,746 71,627,895 56,664,801 267,000,879

Source: MUDHCo (2015), Statistical Abstract, Addis Ababa and MUDHCo (2012/13), Annual Performance Report, Addis Ababa

0.00

1.00

2.00

3.00

4.00

5.001995/96

1999/00

2004/052010/11

Average

Construction Materials-share in totalexpenditure

Furnishing, HHequipment maintenance-share in totalexpenditure

Another major consumer of electric wire and switch in Ethiopia is Ethiopian Electric Power (EEP). EEP

consumes a range of electric wire and cable types to distribute power to customers. Within four years

(2007/08 to 2010/11) an average of 51,286 KM electric wire and cable is consumed per annum to

construct transmission lines across the country. Higher consumption of electric wire and cable is

observed in 2007/08 and 2009/10 (84,133 and 97,685 KM respectively). In constructing such

transmission lines, the EEP incur an average estimated cost of ETB 128.10 billion per annum during the

same period.

Table 4: Constructed Transmission Facilities and Estimated Cost4 in Billion Birr by Year

Type of Transmission

Facilities

2007/08 2008/09 2009/10 2010/11 Average

KM Est. Cost

KM Est. Cost

KM Est. Cost

KM Est. Cost

KM Est. Cost

400 KV. LINES 0 0.00 0 0.00 686 4.35 687 4.35 343 2.18

230 KV. LINES 2,265 5.00 0 0.00 3,740 8.26 3,567 7.88 3,191 5.28

132 KV. LINES 3,983 10.06 2,175 5.50 4,186 10.58 4,221 10.66 3,641 9.20

66 KV. LINES 2,235 5.65 3,983 10.06 1,886 4.76 2,137 5.40 2,560 6.47

45 KV. LINES 476 1.20 2,234 5.64 387 0.98 476 1.20 893 2.26

33 KV. LINES 75,174 189.92 476 1.20 19,381 48.97 0 0.00 23,758 60.02

19 KV. LINES 0 0.00 0 0.00 141 0.36 0 0.00 35 0.09

15 KV. LINES 0 0.00 0 0.00 24,065 60.80 0 0.00 6,016 15.20

0.4 KV. LINES 0 0.00 0 0.00 43,393 109.63 0 0.00 10,848 27.41

Total 84,133 211.84 8,868 22.40 97,865 248.68 11,088 29.50 51,286 128.10

Source: CSA (2012), Annual Manufacturing and Electricity industries Survey, Addis Ababa; EEPCo (2009 ),Gibe III – Sodo 400 kV

Power Transmission Lines Project, Addis Ababa; EEPCo (2010 ), Electricity Transmission System Improvement, Addis Ababa; EEP

(2015), Awash–Woldia Rail Way Power Transmission Project, Addis Ababa.

Among all electric wire and cable types consumed, 33 KV electric wire takes the lion’s share (46 percent

of the total KM) followed by 0.4 KV electric wire (11.7 percent of the total KM). Accordingly, EEP

invested about ETB 60.02 billion and ETB 15.2 billion on 33 KV and 0.4 KV electric wire respectively.

Moreover, the CSA contract construction survey (CSA, 2011) revealed that 3,621 construction

enterprises were engaged in building construction. This survey also showed that an average estimated

total cost of ETB 10,863,148,416.00 is invested on the purchase of construction raw materials by those

enterprises. Estimating the cost of electrical materials to be 5 percent of the cost of raw materials used

in the construction of houses5 by contract constructors, contract construction enterprises expend an

average of ETB 543,157,420.80 on electrical materials per year (an estimated cost of ETB 2440.52 per

housing unit constructed by Contractor).

Considering the above estimation scheme, individual developers, cooperatives, private real estate

developers, municipalities and other individual informal house developers6 on average spent an

estimated cost of ETB 39.89 million on electric materials (wire, switch, socket and the like) per year. This

4 NB: Estimated per KM cost of each electric cable type is taken from cost break down of projects (EEPCo (2009); EEPCo (2010) and EEP (2015)) 5 MUDHCo (2014), 2010 Plan Implementation Report 6 All developing housing units other than condominium.

average consumption of electric materials has raised from ETB 214.7 million during 199596 to 2002/03

to ETB 543.16 million during 2007/08 to 2013/14 scoring a growth of about 153 percent (Table 5).

Among these developers a relatively higher consumption of electric materials is scored by individual

formal and informal house developers (respectively ETB 11.92 million and ETB 21.55 million) every year

during the last 19 years (1996 to 2014).

