A strategic policy study conducted under the watch of the Ethiopian Policy Study and Research Center (EPSRC) regarding the country’s Iron Ore, Metallurgy and Steel Industries Growth, Challenges and Policy Options has found out that Ethiopian steel industries are operating way below their minimum installed capacity.
The metal and steel industries in the country are operating at around 38 percent of their installed capacity. That is very low as compared to the world average which currently stands around 85 percent.
One of the many reasons identified behind such a dismal performance record is the shortage of skilled labor force in terms of the quality and quantity required.
Ethiopia’s national direction and interest to transform its nascent economy from agrarian to industrialized one and become Hub of light manufacturing industries in Africa by 2025 is the reason behind launching the study.
If that is achieved, the goal will transform Ethiopia’s abundant labor force in to more productive economic sector. By doing so, the country has envisioned to become middle income country by 2025.
Achieving such a development goal is unthinkable without developing its metal and steel industry.
Besides that, Africa will be the next steel consuming frontier of the world as most part of the continent is expected to urbanize. That by itself is another tempting reason to invest in the metal and steel sub-sector.
The two studies about status of the metal and steel sub-sector of the country were conducted by two teams of researchers from Mekelle University and Adama Science and Technology University.
The team from Mekelle University was headed by Idris Zahiradin (PhD), Researcher at Ethiopian Institute of Technology while that of Adam University was headed by Moges Tufa, Director of Strategic Planning.
The Mekelle University study focused on Iron Ore and Metallurgy while that of Adam University evaluated 100 such industries currently operating in Ethiopia.
Walta Information Center has learnt that the two teams have conducted their studies in an integrated manner based on the outline prescribed by EPSRC. Then after, three consecutive stakeholders discussions have improved content of the study.
The sub sector represents only 1.2 percent of Ethiopia’s GDP, which currently is a little over 69.5 billion USD, according to business daily. It is projected to reach 2.55 percent of the GDP by 2025. By the same token, the economy is expected to expand by registering at least 10 percent annual growth.
While planning to invest in the sector, one needs to understand the dynamics in it related to its capital intensiveness nature, dependence on bulk material, low profitability, supply and demand imbalance, market volatility and occasionally shifting demand centers.
Establishing a single steel industry needs up 25 billion birr. That needs a partnership between government and the private sector. Since the industry is strategic its ownership needs to be determined in a manner that can take national interest of the country in to account.
The researchers recommended on ways to engage large steel companies in the country like Maru Engineering and Mesfin Engineering to engage in iron ore exploration and the government to provide targeted incentives.
The researchers also called on the government to carry on geological survey in order to come up with concrete geological data about the country’s potential in the subsector.
They underlined the fact that metal is a strategic commodity that needs to be produced at home in order to put Ethiopia’s development foot print on a solid foundation.
They also forwarded raw material acquisition through import as a second option by drawing on Chinese experience which imports almost 65 percent of its iron ore requirement.
China produces up to 1 billion tones of metal using blast furnace causing a global market glut in the sector. it also has spent more than 15 trillion dollars to build its bourgeoning steel industry in a decade that lasted from 2000 to 2009.
They also underlined the need to integrate infrastructure development with the particular needs of such development projects. Without efficient infrastructure development, such projects can simply collapse, they said.
Expansion and diversification of the value chain of metal and steel industries is highly needed.
Ethiopia is believed to have an estimated potential iron ore reserve of up to 350 million tones and over 700 million tones of related mineral reserves in areas like Bikilal, Melka Arba, Keffa, Sekota, Shire, and Wadla Delanta.
Though the figure about Ethiopia’s iron ore deposit seems limited further geological surveys need to be done in order to know relative potential of the county.
At present, public and private companies are working on two sites. The Metal and Engineering Corporation of Ethiopia is working on Bikilal cluster while Ezana Mining Development Plc is working on Shire cluster, respectively. Meanwhile, Derba Midroc is working to develop Rolling Steel Factory called Tossa Steel.
According to Mebrahtu Meles (PhD), State Minister of Industry, once the policy study is completed, a detailed strategic plan for the coming decade will be prepared.
The plan will outline how to develop the sector. So, we have to start preparing action plan to do that very soon. Further studies required to determine iron ore reserve of the country should go parallel to other works to needs to be done in order to develop the sector. The government has to play its leading role to develop the sub sector, he said.
The sector should be given priority like that of our mega projects. We don’t have to wait till the private sector is determined to rise up to the challenge the sector is facing. Once the ground work necessary to develop the sector is in place, the government can select anchor investors, he argued.
As far as we are able to come up with bankable project, finance would not be a problem. We have to evaluate the sectors value chain end to end. In that case, the issue to be prioritized becomes clearer, he added.
Like Mebrahtu, Tadesse Haile, State Minister of Industry, argues that as far as the development of the sector is feasible, financing should not be an issue to worry about.
There are regional and international financing options both for the public and private sector like the African Development Bank’s Private Sector Financing. As far as the project is bankable, we can find a way to link domestic finance sources with that of foreign finances, he argued.
For Tadesse, developing the necessary human resource is an urgent task that needs special attention.
He said that our universities should start curriculum development very soon in order to provide the human resource required for the sector.
Nowadays, Ethiopia’s is characterized by low per capital iron and steel consumption as compared to the 41.8 kilogram of African average and 222.5 kilogram of that of the world average per year.
The country’s iron and steel consumption almost doubled within two years, up from 14.6 kilograms per capita consumption in 2015 to 30 kilograms in 2016.
The country’s iron and steel demand is predicted to reach 16 million tons of crude steel and 26 million tons of iron ore per year by 2025. That increases the countries per capital steel consumption to 133 kilogram, up from the current 30 kilogram.
According to Worekineh Desalegn, Director General of Ethiopian Metal Industries Development Institute, Ethiopia has just imported over 3.7 million tons of metal and steel this year surpassing its projection for the year.
Abay Tsehaye, Director General of the EPSRC, promised gathering of stakeholders that the country will do whatever it takes to develop the sector by simultaneously doing different activities the sector require within the shortest possible time.
At present, two companies, a public and private, are working on two sites. The Metal and Engineering Corporation of Ethiopia is working on Bikilal cluster while Ezana Mining Development Plc is working on Shire cluster, respectively. Meanwhile, Derba Midroc is working to develop Rolling Steel Factory called Tossa Steel.
Ethiopia’s is characterized by low per capital iron and steel consumption as compared to the African average of 41.8 kilogram and that of the world average which stands at 222.5 kilogram per year. The country’s iron and steel consumption almost doubled from the 14.6 kilogram per capita consumption in 2015 to 30 kilogram in 2016.
The country’s iron and steel demand is predicted to reach 16 million tons of crude steel and 26 million tons of iron ore per year by 2025. That increases the countries per capital steel consumption to 133 kilogram, up from the current 30 kilogram.
The EPSRC has been studding 17 strategic policy researches on four thematic areas that include urban development and macro economy, Agricultural Modernization, Industry and Good governance.
So far the center unveiled six such studies encompassing urban redevelopment, urban management and population density, Iron Ore, Metallurgy and Steel Industries and good governance. The study on foreign direct investment is in the pipeline to be released.
The Outcome of these interrelated policy researches are expected to fundamentally change recurrent issues in these thematic areas by introducing structural and legal systems aimed at solving the problems those sectors face.
According to the researchers, Ethiopia's power development endevour is a plus to its industialization endevour. When it comes to iron development, the furnances can generate at least thier own power needs if the country impliments the latest technology in the sector. Will that happen, lets me see you after a decade.