development of ethiopian steel industries: challenges
TRANSCRIPT
FDRE, Policy Study and Research Center
Industrial Policy Study and Research Department
Development of Ethiopian Steel Industries: Challenges, Prospects, and Policy Options
(2015 –2025)
FDRE, Policy Study and Research Center - PSRC
and
Adama Science and Technology University, ASTU
By
Tesfaye G/Michael (Msc)
Moges Tufa (MA)
Niguse Assefa (Msc)
Teshome Abdo (PhD)
Jeylan Aman (PhD)
Lemi Guta (PhD)
Addis Ababa, Ethiopia
February, 2017
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FDRE, POLICY STUDY AND RESEARCH CENTER
About PSRC FDRE, Policy Study and Research Center founded in March 2014 as a government policy and strategy research center. It is established by recognizing the need for policy related researches and knowledge based decision making process in the fast growing and transforming economy of Ethiopia. The PSRC is expected to be the major think tank center in Ethiopia that analyses policy implementation, structural and programmatic issues, and generate policy and strategy proposals. The PSRC has five major departments and one is Industrial Policy Study and Research Department (IPSRD). For more information as well as other publications by PSRC and its affiliates, go to www.PSRC.gov.et FDRE, Policy Study and Research Center P.O.Box 1072/1110 Tel: +251-11-6613767 +251-11-6610462 Fax: +251-11-6621821 E-mail: [email protected] Website: www.psrc.gov.et ABOUT THIS RESEARCH REPORTS The FDRE, policy study and research center (PSRC) research reports contain research materials from PSRC and/or its partners. The researches are circulated to the concerned Ministries and related sectors in order to stimulate discussion and critical comment. The opinions in this research are those of the authors and do not necessarily reflect that of PSRC‟s. Comments may be forwarded directly to the IPSRD and the authors through e-mail: [email protected]. Report Citation: It is cited as Industrial Policy Study and Research Department (IPSRD) and Adama Science and Technology University-ASTU. Development of Ethiopian Steel Industries: Challenges, Prospects, and Policy options (2015-2025).
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Preface
As stipulated in the Second Growth and Transformation Plan (GTP II), Ethiopia is committed to tuning its growth direction from agriculture-led to industry-led economy. In this plan, the role of industries in general and the manufacturing sector in particular is considered as the main sector towards which the economy evolves. Today, even though the service sectors have come to dominate the economies in most of the rich countries in the west, manufacturing remains critical to the rapid economic transformation of all countries especially developing countries like Ethiopia. The Ethiopian government has recognized the importance of this sector and paid greater attention than ever.
Based on the industrial development strategy of Ethiopia, one of the priority sub-sectors in the manufacturing sector is metal and engineering industries. The study has conducted a broad investigation on Ethiopian steel industries with special emphasis on their challenges and prospects and to forwarded policy recommendations that will serve as point of departure for a medium and long-term development plan of the steel industries. It has considered technology selection, resources base, institutional arrangement, human power requirements, sources of finance, and the environment aspects for development of the sub-sector for the coming ten years and beyond.
A number of consultative and validation workshops had been done with the stakeholders and professionals which enabled us to enrich the content of the research. Moreover, important lessons have been taken from successful countries in this field like China. Some insightful lessons have been gained from the benchmarking visit such as: developing necessary human capital by establishing and expanding support institutions, continuous technology progress by investing in and buying technology (investment in R & D and acquisition of technology from advanced countries in comprehensive packages), and huge public investment in expansion of productive facilities. The study identified major policy and strategic issues such as build human resource development system, minimize heavy dependence on imports of raw materials by exploring potential local resources, improve product diversification, establishing and capacitating R&D centers, build market research capability, creating access to finance and update incentive package, upgrading infrastructure, enforcing sector-specific energy and environment policies and regulations, expanding and enhancing collaboration between industry and support institutions which would be supposed to implement for the coming ten years and beyond. The FDRE policy study and research center, Industrial policy study and research department believes that the research output of this study would help all stakeholders to acquire clear development directions for the development of specific programs and projects for further development of steel industries. Amare Matebu Kassa (PhD) Lead Researcher and Coordinator Industrial Development Policy Study and Research Section
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Executive Summary Ethiopia has been undergoing a rapid economic growth with a conviction of realizing the vision of
joining middle income countries by 2025. To realize this vision, it is firmly believed that growth in the
industrial sector plays a seminal role. As stipulated in the Second Growth and Transformation Plan
(GTP II), the nation is committed to tuning its growth direction from agriculture-led to industry-led
economy. In this growth and transformation plan, therefore, the role of industries in general and the
manufacturing sector in particular is extremely vital, and our industries need to align themselves
towards the attainment of this vision demanded by the economy.
There is a general consensus that the manufacturing sector is the main engine of economic growth and
structural transformation of a nation. With full recognition of the importance of manufacturing in the
socioeconomic transformation of the nation, the Ethiopian government has recently paid greater
attention than ever to this sector. The manufacturing sector comprises many subsectors including the
steel industry subsector, which has been the target of this project.
Steel industry is believed to be indispensable for a country like Ethiopia, which aspires to undergo a
rapid process of industrialization and economic transformation. Development history of most nations
demonstrates that, during their course of economic development, they relied heavily on their domestic
steel industry to meet the requirements of faster development in other industrial and non-industrial
sectors. Realizing the significance of steel industry in the development of the national economy, the
Ethiopian government has taken a number of initiatives to develop and transform the subsector.
As one of the initiatives aimed at overhauling the subsector, this project was initiated by FDRE Policy
Study and Research Center, in collaboration with Adama Science and Technology University. The
study sought to conduct a comprehensive investigation into the Ethiopian steel industries with special
emphasis on their challenges and prospects and to forward policy recommendations that will serve as
point of departure for a medium and long-term development plan of the subsector.
To realize the objectives of the project, both primary and secondary data were generated by employing
carefully designed methodology. Primary data that are needed for the purpose of the project have been
obtained through on-site observations of the existing steel industries and factories, survey
questionnaire, and in-depth interviews with key informants from selected ministries, executives and
experts from steel industries, Metal Industry Development Institute (MIDI), Ethiopian Mechanical
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Engineering Association and other stakeholders. Secondary data were generated from both international
and national documents. The latter include the Growth and Transformation Plans (GTP I & GTP II) and
GTP I evaluations, Ethiopian Industrial Roadmap, Ethiopian Industry and City/Urban Development
Policy and Strategy Document, different steel-related studies (KOICA, JICA, MIDI) and other
documents from the Ministry of Mining, Ethiopia Power Authority, Ministry of City and Urban
Development, Ministry of Industry, Metal Industry Development Institute, Environmental Protection
Authority, Geological Survey, Planning Commission, Ethiopian Customs Authority, Ethiopian Railway
Corporation, Banks and other pertinent sources. Moreover, a visit has been made to China to
benchmark best practices of the country in steel industry.
Drawing on the data accessed from different sources, a number of key activities have been conducted to
develop the steel industry policy document. In the first place, developments in the steel industry at a
global level were addressed with particular emphasis on prominent issues such as steelmaking process
and technology, production, consumption, import and export trends. Likewise, a regional level analysis
of steel industry was conducted by taking a comprehensive look at the status of the sector in the African
continent and by focusing on issues pertaining to steel production and consumption.
The most important part of the steel industry analysis devoted itself to the assessment of the steel
industry in Ethiopia. In this analysis, the current profile of steel industries in the country and their
current performance, their production and consumption trends, and their challenges are particularly
highlighted. A review of various steel industry-related documents and studies was also conducted. From
this comprehensive analysis, it has been found out that the Ethiopian steel industry currently operates
under conditions of constrains in terms of raw materials, skilled workforce, technological capacity,
research and development, working capital, production capacity and efficiency, product diversification
and value addition, infrastructure development, market research and orientation and, above all, absence
of policy and strategic frameworks that guide the development direction of the subsector.
Useful findings were also drawn from the PESTLE and SLOC analysis of the Ethiopian steel industry.
The key findings from the PESTLE analysis indicate the presence of favorable political, economic,
social, technological, legal and environmental conditions that also serve as drivers for the development
of steel industry. Likewise, based on the SLOC analysis, some critical policy issues have been
identified for the Ethiopian steel industry development. These policy issues are:
Building a human resource skill development system that ensures the availability of required
human capital;
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Minimizing heavy dependence on imports of raw materials by exploring and exploiting
potential local resources;
Improving product diversification (product mix) and value addition of steel products;
Establishing and capacitating R&D centers at company and national level to imitate, improve
and create technology;
Building local and international market research capability and market information system;
Creating access to finance (bank loan, foreign currency) and updating incentive packages for
steel industries as strategic development subsector;
Upgrading and setting up infrastructure facilities and separate power transmission;
Enforcing sector-specific energy and environment policies and regulations and conducting
periodic environment and energy audit;
Expanding and enhancing collaborations between the industry and support institutions; and
Developing steel industry strategy and roadmap.
A comparative analysis was conducted by surveying the status of steel industries in selected countries
(India, China, South Korea, Brazil, South Africa, Nigeria, and Kenya), which are believed to be
exemplary for Ethiopia in the development of her steel industry. The comparison has particularly
focused on key issues pertaining to raw materials, human resource development, production,
technology, policy and regulatory frameworks, market, energy and environment. Accordingly, from the
comparative analysis made on these focus areas, some useful lessons and experiences which are
believed to be of particular importance for the Ethiopian steel industry have emerged.
As stated earlier, a benchmarking visit was also made to China by the study team to draw lessons on the
track and past trends in the development history of China‟s steel industries. Accordingly, some
insightful lessons have been gained from the benchmarking visit. Some of the critical observations are:
developing necessary human capital by establishing and expanding support institutions, continuous
technology progress by investing in and buying technology (investment in R & D and acquisition of
technology from advanced countries in comprehensive packages), and huge public investment in
expansion of productive facilities. In particular, it was found out that investing heavily on human
resource, productive capability and technology, accompanied by effective regulatory systems, makes a
significant contribution to the transformation the sector.
Drawing on inputs gained from global and regional analysis of steel industry, data obtained from the
analysis of various primary and secondary sources on Ethiopian steel industry, findings from PESTLE
and SLOC analysis, experiences gained from the comparative study and benchmarking, a National
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Steel Industry Policy (2015/16-2025), along with strategic objectives, strategic interventions and
implementation framework, has been proposed. The vision of the policy is to transform the Ethiopian
steel industry by exploiting locally available natural resources, importing essential resources for some
years to come, and adopting state of the art technology to ensure domestic self-sufficiency in terms of
production, consumption, quality and techno‐economic efficiency and gradually transit the industry to
export-oriented, thereby upgrading its profile to a Sub-Saharan leader by 2025.
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Contents
Executive Summary ..................................................................................................................................... III
List of Tables ................................................................................................................................................... XI
List of Figures .............................................................................................................................................. XIII
1. Background of the Study .................................................................................................................... 1
1.1 Objectives of the study .................................................................................................................. 2
1.1.1 General Objective ................................................................................................................... 2
1.1.2 Specific Objectives ................................................................................................................ 2
1.2 Study Framework and Methodology ......................................................................................... 2
2. Global Analysis of Steel Industry .................................................................................................... 7
2.1. Steelmaking processes and technology .................................................................................... 8
2.1.1. Raw materials .......................................................................................................................... 8
2.1.2. Steel industry value chain ................................................................................................. 14
2.1.3. Steel production technologies .......................................................................................... 15
2.2. Global production trend of steel .............................................................................................. 18
2.2.1. Worldwide crude steel production ................................................................................. 18
2.2.2. Regional analysis of steel production ............................................................................ 19
2.2.3. Major steel-producing countries ..................................................................................... 20
2.2.4. TOP 10 steel producing companies 2014 ..................................................................... 21
2.3. Global consumption trends of steel ........................................................................................ 21
2.3.1. True steel use (finished steel equivalent) ..................................................................... 22
2.3.2. Global steel use per capita ................................................................................................ 23
2.3.3. Steel demand by end-use industry .................................................................................. 23
3. Regional Production and Consumption Analysis of Steel .................................................. 25
3.1. Steel making process and technology .................................................................................... 26
3.1.1. Raw materials ....................................................................................................................... 26
3.1.2. Steel production technologies of Africa ....................................................................... 27
3.2. Regional production trend of steel .......................................................................................... 29
3.2.1. Africa‟s crude steel production trends .......................................................................... 30
3.3. Regional Consumption trends of steel ................................................................................... 31
3.3.1. Apparent steel use per capita (finished steel products) ............................................ 32
3.3.2. True steel use per capita (kg finished steel equivalent)............................................ 33
3.4. Analysis of regional steel trade ................................................................................................ 33
3.4.1. Leading exporters of semi-finished and finished steel products ........................... 33
3.4.2. Import of steel products ..................................................................................................... 34
3.4.3. Indirect net export of steel ................................................................................................ 35
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3.5. Global and regional steel demand drivers ............................................................................. 36
4. Assessment of Ethiopian Steel Industry .................................................................................... 37
4.1 Profile of Steel Industries .......................................................................................................... 38
4.1.1 The status of some selected steel industries ................................................................ 39
4.1.2 Enabling capabilities of local steel industries ............................................................. 46
4.2 An overview of performance of steel industries ................................................................. 50
4.2.1 Human resource capacity .................................................................................................. 51
4.2.2 Raw materials ....................................................................................................................... 55
4.2.3 Technological capacity ...................................................................................................... 58
4.2.4 Ethiopian steel industries value-chain ........................................................................... 61
4.3 Production trend of steel industries/firms ............................................................................. 63
4.3.1 Local production by sector ............................................................................................... 63
4.4 Challenges of the sub-sector ..................................................................................................... 72
4.4.1 Challenges of Ethiopian steel industries in 2007E.C ................................................ 73
4.5 Gross value of products of iron and steel industries (public and private) ................... 74
4.6 Value added ................................................................................................................................... 75
4.7 Market trend of steel industry in Ethiopia ............................................................................ 75
4.7.1 Domestic market share of local industries by product type .................................... 76
4.7.2 Indirect trade of steel products ........................................................................................ 76
4.8 Trends of different steel per capita consumption ................................................................ 77
4.9 Investment in the sector.............................................................................................................. 79
4.10 Potential steel demand drivers in Ethiopia ....................................................................... 79
4.11 Energy utilization..................................................................................................................... 81
4.12 Environmental standards ....................................................................................................... 82
4.13 Review of steel industry-related documents and studies.............................................. 83
4.13.1 Roles of steel industries in economic growth and development ............................ 84
4.13.2 Analysis of Ethiopian steel-related documents ........................................................... 85
4.13.3 Industry Development Strategy of Ethiopia ................................................................ 86
4.13.4 Ethiopian Industrial Roadmap ......................................................................................... 87
4.13.5 Investment incentives and regulatory frameworks .................................................... 88
4.13.6 Study conducted on Metal and Engineering Industries in Ethiopia...................... 89
4.13.7 National growth and development direction ............................................................... 90
5. PESTLE and SLOC Analysis ............................................................................................................. 93
5.1 Global and regional PESTLE analysis of the steel industry ............................................ 93
5.2 PESTLE analysis of Ethiopian steel industry ...................................................................... 94
5.3 Summary of SLOC factors ........................................................................................................ 97
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5.4 Selected critical policy issues ................................................................................................ 102
6. Comparative Analysis .................................................................................................................... 117
6.1. Raw materials ............................................................................................................................. 117
6.2. Human resource ......................................................................................................................... 122
6.3. Production ................................................................................................................................... 130
6.4. Technology ................................................................................................................................. 132
6.5. Support institutions ................................................................................................................... 135
6.6. Policy and regulatory frameworks ....................................................................................... 137
6.7. Market and finance ................................................................................................................... 145
6.8. Energy and environment ......................................................................................................... 147
7. National Steel Industry Policy: Vision, Goal, and Strategic Interventions ................ 152
8. Implementation Framework ...................................................................................................... 164
References ................................................................................................................................................... 173
Annex 1: Iron ore occurrence and deposits of Ethiopia .................................................................. 177
Annex 2: Summary of SLOC factors ................................................................................................... 178
Annex3: Experience from Benchmarking ....................................................................................... 180
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List of Tables
Table 1: Quality of Fe raw materials .......................................................................................................... 9
Table 2: Steelmaking raw materials, properties and application for steel product ..................... 10
Table 3: Global trend of scrap exports (Mt) .......................................................................................... 13
Table 4: Worldwide blast furnace iron production, ............................................................................. 16
Table 5: Direct reduced iron production ................................................................................................. 16
Table 6: Production of steel in electric furnace .................................................................................... 17
Table 7: Top 10 steel producing countries ............................................................................................. 20
Table 8: Top 10 steel producing companies (2014) ............................................................................ 21
Table 9: Global trends of true steel use 2009-2013 (Mt) ................................................................... 23
Table 10: iron ore export ............................................................................................................................. 26
Table 11: iron ore import ............................................................................................................................ 26
Table12: Africa‟s scrap import .................................................................................................................. 27
Table13: Iron production from blast furnace ......................................................................................... 28
Table14: Iron production from direct reduction ................................................................................... 29
Table15: Africa‟s steel production using electric furnace ................................................................. 29
Table16: Africa‟s crude steel production trends................................................................................... 30
Table 17: True steel use per capita ........................................................................................................... 33
Table 18: Export of semi-finished and finished steel products ........................................................ 34
Table 19: Distribution of major industrial by regional states (2007 E.C) ..................................... 49
Table 20: Human resource in metal and engineering subsector ...................................................... 51
Table 21: Comparison of local and expatriate employees (2003-2006 EC) ................................ 53
Table 22 Coal and limestone distribution ............................................................................................... 56
Table 23 Comparison of local and imported raw materials (ton) .................................................... 57
Table 24: Imported spare parts (ton) from 2002-2006 ....................................................................... 58
Table 25: Local construction sub-sector products ............................................................................... 64
Table 26: Design production capacity and actual production of major rebar producers .......... 65
Table 27: design capacity and capacity utilization of rebar producing industries ...................... 65
Table 28: Major local engineering and machinery products (2003-2007) .................................... 67
Table 29: Comparison of local and imported products of engineering machinery .................... 68
Table 30Vehicle and agricultural products ............................................................................................ 69
Table 31: Steel industry products of motor vehicle and agricultural equipment sector ............ 70
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Table 32 Comparison of local &imported products of motor vehicle &agricultural equipment70
Table 33 Aggregate expenditure on imported raw materials and steel products ........................ 71
Table 34 gross value of products of iron and steel industries (public and private) .................... 74
Table 35: Value added to national income ............................................................................................. 75
Table 36: Domestic market share of local industries by product type ........................................... 76
Table 37: Indirect imports and exports of steel (2004-2013) ........................................................... 77
Table 38: Growth of steel per capita consumption during GTP I ................................................... 77
Table 39: Apparent steel use ..................................................................................................................... 78
Table 40: True steel use (2004−2013) ..................................................................................................... 78
Table 41: Investment in the subsector ..................................................................................................... 79
Table 42: List of licensed metal/steel investment ................................................................................ 79
Table 43: Steel demand projection by 2025 .......................................................................................... 81
Table 44: Energy consumption by process (GJ per ton) .................................................................... 82
Table 45: Emission of iron and steel making technologies ............................................................... 83
Table 46: Projected growth of manufacturing industry ...................................................................... 92
Table 47: List of strengths (S) and limitations (L) .............................................................................. 97
Table 48: List of opportunities (O) and challenges (C) ...................................................................... 98
Table 49: SLOC analysis matrix ............................................................................................................... 99
Table 50: Automobile emission standards .......................................................................................... 113
Table 51: Raw materials ........................................................................................................................... 122
Table 52: Human resource related information ................................................................................. 128
Table 53: Steel production ....................................................................................................................... 131
Table 54: Technology................................................................................................................................ 132
Table 55: Support institutions ................................................................................................................. 135
Table 56: Major lessons from comparative analysis ........................................................................ 149
Table 57: Analysis of strategic interventions and policy issues ................................................... 164
Table 58: Evolving of techno-economic indexes of China steel industry ................................. 184
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List of Figures
Figure 1: Production, consumption, import and export of iron ore ................................................ 11
Figure 2: Regional base production, consumption, import and export of iron ore ..................... 11
Figure 3: Region base import, export and net import of scrap in 2014 ......................................... 13
Figure 4: Value chain of steel making ..................................................................................................... 15
Figure 5: Crude steel production trend from 2007-2014 ................................................................... 19
Figure 6: Steel production by geographical distribution 2004 and 2014 ...................................... 20
Figure 7: World steel consumption .......................................................................................................... 22
Figure 8: World steel demand by end products .................................................................................... 24
Figure 9: Share of Africa‟s crude steel production in 2013 & 2014............................................... 31
Figure 10: Share of crude steel consumption 2013 & 2014 ............................................................. 32
Figure 11: Share of crude steel consumption 2013 & 2014 .............................................................. 32
Figure 12: Indirect net export of steel ..................................................................................................... 35
Figure 13: Indirect import of steel (by commodity groups) .............................................................. 35
Figure 14: Steel use by sector .................................................................................................................... 37
Figure 15: 2006 E.C industrial distributions of steel industries ....................................................... 50
Figure 16: Comparison of local and imported products of construction sector in Mt ............... 66
Figure 17: Steel industry products of engineering and machinery sector ..................................... 68
Figure 18:local and imported products of motor vehicle and agricultural equipment .............. 70
Figure 19: Challenges of steel industries of Ethiopia ......................................................................... 72
Figure 20: Challenges of Ethiopian steel industries in 2007E.C ..................................................... 73
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Acronym
BF Blast Furnace
BOF Basic Oxygen Furnace
BRICS Brazil, Russia, India, Chinaand South Africa
CSA Central Statistical Agency
CIS Belarus, Kazakhstan, Russia, Ukraine
DRI Direct Reduced Iron
EAF Electric Arc Furnace
ECA Ethiopian Customs Authority
GDP Gross Domestic Product
IF Induction Furnace
IoTs Institute of Technologies
MIDI Metal Industry Development Institute
Mt Million ton
NAFTA Canada, Mexico, USA
SSPI Sustainable Steel Policy and Indicators
SSY Steel Statistical Yearbook
STU Science and Technology Universities
WSF World Steel Figure
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1. Background of the Study The Ethiopian government has been designing and implementing strategies and plans to
manage the overall development endeavors of the country and to achieve the key objective of
eradicating poverty and ensuring broad-based, accelerated, and sustained economic growth.
Among such plans, GTP I (2010-2015) and GTP II (2015-2020) are the most significant
development and transformation plans the country has ever seen. GTP I is unique as
compared to the past development plans of the country due to its high economic growth and
comprehensive development targets (11.2-14.9%). It was a plan that has cleared the ground
and paved the way for the desired transformation of Ethiopia into the status of a middle-
income country within 15 years, that is, by 2025.
Likewise, the ongoing GTP II is believed to move the nation into a historically new direction.
During the GTP II, the country strives to tune its growth direction from agricultural-led to
industry-led economy. In this development direction, the role of industries is, thus, extremely
desirable. This entails the need for industrial transformation, and our industries are expected
to align themselves towards the attainment of this vision demanded by the economy. When it
comes to the specific component of industry, the role of manufacturing comes to the fore
front of the development and transformation agenda.
Steel industry is one of the manufacturing industries that have been given due attention by the
government with the target of increasing the per capita of steel products and gradually
substituting imported products of this industry. In addition, steel industries are planned to
support other industries such as Leather, Textile, Cement, Agro-industries, Construction,
Vehicle and other industries by supplying them with spare parts and necessary products.The
implication of all of these is that steel industries will have many- fold impacts on the national
economy and that overhauling these industries requires the design of better polices and
strategies.
The purpose of this study was, therefore, to conduct national level in-depth investigation on
the development of Ethiopian steel industries with special emphasis on their challengesand
prospects in terms of their economic viabilities, human and material resources, technology,
environmental effects and the like. In the light of this, the study has drawn on primary data
2
generated through both quantitative and qualitative methods. The study has also utilized
secondary data by reviewing the existing national strategy documents on steel industries and
the experiences of the nations with success stories (South Korea, China, India, Brazil and
South Africa) as best practices, and eventually has come up with a policy option that will be
used as frame of reference for the next medium-term development plan of the country.
1.1 Objectives of the study
1.1.1 General Objective
The main objective of the study is to examine economic viability, technology transfer,
human and material resources, and financial sources of steel industries in Ethiopia with a
view to enriching and expanding steel industries to the desired level of development and
proposing ideas for policy decision and the way forward.
1.1.2 Specific Objectives
Based on the main objective, the specific objectives of the study are to:
identify problems, gaps, and stumbling blocks of steel industries and forward
policy recommendations;
pinpoint the economic viability of steel industries in the Ethiopian context and
examine the support system needed for their expansion and reinforcement;
based on local and international experiences, investigate into the kind of
technology transfer, human and material resources, and financial sources that
would enable the Ethiopian steel industries to expand and flourish to the required
level of development.
1.2 Study Framework and Methodology
1.2.1 Data Collection Methods
Primary Data
Primary data that are needed for the purpose of this study have been obtained through on-site
observations of production system/processes and products of the existing steel
industries/factories, survey questionnaire, and in-depth interviews with selected ministries,
Metal Industry Development Institute (MIDI), steel industry executives, steel experts,
Ethiopian Mechanical Engineering Association and others.
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Secondary Data
Secondary data were obtained from both international and national documents. The national
documents consulted for the purpose of this study include the Growth and Transformation
Plans (GTP I & GTP II) and GTP I evaluations, Ethiopian Industrial Roadmap, Ethiopian
Industry and City/Urban Development Policy and Strategy Document, different steel-
related studies (KOICA, JICA, MIDI) and other documents from the Ministry of Mining,
Ethiopia Power Authority, Ministry of City and Urban Development, Ministry of Industry,
Metal Industry Development Institute, Environmental Protection Authority, Geological
Survey, Planning Commission, Ethiopian Customs Authority, Ethiopian Railway
Corporation, Banks and other pertinent sources.
Benchmarking
The main objective of benchmarking is to draw lessons on the track and past trends of best
performing countries in the development of the steel industries in order to formulate better
policy options. In this regard, the focus of the benchmarking is exploring how backward
and forward linkages (inputs and output markets analysis) are identified. Further,
production process efficiency and technologies, application areas, environmental issues,
supply, distribution, downstream value chain and other factors will be considered. In
addition, the overall development and current situation of the steel industry in terms of
consolidation, production, capacity, consumption, employment and major macro-level
overhauls such as vertical integration, management and organization will be explored. For
this purpose, a visit was be made to China to benchmark the best practices in the steel
industry.
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1.2.2 Approach and Methodology
Team Formation & Detail Design Contract and Kickoff
Instrument Development Prel
imin
ary
Act
iviti
es
Mile
ston
e -1
: Situ
atio
nal
Ana
lysis
Data Collection
Primary Data On-site visit Questionnaires In-depth Interview FGD
Secondary Data Document
Analysis
Benchmarking China
SLOC & PESTL Analysis
Vision & Policy Option Objectives
Selection of Policy Options Mile
ston
e -2
: Fo
rmul
atio
n of
Pol
icy
Opt
ions
Drafts, Validation & Submission
Mile
ston
e -3
: V
alid
atio
n &
Su
bmis
sion
5
1.2.3 Project Activities
The following tasks are the constituents of the key activities of this project.
I. Preliminary Activities
Contract and Kickoff:
Contractual agreement for the project was prepared and signed by official representatives of
FDRE-Policy Study and Research Center and ASTU. A kickoff workshop had been
conducted before the actual project commenced. In the workshop, the core project team
members presented their understanding of the assignment and how they intended to
undertake the project. The inception workshop was meant to provide opportunity for all
stakeholders to know the general objectives and methodology of the project. The timetable
for the project and the different milestones in the different phases of the project were
presented. On the workshop, concerned stakeholders actively participated and provided the
necessary feedback and guidance and announced their acceptance on the plan.
Instrument Development
Questionnaires, interview questions, focus group discussion guides, and observation
checklists were developed from both primary and secondary sources.
Detailed Design and Team Formation
After the kickoff workshop, the core team prepared a detailed design of the project and
formed working teams based on division of assignments.
II. Milestone -1: Situation Analysis
On-site visits of production system/processes and products, observation of the
existing steel industries, and in-depth interviews with experts and sector
representatives.
Root cause analysis and assessment of the competitive position of the Ethiopian
steel industries. This was done by considering several indicators and through 5
“W” and 1 “H” approach to know the level of their competitiveness such as
business conditions, various input indicators (e.g. raw materials, energy
efficiency), which can be assumed to affect the competitive performance of the
6
steel industries, as well as process, output and performance indicators (i.e.,
quantity, quality, etc.). Moreover, focus was made on the trend of demand for
steel products and market prospects.
Analysis and assessment of relevant framework conditions for the
competitiveness of the Ethiopian steel industries, focusing primarily on the
regulatory conditions affecting the industries, that is, environmental regulations,
industry specific standards, competition policy, labor market, health and safety
regulations, and so on.
Data Collection: Using the instruments developed, data were collected from
groups identified as respondents for the purpose of developing this steel industry
policy options and strategies and by benchmarking steel industries of one
country.
Assessment on an extensive literature review and available statistical data to
explore strategic and policy options outlook for the Ethiopian steel industry,
focusing on likely developments, strengths, weaknesses and opportunities, threats
of the sector, and possible policy options.
II. SLOC & PESTL Analysis: Based on data obtained from identified respondents,
strengths, limitations, opportunities, and challenges of Ethiopian steel industry have
been identified. In addition, the political, economic, social and technological
environments of Ethiopian steel industry have been assessed. Therefore, both the
SLOC and PEST analyses have been done to identify key issues in strategic and
policy options of Ethiopian steel industry.
III. Milestone -2: Formulation of Policy Option
Based on the findings of the study,policy vision, goal, strategic objectives and
interventions have been formulated for the Ethiopian Steel Industry.
IV. Milestone -3: Validation & Submission
The first draft of the policy options document was prepared and presented on a
workshop that was organized for validation.
The final draft of policy option document was prepared based on the feedback
from the validation workshop and benchmark and submitted to FDRE-Policy
Study and Research Center.
7
2. Global Analysis of Steel Industry
Introduction
Steel is and will remain the most important engineering and construction material in the
modern world and it is at the core of a green economy in which economic growth and
environmental responsibility exist as a mutually beneficial partnership that serves the entire
globe.
Steel is vital to a sustainable development of economic growth and innovation. In 2014,
according to World Steel Reports, the annual revenue of the steel industry was 980 billion
USD. The industry invested 7.5% of revenue in new processes and products, and it
distributed 954 billion USD to society directly and indirectly, including 120 billion USD in
tax contributions and 8 million people worked for the steel industry (SSPI 2015).
Globally, steel is the backbone of manufacturing and is a strategic industry essential for
socioeconomic growth and stability. One of the specialties of steel industry is its global
leader in job creation; for example, in 2013 the steel industry directly employed more than
two million people worldwide, plus two million contractors and four million people in
supporting industries such as construction, transport, and energy. In short, the steel industry is
a source of employment for more than 50 million people (WSF, 2014).