Table 5: Number of Housing units and its Estimated Cost of Electric materials (Million Birr)

Developer 1995/96 -2002/03 2007/08-2013/14 Total (1996-2014) Average (Per Year)

Number of house

Est. Cost

Number of house

Est. Cost

Number of house

Est. Cost

Number of house

Est. Cost

Individual 22,225 54.24 70,559 172.20 92,784 226.44 4,883 11.92

Cooperatives 24,820 60.57 11,487 28.03 36,307 88.61 1,911 4.66

Private Real Estate 3,520 8.59 1,363 3.33 4,883 11.92 257 0.63

Municipality 7,409 18.08 1,393 3.40 8,802 21.48 463 1.13

Informal Units 30,000 73.22 137,756 336.20 167,756 409.41 8,829 21.55

Total 87,974 214.70 222,558 543.16 310,532 757.86 16,344 39.89 Source: UN-HABITAT (2011) Condominium Housing in Ethiopia: The Integrated Housing Development Programme. United

Nations Human Settlements Programme: Nairobi and "Ministry of Urban Development, Housing and Construction (MUDHCo):

State of Ethiopian Cities report, 2015"

2.2.4 Import of Electric wire and Switch

Due to the higher demand of electric materials driven by the robust economic growth, Ethiopia

imported considerable amount of electric materials from aboard. During GTP I period, Ethiopia imported

an average of 19,659.31 tons with an average value of ETB 1,894.49 million of electric materials per

year. This import of electric materials has been continuously increasing from a lower of 6,191.91 tons

(ETB 737.06 million) in 2012 to 41,525.80 tons (ETB 5,836.72 million) in 2015 (Table 6).

Out of the total imports of electric materials during GTP I, import of electric wire and cables takes the

lion’s share (41.48 percent of the total value of imports) followed by boards (26.5 Percent of the total

value of imports) and switches (18.72 percent of the total value of imports). This import of electric wires

and switches also exhibited the same trend (as import of electric materials) during the GTP I. the

amount of imports of both electric materials declined in 2012 and 2014 but with higher recovery in

2015.

China, claimed to export low standardized and cheaper electric materials, is found be the major exporter

of electric materials to Ethiopia suppling an average of 79 percent of the amount imported during GTP I.

Specifically, bout 81 percent the value of import of wire and cables, 52 percent of the value of import of

boards and 52 percent of the value of import of switches has been imported from China during the last

five years. The electric materials export share of china to Ethiopia has continuously been raised from

about 64 percent in 2012 to about 96 percent in 2015. This is also true for electric wires and switches

except the decline in its share of switches in 2013(Table 6).

Table 6: Amount (Ton) and Value (Million Birr) of Imports by Electrical material Type by Year

Year Boards Breakers Connector Fuses Plugs & Sockets

Switch Wire & Cables

Total

2011

Amt. 647.34 504.66 39.09 114.27 617.90 1,204.40 8,996.97 12,124.63

Value 166.70 115.41 4.80 15.65 59.21 240.52 175.26 777.54

Share of China in

Amt. 63.33 50.31 41.98 57.93 80.31 58.63 72.75 70.06

Value 49.86 22.98 43.84 41.73 43.08 39.90 65.57 45.61

2012

Amt. 726.74 170.45 24.93 48.51 415.73 677.45 4,128.09 6,191.91

Value 429.69 38.81 4.20 5.76 47.63 108.98 101.99 737.06

Share of China in

Amt. 12.76 54.04 66.55 43.57 70.42 60.13 73.71 64.04

Value 5.38 39.72 35.28 27.67 41.18 41.38 69.31 24.01

2013

Amt. 501.32 331.17 48.40 199.70 297.26 1,236.77 11,741.12 14,355.74

Value 256.32 129.33 18.82 13.87 29.81 226.79 322.80 997.73

Share of China in

Amt. 50.53 45.30 86.52 66.86 80.42 52.69 73.66 70.48

Value 64.89 13.46 73.26 88.41 47.93 40.35 84.97 59.12

2014

Amt. 1,068.61 301.14 21.95 99.19 15,661.24 804.35 6,141.98 24,098.46

Value 591.60 93.86 4.08 15.64 38.65 181.92 197.66 1,123.42

Share of China in

Amt. 90.32 60.70 53.77 83.20 99.57 73.40 82.73 93.40

Value 51.57 37.16 50.18 91.18 56.23 65.34 81.79 58.62

2015

Amt. 1,632.11 1,958.68 59.87 149.46 458.62 3,082.20 34,184.86 41,525.80

Value 1,063.59 527.87 21.58 36.94 40.23 1,015.03 3,131.48 5,836.72

Share of China in

Amt. 92.21 85.51 49.67 90.16 86.05 90.93 97.90 96.35

Value 86.45 80.09 25.78 93.15 72.92 93.75 98.77 93.48

GTP Average

Amt. 915.22 653.22 38.85 122.23 3,490.15 1,401.03 13,038.60 19,659.31

Value 501.58 181.05 10.70 17.57 43.11 354.65 785.84 1,894.49

Share of China in

Amt. 61.83 59.17 59.70 68.35 83.35 67.16 80.15 78.87

Value 51.63 38.68 45.67 68.43 52.27 56.14 80.08 56.17

Source: Inland Revenue and Customs Authority of Ethiopia (2016)

2.2.5 Current condition of the supply chain

In any production process, supply chain plays vital role in industry growth and its sustainability.

According to the KII with major consumers and producers, the supply chain of electric wire and switches

industry is found short. Every producers in the industry are found to have Whole sale distribution

centers, Sales stores, and direct sales system through order purchase. None of the major customers of

the electric wire and switch industry report problems in supply chain of the product that suppliers

especially producers provide their orders at their destination. To reach the far way customers of electric

wire and switches all major producers have wholesale distributors and sales stores in Addis Ababa and

major regions of the country. The major customers (bulk of government projects, housing initiatives and

other large private constructions) use producers’ direct sales system through order purchases. This is

also true for the major importers of electric wire and switch.

2.2.6 Key Opportunities and challenges in the Electric wire and Switch Industry

The major motivating opportunity to join the electric wire and switch industry, as per the KKI conducted,

is the fast growing and stable economy of the country. This robust economic growth has made the main

drivers of the sector to expand and create huge demand for products of the sector. Engagement in the

manufacturing sector in general and electric wire and switch industry in particular can also be benefited

from the young, cheap and abundant labor and the huge infrastructure development in the country.

Moreover, the commitment of the government to promote manufacturing industry through provision of

land and tax-rebates and concessions and protection from any kind of intrusions are opportunities for

the sector development.

However, reliance of our economy in rain feed agriculture and the associated low income resulting in

low saving, the double digit inflation experienced on price of construction materials during last few

years and lower commitment of foreign investors to recruit domestic labor are the deterring factors of

engagement in electric wire and switch industry.

Table 7: Key Opportunities and Challenges

SN Prospect Opportunities Challenges

1 Macroeconomic Situation

- Fastest growing and stable Economic

- Reforms in trade and Finance

- Rain feed agriculture - Low saving - Double digit inflation in price of

construction materials

2 Market Potential

- Higher population - Access to market : Huge demand

for products of the sector - Regional and international Trade

relations

- Low purchasing power

3 Human Power - Young, Cheap and abundant labor; skilled, semi-skilled and unskilled

- Few employment opportunities for domestic labor

4 Infrastructure - Huge investment in road, rail ways, power and telecommunications

- Power fluctuations

5 Investment - Government commitment for the promotion of manufacturing industries

- Government provisions regarding protection from any kind of intrusions

- Land provisions, tax-rebates and concessions provided

- Lack of access to domestic raw material inputs

- Lack of adequate foreign exchange service

- Transportation delay in ports (freight and logistics )

- Lack of domestication of demand - Lack of established

standardization schemes Source: KII with major producers and customers and supporting institutions

The existing electric wire and switch industries are lacking access to domestic raw materials and are

importing almost all inputs for the sector from aboard. As a result, the lack of adequate foreign

exchange service coupled with delays in transportation in ports are creating challenges to the sector.

Moreover, the lack of domestication of demand (even big government projects prefer to import) and

lack of established standardization schemes of products by government creates problems in

competitiveness of electric wire and switch industries in terms of quality and price in the international

market.

2.2.7 Review of Government policy and incentives

Starting from 2011, Ethiopia has embarked on a bold journey of structural transformation through its

consecutive growth and transformation plans. The GTP seeks to transform Ethiopia towards an

industrialized economy and to increase per capita income of its citizens by 2025. To this effect, the

Government has adopted a deliberate policy focused on the development of the manufacturing sector

through provision of investment incentives to attract local and foreign direct investment (FDI) and to

support Small and Medium Enterprises (SMEs). To contribute to these objectives, the Government banks

on the enhancement and expansion of infrastructure, the creation of industrial zones, the promotion of

business linkages, the development of domestic SMEs and good governance.