Moreover, the global steel production and consumption have continued to grow at a rapid
pace, with emerging economies coming to the fore, in recent years. According to World Steel
Association (2015), in 1970 and 2014, steel production was 595 Mt and 1,665 Mt
respectively. The average growth of the steel production was 1.6% from 1970-1975 and 6.2%
from 2000-2005 but it dropped to 3.8% from 2010-2014 (WSF, 2015).
Global apparent steel consumption on the previous six years increased by 386.6 Mt (in 2009
it was 1,150.7 Mt but in 2014 it reached 1537.3Mt). On top of that, according to Global Steel
Market Outlook 2015, global consumption was forecasted to be increased by 0.5% and it
would reach 1544 Mt in 2015. For instance, the global average apparent steel use per capita
was 185.24 Kg in 2008 and 216.6 Kg in 2014 respectively(WSA,2015).
8
The production process for manufacturing steel is energy-intensive and requires a large
amount of natural resources. Energy constitutes a significant portion of the cost of steel
production, up to 40% in some countries. Thus, increasing energy efficiency is the most cost-
effective way to improve the environmental performance of this industry. To address these
issues, there has been significant investment in new products, plants, technologies and
operating practices. The result has been a dramatic improvement in the performance of steel
products, and a related reduction in the consumption of energy and raw materials in their
manufacture (SOCAT, 2010).
With this brief background, this chapter focuses on some of the prominent global issues such
as steelmaking process and technology, production, consumption, import and export trends.
2.1. Steelmaking processes and technology
Steel is the most complex and widely used engineering material. It is the pillar of
manufacturing and strategic industry essential for socioeconomic growth and stability. Due
to its versatile properties, it is everywhere in our lives such as construction, automotive,
machinery and equipment, energy supply, transportation system, urban centers, clean water
and safe food supply, defense and home security, appliance and others.
Steel making is the process of removing impurities such as sulfur, phosphorus, and excess
carbon from iron and adding alloying elements such as manganese, nickel, chromium, and
vanadium to produce the exact steel required. Its technology continues to evolve, but the
changes are incremental rather than fundamental. The main processes of crude steel
production have narrowed over many years and now only electric steelmaking is used based
on scrap and molten pig iron as basic inputs (SOCAT, 2010; Danish Technological Institute,
2008).
2.1.1. Raw materials
Steel industry is reliant on a number of raw materials, particularly iron ore, coal (coke),
ferrous scrap and various alloying elements for the steelmaking process. Iron ore provides the
ferrous content for steel, and is used almost exclusively by the steel industry. Coking coal is
used to produce coke, which is an essential element that provides heat and the carbon
required to remove oxygen from the ore. Ferrous scrap is the key ingredient in the electric-arc
furnace (EAF) route, where recycled steel is melted and subsequently rolled into new steel
products. Scrap is also used along with iron in basic oxygen steel furnaces (BOF), to reduce
9
levels of heat in the furnace. The amount and quality of iron (Fe) influences the selection of
specific furnaces for production of steel in addition to energy sources.
The details of iron ore with its specific iron (Fe) are summarized in Table 1 below
Table 1: Quality of Fe raw materials
No Name of iron ore Formula %Fe
1. Hematite Fe2O3 69.9
2. Magnetite Fe3O4 74.2
3. Goethite/Limonite HFeO2 ~ 63
4. Siderite FeCO3 48.2
5. Chamosite (Mg,Fe,Al)6(Si,Al)4 (OH)8 29.61
6. Pyrite FeS 46.6
7. Ilmenite FeTiO3 36.81
Source: Geological Survey of Ethiopia, 2010
For example, if the iron content of iron ore is above 65%, it is advisable to use DRI steel
production process from productivity point of view in which case Hematite and Magnetite
iron ore types are typical examples.
On the other hand, technically it is possible to improve the quality of steel products by adding
other additives to the scrap or pig iron as per required standards. Some of these additives and
properties are summarized as follows:
10
Table 2: Steelmaking raw materials, properties and application for steel product
No Raw material Properties in steel Steel industries share of use
1. Iron ore Provides the ferrous content in the steel 98%
2. Coking coal Produce coke, heat source and reducing
agent in BF >80%
3. Ferrous scrap
Main elements for EAF-steel, combined
with iron in BOF to reduce levels of heat 100%
4. Manganese
Desulpherises and as alloying element for
strength 90%
5. Silicon Used to de-oxidize steel 60%
6. Nickel
Anti-corrosion (nickel content in stainless
steel 8-10%) 60%
7. Chromium
Anti-corrosion (in stainless steel, average
content 18%) 75%
8. Zinc
Used to galvanize steel (enhance corrosion
resistance) 60%
9. Tin Brings protective coating to steel 20%
10. Molybdenum Resistance to heat, corrosion 60%
11. Vanadium Brings extreme hardness to steel 85%
12. Tungsten Brings extreme hardness to steel 20%
Source: OECD (2014).
Steel is an alloy; as the result, as indicted in Table 2, additives are essential for producing
steel products to have different properties which can be applicable for multipurpose; for
instance, if we add Molybdenum, the product will have a capability to resist heat and
corrosion.
2.1.1.1. Iron ore
The demand and supply of iron ore has been fluctuating from time to time. For example
during the first half of 2014, Australia was the largest iron ore exporter in the world, with
outward shipments amounting to 353 Mt, followed by Brazil with 157 Mt, South Africa with
33 Mt, Canada with 19 Mt and India with 8 Mt of iron ore exports.
During the first six months of 2014, the major iron ore importers were China (457 Mt), the
EU (68 Mt), Japan (65 Mt) and Korea (37 Mt), according to OECD 2014.
11
Furthermore, the production, consumption, import and export of iron ore of some selected
countries in 2013 (Mt) is given in the figure below.
Figure 1: Production, consumption, import and export of iron ore
Source: World Steel Association 2014
When it comes to the regional pattern of iron ore production, consumption, import and
export, the Asian countries take the lion‟s share as depicted in the following figure.
Figure 2: Regional baseproduction, consumption, import and export of iron ore
Source: World steel Association, 2014
12
2.1.1.2. Scrap
Scrap consists of recyclable materials left over from product manufacturing and
consumption, such as parts of vehicles, building supplies, and surplus materials.
Unlike waste, scrap has monetary value; especially, recovered metals, and non-metallic
materials are also recovered for recycling.
Recycling involves processing used materials into new products in order to prevent wastage
of potentially useful materials by reducing consumption of raw materials and energy usage,
by lowering air pollution, water pollution and greenhouse gas emissions as compared to
virgin production. Steel is the world‟s most recycled material; for example, according to
WSA (2015),650 Mt of steel are recycled every year, avoiding over 900 Mt of CO2
emissions.
According to a study by US Environmental Protection Agency, inrecycling scrap metals in
place of virgin iron ore, every ton of new steel made from scrap steel saves 1,115 kg of iron
ore, 625 kg of coal and 53 kg of limestone.Furthermore, recycling scrap metals in place of
virgin iron ore can yield 75% savings in energy, 90% savings in raw materials used, 86%
reduction in air pollution, 40% reduction in water use, 76% reduction in water pollution and
97% reduction in mining wastes. (http://www.norstar.com.au/, UnitedStates Environmental
Protection Agency)
2.1.1.3. Trade in ferrous scrap
In 2012, China and the European Union were the largest scrap generators, generating
approximately 125 Mt and 107 Mt of ferrous scrap respectively. In 2013, China‟s scrap
generation grew to 143 Mt, according to data from the Japanese Ferrous Raw Materials
Association (2014).
The figure below summarizes the regional import, export and net imports of scrap in 2014.
13
Figure 3: Region base import, export and net import of scrap in 2014
Source; Japanese Ferrous Raw Materials Association (2014), World Steel 2015
As indicted in Figure 3, the EU is the dominant importer and exporter of scrap, whereas
Africa is the least in both aspects.
2.1.1.4. Global exports of scrap
Globally, many countries have been engaged in scrap exporting. The table below summarizes
the trend of scrap export for six years (2009-2014) in some 8 nations of the world.
Table 3: Global trend of scrap exports (Mt)
No Name of the country 2009 2010 2011 2012 2013 2014 1. United States 22.439 20.557 24.373 21.397 18.495 15.340 2. Germany 7.275 9.176 9.034 8.924 8.378 8.433 3. Japan 9.408 6.472 5.453 8.594 8.150 7.351 4. United Kingdom 6.008 7.519 7.814 7.299 6.948 6.987 5. Russia 1.202 2.390 4.042 4.349 3.714 5.765 6. South Africa 1.144 1.224 1.436 1.632 1.485 1.486 7. United Arab
Emirates 0.731 1.231 1.271 1.004 0.920 1.162
8. Morocco 0.036 0.133 0.031 0.035 0.072 0.064 Sourece: WSA ( 2015)
14
2.1.2. Steel industry value chain
The steel industry value chain includes all the processes required to transform raw materials
(mainly coal, iron ore, and scrap) into finished steel products. Steel industry value chain
would include upstream stockholders (the suppliers of raw materials), downstream,
intermediaries (service centers, stockholding companies, and so on) and final customers
(producers of steel end products).
Based on the degree of vertical integration, steel making plants can be broadly classified in
two different groups, i.e. integrated plants and mini-mills.
I. Integrated steelmaking
The two most common routes are a blast furnace in combination with a Basic Oxygen
Furnace (BOF), commonly referred to as “integrated” steelmaking, and a principally scrap
based Electric Arc Furnace (EAF), commonly referred to as the “mini-mill” (SOACT,2010).
II. Mini-mill steelmaking
The direct smelting of iron-containing materials such as scrap is usually performed in electric
furnaces, known as mini-mills, which play an important and increasing role in modern
steelworks concepts. The major feedstock for the EF is ferrous scrap, which may comprise of
scrap from inside the steelworks, from steel product manufacturers (e.g. vehicle builders) and
capital or post-consumer scrap (e.g. end of life products).
Mini-mills utilize electric furnaces and mainly rely on scrap, and only partially on raw iron,
which is usually purchased as processed input. Nonetheless, some mini-mills are moving
toward upstream vertical integration, by adopting new iron-making technologies (e.g. direct
reduction iron making, smelting reduction) requiring relatively limited capital investment and
characterized by a minimum efficient scale lower than traditional blast furnaces. For
developing countries which are rich in scraps, it is recommendable to use electric furnace and
direct reduced iron instead of blast furnace.
15
Globally, the value chain of steel making process can be represented pictorially as shown in
figure 5.
Figure 4: Value chain of steel making
2.1.3. Steel production technologies
Selecting state of the art technology is crucial for producing high quality and diversified
products, taking into consideration the environment and energy. Among those technologies,
the types and capacity of furnaces used in steel production are decisive. The most common
furnace types are:
2.1.3.1. Blast furnace iron (BFI) production
A blast furnace is a shaft-like unitthat operates according to thecountercurrent principle. Iron
ore, coke,heated air and limestone or other fluxesare fed into the blast furnace. All iron
orecarriers contain oxygen, which has to beremoved through reduction in the blastfurnace by
using carbon as a reducing agent.
16
Table 4: Worldwide blast furnace iron production,
N0 Country Blast furnace iron production, 2009-2013 (In Mt) 2009 2010 2011 2012 2013
1. China 568.634 595.601 645.429 670.102 708.970 2. Japan 66.943 82.283 81.028 81.405 83.849 3. India 38.233 39.560 43.624 47.987 51.359 4. Russia 43945 47934 48.117 50.529 50.111 5. South Africa 4.444 5.429 4.604 4.599 4.960 6. Egypt 0.800 0.600 0.600 0.550 0.550
Source: WSF (2015)
2.1.3.2. Direct reduced iron (DRI) production
Direct reduction processes require a reducing gas to remove the oxygen from the iron
containing material in a solid state. The reducing gas is in the form of CO and/or H2. It
involves the reduction of iron ore to metallic iron in the solid state at process temperatures
less than 1000°C. DRI is a new process which uses gas rather than coke as a fuel, and it is
particularly cheap in countries with access to low-cost natural gas. DRI facilities are less
capital-intensive than traditional integrated plants and are efficient at smaller production
volumes.
Table 5: Direct reduced iron production
Source: Steel Statistics Year Book, 2015
As indicated in Table 6, India was by far the leading producer of steel using DRI from 2009
to 2014. From Africa, Egypt is a country with better experience in producing steel by using
this technology.
No Country Direct reduced iron production, 2009-2014 In Mt
2009 2010 2011 2012 2013 2014
1. India 22.030 23.420 21.970 20.050 16.893 20.366
2. Iran 8.099 9.350 10.368 11.582 14.458 14.551
3. Mexico 4.147 5.368 5.854 5.586 6.100 5.976
4. Russia 4.600 4.700 5.200 5.125 5.329 5.350
5. Egypt 3.051 2.965 2.932 3.068 3.432 2.882
6. South Africa 1.340 1.120 1.414 1.493 1.295 1.560
7. Libya 1.077 1.270 0.165 0.508 0.956 0.998
17
Additionally, crude steel can also be produced by using Open Hearth Furnace, but this
technology is not popular like the other technologies.
2.1.3.3. Electric furnaces
Steel production in an EAF typically occurs by charging 100 percent recycled steel scrap,
which is melted using electrical energy imparted to the charge through carbon electrodes and
then refined and alloyed to produce the desired grade of steel.
The Electric Arc Furnace (EAF) is a completely different technology for steel-making; it is
usually adopted in mini-mills. The main inputs for the EAF are scrap and electricity.
Electrodes installed within the furnace melt scrap through the heat created by an electric arc.
Limestone and other flux are added in the EAF to remove impurities from molten steel.
The size of EAFs ranges from very small units of 50 ton of capacity per cycle, to large
facilities that can charge up to 200 ton. An EAF processing only scrap uses 10% of the
energy needed by blast furnaces and BOFs, not accounting for the different inputs used in the
two routes. New technologies are enabling further reduction in energy consumption by pre-
heating scrap with recovered hot gases.
EAFs are economic and efficient at relatively small volumes of production compared to
BOFs, in particular because they can be easily shut down and restarted.
The summary of selected countries using Electric Furnaces is given in the following table.
Table 6: Production of steel in electric furnace
No Country Production of steel in electric furnace in Mt
2009 2010 2011 2012 2013 2014
1 Italy 14.036 17.163 18.843 17.939 17.295 17.200
2 Germany 11336 13.215 14.204 13.789 13.459 13.062
3 Spain 11.270 12.503 11.660 10.216 10.042 10.042
4 France 5.164 5.601 6.128 6.102 5.491 5.498
5 Egypt 4.700 6.075 5.940 6.100 6.215 5.970
6 South Africa 3.530 3.250 3.555 3.034 2.947 2.819
Source: SSY (2015)
18
2.2. Global production trend of steel
The global steel production and consumption have continued to grow at a rapid pace, with
emerging economies coming to the fore, in recent years. For instance, steel production in
1970, 2000, 2013 and 2014 was 595 Mt, 850 Mt, 1649 Mt and 1665 Mtrespectively.
Similarly, the average growth of the steel production was 1.6%, from 1970-1975 and 6.2%
from 2000-2005 although it dropped to 3.8% from 2010-2014. With regard to geographical
distribution, in 2014, 49.4% of the world‟s crude steel production was covered by China,
whereas the share of Africa was only 0.9%.
In 2014, the Middle East, the smallest region for crude steel production, had the most robust
growth. Crude steel production in the EU (28), North America and Asia grew modestly in
2014 compared to 2013, while in the C.I.S. and South America it decreased.
According to geographical distribution, in 2013and 2014, the crude steel production of China
was 48.5% and 49.4% respectively, but the ratio of Africa in 2013 and 2014 was only 1% and
0.9% respectively.
Thus, over the last couple of decades, increased demands are observed from emerging
economies, with Asia (mainly China and India) and United States accounting for more than
half of the world‟s consumption. Population and GDP growth continue to be the drivers for
consumption in these regions with steel demand directly linked to population growth as it
spurs demand for urbanization and infrastructure.
2.2.1. Worldwide crude steel production
Crude steel is defined as steel in its first solid (or usable) form: ingots, semi-finished products
(billets, blooms, slabs sheet metals, rolled coil…), and liquid steel for castings. The following
graph shows the global trend of crude steel production and growth rate from 2007 to 2014.
19
Figure 5: Crude steel production trend from 2007-2014
Source: World Steel Association 2015, Global Iron and Steel Market (Deloitte, September
2015)
The average growth rate of crude steel production has been fluctuating over the last more
than 40 years. For example, there had been steady decline in the growth of crude steel
production from 1970-1990, while it showed dramatic increase from 1995-2005. However,
this growth has begun to fall sharply since 2005.
2.2.2. Regional analysis of steel production
When we compare the crude steel production across regions, we can clearly observe the
dramatic shift of production capacity from EU to China between 2004 and 2014 as shown in
Figure 9.
20
Figure 6: Steel production by geographical distribution 2004 and 2014
Source: WSA, 2015
2.2.3. Major steel-producing countries
As can be observed from Table 7, China, Japan, United States and India were the leading
steel producing countries in 2013 and 2014.
Table 7: Top 10 steel producing countries
No Country 2013 2014 Rank 1. China 822 822.7 1 2. Japan 110.6 110.7 2 3. United States 86.9 88.3 3 4. India 81.3 83.2 4 5. South Korea 66.1 71 5 6. Russia 69.0 70.7 6 7. Germany 42.6 42.9 7 8. Turkey 34.7 34 8 9. Brazil 34.2 33.9 9 10. Ukraine 32.8 27.2 10
11. South Africa 7.2 6.5 23 12. Egypt 6.8 6.5 24
Source:World Steel Figure, 2015
21
2.2.4. TOP 10 steel producing companies 2014
International companies which have production capacity of more than 3 Mt are outlined
below.
Table 8: Top 10 steel producing companies (2014)
Rank Name of the company Name of own country
2010(Mt) 2011(Mt) 2012(Mt) 2013(Mt) 2014(Mt)
1. ArcelorMittal Luxembourg 98.2 97.248 93.575 96.096 98.088
2. Nippon Steel and Sumitomo Metal Corporation
Japan 35.0 33.388 47.858 50.128 49.3
3. Hebei Steel Group China 44.36 42.84 45.786 47.094
4. Baosteel Group China 37.0 43.34 42.7 43.908 43.347
5. POSCO South Korea 35.4 39.118 39.875 38.261 41.428
6. Shagang Group China 23.2 31.92 32.31 35.081 35.332
7. Ansteel Group China 22.1 29.75 30.23 33.687 34.348
8. Wuhan Steel Group China 16.6 37.68 36.42 39.311 33.051
9. JFE Steel Corporation Japan 31.1 29.902 30.409 31.161 31.406
10. Shougang Group China 14.9 30.04 31.42 31.523 30.777
Source: WSF (2014, 2015)
2.3. Global consumption trends of steel Global apparent steel consumption increased by 386.6 Mt over the last six years (from 2009-
2014). Particularly, it was 1,150.7Mt in 2009 and 1537.3 Mt in 2014. Out of the global
consumption, China accounted for 46.2% of world steel consumption with 710.8 Mt (Mt) in
2014, while the United States of America took the second rank by consuming 106.9 Mt (Mt)
in the same year.
From regional perspective, Asian countries were the leading consumers of steel by
consuming 1008.2 Mt, followed by EU, which accounts for 146.8 Mt. When it comes to
22
Africa, the annual consumption of steel was only 36.9 Mt (Mt), which accounts only for 2.4%
in 2014.
On the other hand, the world average steel use per capita was 185.24 Kg, 193 Kg, 217.8 Kg
and 216.6 Kg in 2008, 2010, 2013 and 2014 respectively (WSA,2015).From 2009-2014,
apparent steel use of countries was different from year to year, sometimes increasing and
other times decreasing.
Globally, the consumption trendsof steel and its growth ratecan be observedfrom the
following figure.
‟
Figure 7: World steel consumption
Source: WSA (2015), Global Iron and Steel Market (Deloitte, September 2015)
The forecast for steel consumption over the next two years will be expected to increase with
1.02 and 1.03 percent.
2.3.1. True steel use (finished steel equivalent)
True steel use (TSU) is obtained by subtracting net indirect exports of steel from apparent
steel use (ASU). The following table illustrates the trends of true steel use of some selected
countries of the world.
23
Table 9: Global trends of true steel use 2009-2013 (Mt)
No Name of the country 2009 2010 2011 2012 2013
1. Czech Republic 2.576 3.330 3.590 3.167 3.028
2. Germany 22.242 29.876 32.760 28.618 28.286
3. Italy 14.727 17.342 19.103 16.404 17.052
4. Russia 28.110 42.777 50.540 52.382 52.254
5. Turkey 16.182 22.320 25.908 27.115 29.80
6. Brazil 19.113 28.076 28 128 28 513 30 378
7. China 515.746 537.434 583.375 603.471 680.438
8. Japan 36.729 42.971 43.767 44.022 48.113
9. South Korea 29.085 33.768 35.555 35.133 35.587
10. Ethiopia 29.085 33.768 35.555 35.133 35.587
Source: SSY (2015)
2.3.2. Global steel use per capita
Growth in Gross Domestic Product (GDP) per capita, a measurement of the average national
standard of living, can be a contributing factor to steel demand. According to Global Steel
and world steel issue, increased industrialization caused by economic expansion has a
tendency to drive corresponding increases in steel consumption.
According to World Steel Association (2015), South Korea was the leading country by using
1118.8 Kg of finished steel per capita worldwide and Egypt was the leading in Africa by
using 113.7 Kg of finished steel per capita in 2014. Worldwide finished steel consumption
per capita was 217.8 and 216.9 in 2013 and 2014 respectively, but Africa was using only 31.6
and 31.9 Kg of finished steel per capita in the same year. Furthermore, according to WSA
(2015), globally, United Arab Emirates was the leading country in 2014 by using 1052.0 Kg
of true steel per capita and Algeria was the first from Africa with 198.0 Kg in the same year.
2.3.3. Steel demand by end-use industry
The majority of steel products are used by construction sub-sector followed by mechanical
engineering.
24
Figure 8: World steel demand by end products
Source: WSA (2014)
25
3. Regional Production and Consumption Analysis of Steel
Introduction
With the exception of South Africa and some countries in North Africa like Egypt, the steel
industry in the other African countries is still in a state of slumber. South Africa has a fully
developed steel industry and most of the generalisations that apply to most other African
countries would be out of place when one is referring to South Africa. At best, the industry
can be described as being in its infancy.
According to African Iron and Steel Association (2002), Africa‟s steel industry is scrap-based
steelmaking, which is dominated by very small steelmakers each with 0.040-0.050 Mt steel
capacity mainly producing small rebar, but no special steel are produced.
Moreover, African crude steel production has been increased from 13.827 Mt in the year
2000 to 15.022 Mt in the year 2014. Africa‟s share of crude steel production accounts only
for 0.89 % of the world in the same year (WSA, 2015).
Consumption of steel products follows the trend of economic activity in individual countries.
There is a clear trend for high levels of consumption of steel products at certain stages of
economic development, which are associated with rapid urbanization and construction,
combined with industrialization and the growth of manufacturing industry. Africa‟s share of
apparent finished steel use in the year 2004 was 1.6% of the world and it has increased to
1.8% in the year 2014, which accounts for 36.9 Mt (WSA, 2015).
26
3.1. Steel making process and technology
3.1.1. Raw materials
A healthy global steel industry needs widely available and freely traded raw materials,
because there is no self-sufficient country in producing all raw materials.
Table 10: iron ore export
No Country Export of iron ore in Mt
2009 2010 2011 2012 2013 2014
1 South Africa 44.559 47.971 53.343 54.002 62.763 64.799
2 Mauritania 10.296 11.109 11.484 12.255 13.076 14.599
3 Sierra Leone - - 0.051 3.961 11.996 19.190
4 Liberia - - 0.072 2.038 4.295 5.034
Africa 54.855 59.080 64.950 72.255 92.129 103.623
Source: SSY (2015)
African countries could play a key role in the coming years, because of their large mining
potential. South Africa takes the lion‟s share of producing and exporting raw materials for
steel making; the country accounted for 60.8% of Africa‟s total production of iron ore and
62.53% of its export of iron ore in 2013 (WSA, 2015).
Table 11: iron ore import
No Country Import of iron ore in Mt
2009 2010 2011 2012 2013 2014
1 Egypt 4.583 4.178 4.343 4.235 3.824 3.249
2 Libya 1.304 2.257 0.063 0.844 1.819 1.377
3 South Africa 0.352 0.401 0.417 0.558 0.476 0.479
4 Algeria 0 0.117 0.011 0.026 0 0
5 Other Africa 0 0.001 0.085 0.012 0.167 0.371
Africa 6.239 6.953 4.918 5.675 6.287 5.476
Source: SSY (2015)
In the year 2014, Egypt‟s import of iron ore covered 59.33% of Africa‟s import which ranked
the top from Africa followed by Libya and South Africa that accounted for 3.249 Mt, 1.377
27
Mt, and 0.479 Mt respectively. Both Egypt and Libya are net importers of iron ore, but the
continent is a net exporter.
3.1.1.1. Scrap
Ferrous scrap remains a dominant steel making raw material in many parts of Africa. The net
import of scrap in Africa was 1.2 Mt in 2014. In the same year, South Africa exported 1.486
Mt of scrap that makes it the leading exporter in the continent followed by Morocco,
Zimbabwe, Ghana, and Egypt which accounted for 0.064 Mt, 0.037 Mt, 0.032 Mt, and 0.023
Mt respectively (WSA, 2015).
Net export of South Africa‟s scrap was 1.4 Mt in 2014, but Egypt was the leading net
importer of scrap followed by Morocco.
Table12: Africa‟s scrap import
No Country Import of scrap in Mt
2009 2010 2011 2012 2013 2014
1 Egypt 1.299 2.736 2.644 2.021 2.891 2.971
2 Morocco 0.220 0.182 0.448 0.474 0.292 0.360
3 South Africa 0.041 0.054 0.032 0.011 0.028 0.101
4 Other Africa 0.080 0.013 0.018 0.018 0.40 0.019
Africa 1.639 2.985 3.141 2.524 3.251 3.451
Source: SSY (2015)
3.1.2. Steel production technologies of Africa
The raw materials used for the BF-BOF route are predominantly iron ore, coke (the fuel),
limestone (the flux) and scraps. In this process, iron ore is reduced to hot metal or pig iron,
and then the pig iron is converted to steel in the BOF.
Depending on the plant configuration and availability of recycled steel, other sources of
metallic iron such as direct-reduced iron (DRI) or hot metal can also be used in the EAF
route. In the year 2014, 25.6% of world total production of steel was covered by electric
furnace, but Africa‟s production of steel from electric furnace had the lion‟s share, which
accounted for 68.8% of total steel production in the continent. Steel production via the EAF
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route is expected to remain the major steelmaking process in the continent, according to
OECD 2015.
The DRI-EAF route has been the preferred steelmaking technology in the region due to its
lower capital expenditure requirements and because the region has a shortage of steel scrap
(OECD, 2015).
3.1.2.1. Steel production by blast furnace
Table13: Iron production from blast furnace
No Country Blast furnace iron production in Mt
2009 2010 2011 2012 2013
1 South Africa 4.444 5.429 4.604 4.599 4.960
2 Algeria 2.042 2.532 2.801 2.073 2.650
3 Egypt 0.800 0.600 0.600 0.550 0.550
Africa 5.924 6.725 5.564 5.499 5.810
World 933.625 1,035.120 1,104.651 1,124.263 1,168.397
Source:-WSA (2015)
After casting and rolling, the steel is delivered as coil, plate, section or bars. 73.9% of the
world‟s steel was produced using BF-BOF route in the year 2014, but Africa‟s steel
production using BF-BOF route accounted only for 31.2% because blast furnace requires
huge investment, a situation which is not convenient for developing countries. South Africa is
Africa‟s leading producer of steel with blast furnace which accounted for 4.960 Mt in the
year 2014 followed by Algeria and Egypt with a production of 2.650 Mt and 0.550 Mt
respectively in year 2013, as shown in the table above.
3.1.2.2. Direct reduced iron production (DRI)
Direct reduction processes require a reducing gas to remove the oxygen from the iron
containing material in a solid state. DRI is favored by electric arc furnace (EAF) steelmakers,
who blend it as a feedstock with lower quality scrap to improve the steel quality(SOACT,
2010).
DRI-based mini-mill projects are expected to raise the region‟s self-sufficiency (domestic
production as a share of demand) gradually. To increase their self-sufficiency and press
forward with industrialization, many upstream projects (mainly DRI based mini-mill plants)
29
have been planned. These projects are concentrated in North Africa and have the objective of
supplying steel for housing and infrastructure projects (OECD, 2015).
Table14: Iron production from direct reduction
No Country Direct reduced iron production in Mt
2010 2011 2012 2013 2014
1 Egypt 2.965 2.932 3.068 3.432 2.882
2 Libya 1.270 0.165 0.508 0.956 2.549
3 South Africa 1.120 1.414 1.493 1.444 1.560
Africa 5.356 4.511 5.069 5.832 6.991
World 70.505 73.250 73.433 74.718 64.088
Source: WSA (2015)
3.1.2.3. Electric furnace steel production
An electric furnace is a furnace that runs using electricity as its main power source to
generate heat. According to the manner in which electric energy is converted into heat,
electric furnaces are classified into electric arc furnaces (EAF) with a capacity of 1 to 400 ton
and induction furnaces (IF) with a capacity up to 20 ton. EAF route produces steel using
mainly recycled steel and electricity.
Table15: Africa‟s steel production using electric furnace
No Country Production of steel in electric furnace in Mt
2009 2010 2011 2012 2013 2014
1 Egypt 4.700 6.075 5.940 6.100 6.215 5.970
2 South Africa 3.530 3.250 3.555 3.034 2.890 2.819
3 Libya 0.914 0.825 0.100 0.315 0.712 0.712
4 Morocco 0.499 0.485 0.654 0.539 0.558 0.501
5 Tunisia 0.155 0.150 0.150 0.150 0.150 0.150
Africa 10.003 10.990 10.603 10.344 10.730 10.357
Source: WSA (2015)
3.2. Regional production trend of steel
According to WSA 2015, Africa‟s total crude steel production was 15.695 Mt in 2011 and
slightly decreased to 15.337 Mt in 2012, but it increased by 0.626 Mt in 2013. Africa, the
second populous continent in the world, produced15.022 Mt of steel, and this was 0.9 % of
the world‟s total crude steel in the year 2014.
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3.2.1. Africa’s crude steel production trends
Table16: Africa‟s crude steel production trends
No Country Total Production of crude steel in Mt
2009 2010 2011 2012 2013 2014
1 South Africa 7.484 7.617 7.546 6.938 7.162 6.550
2 Egypt 5.541 6.676 6.485 6.627 6.754 6.485
3 Libya 0.914 0.825 0.100 0.315 0.712 0.712
4 Morocco 0.499 0.485 0.654 0.539 0.558 0.501
5 Algeria 0.597 0.662 0.551 0.557 0.417 0.415
6 Tunisia 0.155 0.150 0.150 0.150 0.150e 0.150
7 Uganda 0.030 0.030 0.030 0.030 0.030 0.030
8 Kenya 0.020 0.020 0.020 0.020 0.020 0.020
Africa 15.400 16.624 15.696 15.337 15.963 15.022
Source: WSA (2015) South Africa and Egypt were the leading steel producing countries in Africa and 23rd and 24th
from the world respectively with the amount of 6.5 Mt and 6.48 Mt crude steel productions in
the year 2014. Steel accounts for 4.7% of the total South African manufacturing production
and is an important indicator of the overall health of the sector, as it feeds into other
manufacturing sub-sectors such as vehicles, fridges and other steel-based products (WSA,
2014).