The Ethiopian Government has promoted both domestic and foreign direct investment with the

objective of accelerating economic growth. The Investment Code has been revised to make it more

transparent, attractive and competitive. This has had a positive impact on investment in terms of

volume and diversification. Table 8 is a summary of investment incentives with special attention to

Electrical products industry in which the electric wire and switch sub sector is included in.

In addition to the attractive investment policies and incentives, the government of Ethiopia is dedicated

to provide hand holding support to the private sector by setting up Investment Board of the Investment

Commission under the Chairmanship of the Prime Minister. Under the ministry of Industry (MoI) there

are different sectorial supporting Institutions. Chemical and Construction Input Industry Development

Institute, National Kaizen Institute, Industrial Zones Development Corporation under MoI; the Ethiopian

Investment Agency, the Regional Investment Bureaus (RIBs), the Ethiopian Privatization Agency, Ministry

of Foreign Affairs, Development Bank of Ethiopia and Ministries dealing with taxation are among the

sectoral supporting institutions for Electrical products industry.

Moreover, the government of Ethiopia is establishing Integrated Industrial Parks and involves a policy of

supporting regional states and cities to develop international standard industry parks. The Government

has already begun to invest heavily in the necessary supporting elements for these Integrated Industrial

Parks, to develop the necessary infrastructure, research center development as well as consider the

required market development and micro-financing needs.

Table 8: Summary of Investment Incentives

SN Incentive Type Incentive Description Applicability

1 Fiscal Incentives

1.1 Customs Duty Exemption

1.1.1 100% exemption from the payment of customs duties and other taxes levied on imports is granted to all capital goods, such as plant, machinery and equipment and construction materials.

1.1.2 Spare parts worth up to 15% of the total value of the imported investment capital goods, provided that the goods are also exempt from the payment of customs duties.

1.1.3 An investor granted with a customs duty exemption will be allowed to import capital goods duty free indefinitely if his investment is in manufacturing.

1.1.4 An investor entitled to a duty-free privilege who buys capital goods or construction materials from local manufacturing industries shall be refunded the customs duty paid for raw materials or components used as inputs for the production of such goods.

1.1.5 Investment capital goods imported without the payment of custom duties and other taxes levied on imports may be transferred to another investor enjoying similar privileges.

Both local and foreign investors

1.2 Income Tax Exemption

2.1.1 Income tax exemptions for 2 and 4 years in Addis Ababa and Special Zone of Oromia Surrounding Addis Ababa and for 4 and 5 years in other areas.

2.1.2 Income tax deduction of 30% for three consecutive years after the expiry of the income tax exemption period specified above for investors who establishes a new enterprise in Gambella; Benshangul/Gumuz; Afar (except in areas within 15 kilometers right and left of the Awash River); Somali; Guji and Borena Zones (in Oromia); or South Omo Zone, Segen (Derashe, Amaro, Konso and Burji) Area Peoples Zone, Bench-Maji Zone, Sheka Zone, Dawro Zone, Keffa Zone, Konta and Basketo Special Woredas (SNNPR).

2.1.3 An investor who expands or upgrades his existing enterprise and increases at least by 50 percent its production or service capacity, or introduces a new production or service line at least by 100 percent of an existing enterprise is entitled to the income tax exemption period specified 2.1.1 above.

2.1.4 Investors who export at least 60 percent of their products or services, or supply these to an exporter, will be exempted from the payment of income tax for an additional 2 years.

Both local and foreign investors

2 Non-fiscal Incentives

2.1.1 Business enterprises that suffer losses during the income tax exemption period can carry forward such losses for half of the tax exemption period following the expiration of the income tax exemption period. Any loss incurred during income tax exemption period is not allowed to carry forward for more than five income tax periods.

2.1.2 No export tax is levied on Ethiopian export products. 2.1.3 Duty Drawback Scheme: this scheme offers investors an exemption from the payment of customs duties and

other taxes levied on imported and locally purchased raw materials used in the production of export goods. Duties and other taxes paid are drawn back 100 percent at the time of the export of the finished goods.

2.1.4 Voucher Scheme: a voucher is a printed document having monetary value, which is used in lieu of duties and taxes payable on imported raw materials.

Investors who produce export products

SN Incentive Type Incentive Description Applicability

2.1.5 Bonded Factory and Manufacturing Warehouse Schemes: producers not eligible for voucher scheme but having licensed for bonded are entitled to operate such factory or warehouse in importing of raw materials duty free.

2.1.6 Exporters are allowed to retain and deposit in a bank account up to 20 percent of their foreign exchange earnings for future use in the operation of their enterprises and no export price control is imposed by the National Bank of Ethiopia

2.1.7 Franco valuta import of raw materials are allowed for enterprises engaged in export processing. 2.1.8 Exporters can benefit from the export credit guarantee scheme, which is presently in place in order to ensure

an exporter receives payment for goods shipped overseas in the event the customer defaults, reducing the risk of exporters’ business and allowing it to keep its price competitive.

2.1.9 A foreign investor has the right to make the following remittances out of Ethiopia in convertible foreign currency: profits and dividends principals and interest payments on external loans, payments related to technology transfer agreements, proceeds from the sale or liquidation of an enterprise, compensation paid to an investor, proceeds from the sale or transfer of shares or partial ownership of an enterprise to a domestic investor

Source: The FDRE Negarit Gazeta Proclamations: No 768/2012, No 769/2012, No 312/2014 and No 849/2014

2.3 Future Outlook and Appraisal of Sectoral Investment Potentials

2.3.1 Key areas of opportunity and prospects for their future business development

This study identified a number of business opportunities that are available to the Ethiopian electric wire

and switch industry. In particular, these opportunities include: Strong expansion in the housing

construction sector and broad based expansion in the power sectors.

The Housing Construction Sector:

The potential clearly exists to enter into electric wire and switch market producing electric wire and

switch types that are appropriate for house wiring (1.5, 2.5 or 4 mm) in Ethiopia particularly in large

cities of Ethiopia where integrated housing development programs are being undertaken in massive

way. An annual estimate of household electric material consumption based on Household Income

Consumption Expenditure (HICE) survey revealed that an average of 379,019 tons of electric material (

valued ETB 1,224.21 million) was needed to satisfy the household electric material demand for house

furnishing and maintenance during GTP I period (Annexed Table 9). Further to this, exponentially

smoothed estimate of electric material demand for house construction (other than condominium

houses) during GTP I indicate that an average of 19,232 tons (valued ETB 21,040.86 million) of electric

materials per annum was demanded. The government lead integrated Housing Development Program

has also created an average estimated annual demand of 178,858 tons (valued ETB 21,040.86 million)

per year during GTP I.

This demand for electric wire and switch appropriate for wiring is expected to sustain for the next GTP II.

An exponentially smoothed five year forecast of household electric material demand for house

furnishing and maintenance and electric material demand for house construction (other than

condominium) showed that respective total amount of 6,182,941 tons (valued ETB 769,124.97 million )

and 178,858 tons (valued ETB 21,040.86 million) will be demanded within the next five years. Moreover,

a total amount of 30,647 tons (valued ETB 3,279.94 million) will be demanded to satisfy the electric wire

and switch demand of new 750,000 condominium houses planned to be constructed in GTP II period

(Annexed Table 9). This therefore remains a huge opportunity that the Ethiopian electric wire and switch

industry can capitalize on.

The Power Sector:

There also remains a large opportunity to electric wire and switch products to expand in to high voltage

(400 KV, 230 KV, 132 KV) medium voltage (12KV, 15KV, 33KV and 60KV) and low voltage (220V -230V

and 380V - 400V) electric cable products used in the construction of power transmission lines. During

the GTP I period, an estimated average annual demand of 7,283,702 tons (valued ETB 23,525.93 million)

was demanded to undertake construction of transmission lines all over the country. Big hydropower

power generating plans with which upgrade the power generating capacity of Ethiopia up to 17,346 MW

will be constructed in the next GTP II period. Transmission and distribution of this generated power to

customers and construction of new 1,545 KM railway line will demand an estimated total electric cable

of 20,128,819 tons (valued ETB 49,666.20 million) in the next GTP II period.

Finally, long run big opportunity for the electric wire and switch industry rises from the ambiguous long

term plans of Ethiopia that the country envision to be an African power hub. Ethiopia plans to increase

its power export to Djibouti, Kenya and Sudan and establish new grid links to south Sudan, Uganda,

Rwanda, and Tanzania and even to Yemen across the red sea. Moreover, the fast growing population

and fast urbanization of the majority rural Ethiopia coupled with its vision to be middle income country

and beyond in the next few decades will boast the house construction demand to its maximum. This also

creates sustained long run opportunity to the Ethiopian electric wire and switch sector.