According to the South African Iron and Steel Institute, ArcelorMittal South Africa Ltd is the
African continent‟s largest integrated steel producer, accounting for more than 70% of the
country‟s steel production. Ezz Steel ranked 65th of the world‟s biggest steel producing
companies in 2014, with a total production of 4.013 Mt ton, representing about three quarters
of Egypt‟s total annual production (WSA, 2014).
According to WSA (2015), South Africa and Egypt were both the leading crude steel
producing countries of the continent in 2013 and 2014, accounting for 88% of the continent‟s
crude steel production.
31
Figure 9: Share of Africa‟s crude steel production in 2013 & 2014
Source: WSA (2015)
3.3. Regional Consumption trends of steel
According to WSA (2015), Egypt, Algeria, South Africa, Nigeria and Morocco were the
leading consumers of crude steel accounting for 10.93 Mt, 6.859 Mt, 5.68 Mt, 2.154 Mt and
1.985 Mt respectively. In East Africa, Kenya was the dominant consumer with consumption
of 1.427 Mt followed by Ethiopia with 0.895 Mt in the year 2014 (WSA, 2015).
Africa is expected to be the top performing region in the world in terms of apparent steel
usage with growth of 7.4% from 2014-2015 and 4.9% from 2015-2016 (WSA, 2015). In
2014,North Africa consumed 58% of Africa‟s crude steel consumption followed by South
Africa and East Africa, which accounted for 17% and 10% respectively.
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Figure 10: Share of crude steel consumption 2013 & 2014
True steel use (finished steel equivalent)
Figure 11: Share of crude steel consumption 2013 & 2014
Source: SSY (2015)
3.3.1. Apparent steel use per capita (finished steel products)
According to WSA (2015),in 2014, Libya used 259.9 kg of steel products per capita and this
ranked the country as the 1st in the continent, followed by Djibouti and Algeria, which
accounted for 181.1kg and 158.5kg respectively. In the same year, Ethiopia ranked 26th in
Africa, 6thin East Africa and 4th from the six fastest growing Africa counties (Ethiopia,
Tanzania, Ivory Coast, Mozambique, D.R. Cong and Rwanda) with 8.6 kg per capita steel
consumption.
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3.3.2. True steel use per capita (kg finished steel equivalent)
According to WSA (2015), Algeria was the leading country in true steel use per capita (with
198 Kg)followed by Egypt and South Africa with per capita of 114.6 Kg and 114 Kg
respectively in the year 2013. From East Africa, Kenya used39.4 Kg of true steel per capita,
while Ethiopia used only 11.3 Kg of true steel per capita in the same year. The details of true
steel use per capita trends of selected African countries are depicted by the following table.
Table 17: True steel use per capita
No Country True steel use per capita (kg finished steel equivalent)
2009 2010 2011 2012 2013
1 Algeria 165.8 129.1 143.6 171.0 198.0
2 Angola 83.9 53.2 56.7 73.8 69.1
3 Cameron 15.6 16.3 18.0 19.7 18.4
4 Egypt 145.9 133.3 104.4 120.2 114.6
5 Ethiopia 10.0 8.2 8.8 10.8 11.3
6 Ghana 36.5 39.4 59.0 60.5 49.8
7 Kenya 27.3 27.0 38.2 31.1 39.4
8 Nigeria 19.3 16.2 20.5 19.3 22.3
9 Tanzania 15.7 16.1 18.9 17.7 23.2
10 Morocco 80.3 72.8 81.4 69.2 71.0
11 South Africa 89.8 102.8 113.9 111.5 114.0
Africa 56.6 51.2 52.5 55.4 57.6
Source: WSA (2015)
3.4. Analysis of regional steel trade
3.4.1. Leading exporters of semi-finished and finished steel products
From Africa, South African ranked first in export of semi-finished and finished steel products
with the share of 79.85% from Africa‟s total export of 2.929 Mt followed by Egypt and
Tunisia with the share of 12.59% and 2.86% in the year 2014 respectively. The following
table shows the trend of export for selected African countries.
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Table 18: Export of semi-finished and finished steel products
No Country Export of semi-finished and finished steel products in Mt
2009 2010 2011 2012 2013 2014
1 South Africa 2.844 3.018 2.567 2.216 1.888 2.339
2 Egypt 0.337 0.446 0.557 0.271 0.359 0.369
3 Morocco 0.024 0.064 0.169 0.141 0.092 0.047
4 Tunisia 0.096 0.149 0.160 0.099 0.070 0.084
5 Libya 0.095 0.124 0.092 0.047 0.009 0.003
6 Algeria 0.001 0.001 0.011 0.023 0.015 0.004
Africa 3.421 3.849 3.613 2.864 2.490 2.929
Source: WSA (2015)
3.4.2. Import of steel products In Sub-Saharan Africa, Nigeria‟s share of net import was 20% in 2012 followed by Angola
and Kenya with 12% and 10% of net import respectively, but Ethiopia‟s share of net import
was 8%. Africa simply exports its raw materials without value addition; because of this fact,
it is a net exporter of iron ore and a net importer of semi-finished and finished steel products.
The following graph illustrates the import trend of semi-finished and finished steel products
of top five importers.
.
Figure 12: import trend of semi-finished and finished steel products of top five importers.
Source: SSY (2015)
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3.4.3. Indirect net export of steel
According to WSA (2015), all African countries were net indirect steel importers. The trend
can be observed in the following figure.
Figure 13: Indirect net export of steel Source: WSA (2015)
The detail analysis of the components of indirect steel indicates that automotive trade
consumes more of indirect steel products followed by metal products and electric equipment.
This implies thatthe majority of African countries imported automobile products. The
following figure shows indirect import of steel in some selected African countries.
Figure 12: Indirect import of steel (by commodity groups) Source: WSA (2015)
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3.5. Global and regional steel demand drivers
Steel demand is primarily derived by construction, domestic appliance, electrical equipment,
mechanical machinery, metal products, automotive and others. As a result, the global steel
demand has grown at a healthy pace of 3.8% per cent on average during the last 5 years on
the back of strong demand registered in its end-user segments in the matured market and
from government spending in many emerging economies (WSA, 2015).
Construction: Construction is one of the most important steel-using industries, accounting
for more than 50% of world steel production. Increased government focus on construction as
well as infrastructure development is expected to further propel steel demand, as more
infrastructure development is required to sustain a GDP growth rate of many emerging
economies. The capital budget allocation towards mega infrastructure development projects
has increased over the years, leading to higher demand for steel in many countries. This is
because construction activity heavily depends on per capita income, GDP growth, the level of
housing inventory deficit, land ownership, urbanization, infrastructure and government‟s
policies such as tax incentives and higher budget allocation. The growing middle class along
with rising income levels significantly contributed towards the growth in the construction
segment.
Mechanical machinery: According to WSA (2015), 16 percent of the steel was spent
globally for mechanical machinery due to the rapid expansion of manufacturing and
industrialization.
Automotive: Automotive is also a key steel-consuming sector, absorbing 13% of global steel
use (WSA, 2015). A total of 89.5 million vehicles were produced in 2014. On average, 900
kg of steel is used per vehicle, totaling approximately to 80 Mt of steel used by the
automotive sector every year. According to WSA (2015), sectors like metal products and
other transports were the follower drivers of the steel industry accounting for 11% and 5%
respectively. For further information, see the following figure.
37
Figure 13: Steel use by sector Source: SSPI (2015)
4. Assessment of Ethiopian Steel Industry
Introduction
The fundamental purpose of this project, as stated elsewhere, is to conduct a comprehensive
investigation into the development of Ethiopian steel industries with special emphasis on
their challenges and prospects in terms of their economic viability, human capital, technology
and environmental effects.
The present chapter attempts to carry out an overall assessment of the status of steel industry
in Ethiopia. In particular, the chapter highlights the profile of steel industries and firms and
makes an analysis of the current performance of, and potentials for, steel industries and firms.
In the lights of development opportunities anticipated in the subsector during GTP I and GTP
II, the chapter also spells out the need to boost the productivity of Ethiopian steel industry to
meet the various multi-sectorial development needs.
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4.1 Profile of Steel Industries
The purpose of this section is to make an overview of the characteristics of steel industries of
Ethiopia as revealed through the profiles of selected companies of the industry. Firstly, a
brief summary of steel industries of the country has been made. Secondly, regional
distribution of the steel industry is presented followed by description of the status of selected
steel industries.
The Basic Metal and Engineering Industry (BMEI) is a sub-sector within the Manufacturing
Sector. Basic Metals Industries are concerned with the refining and production of raw metal
and primary metal products, while Engineering Industries are industries which use these
metal products as an input and fabricate them into various engineering products
(Development Strategy and Plan of action for Basic Metals and Engineering Industry, n.d).
The steel industry is found at a very low stage of development, but it is undergoing a
substantial growth. The range of products manufactured in this sector includes galvanizing of
sheets, pipes, reinforcement bars, nails, window and door frames, trusses, hand tools,
implements, pumps, and various metal fabrications;however, there is a huge gap as compared
to the demand of the country for steel products.In addition to the above products, there also
exist a couple of plants assembling automobiles, trucks and tractors. There are also some
industries which produce hand tools, spare parts, and cutleries.
During the last five years, the demand for steel products in Ethiopia has increased
significantly due to the boom in mega projects as well as infrastructure.
Currently, the industries use mainly imported raw materials such as billets, blooms, sheet
metals, coiled wire rods, galvanized coils, iron scarp and chemicals and locally available
scrap metals (CSA, 2005E.C)
The industries also use products imported from different countries such as Turkey, China,
India, and Ukraine. For example, in 2014, 17,294.040 ton net weight of agricultural
machineries and 1312524.162 ton net weight of different steel products (i.e. construction,
home appliances, spare parts etc.) was imported (ECA, 2015).
39
In the performance evaluation of GTP I, it is stated that the fabrication and engineering
capacity created in steel industry is promising. It is also stated that metal and engineering
(steel industry) is one of the manufacturing sub-sectors in which new investments have been
witnessed.
However, strong foundation has not been created for middle and high industry development
that would serve as spring board for our economic transformation. Like many other
subsectors of the manufacturing industry, this subsector has not been implemented as planned
even though there is improvement as compared to the situation in previous years.For
example, according to CSA (2005E.C), steel products significantly increased from 196,668
ton in 2004E.C to 529,255 ton in 2005 E.C.
4.1.1 The status of some selected steel industries
In 2006E.C, there were 2758 medium and large scale manufacturing industries in Ethiopia
out of which 241 were steel industries. This means that the steel industries account only for
8.7% of the manufacturing sector (CSA, 2007E.C).
The profile of some of the steel industries of the country is presented as follows:
A. Metal and Engineering Corporation (METEC)
The Metal and Engineering Corporation (METEC) was established as a corporation by the
government with a view to achieving the GTP goals. Before its promotion to its current status
as a corporation, METEC was known as Defense Industry Sector and it had been operating
under the FDRE Ministry of Defense mainly to satisfy the various needs of the national
defense.
METEC is a business enterprise with high corporate social responsibilities and a principal
leader among institutions entrusted with the mandate to accelerate the transition of the
country from agricultural-led to industry-led economy and, by giving priorities to our
industry development activities, to satisfy the demands of the government, defense,
stakeholders, and private sector.It was established with the following nine goals:
1. Designing production industries and manufacturing, installing and making them ready
for production by commissioning them;
Designing production industries
40
Manufacturing production industries
Installing and commissioning production industries
2. Renovating and improving production industries and institutions;
3. Producing industrial machines, capital instruments, and industrial spare parts;
Designing
Producing
Installing and commissioning
4. Based on the principle of partnership, creating an industry linkage that would enable
to expand and enrich engineering and technology capability;
Expanding and enriching
Creating an industry linkage on the basis of the principle of partnership
Expanding capabilities and creating job opportunity
5. Producing weapons and armaments for the National Defense and security forces;
producing, maintaining, renovating, and upgrading their spare parts and accessories;
6. In compliance with the law, conducting the sale of armaments, spare parts and
accessories produced by the company locally and abroad;
7. Building technological capabilities in defense matters; identifying future needs,
through research and development; ensuring macroeconomic stability;
8. Ensuring macroeconomic stability and, in compliance with the law, selling and
issuing bonds, negotiating and signing loan agreements with local and international
donors;
9. Undertaking other related activities in order to achieve its aims and objectives above.
The realization and implementation of the Growth & Transformation Plans is at heart
of METEC‟s activities.
METEC is by far the largest player in the metal products sector, with about a dozen of its
umbrella (12 large companies). It employed 13,000 employees (KOICA 2013), and the
current number of workers is more than 17,000. The corporation has a maximum authorized
capital of 10 billion birr (FORUM D‟AFFAIRES FRANCE-ETHIOPIE, 2014).
METEC has a tremendous potential for economic impact, for example, by investing in
research and development of new production capabilities for the country and transferring the
knowledge and technology to private firms. It also has large social impact, for example,
through employing 13,000 workers (KOICA, 2013) and engaging in large scale training of
41
unskilled workers in its own companies and other firms. Its full scope activities range from
engagement in large sugar factories and the Grand Renaissance Dam, to production of
electrical power equipment and vehicles, and to manufacturing of spare parts for industry.
Despite this, to date, reported capacity utilization is low within some of METEC‟s
enterprises, and there are potential areas of improvement in its marketing capabilities,
contract management, and engineering expertise. Across these areas is a need for greater
coordination with, and accessibility to, the private sector, whether buyers or suppliers.
List of major companies under METEC
1. Bishoftu Automotive Industry (BAI, Bishoftu);
2. Adama Agricultural Machinery Industry (AAMI, Adama);
3. Dejen Aviation Industry (DAVI, Bishoftu);
4. Ethiopia Plastic Industry (EPI, Addis Ababa);
5. Hi-Tech Industry (HTI, Legedadi);
6. Homicho Ammunition Engineering Industry (HAEI, Guder, 140km Out ofAddis);
7. Ethiopia Power Engineering Industry (EPEI, Burayu, 20km out of Addis);
8. Metals and Fabrication Industry (MFI, Addis-Lideta)
9. Adama Garment Industry (AGI, Adama city);
10. Hibret Manufacturing and Machine Building Industry (HMMBI. Addis Ababa);
11. Akaki Basic Metals Industry (ABMI. Akaki);
12. Gafat Armament Industry (GAI, Bishoftuaraea)
(Source: FORUM D‟AFFAIRES FRANCE-ETHIOPIE, 2014).
B. Mesfin Industrial Engineering PLC(MIE)
It was established in 1993 in the capital of the Tigrai Province, Mekelle, as the engineering
wing of the endowment fund for the rehabilitation of Tigrai (EFFORT). It was initially
founded with a paid capital of 7 million birr and its current paid up capital amounts to 909.37
million birr.
Starting its activity by giving maintenance services of vehicles and small-scale shop floor
duties and pertaining to its long time vision &implementation strategies, the industry is now
the leading equipment manufacturing and industrial engineering company in East Africa. It
designs and installs equipment and components for the energy, mining, manufacturing,
42
construction, transportation, and agricultural sectors. A wide range of products is
manufactured at its industrial complex on the land size of 120, 000m2 plus 30,000 m2 and
which is fully equipped with the state of the art machinery. Within its industrial complex,
MIE has the full capacity to manufacture and erect hydraulic power components such as
penstocks, steel liners, gate liners, gates, turbine elements and transmission. Its material
testing laboratory provides radiographic, ultrasonic and other tests; it is a high consumer of
steel products.
MIE has a modern design and production technology, and its current production capacity is
8,525 ton/year. The firm also has about 2,279 workforce engaged in production, capable of
designing various industrial and transportation machinery and equipment.
The major inputs of the company such as steel plate, steel sheet, axels, tire, electrical
accessories and auto mobile parts are mostly imported from countries such as China and
Turkey through the foreign purchase division, a system which uses the Internet to find
suppliers. The company supplies all its products and services to the domestic market.
The major customers of the company are affiliated transport, import and export, and
construction companies. The company also supplies products to private transport and
construction companies. Government projects obtained through competitive bidding are the
only markets for its electromechanical projects.
C. Maru Metal Industry (MMI)
This industry was established in 1975E.C as a simple auto workshop and maintenance service
provider. It has subsequently started making auto bodies for heavy trucks. Since 1991, the
firm‟s focus has overwhelmingly shifted to manufacturing and building in-house designed
metal products. At present, the firm has become one of the largest engineering and design
firms in Ethiopia.
Its activities include the assembly of cars, trucks, trailers and cargo bodies. It also designs
and produces customized versions of various types of trailers, cargo bodies, steel structures
and warehouses for both the local and international building and construction industry.
According to the data obtained from the company by the study team, the company had an
initial paid up capital of 9,000 Birr, while its current paid up capital amounts to
43
16,000million Birr. Regarding the source of fund, 60% of the fund is covered by the
company itself, while 40% is obtained from bank loan.
Currently, the company has 170 workers. The composition of workers includes 5 managerial
staff, 62 administrative support staff, 2 permanent local engineers, and 118 permanent local
technical experts. In terms of their academic qualification, 90 employees are below grade 10
and another 90 are TVET graduates, whereas 7 workers are university degree holders (5 first
degree, 1 second degree, and 1 a third degree).
D. Abyssinia Integrated Steel
It was established in 2001 (and started production in 2005) by two British nationals and a
Kenyan national as a PLC. The factory is located in Bishoftu, which is about 45 km from
Addis Ababa. The British owners (with a third Indian shareholder), in addition, own
Abyssinia Cement PLC (a mini plant, established in 2005) and Abyssinia Profiles PLC. The
firm is engaged in the production of re-bars. Its sister companies, Abyssinia Profiles and
Abyssinia Cement, are engaged in the production of angle irons and cement respectively. It
employs a total of about 1,000 people in all the three firms. The firm has average annual sales
of $42 million. The total assets are valued at about $30 million, and equity was reported to be
$25 million.
The shareholders previously owned a steel mill in Kenya and exported to Ethiopia. Seeing the
relative attractiveness of the Ethiopian industry relative to that of Kenya (due to lack of local
manufacturers, except for Zuquala Steel Rolling Mill Enterprise, which could supply the very
large and uncompetitive market in Ethiopia), they decided to shift their focus to Ethiopia.
Abyssinia Integrated Steel was established with a capital of about $3.5 million. It started with
one furnace and a rolling mill (imported from Kenya) producing re-bars. It entered Ethiopia
at the time when the government‟s large investment in low-cost housing began, offering
attractive payment terms, which enabled the company to finance its growth. Due to a steel
scrap disposal program established by the government via the Ministry of Defense, Abyssinia
Integrated Steel was able to acquire its main input (steel scrap) at low prices.
Abyssinia Integrated Steel has an annual production capacity of 75,000 Mt of re-bars. In the
sister business, Abyssinia profiles, angle iron and U-channel are produced with an annual
capacity of 20,000 Mt.
44
The top management for all the three affiliated firms is integrated into one management unit,
led by a general manager (employee) supervised by a managing director (one of the
owners).The firm scaled back its operation in 2008/09due to nationwide power rationing,
leading to unused capacity; however, it now plans to get back to normal levels of production.
E. Zuquala Steel Rolling Mill Enterprise
Zuquala Steel Rolling Mill Enterprise is a 100% state-owned firm located in Bishoftu. It was
established in 1997 through a proclamation of the Council of Ministers. During the onsite
visit, it was observed that Zuquala is engaged in the production of re-bars and structural steel
(reinforcement bar) (90%) and round bar (10%). It had about 280 employees, but most of the
workers are shifted to other sister companies due to failure of the program logic control
(PLC) system of the production process. In 2006/07 E.C, the enterprise had a sales volume of
about $13.7 million. Zuquala Steel has an estimated asset value of about $9.8 million, 80% of
which is financed by equity.
The factory was constructed during the previous command regime under the Ministry of
Defense to manufacture and repair battle tanks. The current enterprise was established when
the present government took power. The steel mill was purchased second hand from a South
African company, along with a skill-transfer scheme during the installation and trial phase.
The firm employs production of steel with furnaces (pre-heating oil furnaces). It also has an
advanced technology (automation) such as programmable logic control (PLC) S-7. It uses
locally available raw materials (billets) and imported materials (furnace oil & previously
billets from Turkey and China). The mill was expected to have an annual capacity of
100,000Mt. Despite this, the maximum capacity attained so far remains 19,450 Mt, as of
2006/07 EC.
Since the restructuring of the enterprise under the current regime, the firm has planned to
manufacture various types of structural steel products. However, as stated above, its actual
production is still limited to two types of structural steel, namely, re-bars and round bars.
45
Following an interruption of production in 2008/09, a business process review is underway.
The board of directors of the firm comprises various government officials. During the onsite
visit, it was observed that the firm has completely malfunctioned due to the failure of the
PLC system of the production process.
F. Akaki Basic Metals Industry
It is a state-owned industry currently operating under METEC. It was established in February
1989 as a national metal processing factory that was intended to produce spare parts (shafts,
rollers, sleeves, gears, sprockets, coil, springs, sugar mill rollers, ingot molds, armor plates
and cement balls), industrial hand tools, and cutlery.
Located at AkakiGumruk area, the company is situated on an area of 15000m2. It is currently
engaged in production of a variety of products such as mill rollers for Methara, Fincha, Omo,
and Beles Sugar Factories, sprocket, gears (pinion), crusher hammer, trash and scrapper plate,
steel, gray cast iron, nodular cast iron, high manganese, white cast iron,high chrome steel,
pre-cast iron.
The company has an annual melting and production capacity of 4,500 ton, 1.6 million pieces
and 600,000 pieces of spare parts, industrial hand tools and cutlery respectively. With regard
to its production rate, the company has a capacity of producing 600 ton/year, and it has a plan
to produce 38,673 tons for the melting process. With this rate of production, the company has
planned to register a total paid-up capital of 1,016,633,156 Birr (one billion, sixteen million,
six hundred thirty-three thousand one hundred and fifty-six).
The company uses technologies such as casting technology, heat treatment, machine
technology, electroplating, green sand molding no bake system, production of steel with
furnace (electric arc furnaces, basic oxygen furnaces) and medium frequency induction
furnace.
The company uses its sales shop in the capital to distribute its products to major customers
mainly to government-owned institutions such as sugar factories, power companies, cement
factories and construction companies.
46
In general, from the profiles of the selected industries above, one can get a general picture of
the status of steel industries in Ethiopia. The description is limited to these industries as these
are believed to be sufficient to reflect the current profiles of most steel industries in the
country. Based on site observations, primary and secondary data, and previous studies (e.g.
KOICA, 2013), one can characterize the Ethiopian steel industry as an industry that is „made
up of a few large producers and very many small firms producing in extremely small
quantities‟ (KOICA, 2013).
4.1.2 Enabling capabilities of local steel industries Even though the status of steel industries in Ethiopia is at its infant stage, there are significant
locally created capabilities by some industries that can be used as a stepping stone for further
development and transformation of this subsector. For example, the following insightful
capabilities have been already created in some of local steel industries:
a) METEC o Attempt to automate manual machineries o Application of reverse engineering
o Attention given to excel in welding
o Manufacturing of spare parts that otherwise consume huge foreign currency (e.g.
for Sugar Industry, Fertilizer Industry, The Grand Renaissance Dam)
o Building human ware competency in engineering and technology though pre-
service and in-service training
o Created managerial competency in decision making, planning, monitoring and
pioneering in technology intensive products
o Initiation of R&D activities (prototype, designing and researching in localizing)
b) Mesfin Industrial Engineering
o Producing spare parts for Mega projects such as accessories for the sugar
factories, and pipes for production (water, sugar cane, ...)
o production of tankers for fuel and water
o Manufacturing of trailer and semi-trailer
o Application of reverse engineering in heavy machineries and equipment
47
Summary of enabling capabilities of Ethiopian steel industries
Most of our steel industries are currently equipped with:
Scrap furnace
Cold & Hot Rolling Mill;
Machining; welding; forging, and
Manufacturing and assembling of new vehicles and trailers
Even though these medium-capacity instruments of scrap furnace and Cold & Hot Rolling
Mill had been initially established based on the type and quantity of products demanded by
the domestic market and the source of raw materials, there is an increasing domestic demand
for products that require Cold and Hot Rolling Mills of high capacity and Heavy Section. In
order to fill out these gaps, new industries are being established in the country.
The engineering industry is predominantly equipped with conventional machineries.
Recently, however, CNC (Computerized numerical control) machines, which are capable to
manufacture machinery parts that demand high level of sophistication and precision, have
been introduced. In addition to this, assemblies of new vehicles and manufacturing of trailers
have been established. As a result, the technological capacity of the sub-sector is being built.
The fact that the engineering industry is being equipped with the state of the art, building the
capacity of its professionals, and building production capacity with competitive price, and
materials that demand sophistication and precision is an indication of the presence of high
demand to move with the technology.
Even though the demand for capacity building and becoming the owner (user) of new
technology is taken as strength, the major challenge is the existence of skill gap in human
power capacity in utilizing the existing high level machines, a situation which can deter the
provision of products with the desired quantity and quality for the market created by
development programs. Because of skill gap in managing and utilizing the technology, it has
been impossible to replace imported products with domestic products by improving product
quality, productivity and competitiveness.
48
4.1.3 Regional distribution of steel industry
According to the Central Statistics Agency (2007 E.C), there were 241 small, medium and
large scale industries in the sub-sector. The geographical distribution of these industries
indicates that Addis Ababa City Administration contributes a share of 38.59% of the total
number of establishments, whereas Oromia, Tigray, SNNP, Amhara and Dire Dawa regions
contribute a share of 22.8%, 13.69%, 13.69%, 4.15% and 4.98% respectively.The fact that
the distribution of these industries is more concentrated in Addis Ababa and Oromia is
attributed to a number of factors such as market demand and infrastructure facilities.
On the other hand, it is possible to show the distribution of large and medium scale
manufacturing industries by regional states and industrial group, both public and private, as
indicated in the table below.
49
Table 19: Distribution of major industrial by regional states (2007 E.C)
Industrial Group Regional States Total
100%
Tigray Amhara Oromia E.Somalia Benshan. S.n.n.p.r Harari A/Ababa Dire-Dawa Manufacture of basic iron and steel 10 1 11 - - - - 13 3 38 15.77 Manufacture of fabricated metal products except Machinery and equipment
19 9 32 3 1 33 1 68 7 173 71.78
Manufacture of machinery & equipment N.E.C. 2 - 8 - - - - 9 2 21 8.71
Manufacture of motor vehicles, trailers& semi-trailers 2 - 4 - - - - 3 - 9 3.73
Total 33 10 55 3 1 33 1 93 12 241 100.00 % 13.69 4.149 22.82 1.245 0.41 13.69 0.41 38.59 4.98 100
Source: CSA 2007 As can be seen from the table, most of the industrial groups are located in Addis Ababa (93) followed by Oromia (55) and Tigray (33). It is
surprising to see that there is only one type of industrial group in the SPNN, i.e.Manufacture of Fabricated Metal Products except Machinery and
equipment (T=33) even though the region is one of the biggest regions in the country. Moreover, the Amhara Region has only 10 industries in
only 3 industrial groups.
Generally, an even distribution of industries among regions is lacking, and this situation implies the need for some intervention to somehow
balance the regional distribution of the industries among regions.
50
Figure 14: 2006 E.C industrial distributions of steel industries
4.2 An overview of performance of steel industries
On the basis of onsite observations and quantitative and qualitative data generated by the
project team on various steel industries, it is possible to make an overall assessment of steel
firms and industries in the country and indicate their current level of performance.
As stated earlier, Ethiopia has around 241private and state owned small and large scale steel
industries. Among the whole existing industries, primary data were collected through onsite
observationsand questionnaires, while secondary data were obtained from different firms and
industries which were purposively selected by their product type, production process, size
and installed production capacity. Data were also collected from varies ministries,
institutions, agencies and authorities. The following sections highlight the capacity and
performance of these and other industries in terms of major performance indicators by taking
into account such factors as human power capacity, raw materials, technological capacity,
production trend and value chain.
51
4.2.1 Human resource capacity
Even though the capacity in raw material provision is necessary for the steel industry, the
human power that operates on those resources is decisive and it should be taken into due
consideration. In addition to producing citizens equipped with basic knowledge, technical and
vocational training institutions and universities need to focus on skill upgrading and prepare
competent workforce which can utilize and transfer up-to-date technologies in the steel and
engineering sub-sector.
Based on the data obtained from the Central Statistics Agency (2004) on medium and large
sale industries and the information from industries covered in a study by MIDI, the number
of the human power engaged in various industries of the subsector over the last five years is
as follows.
Table 20: Human resource in metal and engineering subsector
R.N Type of the subsector Human power engaged in the subsector (E.C)
2002 2003 2004 2005 2006 2007
1 Basic metal industry 4,039 4,963 6644 7158 7706 8206
2 Fabrication industries other than machinery and equipment
10,115 6266 151498 16320 17569 18709
3 Machinery and equipment product industry
873 653 1063 1145 1233 1313
4 Vehicles and trailers industry 1,679 1,626 3721 4008 4315 4995
Total 16,706 13,508 26,577 28,632 30,823 32823
Source፡MIDI, 2007 The data collected by the institute indicates that the human workforce engaged in the
subsector constitutes 26,577 in 2004, 28,632 in 2005, 30,823 in 2006 and approximately
32,823 in 2007. As can be understood from these figures, the number of the workforce
joining the subsector has increased over the last three years with an average of over 2000
workers entering the subsector yearly.
On the other hand, data were gathered in the present project with regard to the number of job
opportunities created in various job positions providing employment for 17136 workers.
From the total number of employees in the sector, 2.6% are managerial staff, 24.47%
administrative support staff, 4.41% permanent local engineers, 31.92% permanent local
52
technical experts, 0.24% permanent expatriates and 36.6% temporary workers. From the
data, we can see that a more significant proportion of the workforce is composed of
administrative support staff and permanent local technical experts, and only negligible
numbers of engineers are engaged in the subsector. This implies the need for running the
industry with more qualified workforce such as engineers through employment or by
upgrading the professional qualification of the existing employees.
The human resource demand of steel industry cannot be satisfied by local employees alone
taking into consideration the low level of capacity the local human resource. The presence of
appropriate expatriate staffamong the local staff in the industry has a tremendous importance
in knowledge, skills and technology transfer thereby creating a better human resource
capacity and labor productivity. To this end, it is necessary to identify the degree of
participation of expatriate workers in various job positions of the steel industry.