2.3.2 Market potentials and forecast demand and supply aspects of the sector

Domestic market potentials

Electric wires and switches have a large market in Ethiopia significantly higher than the local production

and import volumes. The Ethiopian population has reached about 90 million and it is projected to more

than 160 million by 2050 indicating rampant expansion in housing demand which in turn is an indication

of large market potential for electric wire and switch in the country. Moreover, the power sector is

scoring remarkable achievements in power generation and distribution adding market potentials to the

domestic and regional markets.

During the GTP I, the electric wire and switch market had an average estimated demand of 7,698,485

tons (valued ETB 24,865.66 million) and an average estimated supply of 20,641 tons (valued ETB 1,926

million) per annum creating an average estimated demand – supply gap of 7,677,844 tons (valued ETB

22,939.52 million) per annum (Figure 10).

Figure 10: Demand Supply Gap of Electric wire and Switch

This huge market potential will exist in the next five years even if the existing electric wire and switch

industries operate in their full capacity. Assuming full capacity in GTP II, there will also l be an estimated

2010/11 2011/12 2012/13 2013/14 2014/15GTP I

Average

Total Estimated Supply (Actual) 12,125 6,192 14,356 24,098 46,434 20,641

Total Estimated Demand 9,396,325 11,004,590 7,897,297 5,786,101 4,408,114 7,698,485

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

total gap of 25,907,282 tons (with estimated total value of ETB 775,807.16 million) in the electric wire

and switch market in Ethiopia.

Regional market potentials

Beyond the domestic market, by virtue of its membership of the Common Market for Eastern and

Southern Africa (COMESA) embracing 19 countries with a population of 400 million, Ethiopia enjoys

preferential market access to these countries. Ethiopia’s trade with neighboring countries is likely to

present a major business and economic opportunity in the coming GTP periods. This is possible by

bilateral and multilateral trade agreements under the auspices of COMESA and IGAD. The power market

is one that Ethiopia want to capitalize these days. There are established grid connections with Djibouti,

Sudan, and Kenya. New projects are on the way to link the country to the emerging market of South

Sudan. There are also railway connections with Djibouti and rail way connections with Kenya and Sudan

will be made reality in the near future. When complete, it will represent one of the largest business

opportunities in Africa, linking Ethiopia with the East African Community.

Djibouti, Kenya and Sudan are the largest prioritized power export market for Ethiopia followed south

Sudan, Uganda, Rwanda, and Tanzania. Throughout the sub Saharan Africa access to electricity averaged

approximately 30 percent. Among the 20 countries with the highest deficits in access to electricity,

twelve are in sub Saharan Africa eight of those twelve report access rates below 20 percent

(PowerAfrica, 2014). This indicates Ethiopia, becoming the power hub of Africa, could dominate the

regional market and benefit its electric and wire industries.

2.3.3 Barrier to entry

According to the KII conducted with the main actors in electric wire and switch industry, no considerable

barriers to entry are identified. However, lack of raw materials, lack of established product

standardization schemes, lack of domestication of demand and problems related to customs and duties

may slow down the motivations to enter in to electric wire and switch industry.

The lack of product standardization leads the wire and switch industry to produce quality differentiated

products. In situations where there are remarkable quality differences, price and quality disparities exist.

As almost all inputs of the wire and switch industry comes from imports and is exposed to the freight

and port related problems. Problems related to customs and duties (transportation, custom clearing,

and waiting time on ports) are also once that need to be considered while entering to the industry.

Still the production capacity of electric wire and switch industry so limited compared to the national

demand. The country fills its gap through imports and china, thought exporting low quality products, is

the main exporter to Ethiopia. Associated with this, the government of Ethiopia lacks domestication of

demand. Even big government projects seek to import from abroad fearing the late arrivals of orders

and this affect the competitions in the international and inland markets.

3. Conclusions and recommendations

The main intention of this study is to answer the problem that how an investor should anticipate future

entry in to electric wire and switch industry and which potential markets should work with. During the

analysis of the demand in the electric wire and switch sector it became clear that electric wire and

switch industry is expecting high demand, which the current supply from local production and imports

will not be able to meet. The main drivers of this high demand in electric wire and switch industry are

the boom in the construction sector and the broad based expansion of the power sector in the country.

The individual formal and informal house construction, municipal constructions, private real estate and

cooperative constructions and the government lead integrated housing development (condominium

construction) has created surprisingly higher unmet demand of low voltage electric wire (220V -230V

and 380V - 400V) and switch that favors house wiring. Strong expansion in the power sector of Ethiopia

and the associated transmission line constructions coupled with huge rail way constructions have

derived higher demand for high voltage (400 KV, 230 KV, 132 KV) and medium voltage (12KV, 15KV,

33KV and 60KV) cables.