53
Table 21: Comparison of local and expatriate employees (2003-2006 EC) Total number of employments of the sector
Types of
employee/year
2003 2004 2005 2006 local expat %
expat total local expat %
expat total local expat %
expat total local expat %
expat Total
Permanent production(Ethiopian and expatriate)
6932 64 0.92 6,996 7,747 71 0.91 7,818 14359 89 0.61 14,448 13,422 163 1.2 13,585
Seasonal and temporary 1201 _ _ 1,201 962 _ _ 962 1,147 _ _ 1,147 49,867 _ _ 49,867
Technical and supportive(Ethiopian and expatriate)
3,862 40 1.03 3,902 4,036 25 0.61 4,036 5,533 44 0.79 5,577 5,630 60 1.05 5,690
Total employment 11,995 104 0.86 12,099 12,745 96 0.75 12,816 21,039 133 0.62 21,172 68,919 223 0.32 69,142 Source: CSA (2007E.C), ECA (2007E.C)
As we can see from the data, the number of expatriate staff has grown from 104 in 2003 to 223 in 2006 although it is not clear from the data
whether or not this number was satisfactory to meet the requirement of the industry. Clearly, although priority should go to create job
opportunity for a much greater proportion of native workforce than foreigners, the engagement of the latter in the industry is undoubtedly
beneficial particularly from the perspective of skill and technology transfer.
54
It is clear that currently the following engineering and science fields of studies are offered in
most Ethiopian universities: Chemical Engineering, Mechanical Engineering, Automotive
Engineering, Agricultural Machinery Engineering, Applied Geology and Applied Chemistry.
These are general fields of studies which are not specific to iron and steel industries. In other
words, fields of study such as Mining, Metallurgy, Foundry, Alloy, and Materials Science
and Engineering, which are specific toiron and steel industries, are not provided in most of
our universities. Only Metallurgy (Defense University) and Materials Science and
Engineering (being offered at ASTU and Jima Universities for the first time) are currently
offered in Ethiopian academic institutions. Other than this, there is no steel-specific training
in our universities. For example, one of the key informants in the interview (an expert in steel
industry) has indicted that we do not have any training institute on welding, and neither do
we have certified welders. According to the informant, the companies employ professional
welders from the neighboring and other African countries and even from India. Similarly,
there is no institute that gives specific training on melting. There is nothing on foundry
operation and rolling mill, which requires its own specialty. This situation affects the quality
control of the product and productivity. Therefore, specific training is necessary on these
areas. According to this expert, there should be training targeting specific skills workers are
supposed to have in order to perform their duties competently. Since technology changes
from time to time, there should be dynamic and relevant education system.
However, the experiences of some of the BRICS countries, such as India, China and Brazil
indicate that steel-specific courses are widely offered in their universities. In addition to these
courses, short and long term, pre-service and in-service training is provided in the following
areas: Raw material preparation, Cock preparation, Sinter preparation, Iron making,Steel
making, Rolling and forging, Process control automation, Plant management along with
energy and environment, Production, Quality improvement and process and R& D on
machineries (furnace, forging and heat treatment etc.)
According to a key informant from MIDI, another challenge in connection with human power
is shortage of the workforce in the subsector as experienced workers often leave industries
because of a number of reasons such as better benefits, better working conditions, and
location advantages. So, there is shortage of skilled human resource since there is high
turnover, particularly among TVET graduates.
55
4.2.2 Raw materials
Ethiopian steel industries do not rely on iron ore from the local market, but they
predominantly import raw materials such as furnace oil, billets, and additives, rolled strip and
galvanized steel. They get only scrap and small amount of semi-finished products from the
local market. However, the availability of the scrap in the local market is not enough; as a
result, most of the industries are using imported raw materials for producing different steel
products. Besides, there is a big concern with the low quality of scrap (which is grade 40)
used by industries. According to an expert from steel industry, this is due to lack of
knowledge and skill in determining the combination: light scrap, medium scrap and heavy
scrap and whether it is cast iron or pure steel or thin scrap. These combinations should be
taken into account when importing scrap, and this requires knowledge and skill rather than
technology.
This situation has resulted in heavy reliance on importing raw materials rather than exploring
potential local resources. Even though there is no iron ore processing plant, the country has
iron ore potentials that can be explored to ease the heavy dependence on imports. For the
details of iron ore potentials of the country (quantity, location and type of the ore), see Annex
1.
56
Table 22 Coal and limestone distribution
As stated above, most of raw materials used in the steel industries in Ethiopia including
scraps are imported from various parts of the world. The table below presents scraps and
major types of raw materials imported over the last five years.
4.2.2.1 Local and imported raw materials
A comparison of local and imported raw materials is necessary in order to have a more
complete understanding of the magnitude of our reliance on local resources on the one hand
and on various types of imported raw materials on the other. The following table compares
the quantity of various local and imported raw materials (in tons) for 5 consecutive years
(2002-2006 EC). It is also possible here to identify the quantity of raw materials consumed
during these years and the trend of consumption.
No Mineral type Area (province) Name of deposits Minerals (Mt)
1
Lime stone
Tigray Messebo Limestone 69.5
Shewa Mugher Limestone 50.0
Shewa Kella Limestone 2.6
E.Harareghe Hakim Gara 90.0
E.Harereghe Dire Dawa 46.00
E.Harareghe Delgachebsi 3.25
Amhara and Oromia Jemma limestone 1110.0
Wonchiti 2270
Total 3641.35
2 Coal Illubabour Yayu Coal 121
Jimma Delbi Coal 14.00
Jimma Moye Coal 27.00
Gondar Chilga Coal 19.70
Wello Wuchale Coal 3.30
W.Wellega Nejo Coal 3.00
Shewa Mush Valley Coal 0.30
Dowero/SNNPR Gojeb-Chida Coal 9.38
Total 197.68
3 Natural gas Arba-minch, Ogaden 4.7 trillion cubic feet
57
Table 23 Comparison of local and imported raw materials (ton) Description of article
2002E.C 2003E.C 2004E.C 2005E.C 2006E.C
Local Imported Total Local Imported Total Local Imported Total Local Imported Total Local Imported Total
Galvanized coils
- 4,647 4,647 - 1,420 1,420 - 1,128 1,128 400 4,174,792 4,175,192 - 92,210 92,210
Iron scarp 1,965 - 1,965 34,662 14 34,676 160 - 160 1,255 - 1,255 213 - 213
Steel sheets 38 9,365 9,403 52,417 810 53,227 94 6,864 6,958 - 629,670 629,670 - 195,681 195,681
Wire rod - 4,104 4,104 - 524 524 - 4,356 4,356 - 5,524 5,524 1,547 5,088 6,635
Zinc - 876 876 - 611 611 - - - 157 - 157 - 4,142 4,142
Iron (billet) - 1,969 1,969 1 6 7 12 7,351 7,363 166 14,759 14,925 8 66766 66774
Pig iron 1,275 1,275 152 530 682 6,167 2,259 8,426 5,686 2,216 7,902 100 151 251
Iron bars 7,676 5,923 13,599 262 1,826 2,088 53 349 402 23 5,360 5,383 573 - 573
Chemicals for metal
- 10,702 10,702 1 20 21 1 18 19 109 14 123 89 5 94
58
Unsurprisingly, the quantity of imported raw materials outweighs that of local resources for
almost all types of raw materials indicated in the table except for local scraps. If we look at
scraps, we can see a tendency of decreasing in consumption across the years especially
beginning from 2004. This could be due to lack of scraps or unwise use of scraps as one of
limited local raw materials for our steel industry.
In addition to the aforementioned imported materials, a considerable quantity of spare parts is
imported from various countries. The following table shows the amount of spare parts
imported from 2002 to 2006 EC.
Table 24: Imported spare parts (ton) from 2002-2006
Year Quantity (ton)
2002 3,409.917
2003 3,667.661
2004 3,097.207
2005 5,713.651
2006 1,945.500
The information in the table shows that there was no steady growth in imported spare parts
nor was the growth significant over the years except some leap in 2005, which was followed
by a sudden and sharp drop in 2006. This sudden drop of imported spare parts can be put
down to a number of factors such as substitution by local products.
4.2.3 Technological capacity
Technological capacity of an industry can be considered in terms of material resources used
in the process of production on the one hand, and knowledge, skills, expertise, and creativity
of employees involved in the process, on the other hand. Furthermore, it can be assessed by
human resource development endeavors of industries such as provision of continuous skill
upgrading. Above all, technological capacity should be viewed from the industry‟s R & D
activities which are essential to its development and transformation.
59
In the light of these components of technology, attempts have been made in this project to
assess the steel industries in terms of their infrastructure, skilled workforce, human resource
development initiatives, and R&D activities.
Most of the steel industries are equipped with outdated technologies, but a few industries
have been observed using latest technologies. Among the technologies which are used for
melting of scraps are induction and electric arc furnace with lower capacity. Imported billets,
coil wires, coil sheets and plates are processed through rolling, bending, and welding by
using hot rolled, cold rolled, EGA profiling line, sheering line, automatic machine, PLC,
CNC (Computerized numerical control) and automatic heat treatment to produce finished
products.
Most of the industries have reported the prevalence of skill gap and a number of other
impediments in relation to their human power, a situation which has a direct bearing on
technological capacity of the industries. Major challenges which confront them in this regard
are:
Low job satisfaction among employees and subsequent high turnover;
Low productivity due to faction and absenteeism;
Lack of educated and skilled human power;
Shortage of human power on quality audit of products;
As regards human resource development, the industries have reported both opportunities and
challenges. Some of the favorable conditions reported are:
Knowledge and skill transfer to new employees through in-house training by own
senior and qualified staff;
Upgrading employees‟ academic qualification;
Providing on-the-job training opportunities to produce own qualified human power;
Knowledge and technology transfer from expatriates;
Knowledge and technology transfer during copying of products;
However, the industries also experience a range of impediments that deter their efforts to
increase their technological capacity through capacitating their human power. The major
challenges confronting the industries in this regard are:
Lack of continuous or periodical training;
High turnover;
60
Insufficient budget allocation for training ;
Lack of policy in general and a policy for knowledge and technology transfer in
particular;
Lack of using reverse engineering for knowledge and skill transfer;
Shortage of dedicated human power and lack of management commitment;
Lack of well-organized coaching and monitoring practices
As stated above, one of the factors that determine the level of technological capacity of an
industry is the presence and effectiveness of its R&D. During onsite visits and data
collection, it was found out that most of the industries have no R&D department except
METEC, the largest corporation in Ethiopia with a good stand in steel-related production. In
fact, the corporation also plays a leading role, not only in R&D but also in overall technology
transfer activities. In accordance with the information obtained from a key informant from
the corporation, METEC first considers the appropriateness of a technology for the country in
terms of solving technological deficiencies. Then, the source of the technology is considered,
that is, whether it is available locally or globally and whether it is vertical or horizontal. It is
then expected that the required technology transfer and development will take place. This
means that the technology is adapted by using innovation, and in this process, knowledge and
the patent ownership is claimed. In METEC, they carry out the technology transfer process in
many ways.
1. Coproduction: using available design technology and being innovative in production
technology;
2. Under license production: producing locally on behalf of foreign companies using their
brand, patent, and design;
3. Reverse engineering: focusing on the production system while making modification on
the product as it may lead to a question of license, otherwise;
4. Acquisition: obtaining technology through purchasing especially from bankrupt
companies;
5. Expert-based: technology transfer by creating experts, working collaboratively with
foreign companies, and creating joint venture
Generally, every technology transfer involves certain process of technology innovation as it
is impossible to transfer technology through mere imitation. Regarding R&D in METEC, it is
conducted in this direction. Even whenever the R&D personnel travel abroad for various
61
reasons, they are expected to observe and bring home the best practices in R&D. Besides,
there are different centers of excellence in relation to R&D.
Regarding the nature of R&D in Ethiopia, an experienced expert from the steel industry
believes that it is mismanaged in our country. According to him, R&D should normally be
well managed from idea generation up to marketing, but the research conducted in this sector
is endless and it is not result-oriented.
Again, the expert emphasizes the necessity of integrating the technology package within the
country and utilizing it through capable citizens of the country. This is also another way of
promoting knowledge and technology transfer, and this requires support from the government
side. There are many workshops that have huge hardware that can work on quality, but they
do not have a design house and this is a problem of many of them. If there is a design house,
it is possible to manufacture many things locally. There is a need to push and provide support
in this area as well. Overall, the government needs to support the industries intensively in
finance, human resource and technology.
4.2.4 Ethiopian steel industries value-chain
Based on the observation of the study team, most of the steel products currently produced in
Ethiopia can be classified as downstream products, which use easy production technology.
The finding of this study is compatible with the study conducted by JICA (2010). The detail
process of Ethiopian steel industry value chain is summarized in the following figure.
62
Section
mill
Imported
Electric Arc Furnace
(EAF)
RollingScrap Continuous casting Main products
Raw
Mat
eria
ls
Slab
Bloom
Billet
Hot
dire
ct ro
lling
Plate mill
Cold rolled coil & sheet
Welled pipe
Plate
Wire rod
Seamless mill
Rail
Shape
Bar
Wire rod mill
Seamless pipe mill
Welded Pipe mill
Cold rolling
Rolled Sheet
Rolled Coil
Plate
Sheet pile
Ethiopian Value-chain of Steel making process
Figure 15: Value chain of Ethiopian steel industries
63
4.3 Production trend of steel industries/firms The local steel industry products can be classified as flat, long and round products. As shown
below, these products can be manufactured for various sectors which utilize most of the steel
products. The total annual production capacity of local steel industries was 1.378Mt in 2006 E.C
and it was estimated to be 1.486 Mt in 2007 E.C (MIDI, 2007 E.C). On top of that, there are also
firms that produce indirect steel products such as assembly of automobiles, trailer, tractor and
their accessories.
According to an expert from steel industry, based on global definition, crude steel, continuous
casting steel, and heavy casting are input for other industries. Finished product is an additional
field. In Ethiopia, there is no industry that produces crude steel. That is to say, there is no
industry that supplies input for subsequent industry by taking iron ore or mixing it with scrap and
other raw materials such as coal and limestone. Continuous casting steel producers are also
limited: only three out of the twelve mills. Even these three mills are small in size and they have
low speed. It is possible to conclude that such technology has not yet entered the country. There
is no heavy casting for billet production and machinery parts. Akaki Spare Parts cannot be
considered as steel company according to world-class definition. In short, Ethiopian is at
infantile stage in steel sector technology. Yet, unless the country is determined and begins using
these technologies, the steel sub-sector will reach nowhere. Fifty per cent of the country‟s
foreign currency is consumed by this sector.
Concerning the past performance of the industry, the capacity was 12,000 ton per annum (as
there was only one industry). Now, the capacity has reached more than 1,000,000 ton per year as
twelve mills have been established. Unfortunately, the technology has not shown radical change.
The 12 industries simply duplicated the old technology; they haven‟t introduced a breakthrough
in technology.
4.3.1 Local production by sector
Local steel industries can also be classified in terms of the sector for which they mainly
manufacture their products: Construction, Engineering & Machinery, Motor Vehicle and
Agricultural Equipment industries.
64
i. Construction sub-sector
This subsector is one of the rapidly expanding development sectors in the country. The ongoing
construction of mega projects such as hydroelectricity dams, railways, and bridges can be cited
as large scale development projects in the construction sector. Moreover, private and state
buildings and residential housesare flourishing in cities and towns all over the country. In a
nutshell, the construction sector is booming amazingly.
As steel is one of the major construction materials in this aggressively growing economy, its
supply should cope with its constantly increasing local demand through importing steel products
and producing some materials in the country. In this regard, it is vital to identify construction
materials or products that are fabricated using locally created capacity. The table that follows
displays various construction products made in the country and the quantity of their production
during a period of five years (2002-2006 EC).
Table 25: Local construction sub-sector products
No Name of products Unit 2002 2003 2004 2005 2006
1. Iron Bars tons 16,674 30,279 9,216 19,173 6,252
2. Wires ,, 8,792 7,846 2,693 1,024 102,445
3. Nails ,, 1,520 10,663 26,544 47,817 31,272
4. Iron Sheets ,, 464,304 147,299 80,845 240,744 185,345
5. Metallic Door SQ.M 106,379 29,674 30,217 5,142 514,224
6. Metallic Window SQ.M 95,525 12,843 12,533 13,024 18,515
Source: CSA (2007E.C)
Although these products may not serve heavy-duty construction, their contribution to medium-
level construction purposes, substituting imports and saving foreign currency cannot be
neglected. As can be seen from the table, the quantity of these products fluctuates from year to
year despite our expectation of a significant increase in quantities of these products from one
year to the other.
Reinforcement bar: Currently, there are about 11 operational industries which produce
reinforcement bar, with a total designed capacity of 1,191,860 tons per annum. The three
65
leading producers of this product are East Steel PLC, Steely RMI PLC, and Yesu PLC, each with
a design production capacity of 300,000, 270,000 and 180,000 tons respectively (MIDI, 2007).
Yet, if we compare the design production capacity of these industries with their actual
production during 2003-2007 EC, we see a big disparity between them as shown below.
Table 26: Design production capacity and actual production of major rebar producers
Name of industry Design production capacity in ton
Actual production (ton)
2003 2004 2005 2006 2007
East steel PLC 300,000 0 0 0 32696.87 125,312.00
Steely RMI PLC 270,000 0 0 0 90,948 138,550.68
Yesu PLC 180,000 9,868.71 14,358.19 0 1,401.15 0.00
Source: CSA (2007E.C); MIDI (2007E.C); ECA (2007E.C) In fact, a similar trend is observed among many other rebar producing industries. This situation
clearly indicates a serious under capacity utilization of these industries.
According to MIDI (2007), there are 5 industries under the new project and expansion phase
with additional capacity of 1,751,500 tons. In 2007 EC, the actual production for reinforcement
bar industries was 386,270 tons, which is 32.41% compared with the designed production
capacity in the same year. The data below compare designed capacity (ton), actual production
(ton) and capacity utilization (%) of reinforcement bar for a period of 5 years (2003-2007 EC).
Table 27: design capacity and capacity utilization of rebar producing industries
Year 2003 2004 2005 2006 2007
Designed capacity (ton) 390,671 424,112 432,097 1,191,860 1,191,860
Actual production(ton) 91,124.00 138,846 127,873.00 297,331.33 386,270
Production efficiency (%) 23 32 30 24.94 32
Source: CSA (2007E.C); MIDI (2007E.C); ECA (2007E.C) From this, we can understand that, even though they have relatively high design capacity, these
industries are currently operating with low capacity utilization. Corrugated iron sheet/EGA sheet:With regard to the design production capacity, actual
production, and capacity utilizationof industries of these local construction products,there are 6
66
galvanizing as well as corrugating industries with a designed production capacity of 327,855 tons
per year.There are also over 12 corrugating industries with a designed production capacity of
over 244,075 tons per year and around 5 pre-painted galvanized iron (PPGI) corrugating
industries with a designed production capacity of over 124,121 tons per year. This means that,
totally, there is a production capacity of more than 696,051 tons for corrugated iron sheets and
EGA sheets per year. Moreover, there are 2 industries under a project phase with a production
capacity of 200,000 tons. However, when the production efficiency of these industries is
considered, it can be concluded that there are operating very much under their capacity or with
very low capacity utilization. In 2006 EC, the actual production for corrugated iron sheets/EGA
sheets industries was 144,187.74 tons which is 20.72% compared with the designed production
capacity.
Comparison of local and imported construction products
When we compare the quantity of local and imported construction products during a period of
four years (2003-2006 EC), it appears that there is no significant difference in the quantity of
local products and imported products. In the following figure, we can see that, in some years, the
quantity of the former outweigh that of the latter.
Figure 15: Comparison of local and imported products of construction sector in Mt Source: CSA (2007E.C); MIDI (2007E.C); ECA (2007E.C)
67
ii. Engineering and Machinery
The Engineering and Machinery subsector comprises industries which produce machines, spare
parts, bolts and nuts, transformers, crown corks, and other products. One of the major of these
industries is Hibret Manufacturing Industry, which is engaged in manufacturing of major
construction and machinery products such as different conventional lathe, CNC milling machine,
high value spare parts and products of capital instruments and aggregates. Overall, the industry
has manufactured 1,324,530 different products from 2003-2007E.C.
The following table summarizes information related tothe production of major local engineering
and machinery products by all industries (production in million tons and production efficiency)
over the last 5 years.
Table 28: Major local engineering and machinery products (2003-2007)
Major products Production (Mt) & efficiency (%)
Production year (E.C) 2003 2004 2005 2006 2007
Armaments, machinery, spare parts, transformer assembly
Production in Mt 0.161 0.224 0.271 0.331 0.426 Efficiency (%) 25.76 31.78 45.08 36.88 45.16
Source: CSA (2007E.C); MIDI (2007E.C); ECA (2007E.C)
As can be seen from the table, both production quantity and efficiency have increased every
year. While production quantity increased by 0.06625 Mt on the average between 2003 and
2007, production efficiency increased by 4.85%. Even though this increasing trend in production
is encouraging, the rate of efficiency is so negligible.
In the figure that follows, the percentage of overall engineering and machinery products (both
local and imported) consumed over a period of 4 years (2003-2006 EC) is presented.
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Figure 16: Steel industry products of engineering and machinery sector
Source: CSA (2007E.C); MIDI (2007E.C); ECA (2007E.C)
Comparison of local and imported engineering machinery products A comparison of local and imported engineering machinery products is necessary in order to
have a more complete understanding of the contribution of our industries in manufacturing these
products as compared to imported products. The following table compares the quantity of
various local and imported raw materials (in Mt) for 4 consecutive years (2003-2006 EC). It is
also possible here to identify the quantity of raw materials consumed during these years and the
trend of consumption.
Table 29: Comparison of local and imported products of engineering machinery
2003 2004 2005 2006
Local (Mt)
Import (Mt)
Total (Mt)
Local (Mt)
Import (Mt)
Total (Mt)
Local (Mt)
Import (Mt)
Total (Mt)
Local (Mt)
Import (Mt)
Total (Mt)
0.224 0.015 0.239 0.272 0.001 0.273 0.331 0.018 0.349 0.427 0.015 0.442
Source: CSA (2007E.C); MIDI (2007E.C); ECA (2007E.C)
As seen clearly from the data, the quantity of local products is much greater than that of imported
products. What is more, the production quantity increased steadily between 2003 and 2006, and
on the average, the production of these products increased by about 0.0677 Mt during these
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years. Putting both local and imported products together, we can also see that the consumption
grew from 0.239 Mt in 2003 to 0.442 Mt in 2004, with a difference in growth of consumption of
0.218 Mt products.
iii. Motor vehicle and agricultural equipment
It is obvious that the production process of this sector requires more advanced technology, skills,
and design &production capacity. In Ethiopia, the major industries engaged in assembling of
motor vehicle and agricultural machineries are Mesfin Industrial Engineering, Bishoftu
Automotive Engineering, Agricultural Machinery Industry, Maru PLC, Belay AB PLC, Lifan
motors and Nigat Mechanical Engineering PLC.
To illustrate the products of this sub-sector, two industries, namely, Bishoftu Automotive
Industry and Adama Agricultural Machinery Industry, which are engaged in production of a
variety of vehicles and agricultural machinery, are shown in the table below.
Table 30Vehicle and agricultural products
Name of the industry
Type of products/ Types of vehicle
Number of vehicle assembled per year 2003 2004 2005 2006 2007
Bishoftu Automotive Industry
Heavy duty vehicles 486 357 297
Bus 389 280 131 328
Light duty vehicles 227 516 428 330
Total 1,102 1,153 559 955
Adama Agricultural Machinery Industry
Tractor 444 4956 1943 986 1031
Implement 284 1407 2179 2056 1624
Water pump - 1078 3718 1681 310
Total 728 7,441 7,840 4,723 2,965
Source: CSA (2007E.C); MIDI (2007E.C); ECA (2007E.C)
In general, the production and efficiency of the motor vehicle and agricultural equipment sector
is summarized as follows.
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Table 31: Steel industry products of motor vehicle and agricultural equipment sector
Sector name
Major products Production year (E.C) 2003 2004 2005 2006
Vehicles
Leaf springs, dump truck, trailers, cargo body, van body, fuel tank, car assembly and other engineering works
Production in Mt
0.045 0.003 0.022 0.009
Efficiency (%)
32.91 11.4 35.20 44.33
Comparison of local and imported motor vehicle and agricultural equipment products A comparison of local and imported motor vehicle and agricultural equipment products is
necessary in order to have a more complete understanding of the contribution of our industries in
manufacturing these products as compared to imported products. The following table and figure
compare the quantity of various local and imported raw materials (in Mt) for 4 consecutive years
(2003-2006 EC). It is also possible here to identify the quantity of motor vehicle and agricultural
equipment products consumed during these years and the trend of consumption. Table 32 Comparison of local &imported products of motor vehicle &agricultural equipment
2003 2004 2005 2006 Local (Mt)
Import (Mt)
Total (Mt)
Local (Mt)
Import (Mt)
Total (Mt)
Local (Mt)
Import (Mt)
Total (Mt)
Local (Mt)
Import (Mt)
Total (Mt)
0.03 0.091 0.121 0.022 0.119 0.141 0.009 0.174 0.183 0.0075 0.014 0.0215
Figure 17:local and imported products of motor vehicle and agricultural equipment Source: CSA (2007E.C); MIDI (2007E.C); ECA (2007E.C)
As seen clearly from the data, the quantity of imported products is much greater than that of local
products.
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Table 33 Aggregate expenditure on imported raw materials and steel products S/No 2002 net
weight(ton) 2002 CIF value(ETB)
2003 net weight(ton)
2003 CIF value(ETB)
2004 net weight(ton)
2004 CIF value(ETB)
2005 net weight(ton)
2005 CIF value(ETB)
1. Vehicles 48,685 4,226,199,688 74,060 7,874,458,178 88,695 9,728,170,294 113,650 12,189,131,377 2. Earth moving 13,390 1,143,623,729 15,641 1,456,090,311 25,146 3,169,160,672 53,239 5,823,830,084 3. Spare parts 3,410 477,620,577 3,668 478,287,379 3,097 550,494,424 5,714 1,016,464,501 4. Transformers 9,349 779,823,519 4,596 1,040,036,576 3,169 376,012,539 9,437 1,488,757,437 5. Manufacturing
equipment 362 37,423,206 4,890 164,776,520 793 199,606,654 1,249 85,629,814
6. Tractors 1,922 234,636,081 1,550 205,093,536 5,092 620,283,144 7,575 980,903,301 7. Electronics
equipment 7 9,053,202 7 9,142,146 5 1,979,452 9 6,094,087
8. Raw materials 34,624 2,580,655 546 72,092,802 895 137,096,408 1,970 306,380,759 9. Wire rods 45,549 339,017,065 23,296 262,843,314 48,222 671,825,407 59,584 793,077,219 10. Reinforcement
bars 196,977 1,389,047,822 124,009 1,407,523,673 326,072 4,551,610,275 268,016 3,580,359,510
11. Corrugated iron sheets
24,538 321,315,690 8,396 150,600,331 10,874 218,411,030 26,992 512,975,893
12. Iron and non-alloyed steel wires
12,311 128,815,311 8,872 136,850,872 8,169 142,728,849 16,514 265,378,713
13. Crown Cork 2,221.75 80,285,977.80 1,943.86 90,425,330.55 2,659.68 142,912,115.65 2,488.66 133,419,073.21 14. Hollow sections 52,239 474,871,313 21,689 278,484,274 10,220 158,735,931 9,148 134,541,461
Aggregated 445,585 9,644,313,836 293,164 13,626,705,243 533,108 20,669,027,195 575,586 27,316,943,229
The major source countries of these imports are Turkey, China, Ukraine, Taiwan, Korea, Cote d'Ivoire, Kenya, Djibouti, Sudan, Italy,
Japan, Russia, Belarus, France, Germany, Spain, South Africa, UK, Egypt, Belgium, Tunisia, Australia, Netherlands, Israel, Indonesia,
Portugal, Zambia, Malaysia, Pakistan, Cuba, Denmark, Austria, Poland, Finland, Brazil, Czech Republic, Singapore, Cameroon,
Canada, Romania, Zimbabwe, Ghana, Botswana, and Congo.
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When it comes to financial implication, the country incurs a significant amount of foreign
currency equivalent to 9.6, 13. 836, 27.19 and 27.316 billion birr for the years 2002, 2003,
2004 and 2005 E.C respectively.
4.4 Challenges of the sub-sector
Figure 18: Challenges of steel industries of Ethiopia Source: CSA (2007)
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4.4.1 Challenges of Ethiopian steel industries in 2007E.C
Figure 19: Challenges of Ethiopian steel industries in 2007E.C Source: Own computation
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4.5 Gross value of products of iron and steel industries (public and private)
Table 34 gross value of products of iron and steel industries (public and private)
Industrial Group Gross value of production (in '000' ETB)
2003 2004 2005 2006
Manufacture of basic iron and steel 2,563,704 2,807,278 3,701,968 5,946,877
Manufacture of fabricated metal products except machinery and equipment
3,099,514 7,160,943 10,368,127 11,437,211
Manufacture of structural metal products, tanks, reservoirs and containers of metal
2,204,329 4,480,376 8,790,257 10,295,444
Manufacture of cutlery, hand tools and general hardware
78,022 100,904 26,235 39,112
Manufacture of other fabricated metal products 817,163 2,579,663 1,551,635 1,102,655
Manufacture of motor vehicles, trailers& semi-trailers
776,088 1,150,492 5,463,992 5,454,249
Manufacture of parts and accessories for motor vehicles and their engines
776,088 1,050,316 5,448,117 5,392,355
Manufacture of passenger cars, commercial vehicles and busses
- 100,176 15,875 61,894
Sub-sectors total gross value 6,439,306 11,118,713 19,534,087 22,838,337
% share of the subsector from manufacturing sector
12 11 17 18
TOTAL gross production of manufacturing sector 52,325,424 93,088,051 112,920,004 125,809,697
Source: CSA (2007 E.C)
As indicated in the above table the gross value of the sector reached about 23 billion birr in
2006 E.C. The contribution of manufacturing sub-sector to GDP in 2006E.C was about 5%,
while the share of iron and steel industry to the manufacturing sector was about 15% on
average.
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4.6 Value added
Table 35: Value added to national income
Industrial Group (at basic pricein '000' ETB)
2003 2004 2005 2006
Manufacture of basic iron and steel 522,863 506,894 585,824 672,445
Manufacture of fabricated metal products except machinery and equipment
1,053,082 1,298,594 1,887,289 1,983,442
Manufacture of structural metal products, tanks, reservoirs and containers of metal
295,467 895,278 1,572,033 1,744,579
Manufacture of cutlery, hand tools and general hardware
19,104 40,989 1,422 13,743
Manufacture of other fabricated metal products 776,719 362,327 313,834 225,120
Manufacture of motor vehicles,trailers& semi-trailers
156,577 493,099 1,381,488 456,164
Manufacture of parts and accessories for motor Vehicles and their engines
156,577 477,132 1,367,643 435,963
Manufacture of passenger cars, commercial vehicles, and busses
- 15,967 13,844 20,200
Sub sector total value added 1,732,522 2,298,587 2,929,277 3,112,051
%share of Value added to manufacturing sector
11 13 11 9
TOTAL Value added by manufacturing sector 14,723,186 17,161,007 25,179,723 32,093,308
Source: CSA (2007 E.C)
As depicted on the above table, the value added of the sector to themanufacturing sector is
about 11% on average and does not show significant growth rate over the years under
consideration (from 2003-2006). On the contrary, it even sharply decreased in the year 2006.
4.7 Market trend of steel industry in Ethiopia
It was observed, during onsite visits and data collection, that the domestic market trend has
indicated an increase throughout the last 5 years (2003 – 2007E.C.). On the contrary, none of
the visited industry and firm has reported any export of its products. This shows that the
export market trend of Ethiopian steel industry for the last 5 consecutive years was
negligibledue to a number of unfavorable conditions such as scarcity of raw materials,
unused potential of country resources, lack of global competitiveness, lack of skilled
workforce, and lack of technological advancement.
The steel markets are considered to be under-developed in terms of both quality and quantity,
with potential to strengthen domestic enterprises.
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On the other hand, the informants who participated in the in-depth interview have indicated
that the government has to set clear market entry and exit strategy for the industry in all
aspects (product quality, environmental standards, technology, etc.) and strict standards for
imported steel products that harm the domestic industry and the national interest. Moreover,
they have also recommended the need for strong cooperation and coordination among
regulatory bodies to implement these activities. The informants have also raised the issues of
gradual outward-oriented marketing strategies through developing their competitive
capabilities as there is huge potential market from neighboring courtiers since most of them
are steel importers. For example, according to the informants, the Ethiopian steel industries
are not competitivecurrently in terms of both quality and cost. Even in quantity, they have
low capacity utilization and low production quantity. This again limits their level of
competitiveness. If we consider their real exchange rate, their production cost in raw
materials, fuel, and other imported input is in hard currency. The industries are also poorly
competitive in real exchange rate as everything comes from abroad.
4.7.1 Domestic market share of local industries by product type
Table 36: Domestic market share of local industries by product type
Types of products 2003E.C 2004 E.C 2005 E.C 2006 E.C
Corrugated iron sheet/EGA sheet 91% 92% 86% 76%
Reinforcement bar 42% 30% 32% 55%
Hallow section 49% 80% 85% 79%
Nails and wires 49.06% 34.54% 35.08% 29.69%
Machinery and equipment‟s 96.79% 93.86% 96.52% 94.74%
Vehicles 3.20% 15.42% 5.15% 34.21%
Average 55.27% 57.64% 56.63% 61.44%
4.7.2 Indirect trade of steel products
According to the Steel Statistical Yearbook (2015), indirect trade in steel represents the
amount of steel exported or imported through trade in steel containing goods and is expressed
in finished steel equivalent of products used.
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Table 37: Indirect imports and exports of steel (2004-2013)
Imports/Exports Years (2004-2013) thousands of ton
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Indirect imports 110 185 254 280 291 351 412 339 302 263
Indirect exports 2 0 0 3 3 4 7 3 1 0
Indirect Net Exports of Steel
-108 -184 -254 -277 -287 -346 -405 -336 -301 -263
Source: SSY (2015)
4.8 Trends of different steel per capita consumption
In GTP I, it had been planned to increase the annual per capita consumption of the country
from 12 kg in 2002 to 34.72kg at the end of the plan. Although the implementation of per
capita consumption seems unsuccessful during the GTP 1 period as compared to its plan, it
has grown from 12 kg in 2002 to 25.68 in 2007.
Table 38: Growth of steel per capita consumption during GTP I
Description Fiscal Year
2002 initial year
2003 2004 2005 2006 2007* Average
(2003-2007)
Average per capita consumption plan in kg
12
14.23
17.78
22.23
27.75
34.72
23.34
Performance average per capita consumption in Kg.
- 9.73 14.6 17.75 20.36 25.68 18
Performance average per capita consumption in %
- 68.4% 82.1% 79.9% 73.4% 73.96% 27.91%
*Note: The calculation of steel per capita consumption is based on the amount of steel
imported and local scrap consumed for production. The performance of the 2007 FY is
estimation.
Considering that Ethiopia‟s economy is among the top performing economies in Sub-Saharan
Africa and the economy is expected to grow in double digits for the foreseeable future, it is
quite reasonable to expect that Ethiopia‟s per capita steel consumption in about 10 years‟
time will reach at least consumption level of middle income countries.
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The data summarized in the tables below are adapted from the latest edition of Steel
Statistical Yearbook (2015). The data are intended to demonstrate the recent trend in various
uses of steel in Ethiopia: apparent steel use and true steel use.
Apparent steel use involves apparent steel use (crude steel equivalent), apparent steel use
per capita (crude steel equivalent), apparent steel use (finished steel products) and apparent
steel use per capita (finished steel products).
Table 39: Apparent steel use
Types of steel use Years (2005−2014) (crude steel equivalent and finished steel products)
2006 2007 2008 2009 2010 2011 2012 2013 2014 Apparent steel use (crude steel equivalent) in thousands of ton
224 441 316 543 332 490 745 860 895
Apparent steel use per capita (kg crude steel) 2.8 5.5 3.8 6.4 3.8 5.5 8.1 9.1 9.2
Apparent steel use per capita(kg finished steel products)
2.6 5.1 3.5 5.9 3.5 5.1 7.5 8.5 8.6
Source: SSY (2015)
True steel use includes true steel use (finished steel equivalent) and true steel use per capita
(finished steel equivalent). Table 40: True steel use (2004−2013)
True steel use Years (2004−2013)
True steel use (finished steel equivalent) in thousand ton
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
- - 461 686 581 852 715 793 996 1066
True steel use per capita (kg finished steel equivalent)
5.9 8.5 7.0 10.0 8.2 8.8 10.8 11.3
Source: SSY(2015) The summary of steel uses, as indicated on the above tables, shows that, in 2013,the true steel
use per capita and apparent steel use percapita of Ethiopia was 11.3 Kg and 9.2 Kg
respectively. This is very low when compared with the Africa avaerage (57.6 Kg) and world
average (249 Kg) of true steel use per capita. Again, true steel consumption per capita is very
low in Ethiopia as compared to lower middle income country like Kenya (39.4Kg) in the
same year.
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4.9 Investment in the sector The recent development and investment of the sector and list of licensed metal and metal
product investment projects from July 18, 2014 - April 01, 2015 G.C is summarized in the
following table.
Table 41: Investment in the subsector
Number of investor 42
Initial capital 541,290,000 birr
Permanent employee 1669 6116
Temporary employee 4447
The following table illustrate the list of licensed metal/steel investment projects from January. 01, 1992 to August 03, 2015. Table 42: List of licensed metal/steel investment
No Category of the investment Number 1 Foreign 48 2 local 332 3 Joint venture 10
4.10 Potential steel demand drivers in Ethiopia
The study team has analyzed the current situation of the county, future growth and
development directions and the practical situation on the ground regarding the steel
production and imports to come up with steel demand projection in Ethiopia. The main
criteria considered for this projection are:
1) Middle income countries average
The average consumption of apparent steel of selected middle income countries whose
experiences with regard to steel is discussed in the comparative analysis of the study
excluding China(for it is an upper middle income country) has been used. The counties
included are: South Africa, Nigeria, Kenya, Brazil, India and Africa average. The apparent
steel consumption of these countries was taken from the data by World Steel Association
(2014).
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2) Ethiopia‟s economic growth and transformation direction
It is clear that the Ethiopian government is determined to transform the economy from
agricultural-led to industry-led during the ongoing Growth and Transformation Plan of the
country.In the course of the entire process of economic growth and transformation of the
country, there is a huge demand for the steel sector products. The core demand drivers for the
steel industry are: expansion of infrastructures, establishment of industry parks (7.4 Mt for
the next ten years), continuous investment in mega projects, housing programs (4.9 million
houses for the next ten years) and so on. These drivers will escalate the demand for steel
products in the future.
Moreover, the manufacturing sector is given due attention as it is a key sector to ensure the
economic structural transformation that the country aspires for. As steel industry is a
component of the manufacture sector, it has to grow fast, at least parallel with the growth rate
of the manufacturing sector in order to contribute for the structural transformation of the
country. Taking the GTP II targets as a frame of reference, the manufacturing sector is
planned to register a growth rate of 24% per annum using base of 1.4859 Mt. The study team
used the manufacturing growth rate targets to project the steel per capita consumption by
2025.
3) Trend analysis of the steel consumption
In this approach, the assumption is that the steel per capita consumption of the country will
continue to grow in the coming years of growth and transformation. As data source, GTP I
performance evaluation of the steel per capita consumption was used for projection
(CAGR=15%) of the steel per capita by 2025.The assumption is thatthe pattern of the steel
consumption of Ethiopia continues with same trends in the upcoming years.Accordingly,
Compound Annual Growth Rate (CAGR), which is the most widely used method of
projecting time series trends of steel per capita consumption, has been employed to work out
the demand projection.
4) Using the industry roadmap target
It is clear that the country has an industry roadmap that puts the required level of industry
sector targets for the country to be among middle income countries by 2025. Steel industry is
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one of the sectors that the industry roadmap has projected, and this projection is used as a
reference for our demand projection of the sector.
The following table summarizes the methods employed for projection and the amount of
apparent steel use per capita and the total demand by 2025 using population projection of
CSA, 2012.
Table 43: Steel demand projection by 2025
Methods
used
Apparent steel per capita kg
Steel required
in Mt
Apparent steel per capita kg
Steel required
in Mt
Apparent steel per capita kg
Steel required
in Mt Remark
2015 2020 2025
Middle income country Average
61.61 7.03
Purposive choice of middle countries
World average
216.9 24.77
Economic growth direction (GTP)
25.6 1.49 43.47 4.35 111.82 12.77
Industrialization process continues to be the priority of the government
Steel consumption trends,
51.69 5.28 81.03 9.25
The current momentum will continue
Industry road map
81.41 8.32 190.91 21.8
Average 25.6 1.49 58.86 5.98 132.45 15.124
Source: own computation using (CSA, 2012; MIDI, 2015; GTP II; WSA, 2015)
4.11 Energy utilization When we come to the Ethiopian steel industry energy utilization, we observe that almost all
of the firms have no energy-efficient production process and none of them has the work
culture of preparing well organized energy audit report based on formal data.
Energy has two broad dimensions for steel producers. As an input factor, energy is a major
cost element, thus placing a premium on policies that will assure the availability and
competitive cost of needed energy sources. Particularly, as governments seek to reduce GHG
emissions /CO2-intense sources of supply, the GHG emissions in steelmaking are generated
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as one of the following: (1) process emissions in which raw materials and combustion may
contribute to CO2 emissions; (2) emissions from combustion sources alone; and (3) indirect
emissions from consumption of electricity (primarily in EAF and in finishing operations such
as rolling mills at both Integrated and EAF plants), they will need to ensure appropriate
replacement sources are available for industry. New sources of energy, both conventional and
non-conventional, also offer a major industrial opportunity for steel producers, e.g. new
pipelines, hydro plants, windmills, and attendant transmission systems. One part of the new
energy sources, “equation”, is the need to streamline project approval processes to advance
both environmental and economic interests in a timely manner. A sound, balanced mix of
policy will strengthen the competitive conditions for steelmaking in Ethiopia, so that Ethiopia
will continue to benefit from steel potential as an innovative.
Variations among various iron and steel making processes in energy consumption are shown
as follows.
Table 44: Energy consumption by process (GJ per ton) Process Blast furnace EAF DRI
Best Average Worst Best Worst
Coke making 3.5 4.3 7.7
Sintering /pelletizing 1.5 1.7 3.3
0.6
Iron making 14.8 17.4 22.2
11.7
Steel making 0.2 0.3 0.7 2.4 4.8 2.5
Casting 0.1 0.2 0.3 0.1 0.2 0.1
Total 20.1 23.9 34.2 2.5 5.0 14.9
4.12 Environmental standards
In the present project, it was discovered that Ethiopian steel industries have little or no
environmental friendly practices and they use limited environmental friendly technologies on
their production process; hence, looking to the future, it is very important to design tools that
can drive new environmental regulations or policies from several perspectives. To this end,
both Ethiopian steel industries and the Environmental Protection Agency are expected to act
jointly, and important ingredient of environmental policy must be the development of new
technologies.
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In the following table, we can see that the amount of carbon dioxide emission varies
depending on the type of the technology employed.
Table 45: Emission of iron and steel making technologies Type of furnace Emission per ton of hot metal
Blast furnace 2 ton CO2
Direct reduced iron 0.65 - 0.53 ton of CO2
Electric arc furnace 0.058 ton CO2 (1/4 of BF)
4.13 Review of steel industry-related documents and studies
Policy formulation is a challenging process that involves various activities and actors.
Identification of policy issues needs to be supported with empirical evidence on its
existences, the likelihood of its future occurrence as well as its effects on the overall
performance or development of the sector/subsector. The existence of the issues and their
prediction should be described quantitatively and qualitatively using reliable and up-to-date
information. The evidence should also come from credible sources and should clearly justify
whether or not the problems or issues require policy. In the process of designating a given
policy, it is important to consult strategic stakeholders in specifying the objective of the
policy that should be reviewed periodically.
The effectiveness of a proposed policy is crucially influenced by the extent of the
effectiveness of various activities at different stages and its success is measured based on the
achievability of the targets set by that specific policy.
As there are various policy options to address a given problem, it is not only essential to
identify all possible options but one has to also be careful in selecting the policy from the
available alternatives. A number of criteria can be used to select a policy from different
options which should be evaluated based on their desirability, affordability and feasibility.
The criteria can be grouped into economic, equity, technical, political and administrative
aspects for further analysis before the policy is chosen for implementation from alternative
policy options.
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The main focus of this part is to analyze the role of steel industry in socioeconomic
development and the review of earlier national steel related government documents and
studies to addresses the gaps that can be used as input for the upcoming steel policy
formulation.
4.13.1 Roles of steel industries in economic growth and development
According to UNIDO (2011), the relative attractiveness of an industry can be evaluated in
three dimensions: the growth dimension (the economic growth potentials specific sectors
offer at a given development stage with certain endowment structures and technological
capabilities), the pro-poor dimension (ensuring equal opportunities for the poor to participate
in manufacturing, the employment effect of individual sectors and growth inclusiveness
aspects), and the environmental dimension (energy and material efficiency and resource
depletion).
Steel industry is identified as a fundamentally crucial for industrialization and development
of developing countries in particular mainly because of its many linkages, backward and
forwards contribution.
Without strong and vibrant growth in iron and steel industry, it is very difficult to transform
the economy particularly the manufacturing sector. For instance, Mohammed (2002) argues
that most countries developed their industrial bases by establishing viable steel industries,
began as a serious national project with the various governments taking an active interest in
steel products development. Further, Mundeda (1995) explained that engineering industry
drawing from the basic–metal and metalworking industries constitutes the central pillar of
industrial economy. For instance, Bigstenetet. al,(2010) found out that a single steel plant
with a capacity of producing 350,000 metric ton of steel per year can generate about 10,000
jobs not to mention the jobs created through other steel related activities.
So, the importance of steel industries for development cannot be exaggerated; overall, it has
been recognized as the engine of social and industrial transformation.
However, Steel industry is one of the pollutant industries and with a characteristic of
economies of scale, i.e., the increase of the market concentration can promote the effect of
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economies of scale and reduce the production cost and thus the international competitiveness
of the industry will be stronger in the international market. The study indicates that, a large
number of small companies do much harm to the environment due to the low production
capacity and the difficulty of environment monitoring (IDS, 2009).Porter's National Diamond
Model, is the classic paradigm Model to analyze the determinants of the industrial
competitiveness. According to this model, creating domestic fierce market competition can
improve the industry‟s international competitiveness and macroeconomic situations are the
opportunities for the industry development outside. In a weak domestic market competition,
the international competitiveness of the industry may be weak and in a strong domestic
market competition, companies may be prompt to perform better and better and go out to the
international market.
Currently, Africa is generally characterized by weak manufacturing industry and low
industrial activity that is attributable to the continent‟s poor infrastructure, low levels of
technological development and productivity, inadequate provision of power, water and
transportation, shortage of skills, difficult business environments and bureaucratic hurdle
(UNECA, 2014).
In the Ethiopian case too, steel industries have experienced serious problems which have not
allowed them to function effectively and efficiently. As a result, many of the steel factories
either failed to takeoff or are performing much lower than potential/factory design capacity.
According to the study by MoST (2014), in terms of skill gaps of employees, about 32% of
the industries‟ employees lack extreme skill gaps such as lack of skill to operate machine and
other technical skills, and only 25% of the metal industries have carried out R&D activities
to improve their product quality, productivity and product diversification. As a result, the
economic role of the metal sector is very low, with 0.4% contribution to GDP in the year
2013. The country‟s steel requirements are met mostly by imports from various countries
such as Turkey, China, India, and Ukraine and so on.
4.13.2 Analysis of Ethiopian steel-related documents
Given the crucial role of steel industry in the economic growth, enhancing competitiveness
and sustainable development of iron and steel industry is important in the process of
revitalizing the steel industry development policy. Competitiveness of steel industry relies on
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raw materials conditions, provision of basic infrastructures, skilled human resource, energy
supply, legal environments and industrial technology.
In this regard, the Ethiopian government has been designing and implementing different
policies and strategies for different sectors although there is no sectorial policy for steel
industry. Hence, in the forthcoming section, the analysis of pervious industry-related policies,
strategies, studies and recommendations are reviewed to find out the gaps that need to be
addressed in this research project.
4.13.3 Industry Development Strategy of Ethiopia
According to Industry Strategy of Ethiopia (MoI, 2002), if the agricultural development-led
industrialization strategy can be successfully practiced, the developmental strategy would be
gradually transformed in to industrial-led development strategy.The development of
industrial sector also plays an important fertile ground to the promotion and development of
many other industries. The strategy also considers the role of the private sector to be an
engine of the industrial development strategy. Making the private sector the prime mover of
the strategy and the need for a wide participation of foreign investors in partnership with the
domestic counterparts is well recognized in the strategy document.
However, it must be clearly understood that, the Ethiopian private investorsneed huge
support from the government to be able to compete with their foreign counterparts who
possess latest technology, huge capital resources and advanced managerial skills. The
strategy confirms the role of the government in the industrial development would be to focus
on the formulation of favorable condition for private sector development and to engage in the
activities where the private sector is unable to participate. The rapid development of South
Korea and Malaysia can be cited as an example of this fact.
The strategy also suggests the need for industrial zones/parks to be made readily available in
major cities and towns of the country with all the required infrastructure facilities such as
road, electric power, telecommunication and water supply in order to speed up the allocation
of plots of land for investment. However, the strategy has not specified steel industry as a
priority sector, though historically it has played a critical role for economic transformation a
given country.
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4.13.4 Ethiopian Industrial Roadmap
According to studies by ASTU (2014),in 2012, the Ethiopian manufacturing sector‟s
contribution to GDP accounted for only 4%, as compared to the 17% contribution of the
manufacturing sector to the GDP of the middle middle-income countries (MMIC). The deficit
of the manufacturing sector is around 13% from that of the MMIC. The study selected the
GTP base case scenario (which is similar with GTP II) that assumes GDP grows, on average,
by 11.2 % annually. Under this scenario, per capita income (PCI)is assumed to reach 676.5,
1116.6, and 1880.2 USD by the year 2015, 2020, and 2025. Based on this scenario, selected
national growth targets are projected and worked out. Accordingly, the contribution of metal
and engineering industry sub-sector to the manufacturing sector was supposed to increase
from 0.4% in 2013(when the share of manufacturing was 5%) to 1.75 % in 2020(when the
share of manufacturing is expected to be 12%) and to 2.55% in 2025 (when the share of
manufacturing sector will be 17% of GDP) to reach the target of middle-income country
requirement.
Similarly, steel per capita consumption per Kg of the country was 17.78 Kg in 2012, and it is
targeted to increase to 34.72Kg, 81.41Kg and 190.91 Kg in 2015, 2020 and 2025 respectively
for the country to be among the middle-income countries. Regarding capacity utilization of
the manufacturing sector, it was targeted to increase from 61.2% in 2013 to 78%, 82% and
87% in 2015, 2020 and 2025 respectively. However, the target set by the projection is not
substantiated with the current data on the ground regarding steel per capita consumption of
the country.
According to this roadmap, in 2012, the manufacturing sector accounted for 33 % of the
industry sector. This share is targeted to increase to 37% by the year 2015, and finally attains
67% of the total industry sector by the year 2025. By the end of 2025, the industry shows
significant structural change and the structure of the sector will consist of more than 50% of
medium & high-tech industry.
The study pinpointed that Ethiopia has a fairly limited skilled human and financial resource
for the transformation of the industry sector to achieve the ultimate goal of becoming a
middle income country by the year 2025. However, in the roadmap projection, the
importance of steel industry has not been boldly shown, and the sector has been categorized
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under the section of metal and engineering industry, so it is difficult to get the share of steel
industry from metal and engineering.
The present project has tried to estimate the share of the steel industry from metal and
engineering industry using all possible ways with benchmarking a well-established steel
industry of China as the best option.
4.13.5 Investment incentives and regulatory frameworks
The Ethiopian government has undertaken various policy measures to improve the regulatory
environment for domestic and foreign investment over the last decades to complement the
industrial strategy by recognizing the private sector as an engine of economic growth and
transformation.
However, the manufacturing sector has not brought about significant contribution to the
national development process and has been unable to attract the FDI and domestic investors
as some of the incentives such as construction of industrial zones, shortage of foreign
currency, and other infrastructure are less realized.
As part of promoting the national growth and transformation, proclamations and regulations
have been enacted and approved to provide incentive packages and support investors in both
fiscal and non-fiscal terms. Moreover, the establishment of Ethiopian Investment Agency
(EIA) that is mandated to promote investment using all means was meant to create enabling
environments in the process of the approval and implementation of investment projects.
Various proclamations and regulations have been also introduced to promote investment in
general, domestic investors and the manufacturing sector in particular (e.g. Proclamation No
280/2002 (Investment Proclamation), Councils of Ministers‟ Regulation No 270/2002 (on
Metal and Engineering Sector Incentive), and Council of Ministers‟ Regulation No. 841/2003
(regulations on investment incentives and investment areas reserved for domestic investors).
In these legal enactments, various fiscal and non-fiscal incentives have been identified and
legally offered to create favorable investment environments for both foreign and domestic
investors. These proclamations and regulations have included many important incentives
such as tax holidays, duty free import of raw materials, easy licensing and registrations, and
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many other supportive regulatory environments to promote investments in all sectors. In
addition, there are special regulations that promote the Metal and Engineering Sector.
However, this study has identified the following gaps that require more attention from the
government in order to promote the development of the steel sector:
A. Fiscal incentives
Shortened period of fiscal incentive; for example, currently it ranges from 3-7 years
as compared to the longer period required to attract more investors for the sector
development;
Existence of double taxation on spare parts, a situation which discourages local
investors;
Imposition of taxes on local producers that target domestic market;
Lack of tax incentive based on value addition and environmental impacts;
B. Non fiscal incentives
Absence of a separate financial institution that facilitates financial issues for the steel
sector;
Lack of special infrastructure for steel sector development (e.g. transportation and
power), housing facilities and healthcare incentives for industry employees;
Weak steel sector support institutions that mitigate sector-related challenges;
Lack of special education and training institutes that train human resource for the steel
sector;
weak coordination among concerned regulatory bodies in handling investment
projects in the steel sector
4.13.6 Study conducted on Metal and Engineering Industries in Ethiopia
I. Study conducted by Metal Industry Development Institute (MIDI)
The study conducted by MIDI (2013) was undertaken with the objective of enhancing
competitiveness and productivity of metal and engineering industries by identifying and
alleviating the challenges of the sector. Accordingly, the study has identified major
challenges that can be categorized as: market and managerial, banking and fiancé, customs
and duties, quality and standards, and others.
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The study recommends the need for taking administrative actions to implement revised
procurement systems by MoFED that will make the domestic producers more competitive.
In addition, the study suggests strong scrutiny on production of quality products.
II. Study by KOICA (2013)
According to the study by KOICA (2013), with the exception of metal products, all other
priority sectors (fruit and vegetable production and processing, textiles and garments, leather
and foot wear) have large near-term opportunities for globally competitive production and
greater exports. In Ethiopia, metal products, machinery (excluding electronics), and vehicles
together make up 36% of all of Ethiopia‟s imports. So,the industry would have to more than
triple its production capacity to reach the GTP I targets even. The only product with positive
growth was production of reinforced bar for construction. According to this study, the metal
sector requires massive amounts of new investment (not just increased capacity utilization) to
reach its goals.
The study summarizes the main problems and challenges of metal products as follows: high
cost of raw materials, limited capacity on R&D, access to working and investment capital,
shortage of skilled workers and uncertainty of demand from public sector as primary
consumer.
III. Study by JICA (2010)
This is a firm-level study on basic metal and engineering industries. According to this study,
in order to enhance the development of the industry, many factors such as systems,
institutions and favorable conditions are required. The most important recommendations
forwarded by the study are: improvement of production technologies and managerial skills,
establishment of quality management system, amplification of supporting system for research
and development activities, expansion of financing facilities, strengthening of human
resource development (education and training), improvement of industrial infrastructures
(industrial complex etc.), and improvement of custom clearance system.
4.13.7 National growth and development direction
The development direction of the steel industry will be determined by the country‟s
development direction and demand and the plan to transform the economy from agriculture-
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led to industry-led. The country‟s GTPs direction on industry development is that industries
should be labor intensive, and they should aim at saving foreign currency through import
substitution.
Based on this general industry development direction, the focus of this sub-sector includes:
Producing and supplying reliable spare parts, machineries and production instruments
to be used by industries that supply inputs for export industries which are given
priority in industry development strategy;
Supplying spare parts and machineries for sugar and cement industries, which are
given due consideration by the government with a view to accelerating industry
development and to build capacity that enables the country to carry out more complete
construction of factories;
Supporting industry development by locally producing and supplying steel products
that are used as input for the construction industry;
Beyond its economic, social and technological development, the steel industry
development is also decisive for national security, reliability of foreign affairs and
security policy and strategy;
Transferring , adapting and multiplying appropriate technologies which serve as input
for this purpose; generating technologies that fit our contexts and develop our capacity
in engineering design and product development;
Creating capacity that enables us to provide skill enrichment training which is decisive
for the development of the sector but which isnever given, or given insufficiently, in
regular education programs.
During GTP II, attention is given to selected heavy steel industries in addition to light
manufacturing. The role of the government in metal and engineering (and of course in other
industries such as sugar and related industries and chemical industry) will continue strongly.
In GTP II, it has been made clear that the manufacturing sector will be a priority focus of the
government in order to initiate the structural change needed in our economy. To realize this:
The manufacturing industry will be made to register a yearly average growth rate of at
least 24%;
The overall share of the manufacturing industry in the national economy will increase
to 8% from its current average growth of 4.6% by 2012 EC. This in turn will increase
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the share of the manufacturing industry four times from its current status and raise it
to 18% by 2017E.C;
The current share of the manufacturing products in overall export revenue does not
exceed 10%. It is planned to raise this figure to 25% by the end of GTP II and to 40%
by 2017E.C;
Presently, the number of the human power engaged in medium and high level
manufacturing industries does not exceed 350,000. It has been planned widely to
engage 1.5 million citizens in the industry in the next ten years by increasing this
number by four times.
The table below summarizes the data from GTP II as presented above. The summary
indicates projected growth of manufacturing industry during GTP II (2008-2012 EC) and up
to 2017.
Table 46: Projected growth of manufacturing industry
Major contributions of the manufacturing industry
Current status (last years of GTPI)
Projected growth in 2012 EC
Projection in 2017 EC
Overall share in the national economy (%) 4.6%
8% 18%
Share of the manufacturing products in overall export revenue (%) 10% 25% 40%
Human power engaged in medium and high level manufacturing industries 350,000 750,000 1.5m
Source: The Second Growth and Transformation Plan (2008-2012)
The table clearly depicts the due attention paid by the government to the development of the
manufacturing sector during GTP II although the data is not delimited to specific sub-sectors
of the industry. As stated above, the metal and engineering subsector is clearly one of the
priority areas that have the potential to flourish during GTP II and subsequent years of
growth and transformation.
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5. PESTLE and SLOC Analysis
In this section, analysis of political, economic, social, technological, legal, and environmental
situations are presented in the light of global, regional, and national environmental factors
that affect the steel industry. The following results of PESTLE and SLOC analysis are
documented based on findings from review of documents, interviews, and questionnaires.
5.1 Global and regional PESTLE analysis of the steel industry
A summary of global and regional policies, regulations and trade trends that affect steel
industry is given below.
Globally, steel industry is the backbone of manufacturing, and it is a strategic industry
essential for socioeconomic growth and stability. It is increasingly regarded as strategic
industry. As a result, it is usually regulated directly by governments and indirectly through
steel associations. Governments and steel associations usually collaborate on licensing and
investment permission, steel price regulation, and other important aspects of the industry.
Governments also usually regulate steel markets through price control, import/export
regulations, and import duty. The specificity of applicable rate varies from country to
country. From global and regional analysis of PESTLE, the following major conditions are
identified:
As steel consumption is expected to grow in the decade to come, there is a growing
concern on energy efficiency, diversification of alternative energy sources, CO2
emission reduction and further improving steel technologies. This in turn forces the
country to establish a system for monitoring, evaluating, and public reporting of
energy intensity and elimination or reduction of inefficient industrial facilities.
Steel industry is a heavy sector and one of the relatively pollutant industries. So,
international trade is expensive and fairly limited, with much of it between
neighboring nations and countries which have cheap transportation access like ocean
and train. Besides, higher logistic cost, issues of steel price cartelization, anti-
dumping regulations, and most importantly regional trade barriers such as tariffs may
also limit export possibilities.
As steel technology is well developed and widely available, there is strong possibility
for steel know-how and technology transfer. However, absorptive capacity of firms
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and specific strategies to be adopted in the industry may determine the rate of success
of knowledge and technology transfer.
Expansion of the Clean Development Mechanism (CDM) and joint implementation
projects facilitate the funding of energy efficiency, and alternative fuel substitution
projects.
Globally, the steel industry has been subjected to stringent environmental regulations
and interventions for monitoring the production process. In turn, steel producers have
responded by investing in green steel initiatives.
As integral part of global environmental concern, there is growing intention to shift
from traditional steel production to green economy.
5.2 PESTLE analysis of Ethiopian steel industry
Ethiopia is a nation determined to accelerate and maintain economic development while
strengthening its democratic agenda. It has set for itself a stretched goal of becoming a
democratic developmental state seeking to create a middle income society by 2025 through
application of green economy. This requires extended government intervention in selected
areas of the economy. The following key findings represent summarized results of PESTLE
analysis of Ethiopia steel industry.
The Ethiopian government has established a level of political stability that enables it
to pursue its development goals. Moreover, working strongly with its allies, it has
been able to improve peace and stability of the region.
Ethiopia's economy continues on its state-led Growth and Transformation Plans
(GTPs). The five-year economic plan has achieved double digit growth rates through
government-led infrastructure expansion and commercial agriculture development.
GTP II has been already developedfor the next five yearsand it considers steel/metal
industry as one of its priority manufacturing industry sub-sectors.
Ethiopia has developed an industrial development strategy to bring about structural
change in the economy through industrial development. The overall goal of this
policy option is to increase the share of the industry sector of GDP to 27% by 2025
and increase the share of the manufacturing sectorto the GDP to 17% by 2025.
(Ethiopian Industry Development Roadmap (2013-2025), April 2014)
Population growth is one of demand drivers of industrial products including steel, which is
mostly used for construction of residential and business houses and other infrastructures.
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This will become more sounding when connected to urbanization, which requires more
construction materials for aforementioned purposes. In addition to construction, population
growth results in creating demand for steel products for personal uses such as appliances,
locomotives, and so on.