Beyond this domestic market, higher demand of electric cable is emerging in east Africa. Djibouti, Kenya

and Sudan are the priority areas of Ethiopia to expand power export and south Sudan, Uganda, Rwanda,

and Tanzania are expected to join the power grid of Ethiopia in the near future.

The comprehensive overview of the suppliers/producers of electric wire and switch also shows that few

companies aim to benefit from the higher demand of electric wire in the country are

importing/producing in an under capacity operations. Also, the government considering this huge gap in

demand for and supply of electric wire and switch and its vision of having industrialized economy is

creating conducive atmosphere to invest in the sector. A bulk of government investments incentive that

ranging from fiscal and non-fiscal incentives to industrial park development are being undertaken to

encourage both local and foreign investors.

These factors, combined with Ethiopia’s geographic proximity to key export markets and its Duty Free

and Quota Free (DFQF) privileges by international markets of USA (AGOA), EU (EBA), China, India, Japan

& Korea, lead to high attractiveness of the electric wire and switch industry. Hence, both local and

foreign investors can benefit from this sector by influencing the investment sphere of Ethiopia to

undertake correcting measures in product standardization, local product demand domestication, power

distribution and administration, freight and logistic administration and domestic raw material

accessibility.

Thus, this study recommends potential investors to prepare themselves to inter to the newly emerging

electric wire and switch industry undertaking the following further investigations.

Acquire financial data

Vital for the investment decision is a function of investment versus expected income and risk involved.

This data has not adequately been found as it is an issue of business security. Financial data that is of

utmost importance are: revenue estimates, cost estimates and return to investment that reflect both

size of the investment needed to effectively compete in the market and the potential returns associated

with the investment.

Perform research on regional information and product requirements

Further investigation has to be done about all shipping and business related regulation for business in

foreign countries. This is not only to make sure that business is performed in the most favorable

country, but mainly to ascertain that you will not run into high cost because of unawareness of certain

laws and regulation. Similarly, possibly in cooperation with the future partner it has to be decided what

type of electric wire and switch will be acquired by your investment? Of course such a decision should

mainly be driven by forecasted demand, making the need for financial data even more clear.

Get in contact with partnering companies

In order to start up in the industry it has been pleaded that a partnership is essential. Your investment

should eventually get in touch with the candidates and decide on the type of partnership, after having

determined whether the investment will yield the required returns.

References

CSA. (1988,1992,2003 EC ). Household Income Consumption Ecpenditure Survey . Addis Ababa: CSA.

CSA. (2007). Population and Housing Census. Addis Ababa: CSA.

CSA. (2011). CONTRACT CONSTRUCTION SURVEY. Addis Ababa: CENTRAL STATISTICAL AGENCY and

MINISTRY of URBAN DEVELOPMENT AND CONSTRUCTION.

MoFED. (2015). The Second Growth and Transformation Plan (GTP II)-2015/16-2019/20. Addis Ababa:

National Planning Commission.

MUDC. (2003 EC). Strategies for construction raw material manufacturing industries (medium scale) -

Amharic Version . Addis Ababa: MUDC.

MUDHCo. (2014). 2010 Plan Implementation Report . Addis Ababa: MUDHCo.

MUDHCo, & ECS. (2015). State of Ethiopian Cities report. Addis Ababa: MUDHCo.

MUDHCo, & ECSU. (2015). STATE OF ETHIOPIAN CITIES REPORT. Addis Ababa: MUDHCo.

PowerAfrica. (2014). Power Africa Annual Report. USAID.

UN-HABITAT. (2011). CONDOMINIUM HOUSING IN ETHIOPIA. Nairobi.: United Nations Human

Settlements Programme.