The following are population and urbanization situations according to Central Statistical
Agency (2013).
o Projected population of Ethiopia by 2014 G.C.:
Total population: 86.7 million
Urban population: 17.1 million (19.7%)
Rural population: 69.6 million (80.3%)
o Projected population of Ethiopia by 2025 G.C.:
Total population: 114.2 million
Urban population: 27.9 million (24.4%)
Rural population: 86.3 million (75.6%)
The expected urbanization growth rate of 4.3%, coupled with the overall population
growth, will increase housing demand and further push for slums upgrading and
infrastructure development, which in turn will boost steel demand.
The education sector takes the responsibility of preparing trained human power which is
capable and ethically responsible to transform the existing Ethiopian economy. To realize this
responsibility, the Ministry of Education of FDRE has set Education Sector Development
Policy (ESDP) of Ethiopia.
o For TVET, the goal is to create a competent, motivated, adaptable and innovative
workforce and to transfer accumulated and demanded technologies in Ethiopia,
thus contributing to poverty reduction and social and economic development
through facilitating demand-driven, high quality technical and vocational
education and training relevant to all sectors of the economy at all levels and to all
people. The sector aims to increase the number of institutions from 1,329 to 1,778
and regular intake from 408,838 to 598,729 at the end of GTP II.
o For higher education, the goal is to develop highly qualified, motivated and
innovative human resource and produce and transfer advanced and relevant
knowledge for socio-economic development and poverty reduction envisioning
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2025. Accordingly, the increase in enrollment in undergraduate and graduate
programs will aim to be in line with the 70/30 program (Ratio of Science intake to
Social Sciences and Humanities intake). By building 11 additional new
government universities, the annual intake target at the end of GTP II is 600,000
and 63,000 for undergraduate and postgraduate programs respectively.
To achieve sustainable industrial development, emphasis has been given to technology
transfer. For this reason, the Ethiopian Science, Technology and Innovation Policy has been
developed to create a technology transfer framework that enables the building of national
capabilities in technological learning, adaptation and utilization through searching, selecting
and importing effective foreign technologies in manufacturing and service providing
enterprises.
Development of the industrial park in selected sites is given a serious attention by the
government to attract domestic and foreign direct investment by supplying the park with the
necessary infrastructures to over-come the current bottle necks of the manufacturing.
The GTP II plans on infrastructure development mainly include building of 2,782 km of
railway network, 220,000 km of federal and regional road length, 17,347 MW electric power
generation capacities, and 750,000 houses in cities.
Ethiopia is experiencing the effects of climate change. Besides the direct effects such as an
increase in average temperature or a change in rainfall patterns, climate change also presents
the necessity and opportunity to switch to a new, sustainable development model. The
government has, therefore, initiated the Climate-Resilient Green Economy (CRGE) initiative
to protect the country from the adverse effects of climate change and to build a green
economy that will help to realize its ambition of reaching middle income status by 2025. In
GTP II, Ethiopia planned to decrease the release of heat absorbing gases to the surrounding
atmosphere by improving agricultural productivity of both grain and animals to secure food
security of farmers, protecting forest and creating new once to reduce CO2 emission,
production of electricity from renewable energy sources, and using new and energy saving
technologies in transport, industry and construction sectors.
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Based on the PESTLE analysis summarized above, the following gaps are identified
specifically in relation to the steel industry.
Non-exporting enterprises are not entitled to government guarantee to get loan
from foreign sources;
There is lack of capacity and strategic system to control product quality, energy
utilization and emission control;
Practical measures and incentive or disincentive to encourage the industry to work
on environmental protection are absent;
There is lack of sufficient effort and satisfactory progress on local production.
5.3 Summary of SLOC factors
The SLOC factors of Ethiopian steel industry are summarized below. Detail descriptions for
each SLOC factor is provided under Annex 2.
Table 47: List of strengths (S) and limitations (L)
Strengths (S) Limitations (L) Clear organizational structure
Clear and adequate coaching and mentoring system
Provision of short-term and long-term
on-the-jobtraining
Good beginning of R&D (METEC industries)
Certification by ISO and Ethiopian Conformity Assessment Enterprise for some industries
Presence of employees safety and fringe benefits
Corporate social responsibility
Existing installed capacity to supply for future demand increase
Relatively better overall performance by medium firms
Lack of rules, regulations and working guidelines, Lack of efficient service delivery and customer
satisfaction procedures Lack of automation of production process and
accounting system Lack of clear strategic plan Lack of salesoutlet, and trade mark for products Outdated machineries requiring high cost of
maintenance Limited awareness and practice on environmental
issues Lack of applying continuous quality management
system Lack of modernized raw material handling system Lack of focus on product diversification Lack of alternative energy sources Lack of strategic HRD and R&D plans Limited knowledge and technology transfer
capacity and system Weak backward and forward (value chain)
integration Limited flexibility to respond to global and
regional product, energy, and environmental trends
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Table 48: List of opportunities (O) and challenges (C)
Opportunities (O) Challenges (C) Availability of tax holiday, importing duty free
machine and land supply
Priority given by Ethiopian shipping line
Availability of green, yellow and red custom service provision
The conducive environment of Ethiopia for investment
Strong commitment from the government side for manufacturing industries
Strong potential steel demand drivers
Availability of sustainable and diverse alternative energy sources in the country
The upcoming national railway network to enhance logistics efficiency
Availability of local raw material resources for potential use by the steel industry
Potential for collaboration with professional associations and universities
Opportunities to benefit from using environmentally friendly technologies `and related carbon trading schemes
Availability of young, trainable, and cheap labor in Ethiopia with relaxed labor regulations
Shortage of foreign currency to import raw materials and spare parts
Unavailability of adequate skilled human power on the local market and high turnover of workers
Inefficiency of logistics and transportation system
Lack of capacity to exploit raw materials from local sources
Frequent power outage
Lack of incentive to encourage local producers
Inadequate demand for local products resulting in under capacity production
Inadequate product, environment and energy standards and regulatory enforcement capacity
Insufficient support institutions having limited Knowledge and technology transfer capacity
Insufficient availability of support industries along the value chain
Limited access to finance
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SLOC analysis and selected critical policy issues Table 49: SLOC analysis matrix
External Environmental Factors
Internal Environmental Factors
Opportunities (O) Availability of tax holiday, importing duty free machine
and land supply
Priority given by Ethiopian shipping line
Availability of green, yellow and red custom service provision
The conducive environment of Ethiopia for investment
Strong commitment from the government side for manufacturing industries
Strong potential steel demand drivers
Availability of sustainable and diverse alternative energy sources in the country
The upcoming national railway network to enhance logistics efficiency
Availability of local raw material resources for potential use by the steel industry
Potential for collaboration with professional associations and universities
Opportunities to benefit from using environmentally friendly technologies `and related carbon trading schemes
Availability of young, trainable, and cheap labor in Ethiopia with relaxed labor regulations
Challenges (C) Shortage of foreign currency to import raw materials
and spare parts
Unavailability of adequate skilled human power on the local market and high turnover of workers
Inefficiency of logistics and transportation system
Lack of capacity to exploit raw materials from local sources
Frequent power outage
Lack of incentive to encourage local producers
Inadequate demand for local products resulting in under capacity production
Inadequate product, environment and energy standards and regulatory enforcement capacity
Insufficient support institutions having limited Knowledge and technology transfer capacity
Insufficient availability of support industries along the value chain
Limited access to finance
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Strength (S) Commitment of top level management
Good information flow
Clear organizational structure
Clear and adequate coaching and mentoring system
Provision of short-term and long-term
on-the-job training
Presence of R&D (METEC industries)
Certification of some industries by ISO and Ethiopian Conformity Assessment Enterprise for some industries
Presence of employees safety and fringe benefits
Corporate social responsibility
Existing installed capacity to supply for future demand increase
Willingness and initiatives to improve R&D and HRD practices
Relatively promising financial position by larger firms
Relatively better overall performance by large firms
OS Analysis Strengthen university-industry-TVET linkage and
partnership for training and capacitating the human power for sustainable service in the industry
Maximize capacity utilization using government support and conducive environment in the country
Initiate R&D practices and improve related technologies in collaboration with support institutions
Minimize heavy dependence on imports of raw materials by substituting them with local resources
Boost domestic demands by capitalizing on potential demand drivers
CS Analysis Enhance collaboration between the industry and
support institutions on selected strategic areas such as technology transfer
Put into force HRD practices and job satisfaction initiatives
Maximize capacity utilization and produce both for local market and export
Establish separate power transmission line for the industry
Implement environment and energy standards and regulatory enforcements
Stimulate local producers through viable financial subsidies, access to loans, and other incentives
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Limitations (L) Lack of rules, regulations and working guidelines, Lack of efficient service delivery and customer
satisfaction procedures Lack of automation of production process and
accounting system Lack of clear strategic plan Lack of sales outlet, and trade mark for products Outdated machineries requiring high cost of
maintenance Limited awareness and practice on environmental
issues Lack of applying continuous quality management
system Lack of modernized raw material handling system Lack of focus on product diversification Lack of alternative energy sources Lack of strategic HRD and R&D plans Limited knowledge and technology transfer
capacity and system Weak backward and forward (value chain)
integration Limited flexibility to respond to global and regional
product, energy, and environmental trends
OL Analysis Enhance logistics efficiency and supply chain management
capabilities by integrating with the railway network Minimize heavy dependence on imports by exploiting local
resources and stimulating product exports Collaborate and work closely with support institutions and
universities for transformation of the industry (automation, up-to-date technologies, R&D, accounting system, etc.)
Focus on strategic issues and introduce change management tools, and working guidelines in collaboration with support institutions and universities
Enforce environment friendly approaches and conduct periodic environmental and energy audit
Design and implement HRD programs ; build technical and managerial competencies in collaboration with support institutions and universities
CL Analysis Create access to finance (bank loan, foreign
currency) for steel industries as strategic development subsector
Establish separate power transmission line for the industry
Exploration of potential locally available resources Build operating capacity of both support institutions
and steel industries by working in close collaboration with universities
Enhance logistics and supply chain efficiency; integrate with the railway network; improve market structure and channel
Introduce and enforce product, energy, and environmental standards
Organize HRD programs and R&D centers at company and national levels through institutional partnerships
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5.4 Selected critical policy issues
Based on evaluation of OS, CS, OL, and CL and key findings from the in-depth
interviews, the following critical policy issues have been identified for the Ethiopian steel
industry development.
1) Shortage of Skill Development System and Inadequate Qualified Human Capital
2) Shortage of Raw Materials
3) Low Product Diversification and Value Addition
4) Absence of Research and Development
5) Lack of Market Research and Orientation
6) Shortage of Foreign Currency and Working Capital
7) Lack of Infrastructure
8) Lack of Sector-specific Energy and Environment Policies
9) Inadequate Support Institutions
10) Lack of Roadmap/Strategy Direction
A brief description of each of the above listed critical policy issues is presented as
follows.
1. Shortage of Skill Development System and Inadequate Qualified Human Capital
The Ethiopian steel industry can be characterized as the industry operating without
adequately skilled human capital, both managerial and technical, and without well-
established skill development system. As a result, the industry is currently operating
between 30-40% of its capacity. Shortage of training institutes, universities and TVETs
that concentrate on steel-specific courses and practical skills is one of the major factors
that contribute to shortage of well skilled and high profile managerial and technical staff.
It is evident that, nowadays, fields of study that are specific to iron and steel industry
such as Mining, Metallurgy, Foundry, Alloy, and Materials Science and Engineering are
not provided in most Ethiopian universities. As stated elsewhere in this study, only
Metallurgy (offered at the Defense University) and Materials Science and Engineering
(being offered at ASTU and Jima Universities for the first time) are currently given in
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Ethiopian universities. This indicates that there is a huge gap in education and
specialization in the fields of study which are related to iron and steel industries.
However, the experience of some of the emerging countries which have a good profile
and some success stories in steel industry (e.g. India, China and Brazil) indicates that
these steel-related courses are widely offered in their universities. This can set a good
example for Ethiopia as well. Therefore, it is highly recommended to involve
industrialists and concerned stakeholders in curriculum development of steel related
fields of specialization, starting from need assessment up to implementation and revision
of the curriculum.
Due to lack of steel-specific fields of study in our higher education institutes, most of the
steel industries in Ethiopia train fresh graduates directly after graduation (pre-job
training). Through such training, the industries may obtain the workforce required for
running their various activities, but it is unlikely that they employ workers who are well
educated and specialized in steel industry-related fields of study.
Thus, in addition to university courses, short and long term pre-service and in-service
training should be provided in the following areas: raw material preparation, cock
preparation, iron making, steel making, rolling and forging, process control automation,
plant management along with energy and environment, production, quality improvement
and process, and R& D on machineries (furnace, heat treatment, etc.).
The problem manifests itself not only in terms of low managerial and technical skills but
also vis-à-vis employees‟ turnover. The industries report high turnover of workers as a
result of low job satisfaction and/or access to alternative and more attractive job
opportunities. This indicates the need to improve the working and career conditions of the
industry thereby making it a more attractive workplace.
2. Shortage of Raw Materials
Evidently, the Ethiopian steel industries do not currently use iron ore from the local
market, but they predominantly import raw materials from global markets. In other
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words, there is no mining in the country, a situation which has forced the steel industry to
depend heavily on imports. The only raw materials they get from the local market are
scraps and small amount of semi-finished products. However, the locally available
scraps are low both in terms of their quantity and quality. For example, the reinforcement
bars produced from local scrap do not exceed grade 40 because of low quality and
melting all types of scrap together without separating them by type. On the contrary,
reinforcement bars with a quality of grade 60 and 75 are produced from imported scraps.
The reason for low grade production emanates from low skills of involved workforce
particularly in ladle furnace and low level of technological development.
On the other hand, importing scrap from the neighboring countries is difficult nowadays.
For instance, the East African Community (EAC), which includes countries like
Tanzania, Kenya and Uganda, has banned the export of scrap metal. On top of that,
Kenya has endorsed the Scrap Metal Bill, 2014 in order to govern scrap market.
On top of that, the presence of tax imposition on imported scraps and illegal export of
domestic scraps aggravate the situation. So, there must be a system that supports tax-free
import of scraps and that imposes strict control on illegal export of scrap. Together with
currently improved status of logistics, these measures will stimulate steel producers and
make them competitive in both quality and price. Promoting scrap-based steel industry
development is recommended for Ethiopia given the scarcity of other raw materials and
with respect to its environmental friendliness and energy saving advantages.
Even though there is no iron ore processing plant in Ethiopia, the country has iron ore
potentials that can be explored and extracted in order to supplement imports or reduce the
heavy dependence on imports. Yet, lack of clear information about locations and
capacities of local natural resources has created a situation of dilemma. In order to
recommend the type of technology, quality and quantity of products required and for
effective infrastructure planning and coordination, identification of detailed and clear
information about location, amount, and quality of steel-related natural resources needs to
be undertaken within a short period of time. This has an obvious advantage for the
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country. For example, once the country has clear information on location, quantity and
quality of the natural resources, technology selection can be easily made nowadays unlike
the situation in the 1960s and 1970s. Furthermore, it is now believed that, thanks to the
substitution of blast furnace by DRI, any site with an iron ore occurrence can be exploited
for steel processing, and DRI-based steel industry is economically viable in Ethiopia as
DRI plant can be easily dismantled and transported to another place with a potential
reserve of iron ore.
Lack of rules and regulations in relation to raw materials is another challenge affecting
the proper functioning of the steel industries in Ethiopia. Whether our steel industries
continue to rely on imports or exploit potential local resources, it is important for the
government to make and enforce laws that govern the way raw materials are acquired and
utilized. Law-making and its enforcement should also apply to mining. In other words, if
potential raw materials turn out to be promising and mining becomes economically
viable, then the mining activity should be undertaken by the government, by a private
sector, as well as by a joint venture (due to its obvious advantages in terms of capital,
technology and skill transfer). In this case, the government should put in place a law that
dictates how mining should be managed as state-owned, private and joint venture
undertaking.
Other constraints of the industries in connection with raw materials include double
taxation (for spare parts), hard currency problem, and inefficient logistics including
transportation network.
3. Low Product Diversification and Value Addition
Even though the industries in sectors of Construction, Engineering & Machinery, Motor
Vehicle and Agricultural Equipment are engaged in the manufacture of various products,
it has been observed that these industries lack efficiency in product diversification and
value addition. For example, most of automobile assembly industries can be described as
“car in, car out” because they only import spare parts and assemble them for sale without
producing and making major modifications due to the absence of a design house.
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A number of factors work together in limiting the capacity of the industries in their
product diversification and value addition. In the first place, the industries claim that they
have market orientations for their products. In reality, however, they are found to have
little or no market research practice that would enable them to be well-informed and
guided by reliable data in their market-related issues. Secondly, the industries have little
orientation about research and development (R&D) and virtually have no R&D except for
some companies under METEC. Even the existing attempts in research practice lack
comprehensiveness from idea generation to marketing.
The prevalence of outdated machineries, coupled with lack of skilled human power, is
another drawback of the industries, which has, in turn, led to low demand for local
products (such as steel products) due to low trust in their quality and less price
competitiveness. Absence of ladle furnace (composition, additives and quality control) is
another factor that affects the industries with respect to product diversification and value
addition. Therefore, the government should encourage industries by incentivizing and de-
incentivizing in order to enforce them to pay due consideration to value addition that
eventually leads to import substitution.
Furthermore, inadequate controlling system by the Ethiopian Conformity Assessment is
taken as an institutional malpractice contributing to the low performance of the industries
in this regard.
As far as the experience of other nations is concerned as regards product diversification
and value addition, China, for example, was able to meet the demands of most of her
industries (construction, machinery, chemical engineering, automobile manufacture,
household electrical appliance, ship-making, transportation, military industry and new
industries) with cost effectiveness and quality by implementing incentive (for value
adding producers) and disincentive for importers. However, the country gradually
focused on production of high end equipment manufacturing and housing construction
through maintaining cost, quality and product-mix with global benchmarks of efficiency
and productivity. This was done by developing and adapting technologies which are
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synergy with the natural resource-base of the country. In the case of Brazil, however, the
emphasis is on productivity and technological density to enhance value addition.
4. Absence of Research and Development (R&D)
One of the factors that determine the level of technological capacity of an industry is the
presence and effectiveness of its R&D. During onsite visits and data collection, the study
team observed that most of the industries except METEC have no R&D department. It
was also observed that the industries lack sufficient orientation about R&D, often
confusing it or associating it with planning and market activities.
Because of this, they have no separate R&D department and no budget for this particular
purpose. Generally, because they have no R&D practices, these industries have low
capacity in selection and transfer of important technologies such as copying,
modification, and innovation of products. Additionally, upgrading machineries from
manual to automation is almost nonexistent except in METEC. What is more, they are
less concerned with, and less capable in, waste treatment (scrap, heat treatment, carbon
capture, etc.). Consequently, they have limited capacity to improve their product quality,
productivity and product diversification such as designing, forging, and alloying.
In this regard, the role of the government is self-evident. The government needs to build
the awareness of steel industry managers about the vital role that R&D can play in
increasing efficiency and productivity of their industries so that those which have better
capacity can exercise it in their companies. It should promote linkage between and
among industries in order that those with less experience can gain useful lessons from
well experienced industries and knowledge and skill transfer can actually take place
between them. Such a linkage can also be extended to universities and research centers to
enable industries build their research culture and capabilities and access technology
transfer. It would be more appropriate to establish more support institutions and steel-
specific training centers that focus on such important aspects of the industry as R&D. In
collaboration with financial institutions, the government should also design mechanisms
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of widening opportunities for the steel industries to curb their financial constraints, which
discourages them from introducing R&D practices in their industries.
In addition, the government has to come up with a legal framework that demands the
steel industries to allocate some threshold amount from their turnover or operational
budget to R&D in order to develop updated indigenous technological capability, product
quality and production efficiency, energy efficiency and sustainable environmental
protection.
From the experiences of some emerging countries, we can understand that the focus
given for R&D enables them to modify and develop indigenous technological capabilities
that lead to transformation of their steel industry within a short period of time. For
example, India allocates 0.15 – 0.25% of sales turnover of her steel industries to R&D,
while in China 1.7% of the income from core business activities (Bao Steel) goes to
R&D. South Korea allots 1.3% of the turnover (from POSCO), while Brazil earmarks
0.22% of net income for iron and steel for R&D, and South Africa assigns 0.76% of GDP
(for all sectors) budget for this purpose.
5. Lack of Market Research and Orientation
Market research is a systematic, objective collection and analysis of data about a
particular target market, competition, and/or environment. Marketing research focuses on
understanding the customer, the company, and the competition. These relationships are at
the core of marketing research. The purpose of any market research project is to achieve
an increased understanding of the subject matter. With markets throughout the world
becoming increasingly more competitive, market research is now on the agenda of many
organizations, whether they are small, medium or large.
Under the present condition, the steel industries in the country have multifaceted
challenges with regard to market research. In fact, most of the steel industries have no
market research, and they have cited this as one of their major gaps. The industries are
not in a position of being competitive in the local market both in terms of the quality and
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price of their products with the imported ones. High production costs are the prime
causes for high product prices that are mainly the results of using old (outdated)
production technology and under-managed resources. The other factor for the high price
is the increasing price of imported raw materials and logistic costs. In addition, quality of
most of the products does not generally satisfy the requirement of local market as
perceived by users. As a result, there is less local demand for local steel products as
compared to imported products. In this regard, the government has to undertake
continuous awareness creation for local users on how they can identify the quality of the
steel products in the market based on quality indicators that make producers liable to
mistrust on product standards described in their trade mark.
To mitigate this problem, both the government and industries have to play their
respective roles appropriately. From the government side, there must be initiation to
establish steel association that deals with the challenges of steel industries and provides
proper support. In addition, the government has to control unfair marketing practices that
jeopardize the healthy competition of steel market.
Likewise, steel industries have to improve the quality of their products from time to time,
achieving value addition in their products and applying product differentiation that attract
customers based on their trade mark. With regard to raw materials, industries have to
cooperate in order to maximize their bargaining powers and reduce transportation costs.
Further, the industries have to sign a long-term agreement with raw material suppliers to
ensure reliability of continuous supply of raw materials,their quality and other
competitive advantages. They have to also undertake continuous market research to
identify the gaps and opportunities related with their products in terms of global steel
standards.
6. Shortage of Foreign Currency and Working Capital
One of the factors that account for low capacity and performance of our steel industries is
shortage of foreign currency and working capital particularly long-term loan. In the first
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place, there is no specialized state or private bank or organization that facilitates financial
matters for steel industries (at least together with other industries). This reduces the
chance for the industries to get easy access to sustainable sources of working capital.
Although the steel industries are at the infant stage of development and unlikely to
engage in exports within a relatively short period of time, special attention should be
given by the government to facilitate their access to dollar.
The other bottleneck is the presence of double taxation on spare parts particularly for
local steel industries which engage in assembling, a situation which makes their products
uncompetitive with their foreign counterparts in terms of price. In addition, the duration
of fiscal incentive packages such as income tax holidays is short (between 3-7 years on
average); it is better to increase the duration to attract more investment to the sector.
On top of this, there should be protection and support for local producers in every
possible aspect. For example, Bishoftu Automotive Industry and C and E Brothers Steel
Factory produce considerable number of vehicles and reinforcement bars respectively.
However, they encounter market shortage as a result of availability of imported products
in the local market with cheaper price on the one hand, and due to lack of buyers‟ trust in
the quality of their products on the other. Although the current affirmative action taken
by the government since January 2016 is encouraging to local industries, it should not
happen at the cost of international quality standards. As a result of these impediments
pertaining to foreign currency, working capital, double taxation, and less protection for
their products, the industries tend to encounter a huge problem in their expansion plan.
To minimize these challenges of steel industries, the government should revisit provision
of incentive packages and other supporting mechanisms to encourage local industries. As
much as possible, it seems economically viable to establish a separate bank or a loan
institution for a cluster of subsectors under the manufacturing industry.
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7. Lack of Infrastructure
Steel industries are engaged in an operation that demands the provision of high level
infrastructure such as energy sources, transportation networks and facilities, and
sufficient water supply. Unfortunately, the industries do not have such facilities of
infrastructure to the level required for their successful operation.
Undoubtedly, the present problem of frequent power interruption is posing a serious
threat to proper functioning of industries. Since steel industry is energy-intensive, the
magnitude of the problem is immense for this subsector. As a result of power outage,
steel making processes such as melting and forging can be jeopardized. This is an
unfortunate encounter that can expose the industries to experience failure of expensive
machineries and spare parts which in turn leads to huge demands of foreign currency.
The government should seek ways of resolving this problem and provide the industry
with uninterrupted energy supply on a sustainable basis by providing special power
transmission line and establishing sub-station energy source near industries to minimize
power shortage. On the other hand, industries should explore their own alternative energy
sources (wind energy, solar energy, coal…) and using energy saving technologies.
Challenges pertaining to transportation are not less significant either. Heavy and ever-
increasing cost of transportation will in turn lead to an increase in the cost of raw
materials and products. Limited transportation networks and inaccessibility to potential
markets will result in delay of supply of raw materials and products, causing difficulty in
logistics and supply chain management.
This entails the need for the government to aggressively expand transportation networks.
In this regard, expansion of the railway under construction and other planned railway
projects has to consider the need for location of raw materials for steel industries and
product distribution to local and global market. The industries, on their part, should
consider the availability of raw materials and market opportunities before they are set up
and start their operation. In short, the infrastructure development should be holistic to
enhance competitiveness of steel industries.
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In the experience of other countries, it is customary to attach steel industries with
locations of raw materials. For example, China and India moved their steel industries to
coastal and interior water ways to reduce logistics costs (raw material and final products)
and environmental conditions. In the case of China, steel industry entry standards were
also set with regard to market size, energy, land (location) water and environment
conservation, technology, and safety standards before they commenced their production
activities. South Korea established POSCO taking this fact into account from the very
beginning. On the other hand, India and Brazil have designed special railway network for
their steel industries.
In the case of Ethiopia, however, most steel industries (63%) are located in Addis Ababa
and the surrounding areas, thus making it difficult to supply them with necessary steel
specific infrastructures, as in the case of the aforementioned countries.
On the other hand, water is one of the very important resources without which steel
industries cannot operate. Unfortunately, because this resource is not imported or often
easily available, there is a tendency among users to abuse this perhaps most useful
resource for human life. While some steel industries may not get ample supply of water
and use it properly, others may get it excessively and may not worry about consuming the
resource economically. Therefore, the government should supply sufficient amount of
water for industries which are in short of water supply and put in place a law that
enforces efficient utilization of water by industries such as recycling it on a sustainable
basis.
8. Lack of Sector-specific Energy and Environment Policies
Even though the country follows green growth economy and has general policies for both
energy and environment, it is difficult to find steel-specific policy indicators in these
general policy directions. Yet, it is well known that steel industry is one of the most
energy intensive and highly environment pollutant industries. It seems imperative, in this
regard, to address steel industries in energy and environment policymaking.
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Environmental issues can be attributed to many factors including the type of indirect steel
products imported to the country. For example, the types of automobiles imported to the
country can have a detrimental impact on the environment unless their emission standards
are checked or those with the right standards are imported (e.g., Euro 3 vs.Euro 6 as
illustrated in the table).
Table 50: Automobile emission standards
Standard Carbon monoxide CO g/Km
Total hydrocarbon THC
NOX
g/Km HC +NOX
g/Km PM g/Km
Diesel Euro 3 0.64 - 0.50 0.56 0.05 Euro 6 0.50 - 0.080 0.170 0.005
Gasoline Euro 3 2.3 0.20 0.15 - - Euro 6 1.0 0.10 0.06 - 0.005
Therefore, standards should be set for importing indirect steel products such as second-
hand automobiles, steel pants and steel-related machineries, so that operation cost and
environmental pollution can be minimized. The government has to enact a law that highly
differentiates and strictly regulates the import of second-hand machineries and
automobiles by imposing high tax on such imports and banning some outdated products
that can harm the environment. Such measures will also enable the industry not only to
minimize environmental damages, but also to build technological capability, save foreign
currency, reduce operation cost (through energy saving and low maintenance cost) and
motivate domestic investors.
Emerging countries such as China have incorporated energy and environmental issues in
their steel policies. For instance, China Steel Policy 2005 states that steel companies must
recycle redundant heat and energy for power generation and that steel mills with a
production capacity of more than 5m t/y shall try to be more than self-efficient with
power supplies.
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Therefore, the energy policy has to consider the implications of the subsector with regard
to machinery standards based on best practices drawn from benchmarking, alternative
energy sources, energy audit and efficiency, and power factor corrector. In this regard,
METEC is doing a very good job as it is producing power factor corrector, which it has
already installed in some of its industries. Moreover, some industries under METEC have
already started building alternative energy sources such as solar, wind and geothermal
energy. Thus, there should be policy directives which promote this practice in other
industries as well. On the other hand, the environmental policy should address subsector
specific pollutants (e.g. gases, waste liquid/solid, dust and sound), and there should be
mechanisms of controlling these pollutants on a regular basis.
9. Inadequate Support Institutions
Support institutions are intended to provide multifaceted supports for the iron and steel
industry in such capacity building areas as training, research, technology transfer,
investment, marketing and the like. In the case of Ethiopian steel industries, there is only
one institution known as Metals Industry Development Institute (MIDI), which was
established in May 2010, pursuant to regulation No. 182/2010 of the Council of Ministers
with the mandate of providing support for the basic metals and engineering industries.
Since its establishment, the institute has been engaged in a number of support activities
such as training, research, competency assessment, quality control, technology transfer
and the like. It has set a vision of seeing the subsector to be a premier in Africa by 2025
in metals and engineering manufacturing technology.
Being young and developing, however, the institute has not yet built its own capacity as
required let alone providing full supports for the industries in the subsector. Currently,
the institute has limited capacity in many aspects such as technology transfer, research,
training, and developing policies, roadmaps and strategic frameworks. Consequently,
MIDI is currently providing support for not more than 25% of the industries.
In order to make the sector competitive locally and regionally, the government should
expand capable support institutions and build the capacity of MIDI. If we consider the
case of the countries used in the comparative study of this project, we can see that they
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have various institutions which support their steel industries in multifaceted areas. For
example, India has many such institutions which support its steel industries in planning
and development of the industries, upgrading technical skills of the workforce, catering
for the need for HRD, technology up-gradation, development of advanced design
methodologies and technical marketing, creation and maintenance of a complete
databank, research, and techno-economic studies. Likewise, Brazil has several
institutions which serve the industries in various ways: representing and defending their
interests, promoting their development, providing trained human power for different
subsectors of the industry, creating technical standards, adding value to co-products such
as scrap, and conducting survey and research on subject matters relevant to the steel
sector. In the same way, China, South Africa, and Nigeria have institutions with different
names but whose function is to support their respective steel industries in one way or
another. In addition to expanding support institutions, the government should facilitate strong and
sustainably collaboration between industries on the one hand, and universities, TVETs,
research institutions and centers on the other hand. Furthermore, the government should
initiate the establishment of steel industry association and provide it with the necessary
supports.
10. Lack of Roadmap/Strategy Direction
Steel industry is one of the manufacturing industries essential for socioeconomic growth
and economic stability of the country. Steel is everywhere in our lives and it is widely
used in construction, automotive industry, production of machinery and equipment,
energy supply, transportation system, expansion of urban centers, supply of clean water
and safe foods, the defense industry, and domestic or household activities.
Given the vital role of steel industries in the national growth and transformation, it is of
paramount importance to develop this subsector on a sustainable basis. Accordingly, to
transform the steel industry within specified time span (e.g. 2025), the country needs
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clear roadmap/strategic directions that properly guide the subsector in general and
specific industries in particular.
In other countries, it is customary for steel companies to develop their own development
plan within the framework of the national plan (roadmap). In China, for example, steel
companies are required to prepare their respective development plans in line with the
country‟s medium-and-long-term development plan and the general development plan of
local cities. A similar approach should be experimented also in Ethiopia in order to
properly manage the continuous growth of our steel industries.
As stated above, strategic direction will enable the actors to lead the steel industry in the
desired direction of growth and transformation in compliance with the country‟s vision of
becoming one of the middle-income countries by 2025. On the other hand, a national
steel industry roadmap enables steel industries to cascade the plan and prepare their own
strategies.
In general, to coordinate the development efforts of many stakeholders (policy makers,
regulatory bodies, industries and other concerned bodies), there must be networked and
shared directions among all concerned to minimize information asymmetry on similar
national issues.
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6. Comparative Analysis
Introduction
Given the usefulness of steel industries for development of a nation, it is relevant to draw
useful lessons from some countries which are selected for the purpose of comparative
analysis: India, China, South Korea, Brazil, South Africa, Nigeria, and Kenya. These
countries have been selected purposively because most of these countries have an
emerging economy including a well-developed steel sector (e.g. China, and South
Korea), while others have both success and failure stories which convey a useful message
for the development direction of Ethiopian steel industry.
The comparison has particularly focused on salient issues pertaining to raw materials,
human resource development, production, technology, support institutions, policy and
regulatory frameworks, market conditionsand finance, energy and environment.
6.1. Raw materials Steel industry is reliant on a number of raw materials, particularly iron ore, coal (coke),
ferrous scrap and various additive elements for the steelmaking process. The amount and
quality of iron (Fe) influences the selection of specific technology and quality of steel
products in addition to energy sources.
India: In Indian steel industry, raw materials are obtained both from domestic sources
and from other countries particularly from Australia. The country also exports steel
products to the world market by adding value to the materials. Although the country has
huge amount of iron ore deposit, the quality of the ore is of medium and low grade. This
has forced the country to use beneficiation to improve the quality of iron. Moreover, the
country imports huge amount of coal which affects the sector‟s competitiveness in global
market.
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As a result of export and import activities of steel raw materials and products, the
government has devoted huge amount of resources to build infrastructure facilities for the
development of the sector.
Ethiopia can draw on the Indian experience by exploring and beneficiation of local
resources in addition to already prevailing imports of raw materials from abroad. Like
India, Ethiopia should consider exporting some products rather than supplying products
exclusively for local consumption. Also, the government has to take initiatives to build
further basic infrastructure facilities in order to transform the sector.
China:As far as China is concerned, a number of relevant factors to Ethiopia can be
addressed. For instance, the country has a law on mineral resources which dictates that
domestic iron ore resources must be protected and utilized rationally. The country also
supports research and development and application of efficient mining, processing and
metallurgical techniques for low-grade ores to improve resource utilization.
China has moved the ownership of steel industry gradually from state-owned to joint
venture and eventually to private sector.In this regard, the country has identified different
economic zones supplied with necessary infrastructures to attract potential foreign
investors.
The healthy and orderly development of domestic iron ore resources should be actively
promoted. The differentiated management pilot areas should be established to accelerate
the steps of major iron ore resources development projects in progress.
The tax reform of metallurgical and mining resources should be accelerated, and the
ecological compensation mechanism should be improved to promote the sustainable
development of metallurgical mining.
Strategic investors should be actively introduced; capital operation should be studied and
implemented, and the transformation of mineral resources from an increase in quantity to
an increase in value should be accelerated.
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The domestic steel enterprises should strengthen the coordination with iron ore suppliers
to establish long-term stable channels for importing iron ores. They should make full use
of futures, indices and other financial instruments to promote and construct an open and
transparent market price mechanism for iron ores.
The establishment of demonstration bases for industrialization of steel scrap recycling
should be promoted, and supportive tax policies for steel scrap recycling should be
studied and formulated.Short steel processing technologies and equipment utilization
using steel scraps as raw materials should be encouraged. By 2025, the scrap ratio of
China‟s steel enterprises should not be less than 30%, and the steel scrap processing and
delivery system should be basically established.
Clearly, the Ethiopian steel industry can draw some useful lessons from its Chinese
counterpart. In the first place, the existence of law on mineral resources in China should
be taken as a relevant lesson for Ethiopia even though the country has apparently limited
iron ore deposits. Secondly, promotion of research and development is an area that can be
considered highly relevant for the Ethiopian steel industry, where the awareness and
practice of research and development is highly limited. Thirdly, as in the case of China,
Ethiopia can consider the possibility of gradual transfer of iron and steel industry from
state-owned to a joint venture and ultimately to a private enterprise. Finally, Ethiopia can
also seek various means of supplying raw materials from locally available resources on a
sustainable basis.
Nigeria:In order to maximize the benefits of its raw material resources, Nigeria took
several measures, which can be exemplary for Ethiopia. For instance, the country
established Nigerian Steel Development Authority to identify, locate and procure locally
available raw materials for the steel industry. It also established the Raw Materials
Research and Development Council in order to ensure that steel plants were not starved
of raw materials, and the National Metallurgical Development Centre, which should
undertake studies and projects on beneficiation of locally available raw materials,
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development of processes and products for the exploitation of these raw materials into
pilot scale for commercialization.
The fact that Nigeria has established various centers and agencies at various times in
relation to raw materials for steel industry may indicate the focus the country has given
for raw materials for her steel industry. However, the country has not benefited much
from the sector regardless of the huge resource endowment and establishing various
authorities and centers. This is probably due to lack of political commitment and
prevailing rent seeking practices. Yet, it is important for Ethiopia to consider the wider
implications of such establishments for a better provision and utilization of raw materials
in her iron and steel industry.
South Africa:The country has all raw materials required for steel production. Several
private sector projects are currently assessing the mining of these resources. The country
is exporting 60 million tons of iron ore and 1.5 million tons of scrap per annum,
according to SSY (2013). Although the country is endowed with all raw materials, it was
indicated that the maximum benefits of the resources were not exploited because of
inefficiencies and high costs of energy, road, rail and port infrastructure, low level of
beneficiation and value chain in domestic iron and steel industries.
According to the Southern African Institute of Steel Construction (SAISC), the
availability of suitably trained manpower and specialist skills is a major factor in the
continued growth and development of the industry. Education is a key instrument to
achieve this purpose. To maintain and develop the industry's competitiveness, the SAISC
operates a bursary scheme to draw young engineers into the industry; it is actively
concerned with the quality of courses in steel design at universities, invites eminent
overseas lecturers to enhance courses, offers continuing education courses to recent
graduates and practicing designers, and sponsors research programs at
severaluniversities.
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On the other hand, variable and often out-of-date production and technological
capabilities have resulted in the industry losing ground in maintaining local content and
being unable to effectively capture new opportunities offered by both private and public
capital expenditure program. Besides, despite SAISC‟s efforts to use education as an
instrument to enhance the availability of trained human power and specialist skills for the
sector, the nation‟s steel industry still suffers from severe skills shortages at artisan,
technical, engineering and project management levels.
In this regard, the lesson that Ethiopia can take from South Africa is obvious: the crux of
the matter lies not only in owning resources; rather, it is about how we utilize our
resources in economically efficient ways by setting clear infrastructure plan and
appropriate value chain. Also, Ethiopia can consider South Africa as one of potential
candidates from which iron ore and scraps can be imported due to relative transportation
cost advantages (rail way).
South Korea: The countryimports both iron ore and coal. Yet, the country has
established a giant steel center called POSCO International Centre, which is the largest
capacity furnace in the country and the fourth largest in the world.
In 2010, the country was one of the region‟s significant consumers and importers of coal,
natural gas and crude oil; ores and concentrates of copper, iron, lead, and zinc; and nickel
oxide sinter. In 2010, production of steel increasedby 21%, pig iron by 14%, and iron ore
by 13% compared with that of the previous year. In the same year, mine production of
iron ore was about 513,000 tin gross weight, and the country relied heavily on imports to
meet its iron ore requirement. Imports of iron ore totaled 56.3 Mt and were valued at
about $6.65 billion. The country‟s crude steelmaking capacity increased by 18.6% to 76.1
Mtin 2010 as opposed to that of 2009, owing to the start of full operations at Hyundai
Steel‟s two blast furnaces.
In 2010, POSCO resumed operation of a blast furnace in Pohang after the furnace was
refurbished. The annual production capacity of the furnace was increased to 5.3 Mt,
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which made the Pohang blast furnace the largest capacity furnace in the country and the
fourth largest in the world.
The South Korean steel development experience conveys a very important message for
Ethiopia: it is possible to be a dominant steel producer for both domestic and global
market even without having enough domestic natural resources for the sector. This was
possible in Korea because of the country‟s efficiency in policy making particularly in
human resource and technology development.
The amount of iron ore, quality and objective of mining of the selected countries is
summarized in the following table:
Table 51: Raw materials Country Amount of ore in ton Quality of iron ore (Fe
content) Objective of mining
China 74.4 billion ton Medium on average Net Importer
S.Korea * * Net importer
India 28 billion ton Medium and low grade Currently Export but it needs for domestic industry
Brazil 16 billion Average >60% Fe Export and import (net exporter)
South Africa
5370mt, + (26400mt including low grade)=31.77billion ton
High grade and low grades Export
Nigeria 3billion 2 billion (45-50 %Fe), others lower grade Local production
Kenya Above 32mt; there is unknown reserve 50-60% *
Ethiopia Above 150mt only the known Medium and low grade Not yet used
*data unavailable
6.2. Human resource
Having rich supply of raw materials alone is not enough for the development and proper
functioning of an iron and steel industry. Without well-qualified and sufficient number of
human resource, it is, of course, impossible to think of a successful iron and steel
industry. Given the crucial role of human resource in a successful operation of the
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industry, it is beneficial to look at the experience of the nations which are selected for the
purpose of comparative study.
India: Currently, 600,000 work forces are engaged in the Indian iron and steel industries.
The profile of the required human resources will have a larger share of the skilled and
semi-skilled labor force. Further, the task is not limited to an increase in the stock of
technical manpower. The technical and professional institutes of the country would also
be required to impart new competencies and capabilities in tune with changes in
technology and the needs of globalization. The country aims to enhance its human
resource development through pursuing M.Tech, Ph.D and Post-Doctoral programs for
creating a talent pool for research activities.
In addition to these programs, short and long term, pre-service and in-service training is
provided in the following areas: Raw material preparation, Cock preparation, Sinter
preparation, Iron making, Steel making, Rolling and forging, Process control automation,
Plant management along with energy and environment, Production, Quality improvement
and process and R& D on machineries (Furnace, forging and heat treatment etc.)
The presence of a national iron and steel council enables the country to equip the industry
with necessary workforce (required labor force of Vision 2025-26 is about 2.4 million
professionals and workers). In addition, the industry has been finding ways to attract and
retain talent workers, retrain and redeploy its human resource, invest in new leadership
and competency development, and strengthen knowledge management to provide human
capital for the sector.
India‟s effort to create jobs for citizens by improving the productivity of the country‟s
steel industry is a useful experience that Ethiopia can draw on. Similarly, the country‟s
aim to upgrade and diversify the profile of the workforce through various programs such
as M.Tech, Ph.D and Post-Doctoral programs and short and long-term trainings can be
considered as a useful lesson for Ethiopia in her human resource development programs.
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China: Concerning human resource, China was able to attract investment in iron and
steel sector through supplying abundant workforce at a relatively low wage rates.
However, the productivity of most of the workforce was low and the country has been
aggressively investing on upgrading the skills of human resources, particularly the
Engineering personnel and provide social infrastructures like schools and health centers
in most special industry zones to increase retention and health conditions of the industrial
workers. Moreover, china also relaxed some regulations to allow foreign experts to be
employed by both local and foreign investors.
To further improve training to create a force of technological innovation and management
talent and encourage innovation, different governmental and non-governmental institutes,
centers and organizations have been established. Examples of these include China Iron &
Steel Research Institute Group (CISRI), which is serving as an important R&D base and
a leading provider of advanced materials and products in the country, China Iron & Steel
Research Institute Group Co., Ltd., which manufactures and supplies different materials,
and China Iron & Steel Association, conducts different studies on production, technology
development, human resource development, market and total situation of the sector.
With all of these initiatives, the country has been working on improving labor
productivity. According to China revised (2015) steel policy, it was expected that, the
annual labor productivity of large-and-medium-sized steel enterprises‟ core businesses
should exceed 1,000 tons/person/year and that of advanced enterprises should exceed
1,500 tons/person/year.
Iron and steel industry is vital in promoting employment and boosting economic
prosperity and serves as a pillar of local economic development and social stability. For
example, in 2010, the sector of ferrous metal smelting and rolling of China employed an
annual average of 3.4563 million employees, making the sector the 11th biggest employer
among all industrial categories of the country. This sector and the ferrous metal mining
sector employed among themselves an average of 4.10 million employees. Furthermore,
given the role of the iron and steel industry in boosting the development of related
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industrial sectors and sectors oriented to serving the iron and steel industry (such as
research and trade sectors), the industry plays a greater part in promoting indirect
employment.
Nigeria: In order to ensure availability of junior and middle level personnel support for
the steel industry, the Nigerian Government established the Raw Materials Research and
Development Council, National Metallurgical Development Centre, and Metallurgical
Training Institute to train a staff of cadre for the steel industry.
The fact that Nigeria has established various centers and agencies at various times in
relation to human resources development of her steel industries is interesting. However,
the country has not benefited much from the sector regardless of establishing various
institutions, authorities and centers, probably due to lack of political commitment and
prevailing rent seeking practices. Yet, it is important for Ethiopia to consider the wider
implications of such establishments for a better provision of skillful and competent
human resource in her iron and steel industry.
South Africa: According to the Southern African Institute of Steel Construction
(SAISC), the availability of suitably trained manpower and specialist skills is a major
factor in the continued growth and development of the industry. Education is a key
instrument to achieve this purpose. To maintain and develop the industry's
competitiveness, the SAISC operates a bursary scheme to draw young engineers into the
industry, is actively concerned with the quality of courses in steel design at universities,
invites eminent overseas lecturers to enhance courses, offers continuing education
courses to recent graduates and practicing designers, and sponsors research programs at
several universities.
According to South African Iron and Steel Institute (2014), Primary Steel Industry in the
country provides employment for more than 25,000 people, and indirect economy-wide
employment increases substantially via suppliers to primary steel industry. The industry
spent a significant budget on training to produce more than 750 artisans. The majority of
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employees are local as primary steel mills are regarded as employer of choice providing
stable jobs in local communities.
The effort in South African to create jobs for citizens directly and indirectly is a useful
experience for Ethiopian steel industry. Besides, the effort of the country to prepare
potential industry employees through provision of training at various institutions can be a
useful lesson for our steel industry sector in its human resource development.
Brazil: In Brail, the companies associated with the Brazil Steel Institute employed
100,924 in-house and outsourced collaborators and promoted another 2.4 million indirect
and induced job positions. Concerning human resource development, there are several
institutions that are involved in various training programs (Brazil Steel institute, 2015).
For instance, the Brazilian S System is a group of entities classified as autonomous social
services, nonprofit private entities that exert private activities of public interest. Each
autonomous social service is specific to an economical sector and responsible for (i)
promoting the improvement of the quality of life of workers within that sector; and (ii)
providing professional and technical education, to fulfill the demand for qualified
workers on it.
In the 1940‟s, a private initiative which consisted of owners of industries and commerce
created SENAI (industry‟s national learning service) in 1942, promoting professional
and technological education, to innovate and transfer industrial technologies in order to
stimulate industry‟s competition and SENAC (commerce‟s national learning service) in
1946 to produce intellectual workers who had studied the humanistic curriculum and,
therefore, would eventually be in charge of the political, social and economic
development of the country. These special schools were aimed to train workers for
industry and commerce, in order to meet the demands for qualified workers.
Also, already existing secondary schools became Federal Technical Schools in 1942.
With these changes, the educational system consolidated and produced two distinct kinds
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of workers resulting from the technical and social division of work. These were social
workers or intellectual workers, who had studied the humanistic curriculum and
therefore, would eventually be in charge of the political, social, and economic
development of the country, and instrumental workers or technical workers, who had
studied particular curriculum depending on the work area they were supposed to perform,
thus learning only the skills needed in that field.
Ethiopia can also gain useful lessons from the Brazilian steel industry in terms of job
creation for citizens and human resource development to upgrade labor productivity and
efficiency of its steel industry. The fact that Brazil has special schools for training
industry workers seems a useful experience that can be implemented in Ethiopia.
South Korea: As stated elsewhere, South Korea imports both iron ore and coal. Yet, the
country has established a giant steel center called POSCO International Centre, which is
the largest capacity furnace in the country and the fourth largest in the world.
The South Korean steel development experience conveys a very important message for
Ethiopia: it is possible to be a dominant steel producer for both domestic and global
market even without having enough domestic natural resources for the sector. This was
possible in Korea because of the country‟s efficiency in policy making particularly in
human resource and technology development.
Ethiopia: The data collected by the institute (MIDI) indicates that the human workforce
engaged in the subsector constitutes 26,577 in 2004, 28,632 in 2005, 30,823 in 2006 and
approximately 32,823 in 2007. As can be understood from these figures, the number of
the workforce joining the subsector has increased over the last three years with an
average of over 2000 workers entering the subsector yearly.
On the other hand, the data gathered in the present project with regard to the number of
job opportunities created in various job positions reveal that the subsector currently
provide employment for about 17136 workforce. From the total number of employees in
the sector, 2.6% are managerial staff, 24.47% administrative support staff, 4.41%
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permanent local engineers, 31.92% permanent local technical experts, 0.24% permanent
expatriates and 36.6% temporary workers. This means that only negligible proportion of
the human resource is currently engaged in the industry as engineers. This suggests the
need to work more on human resource development particularly in terms of equipping the
subsector with more qualified professionals.
Attempts have been made in the following table to provide a summary of information
pertinent to the human resource development endeavors of the countries under
consideration.
Table 52: Human resource related information
Country Useful statistics and information HR development Labor productivity India 600,000 workforce (2015)
vision 2025-26 requires about 2.4 million professionals and workers
Share of the skilled and semi-skilled labor force
M.Tech, Ph.D and Post-Doctoral programs (professionals and workers)
126 ton/man year
China An annual average of 3.4563 million were employed in 2010 by the sector of ferrous metal smelting and rolling
An average of 4.10 million employees were employed bythis sector and the ferrous metal mining sector
Supplying abundant workforce at a relatively low wage rates
aggressively investing on the upgrading of the skills of human resources particularly the engineering personnel
Providing social infrastructures like schools and health centers in most special industry zones to increase retention and health of the industrial workers.
Relaxing some regulations to allow foreign experts to be employed by both local and foreign investors.
Promoting employment and boosting economic prosperity
The steel industry
It was expected that, by 2015, the annual labor productivity of large-and-medium-sized steel enterprises‟ core businesses should exceed 1,000 tons/person/year and that of advanced enterprises should exceed 1,500 tons/person/year
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serving as the pillar of local economic development and social stability.
Nigeria
Establishment of the Metallurgical Training Institute (MTI) to train staff for the steel industry for availability of junior and middle level personnel support for the steel industry
South Africa
Primary Steel Industry provides employment to more than 25 000 people
Indirect economy-wide employment increases substantially via suppliers to primary steel industry.
Primary Steel Industry spent is significant on training to produce more than 750 artisans
More than 150 university bursaries
Drawing young engineers into the industry
Ensuring quality of courses in steel design at universities
Involving eminent overseas lecturers to enhance courses, offers continuing education courses to recent graduates and practicing designers,
Providing stable jobs mainly for local communities (e.g. Primary Steel Mills)
Providing local community education via science centers
Labor productivity remained constant since 1994
Slowing labor Productivity growth (%)
1996-01‟ =5.8 2001-06‟ =3.4 2006-11‟ =1.6
South Korea
Efficiency in policy making particularly in human resource and technology development.
1345 ton/man year (POSCO)
Brazil
Companies employed 100,924 in-house workers and outsourced collaborators and promoted another 2.4 million indirect and induced job positions
Establishment of a group of nonprofit private entities known as „autonomous social services‟
Via autonomous social services
(i) promoting the improvement of
the quality of life of workers (ii) Providing professional
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6.3. Production Types of products, production capacity and production efficiency of the selected
countries for comparative analysis and Ethiopia is summarized in the following table.
and technical education, to fulfill the demand for qualified workers on it. Opening special schools
aiming to train workers for industry and commerce, in order to meet the demands for qualified workers.
Kenya A single steel plant of a capacity to produce 350,000 metric tons of steel per year can generate about 10,000 jobs not to mention the jobs created through other steel related activities.
Skills Development for the Technical Human Resource for the Manufacturing Sector (with steel industry being in focus)
27.58 (mean for the review period of 8 years (2001-2008) for 9 selected firms
Ethiopia Approximately 32,823employees in 2007in 4 subsectors
Knowledge and skill transfer to new employees through in-house training;
Upgrading employees‟ academic qualification;
Providing on-the-job training opportunities to produce qualified human power;
Knowledge and technology transfer from expatriates;
Knowledge and technology transfer during copying of products;
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Table 53: Steel production Countries Type of products Actual crude
steel production capacity in 2014
Production efficiency
India Sheet metal,
hot and cold rolled coils ,
alloy and non-alloy
83.2 Mt 90% (2011)
China Stainless steel sheet and plate, galvanized steel,
Electric steel coil,
hot rolled Square steel billet, square bar, billet
822.7 Mt 93% (2015)
South Korea
hot rolled steel, steel plate, wire road
cold rolled steel, galvanized steel
electrical galvanized steel
automotive materials
stainless steel, Long products,
71 Mt 97% (2015)
Brazil Semi-finished (plates, blooms and billets)
Carbon flat steel (plates and coils)
Special/alloy flat steel (plates and coils)
Carbon long steel (bars, shapes, wire rod, rods, wires and seamless tubes and pipes)
33.9 Mt 70.5% (2014)
South Africa
flat-rolled and long products),
tubes and structural steel, extrusions and wire,
Hot & cold rolled coil,
Galvanized coil, plates and sheets
6.5 Mt 69% (2015)
Nigeria Light section mill (320mm),wire rod mill (150mm),
Billet mill (900mm//630mmSemi continuous),
Medium section and structural mill (700mm)
0.1Mt Not known
Kenya Glazed products, cold rolled steel,
Hot rolling wire, pipes
0.02 Mt 58%(average technical efficiency) 2012 (African Development bank)
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Ethiopia Round bar and Re-bar, Wire,Nail, Billet
Galvanized and corrugates sheets
Crown cork, Metallic door
Metallic window, Motor vehicle spring
37.7%
6.4. Technology Technology is one of the key determinants of the development of steel industry in any
country and its endeavors to transform its steel sector. Particularly, selection of
appropriate technology is critical for developing countries as it has both resource and
knowledge implications to acquire and own a given technology. Hence, selection,
adoption, and transfer of appropriate technologies for the development of steel industry in
a given country must be seen from the realities on the ground by taking into consideration
the peculiar characteristics of that specific country.
In the following section, the steel sector technology of selected countries is presented to
guide Ethiopia in technology selection for its steel industry.
Table 54: Technology
Countries Type of technology Scale of industry R and D India Blast furnace-basic oxygen furnace
Direct reduced iron
Electric arc furnace
Rolling mills
Small to large scale 0.15 – 0.25% of their sales turnover
China Blast furnace-basic oxygen furnace
Direct reduced iron
Electric arc furnace
Rolling mills
From small scale to large scale/large scale
1.7% of the income from core business activities (Bao Steel)
South Korea Blast furnace-basic oxygen furnace
FINEX Process Electric arc furnace
Strip casting
From small scale to large scale
1.3% of turnover (POSCO)
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Endless hot rolling technology
Operation technology
CEM technology Brazil 11 Blast furnace-basic oxygen
furnace and
14 mini mills (Electric furnace)
From small scale to large scale
0.22% of net income for iron and steel 0.22% for steel products 0.21% manufacturing of metal products
South Africa Blast furnace
Direct reduced iron
Electric arc furnace
No data 0.76% of GDP(for all sectors)
Nigeria Mostly BF and rare DRI, Alumino-silicate refractory plant…
No data No data
Kenya Electric Arc Furnace,
Integrated (for future),
Small scale No data
Ethiopia Electric arc furnace, induction furnace
pre heating furnace,
Re bar and round bar rolling mills,
Corrugate machine
Small scale None
Ethiopia can draw many lessons from the BRICS countries on selecting and using
appropriate technologies for her steel industries according to the quality, quantity and
location of the existing raw materials, human resource knowledge and skills, capital
capacity, environmental issues and energy consumption. In this regard, the country has
the possibility to use blast furnace, DRI and electric furnaces. Each of these technologies
has its own merits and demerits.
DRI has a number of advantages because it is easily movable, and it can be used in all
scales: from small to large scale industries. It also uses alternative energy sources (natural
gas, coal), and it is environmentally friendly. On the contrary, the fact that it requires
high quality of iron ore and is unsuitable for bulky production makes DRI a
disadvantageous technology.
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On the other hand, blast furnace helps to produce bulky products and does not necessarily
require high quality of the iron ore, but it requires extra beneficiations such as coal and
coke and huge expansion of infrastructure besides being environmentally unfavorable. In
addition to these, it is capital-intensive, which means that it has its own impact on the
investment in the field.
As in the case of Egypt, to use scrap as a raw material, the application of electric furnaces
is promising in terms of its energy saving and environmental-friendly nature.
In addition to the above technologies adopting advanced steelmaking technologies and
equipment such as feedstock material beneficiation, preliminary process of liquid iron,
medium capacity direct reduction, secondary smelting at converters, continuous casting,
continuous rolling, controlled rolling and controlled cooling are crucial to make the
sector a regional and global competitor.
Since there is no single best technology, it is recommended that each technology should
be used eclectically. The disadvantages in one technology can be compensated for with
the maximum utilization of the advantages in the other technologies. If these technologies
are utilized appropriately and if the government expands the railway network, our steel
industries have plenty of opportunities to be global competitors.
The assessment of the comparative study indicates that, nowadays, there is a huge
opportunity to easily access appropriate technologies on the global market. The
technologies of the contemporary world are energy-saving, environmentally friendly and
fully-automated.
This is great opportunity for Ethiopia to import these technologies in order to upgrade
technological capacities of steel industries. This implies that, there is less need, under the
present global situation, to embark on small scale industries due to their environmental
pollution and high energy consumption. On the other hand, large scale steel industries
are not recommendable for our country because of the fact that these industries require
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huge amount of raw materials, skilled workforce, specialized infrastructures and big
investment capital that the country may not be in a position to implement at the current
situation.
Hence, it seems more feasible for Ethiopia to start from a medium scale steel industry to
compromise the above facts and meet the urgent demands of steel products.
6.5. Support institutions Steel industries cannot flourish without support of concerned institutions, organizations,
associations, centers, and councils (referred to here as „support institutions‟). As the name
implies, these institutions can support steel industries in many important areas such as
human resource development, R&D, and building technological capacity. The table that
follows presents some support institutions of the countries under comparison along with
their major contributions to the steel industry of respective countries.
Table 55: Support institutions
Country Support Institutions Major contributions
India
Existence of Ministry of Steel with some nine public sectors, another nine private sectors, and technical institutes under its administrative control
Planning and development of iron and steel industry
Technical Institutes and Related Organizations
Constantly upgrading the technical skills of the workforce
BijuPatnaik National Steel Institute Catering to the need for HRD and Technology Up gradation National Institute of Secondary Steel Technology
Catering to the technological and HRD needs of steel units in the Secondary Steel Sector
Institute for Steel Development & Growth
Development of advanced design methodologies & technical marketing
Joint Plant Committee Creation and maintenance of a complete databank
Economic Research Unit Research support, forecasting exercises and examination of policy matters/techno-economic studies
China
China Iron & Steel Research Institute Group
Serving as an important R&D base and a leading provider of advanced materials and products in China
China Iron & Steel Research Institute Group Co., Ltd
Manufacturing and supplying functional materials, powder metallurgy materials, refractory metals, high temperature alloys, structural materials, etc
China Iron & Steel Association Conducting different studies on production, technology
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Country Support Institutions Major contributions development, human resource development, market and total situation of the sector
South Korea POSTECH Expand first-class products and overseas markets
Brazil
Brazil Steel Institute Congregating and representing Brazilian steel companies, defending their interests and promoting their development
Brazilian Foundry Association Offering trained manpower in Foundry Technical Courses, Metallurgical Engineering, Foundry MBA &Foundry Engineering
The Brazilian Steel Committee Creating technical standards for steel and steel products in Brazil.
Brazil Steel Co-Products Center
Advancing development and adding value to co-products – such as scrap – that are reused in steel manufacturing itself or in other sectors, such as construction, therefore generating major environmental benefits.
Brazilian Center of Steel Construction Conducting survey and research on subject matters relevant to the steel sector
South Africa
South African Iron and Steel Institute (SAISI)
Serving the collective interests of the primary steel industry in South Africa
Associated Bodies to SAISI
Southern African Institute of Steel Construction
Promoting the use of steel in construction by involving in marketing, education, engineering and the provision of member services
Southern African Light Steel Frame Building Association
Developing and growing the Southern African export markets for light steel frame building.
The Southern African Institute of Welding
Serving the welding industry and promoting its interests by furthering the standards, training and qualification of South African personnel
South African International Steel Fabricators
As a joint-venture marketing company, representing the leading South African structural steel fabricators whose objective is to increase their export sales by pooling their resources
South African Wire Association
Supporting the South African Wire Industry in becoming world class and to maintain that position.
Southern Africa Stainless Steel Development Association
Offering its members a wide variety of services such as technical information and advice, education, training and skills upgrading
Steel and Engineering Industries Federation of Southern Africa
Representing and promoting the interests of members in the metal and engineering industry by providing a range of other services to members in the areas of social policy, skills development and economic and commercial services
Association of Steel Tube and Pipe Manufacturers of South Africa
Representing the major welded carbon steel tube and pipe manufacturers in South Africa, producing a complete range of tube and pipe for all conveyance and structural applications to the highest international standards.
Nigeria
Nigerian Steel Development Authority
Identifying, locating and procuring locally available raw materials for the steel industry
Raw Materials Research and Development Council Ensuring that steel plants don not face shortage of raw materials
Metallurgical Development Centre Undertaking studies & projects on beneficiation of locally
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Country Support Institutions Major contributions available raw materials, development of processes and products
Kenya Vision 2030 Manufacturing Sector Skills Development for the Technical Human Resource for the Manufacturing Sector (with steel industry being in focus)
Ethiopia Metals Industry Development Institute
Promotion of metals and engineering industries investment, Enhancing production capacity of the metals and engineering industries, Enhancing metals and engineering products market share
As we can see from the table, most countries have various support institutions which
support their steel industries in many respects. The literature in the area depicts that such
institutions contribute significantly to develop steel industries.