Table 9: Estimated Demand for and supply of Electric wire and switch

Description 2010/11 2011/12 2012/13 2013/14 2014/15 GTP I Average

GTP II Forecast

Demand

Household electric Material Consumption

Amount (Tons) 243,394 265,543 326,883 435,735 623,537 379,019 6,182,941

Value (Million Birr) 786.15 857.69 1,055.81 1,407.40 2,013.99 1,224.21 769,124.97

Addis Ababa Condominium Construction Electrical Material Consumption

Amount (Tons) 7,289 19,048 16,608 22,176 17,544 16,533 30,647

Value (Million Birr) 23.54 61.52 53.64 71.63 56.66 53.40 3,279.94

Other Housing Construction Electric material consumption

Amount (Tons) 12,350 13,474 16,586 22,110 31,639 19,232 178,858

Value (Million Birr) 39.89 43.52 53.57 71.41 102.19 62.12 21,040.86

EEP Transmission Line Construction Wire and Cable Consumption

Amount (Tons) 9,133,292 10,706,525 7,537,220 5,306,080 3,735,394 7,283,702 20,128,819

Value (Million Birr) 29,500.00 34,581.45 24,344.78 17,138.33 12,065.10 23,525.93 49,666.20

Total Estimated Demand Amount (Tons) 9,396,325 11,004,590 7,897,297 5,786,101 4,408,114 7,698,485 26,521,265


Supply

Inland Production (By major Producers) Amount (Tons) 0 0 0 0 4,909

Value (Million Birr) 0 0 0 0 158.20

Inland Production Potential (By major Producers)

Amount (Tons) 0 0 0 0 83,412 417,060

Value (Million Birr) 0 0 0 0 2,688.36 44,635.13

Import of Electrical Materials Amount (Tons) 12,125 6,192 14,356 24,098 41,526 19,659 196,924

Value (Million Birr) 777.54 737.06 997.73 1,123.42 5,836.72 1,894.49 22,669.68

Total Estimated Supply (Actual) Amount (Tons) 12,125 6,192 14,356 24,098 46,434 20,641

Value (Million Birr) 777.54 737.06 997.73 1,123.42 5,994.93 1,926

Total Estimated Supply (Potential) Amount (Tons) 12,125 6,192 14,356 24,098 124,938 36,342 613,984

Value (Million Birr) 777.54 737.06 997.73 1,123.42 8,525.09 2,432.17 67,304.81

Demand -Supply Gap

Estimated Gap (Actual) Amount (Tons) 9,384,200 10,998,398 7,882,941 5,762,003 4,361,680 7,677,844 26,521,265


Estimated Gap (Potential) Amount (Tons) 9,384,200 10,998,398 7,882,941 5,762,003 4,283,176 7,662,144 25,907,282


Note: In order to make the demand supply analysis, estimating the consumption, production and import of electric

materials has undertaken. In doing so all parameters of interest should be put in same unit (ton or Birr) and have

observations during same period of time (the GTP I and II periods in this case). While making estimation and

forecasting, we use trend and exponential smoothing; we consulted plans related to electric materials (in GTP II),

and make value adjustments using CPI reports. Estimation of demand and Supply of Electric materials is

undertaken the following points

1. HH expenditure on electric materials is estimated as 5% of the HH expenditure on furnishing, HH

equipment and maintenance which was taken from HICE surveys

2. After having HH expenditure on electric materials for 2011 calculated as (1), we consider 2011 expenditure

for each year (2012-2015) as HICE survey is five year survey expected to represent for the five years.

However, we adjust for inflation using CSA's CPI for furnishing, HH equipment and maintenance at June of

each year.

3. An average of ETB 32229.94 price is taken to purchase an average 1 tone electric materials as per the

inland production electric wire and cables reported for 2015

4. Estimated cost of wire & cables for 2012 to 2015 is calculated using exponential smoothing (using data for

2008 to 2011)

5. Addis Ababa Housing development bureau expend an estimated cost of ETB 1,371 per room during GTP I.

6. Non condominium house are those houses constructed by individual formal and informal developers, real

estate developers, cooperative and municipalities.

7. Contractors used electric material with estimated value of ETB 2440.65 for each housing unit they

construct (CSA Contract construction survey). This factor is assumed for all houses constructed by

individual formal and informal developers, real estate developers, cooperative and municipalities. After we

found Estimated cost of electric materials for each houses constructed by contractor as (6) for 2011, we

use CPI for housing water, electricity, gas and others to inflate value of consecutive years (2012 to 2015).

8. Construction of 750,000 house are planned to be constructed in GTP II using the IHDP

9. A total 108,640 KM transmission line is planned to be constructed in GTP II by EEP

10. Electric materials need by households (furnishing and maintenance) and contracted construction of houses

(forma; and informal individual developers, reals estate developers, cooperatives, municipalities) is

forecasted by smoothing exponentially.

Final Report - Addischamber report on Electri… · Source: Estimates of GDP and other macroeconomic Indicators, MoFED, 2013 Parallel with this, the electric and water value added

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