However, as long as Ethiopia is concerned, there is presently only one institute that works
on various issues of the country‟s steel industry. On the basis of the experience of the
countries in this comparative study, there is no doubt that additional and strong
institutions are needed in Ethiopia in addition to the sole MIDI.
6.6. Policy and regulatory frameworks South Korea: The South Korean economy is seen internationally as a model of economic
development in which an industrial policy played a vital role. The national government
intervened extensively in resource allocation, targeting industries to be promoted and
providing incentives to promote the selected industries. The evolution of the Korean
Policy Mix can be separated into two periods. The initial period was government-led and
the latter period was private sector-led. Industrial policy has been harmonized with trade
policy and supported by policies for human resource development and technology
because of the fact that industrial competitiveness depends ultimately on skill and
technology.
South Korean steel industry developed rapidly following the establishment of POSCO, a
state-owned integrated firm in the early 1970s. However, in late 1990s the Korean
government transformed the steel industry from state led development to privatization to
create competition among private firms. Within manufacturing industries, South Korea
moved continuously from unskilled labor-intensive light industries to skilled labor-
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intensive assembly and fabrication and from capital-intensive heavy industries to
technology-intensive ICT industries. South Korea is now challenged to move upward to
knowledge-intensive service industries.
More specifically,
Export Promotion in the late 1960s focused on manufactured consumer goods and
the government introduced incentive packages(discretionary based loans, both
foreign and local loans, tax reliefs, facilitation of long-term loans, industrial
equipment purchase loan etc. are incentives provided by the government in
addition to provision of regulatory frameworks and provision of basic
infrastructures).
The role of the government was coordination, information dissemination, risk
management, and financing. For example, the government took measures to
shorten or do away with regulatory delays, increase transparency, institutionalize
incentives to reduce the discretion of bureaucrats, give investors‟ confidence in
policy, and create a specialized public agency to implement the policy.
The government adjusted industrial policies to support industries intensively. For
example, discretionary policy loans (in the form of a machine industry promotion fund, a
foreign loan fund, an export equipment fund, an industry rationalization fund, a long-term
policy fund, a medium-industry fund, etc.) were 40% of total bank loans in 1977–81.
Credit control has been a powerful policy instrument, and a measure of subsidized loans
captures a substantial element of the entire industrial policy.
The implication of this for Ethiopia is that the government should be dynamic in
constantly revising its steel policy and take necessary actions whenever important. In
addition, the establishment of a separate institute to support MSEs is believed to be a
driving force for the growth and transformation of a country. Exclusive investment in
human resource and technology development that the industry needs should be given
priority to enhance industry development, particularly steel industry.
South Africa: The South African industry policy mainly targets value-addition,
employment, investment, technology development and productivity growth. Following
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liberalization in 1990s that lead to removal of protection policies (or antidumping
legislation) for the South African economy, there have been instances where
manufacturers in the steel value chain have imported steel at a cheaper price, cheaper
than the price of steel sold by companies in South Africa. However, South Africa‟s steel
industry is less competitive due to less attention given to infrastructure development and
high energy costs though the country is rich in huge potential of iron ore and other
minerals.
The implication is that Ethiopia is in better position in imposing protection policy by
virtue of being a developing country and the availability of natural gas for energy supply.
To avoid the failure stories of South Africa in the area of infrastructure development, the
Ethiopian government has to promote investment in infrastructure to develop the
country‟s steel industry.
India: The industrialization policy followed by India was import substitution (1952-1991
closed door policy) and has been liberalization (since 1991 to date). In the case of India‟s
steel industry, the economic liberalization in 1991 helped to undergo a significant
reorganization though state-owned firms had played the core role in early stage of
development.
The driving force for the development of Indian steel industry is its ability to introduce
newly available technology and domestically available raw materials like scarps, a
situation which has enabled small-scale producers to grow. The country‟s economic
development changed away from a traditional industrial policy towards liberalization,
and the market orientation in 1991 was accepted as a guide in a new era of freedom from
government controls. Some of the policy measures which have significantly contributed
to the development of Indian steel industries are relaxation of foreign capital regulation,
liberalization of trade, and revolution in finance system.
India has designed and implemented iron and steel policies with some special objectives
and targets.
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National steel policy of 2005:Aims at achieving global competitiveness in terms
of targeting 110 ton capacity and 100 ton production capacity by 2019/2020
focusing on:
o Cost, quality and product-mix
o Global benchmarks of efficiency and productivity
o Developing and adapting technologies, and synergy with the natural
resource base
o Allowing joint ventures, technical cooperation, and acquisition of selected
enterprises. For instance, acquisition of 14 companies of India by Europe
and USA, joint venture with 8 companies of Europe and Japan can be
taken as good examples of policy adoption.
National steel policy 2012: Aims at transforming steel industry into a global
leader with a target to reach crude steel capacity level of 300mt and actual
production 275 Mt by 2025‐26.
o Greater focus (R&D) for developing indigenous technologies
o Developing indigenous capabilities of design, engineering and
manufacturing of critical capital equipment required for steel production
The role of the government is to provide basic infrastructures required for steel
production and promote participation of the private sector. The government will also
encourage the steel industry to follow an aggressive export strategy to tap the
opportunities in the global market fully.
In conclusion, the roles played by state-owned steel industries, and utilization of domestic
raw materials and contemporary latest technologies have contributed to the development
of steel industries in India. In addition, the joint venture with foreign experienced
companies has helped the industries to transform in technical and financial aspects. This
can be taken as a good lesson for Ethiopia.
Nigeria: Although Nigeria is unsuccessful in transforming its steel industry despite
possessing huge raw material and human resource bases, it had designed and
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implemented different industrial and steel sector-related polices to promote the growth of
the sector. Some of the policy decrees enacted by Nigeria are: import-substituting
industrialization (1962-68), private to public sector-led industrialization (1970-74),
Export Promotion Strategy, and Foreign Private Investment Led Industrialization
Strategy (1999).
New Industrial Revolution Plan was developed with an objective of achieving the
following outcomes: (i) Job creation, (ii) Economic and revenue diversification, (iii)
Import substitution (iv), Export diversification, and (v) Broadened government tax base.
In addition, the plan focuses on solid minerals and metals, as it is believed that massive
untapped raw reserves, notably iron ore, can enhance industrial output. New industrial
revolution was intended to create a strong industry that can tap into the mining sector
(initially focusing on the iron ore value-chain) and build a competitive advantage around
high-value, high-volume products.
Nigeria is blessed with all types of raw materials required for steel development
including iron ore, coal, natural gas and limestone. Unfortunately, however, due to
several factors including political, technical, logistical and managerial challenges, all
these publicly-owned and private iron and steel companies folded up in Nigeria.
Despite the fact that Nigeria is blessed with huge natural resource for iron and steel
industry and the Nigerian government is dynamic in policy formulation and in
preparation of different sector-specific plans, the country has been unable to transform its
steel sector. This could be the result of bad governance and lack of political commitment
in implementing these policies and plans.
China: The market-oriented reforms and (open up) policy introduced in 1978 have
produced high economic growth and dynamic transformation that led to high attraction of
FDI particularly in the manufacturing sector by introducing new technology, know-how,
and capital to develop export-oriented economy and provided managerial autonomy and
other preferential treatment by law. Among the manufacturing, technology and labor
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intensive sectors, steel industry has been given priority through provision of huge
government incentives and low labor cost of the country.
Moreover, Special Economic Zones (SEZs) and new laws were enacted to guarantee
legal protection in different ownership types (equity joint venture companies, cooperative
joint venture companies, and companies wholly owned by foreigners) that have led to
speed up china‟s industrialization. These trends through China‟s so-called “dual track”
economic reform strategy have balanced ongoing support for import-substitution in
selected sectors with an evolving array of export processing activities.
In relation to iron and steel sector, the following policies have been designed and
implanted:
China Steel Policy 2005 with intention of making China one of the largest and the
most competitive steel producing countries by 2010 with the target:
o to meet the demand of most industries in China(construction, machinery,
chemical engineering, automobile manufacture, household, electrical
appliance, ship-making, transportation, military industry, and other new
industries.
o enable steel companies to recycle redundant heat and energy for power
generation and steel mills with a production capacity of more than 5m t/y to
be more than self-efficient with power supplies,
o ensure that energy consumption per ton of crude steel produced shall be 0.7
ton or less for blast furnace processes, and 0.4 ton or less for EAF process,
both in standard coal equivalent
o raise the research and development, design, and manufacture level for
important technologies and equipment.
o encourage steelmaking and metallurgical equipment manufacturing
companies to export advanced technologies and metallurgical equipment
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China’s revised steel policy (2015): The main objective of this policy is:
“By 2025, steel products and services should fully satisfy the development needs of the national economy and should realize transformation and upgrading by creating resource-conserving, eco-friendly steel enterprises with strong innovative capabilities, positive economic benefits, and international competitiveness. Products and services, industrial equipment, energy and environmental conservation, and indigenous innovation, etc. should reach globally advanced levels, and a fair and open market environment should basically take shape”.
Moreover, the comprehensive policy package designed and implemented by China since
1978 with regard to the industry sector, particularly the manufacturing subsector, in terms
of attracting FDI, legal framework alignment, infrastructure investment, establishment of
special economic and technology zones could be considered as indispensable lesson to
Ethiopia.
Kenya: the development of the iron and steel sector has been given due attention as it
will have a spill-over effect on other sectors of the economy and has the potential to
create employment opportunities to Kenyans. The vision of becoming an industrialized
nation (Vision 2030) advocates for regional manufacturing and industrial clusters as
engines for realizing industrialization since it helps to improve infrastructure, technology
transfer, research and development facilities.
The iron and steel industry in Kenya forms about 13% of the manufacturing sector, which
in turn contributed about 30% to the GDP by 2030.However, the major challenges of
steel industries were securing of capable human resources as there is mismatch between
available technical skills and the market demand due to a weak linkage between training
institutions and the industry at the three levels of training, i.e., universities, tertiary
colleges and youth polytechnics. The good thing is that various government policy
instruments and private sector initiatives have been developed to address these
challenges.
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The implication of the Kenyan steel industry experience for its Ethiopian counterpart is
the importance that Kenya has attached to the steel industry believing that it plays a
crucial role in the development of the manufacturing sector and the need for strong
industry-university linkage to boost the productivity of the steel industry.
Brazil: The country launched import substitution industrialization (in1950‟s) and
liberalization and privatization of state companies (in 1990).In 2004, the government
launched an industrial, technological and trade policy. One of the rationales of the policy
was to ensure Brazil‟s industrial competitiveness and innovativeness. Further, in 2008,
the government introduced productive development policy in order to expand the scope
of industrial, technological and trade policy.
In 2011, a new industrial policy, the Great Brazil Plan, was launched with the objective to
build and strengthen critical competencies in the national economy, to enhance
productivity and technological density within value chains, to expand the domestic and
external markets of Brazil, and to ensure socially inclusive and environmentally
sustainable growth. With regard to steel sector, there is Brazil Steel Institute that looks
after the following issues: studies and surveys regarding production, equipment and
technology, raw materials and energy, market trends, new applications for steel and
industrial relations, data collection, preparation and publication of statistics, support in
product normalization, development of programs and policies defined by the sector,
activities of sectorial representative before public and private entities in Brazil and
abroad, and activities related to public relations and contacts with similar entities
overseas.
The lessons that Ethiopia can draw from Brazil in this regard include constant revision of
industrial policies and the existence of steel sector specific institutes with ample
responsibilities and performances.
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6.7. Market and finance
As in any other industries of the manufacturing sector, market is a key deriver of the
development of the steel industry. Having sufficient information of market conditions and
accumulating best practices enables the industry to develop in the right direction by
appropriately responding to changes both in the local and global markets. It is clear that
efforts at enhancing domestic steel market development would eventually increase steel
consumption in the country to provide an impetus for continuous growth of the industry.
Although the focus of Ethiopian steel industry is currently on the domestic market, export
will be a consideration at least in the long term plan. In this regard, it is appropriate to
explore the experience of some BRICS countries, namely, China and India so as to bring
home some of their best practices and adapt them to the Ethiopian steel industry.
China: Over the past decades, government agencies on various levels have undertaken
major efforts to ensure that China could reach self-sufficiency in steel both in terms of
quality and quantity. Until the early1990s, steelmakers received assistance to ramp up
production volumes. Then, the focus shifted towards improving quality and upgrading
technology. Government patronage in the form of direct subsidies, policy loans, tax
benefits or preferential access to vital inputs, energy, water, and transportation
infrastructure have undoubtedly helped to realize the spectacular expansion of
steelmaking operations that have gradually displaced imports. The country owned
different supportive mechanisms and regulatory frameworks for the development of the
steel sector.
Chinese trade policy in relation to the steel sector is oriented towards the following
principles that are pertinent to steel market.
First, companies are urged to draft their strategies to target 'two markets and two
resources' as a source of advantage. A common expression in Chinese policy
documents, it urges firms to seize opportunities from leveraging procurement and
sales both on the home market and abroad.
Second, meeting domestic demand for steel products takes priority.
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Third, direct steel exports should be optimized, meaning that exporters should
abandon resource-intensive, polluting, low-end goods and focus more on
technology-intensive, high-value-added products.
Finally, indirect exports should be expanded, indicating that the rising steel
demand by export oriented manufacturing industries should be satisfied, to
indirectly expand steel exports.
Foreign-owned enterprises should be encouraged to participate in the merger and
reorganization of domestic steel enterprises to establish a sound sharing mechanism in
technology, resources, brands, marketing channels, management philosophy and
financing services.
The cooperation between the domestic enterprises of steel production, engineering
technology, equipment manufacturing and consulting services should be encouraged to
actively explore overseas markets and promote exports of metallurgical technology,
complete equipment, intelligence services and other products.
The service and supervision of investment in the domestic steel industry from various
market entities should be strengthened. In addition, the credit system and warning and
forecasting system should be established in the industry to create a fair and competitive
market environment.
Chinese foreign trade policy with regard to steel products relies on both import
substitution and export management. The iron and steel industry of China plays a great
role not only on the domestic but also on the exporting ranks. For example, in 2010, the
sector exported iron and steel products worth a total of USD36.82 billion, making iron
and steel the 8th-ranking major export products of China.
China’s steel industry market entry requirements on energy, land, water conservation,
the environment, technology, and safety should be strengthened. Entry standards should
be perfected regarding the overall arrangement of newly installed (modified and
expanded) steel projects, the list of approved technological equipment, and the concept of
bottom-line thought on energy conservation and environmental protection.
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India: The country is currently the fourth-largest producer of steel after China, Japan and
the US. Rising domestic demand by sectors such as infrastructure, real estate and
automobiles has put the Indian steel industry on the world map. Growth in the private
sector is expected to be boosted by new policies on make in India, import of foreign
technology and foreign direct investment (FDI) in tandem, with a strong economic
outlook and plans to expand steel production, it is likely that India will be on a fast track
growth path in steel production to be the second-largest steel producer within a few years.
The government will encourage the steel industry to follow an aggressive export strategy
to tap the opportunities in the global market fully. As the developed economies, mainly
Europe, are struggling through a major financial crisis, the outlook on exports to these
countries does not look promising. Further associated with various trade disputes, the
country‟s steel industry will have to diversify its exports to markets such as Africa, Latin
America and Asia including Asian member nations. Trust on exports is also desirable to
mitigate the adverse effects of current account deficits and neutralize the impact of
possible rise in imports of coking coal and proposed reduction in iron ore exports on net
earnings of foreign exchange by the steel industry.
Ethiopia: Although Ethiopia is net importer of steel products there are some local
industries engaged in production and trade of steel products. However, the development
of the market for steel subsector is still at it‟s infant stage in terms of bargaining power,
customer handling, market research and market oriented production system.
6.8. Energy and environment
Energy is a crucial input for any country‟s industrial development. Yet, unless it is
produced from renewable sources, energy production can have a negative impact on the
environment, which is a burning issue of the globe. Iron and steel industry requires a
huge amount of energy (20-40% production cost), and different countries implement
different policies and strategies for efficient utilization of energy in their iron and steel
industries. In this regard, it is important to compare how various countries handle energy
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and environmental issues in their iron and steel industry and borrow experiences that
have relevance for Ethiopia.
South Africa: It has approved a national energy efficiency strategy aiming at 15%
energy demand reduction in the industry by 2015, compared with a reference projection.
Following the approval of the National Energy Efficiency Strategy of South Africa by the
Cabinet in 2005, a list of commitments was negotiated between industry and the
government. The Minister for Energy and Minerals, together with the CEOs of 24 major
energy users and seven industrial associations, signed the Energy Efficiency Accord,
thereby voluntarily committing themselves to work, both individually and collectively,
towards the achievement of the government‟s energy savings target.
China: The country has implemented energy consumption limits for coke products and
unit energy consumption limits for main working procedures of crude steel production. It
also encourages steel enterprises to use solid waste resources and strengthen the
construction of energy audits, energy statistics and energy control centers.
India: It has put emphasis on environmental audit and life cycle assessment of existing
steel plants to minimize damage to the environment.
Brazil: It has developed Low-Carbon Economy in the Manufacturing Industry-Industry
Plan, which aims at a 5% reduction below the emission level projected for 2020.
Summary and conclusion The comparative analysis conducted in this part of the study is intended to identify some
useful lessons that Ethiopia can draw from other countries in order to develop her steel
industry. The comparison has particularly focused on key issues pertaining to raw
material, human resources development, production, technology, support institutions,
policy and regulatory frameworks, market, energy and environment. Accordingly, from
the comparative analysis of the countries under consideration, some experiences which
are believed to be of particular importance for the Ethiopian steel industry have emerged.
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Table 56: Major lessons from comparative analysis
Targets of comparison Major lessons
Raw material sources
Enacting law on raw material resources for steel
Accountable, efficient and economic utilization of raw materials
Exploration and beneficiation of local resources
Establishing support institutions (centers, authorities, councils) in relation to raw materials
Promotion of research and development on efficient utilization of raw materials
Efficiency in policy making particularly in human resource and technology development
Setting clear infrastructure plan and appropriate value chain
Learning from failure stories of other countries in resource utilization Human Resources Development
Creation of jobs by expanding steel industries
Drawing young engineers into the industry
Ensuring quality of courses in steel design at universities
sponsoring steel related research programs at universities, research institutes, and centers
upgrading and diversifying the profile of the workforce through various programs such as M.Tech, Ph.D and Post-Doctoral programs and short and long-term trainings
Industries play a greater part in promoting indirect employment.
prepare potential industry employees through provision of training at various institutions
establishment of various institutions to create a force of technological innovation and management talent and encourage innovation
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Targets of comparison Major lessons
Technology
Learning from failure stories of other countries in technology selection, implementation and modification
Resource-based selection of technology
Allocation of a significant amount of resources to R&D to transfer, adapt and upgrade technology
Using joint venture as a means of technology transfer Establishing technology parks, zones DRI, Blast Furnace, Electric furnaces Rolling and finishing mills Hot rolling mill Cold rolling mill Section mill
a. Light section mill
b. Medium section mill
c. Heavy section mill
Reheating furnace
Welding tube and pipe plant
Rebar /merchant bar mill
Special bar quality mill
Peeling
Seamless pipe mill
Wire rod mill
Rail mill Big bar mill
Stickle mill
Plate mill
Production
Production of steel sheets, special sheet for automobiles and electrical appliances Primary steel production that can be an input for steel rolling plants Higher production capacity Higher efficiency for example, India 90%, China 93%, South Korea 97%, Brazil 70.5%
Issuance of policy on steel industry and constant revision of policy
Establishment of a separate institute to support MSEs in manufacturing sector
Exclusive investment in human resource and technology development
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Targets of comparison Major lessons
Policy and Regulatory Frameworks
Utilization of domestic raw materials and contemporary latest technologies
Creating joint venture with foreign experienced companies
Designing and implementing comprehensive policy package for attracting FDI, legal framework alignment, infrastructure investment, establishment of special economic and technology zones
Creating strong industry-university linkage to boost the productivity of the steel industry
Establishing steel sector-specific institute with ample responsibilities and performances. Support institutions
Offering its members a wide variety of services
Preparing and examination of steel related policy matters
Enhancing production capacity of the metals and engineering industries
Conducting survey and research on subject matters relevant to the steel sector
Creating technical standards for steel and steel products
Development of advanced design methodologies & technical marketing
Planning and development of iron and steel industry
Offering trained manpower in Foundry Technical Courses, Metallurgical Engineering, Foundry Engineering
Market and Finance Government support in the form of policy loans, tax benefits or preferential access to vital inputs, energy, water, transportation infrastructure,
Strengthening the service and supervision of investment in the domestic steel industry from various market entities
Strict market entry and exit Separated financial institution Value added based incentivizing and de-incentivizing
Energy and Environment
Developing a national energy efficiency strategy aiming at energy audit and saving
Mobilizing major energy users and industrial associations to sign an energy efficiency accord, thereby voluntarily committing themselves to work towards the achievement of the government‟s energy savings target
Encouraging steel enterprises to use solid waste resources and strengthen the construction of energy audits, energy statistics and energy control centers
Putting emphasis on environmental audit and life cycle assessment of existing steel plants to minimize damage to the environment
Developing low-carbon economy in the manufacturing industry, an industry plan which aims at reduction rate below a projected emission level
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7. National Steel Industry Policy: Vision, Goal, and Strategic
Interventions Policy Vision
The National Steel Industry Policy aims at transforming the Ethiopian steel industry by
exploiting locally available natural resources and adopting state of the art technology to
ensure domestic self-sufficiency in terms of production, consumption, quality and
techno‐economic efficiency and gradually transiting to export-oriented industry thereby
upgrading the status of the industry into a Sub-Saharan leader by 2025.
Key assumptions
The government is expected to continue shifting the economy from agricultural-led
to industry-led economy;
It is assumed that there is a strong necessity to promote the strategic role of steel
industry to the manufacturing by improving overall capacity utilization of the
industry to at least 60% during 2020 and 85% by 2025;
Ethiopian steel industry association is assumed to be established by 2016/17 with
fully defined structure, roles, responsibilities and accountabilities to the members
and government;
Steel demand in the country is assumed to remain strong in the mega infrastructure
projects, housing, railway, hydroelectric power, sugar plants and development of
industry parks, which will be boosting investments in new steel production rolling
mill technologies and the utilization of existing steel production capacity;
The current macro-economic and political stability will continue, and this favorable
condition will cheer the development of the infrastructure and construction sector;
It is assumed that the government‟s annual capital expenditure and infrastructure of
mega projects will continue through the whole period of GTP II and beyond to
build the huge infrastructure and industrialization;
Implementation of the policy is proposed to be made in phases. The basis for
classifying the phases is to align the policy with the government plan and
considering the existing policy implementation capacity (technology, human
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resources, raw material, capital etc.). Accordingly phase I ranges from 2015-2020
and phase II from 2020-2025.
Policy Goal
By 2025, the Ethiopian steel industry shall reach crude steel production capacity of
15.12 million ton and steel per capita consumption of 132.45 kg thereby meeting the
domestic demand fully and engaging in export of selected steel products.
Critical Policy Issues In this section, critical policy issues identified in the study will be enumerated along with
their respective problems and strategic interventions.
1. Building a human resource skill development system that ensures the
availability of required human capital
Rationale: Shortage of Skill Development System and Inadequate Qualified
Human Capital
Strategic Interventions
i. Expand the existing fields of studies such as Mining, Metallurgy and Materials
Science and Engineering by involving industrialists and national and international
experts in developing curriculum for the aforementioned fields of studies.
ii. Produce at least 43856 and 79466 technicians at TVET level; 13557 and 27473
engineers and applied science BSc graduates; 1026 and 3605 at MSc level; 2606
and 3153 in MBA level; 15 and 150 at a PhD level in 2020 and 2025 respectively.
iii. Build steel industries‟ capacity to deliver at least 85% of in-company skill
development programs using well-structured on-the-job training and off-the-job
training approaches by identifying their gaps.
iv. Establish new iron and steel specific fields of study such as Foundry and Alloy
in selected Institutes of Technology (IoTs) and Science and Technology
Universities (STUs).
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v. Establish supportive institutions to offer short and long term on-the-job training
on the following areas:
First phase training areas: rolling and forging, process control automation, plant
management along with energy and environment, production, quality improvement
and process and Research and Development on machineries (furnace and heat
treatment etc.)
Second Phase training areas: raw material preparation, cock preparation, sinter
preparation, iron making and steel making.
vi. Establish research institutes which offer postgraduate studies (MSc, PhD, and
Post-Doctoral programs) and research training on steel specific areas for both
technical and managerial human resource through industrial practice-based
approach.
vii. Promote a joint venture scheme for the acquisition of technical and managerial
skills and competencies of international standards and to allow the transfer of
knowledge, skills, and appropriate technologies into our steel industries.
viii. Strengthen linkage and collaboration among support institutions, research centers,
universities, TVETs and steel industries to transfer knowledge, skills and
technologies.
ix. Minimize high turnover of employees by improving working and career conditions
of the industry thereby making it a more attractive workplace for competent
professionals who want to pursue career in steel industries.
2. Minimizing heavy dependence on imports of raw materials by exploring and
exploiting potential local resources
Rationale: Shortage of Raw Materials
Strategic Interventions i. Improve the domestic supply of raw materials for steel industries. Currently, more
than 95% is imported and some scrap is used for low quality products. By
2020,50% of raw materials will be available locally and 50% will be imported (e.g.
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sheet metal, billet, alloy) and by 2025, 100% of selected raw materials will be
locally produced (billet, bloom, slab) and for special quality products will be
imported.
ii. Enact and revise laws which govern the management of natural resources and
which serve both domestic and international investors without compromising the
national interest.
iii. Conduct a comprehensive feasibility study to identify the potentials of raw
materials(suchas iron ore, coal, limestone, and natural gas), their geographical
location (for expansion of infrastructure), their quantity (for selection of appropriate
types of technology) and their quality (for identification of types of beneficiation
technology, methods, and energy sources).
iv. Enforce the Environment Policy and the Mining Law of Ethiopia in exploration and
exploitation of mines by setting clear standards.
v. Ensure that capable industries have obtained mining permits and that they are acting
in accordance with the law before mining. Also ensure safe production, ecological
and environmental protection, governance and restoration of the mine, land
reclamation in the mining area and soil and water conservation in mining.
vi. Enhance research and development application for efficient mining, processing and
metallurgical techniques (beneficiation) for low-grade iron ores. The differentiated
management pilot areas should be established to accelerate the steps of major iron
ore resource development projects in progress.
vii. Construct a system of scrap recycling, processing, handling and distribution on the
basis of standardized industry management. Enact tax relief law for imported steel
scrap to promote the use of scraps due to the current technological situation of our
country, energy efficiency and low environmental pollutions.
viii. Identify the location, amount, and types of natural gas and coal for infrastructure
development, technology selection and steel industry location.
ix. Facilitate a system that promotes bulky purchase of selected pig iron, scrap, coal
and additives through long term contractual agreement to gain advantage of low
cost, sustainability, quality and bargaining power of domestic steel industries.
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3. Improving product diversification (product mix) and value addition of steel
products
Rationale: Low Product Diversification and Value Addition
Strategic Interventions
i. Encourage industries by way of incentivizing and de-incentivizing in order to
enforce them to pay due consideration to value addition and diversification of steel
products and eventually lead to import substitution.
ii. Enforce and support steel industries to produce diversified and global market-
oriented steel products such as billet, bloom, slab, sheet metal, stainless steel and
alloy by establishing a design house and using state of the art technology.
iii. Encourage steel companies to produce, phase by phase, special steel products such
as bearings, gears, molding devices, heat-resistant, cold-resistant, and corrosion-
resistant steel products.
iv. The Ethiopian steel industry is currently operating between 30-40% of its capacity.
This capacity utilization should significantly increase to reach 85% by 2025
v. Increase production of the construction subsector from 0.93Mt (in 2015) to
3,967Mt by 2020 and to 8.34Mt by 2025 as this subsector takes the lion‟s share
(more than 50%) of steel products.
vi. Increase production of the automobile assembly subsector from 0.0215Mt (in
2015), to 0.932Mt by 2020 and to 1.54 Mt by 2025.
vii. Increase production of machinery and spare parts from 0.442Mt (in 2015) to
1.92Mt in 2020 and to 8.318Mt 2025.
Phase I: Semi finished products (bloom, billet, and slab); mill products (plate,
sheet, strip, rebar /round bar, rail, wire rod, drawn wire, sections, tubes and
profiles)
Phase II: Sheet metal, alloy and non-alloy flat steel (plate & coil), stainless steel
sheet and plate, electrical galvanized steel; and automotive materials: rolled high
strength steel strip, advanced high strength steel (AHSS), and cast iron
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4. Establishing and capacitating Research and Development centers at company
and national level to imitate, improve and create technology
Rationale: Absence of Research and Development
Strategic Interventions
i. Enhance technological excellence, innovation and adoption of environment
friendly techniques in all stages of production, from extraction of minerals to
treatment of wastes–as these are key factors to sustained growth in the steel sector.
ii. By designing incentive mechanisms, encourage steel industries to adopt
appropriate technologies which have synergy with the natural resource
endowments of the country and conducive to production of high quality and
special steel products.
iii. Adopt advanced steelmaking technologies and equipment such as feedstock
material beneficiation, preliminary process of liquid iron, medium capacity direct
reduction, secondary smelting at converters, continuous casting, continuous
rolling, controlled rolling and controlled cooling.
iv. Support steel industries in such forms as tax holidays, subsidies, and research
funds to promote important steel-making projects that produce highly value added
and special steel products.
v. Encourage and enforce steel industries to set up research and development
department for honing their copying, modification, and innovative edge, and for
developing original technologies, equipment, and products.
vi. Set a minimum threshold budget for R&D through public-private partnership to
achieve the goals of R&D expenditure. For example, the experiences from the
BRICS countries indicate that industries allocate 0.15 – 0.25% of their sales
turnover to R&D.
vii. Create linkage between laboratory-based R&D and actual industrial application.
This needs to be done through extensive market-driven, translational research
customized to the needs of the industry.
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5 Building local and international market research capability and market
information system
Rationale: Lack of Market Research and Orientation
Strategic Interventions
i. Make market research a focus of the steel industries, whether they are small,
medium or large, and require them to design appropriate marketing strategy.
ii. Undertake continuous awareness creation for local users on how they can identify
the quality of the steel products in the market, based on quality indicators and
product standards described in trademarks and publicize the quality of steel
products, both local and imported.
iii. Initiate steel association and other support institutions that deal with the
challenges of steel industries and provide proper support in both domestic and
international market.
iv. Control unfair marketing practices that jeopardize the healthy competition of steel
market by enforcing mandatory steel product standards.
v. Incentivize steel industries which are innovative in the product development with
respect to value addition and export orientation.
vi. Demand steel industries to undertake continuous market research to identify the
gaps and opportunities related with their steel products in terms of global steel
standards.
vii. Facilitate the business environment for steel industries by organizing domestic
and international product expos, experience sharing symposia and merit-based
recognition on regular basis.
viii. Put strict market entry and exit requirement into force through setting mandatory
standards on steel products to ensure that only products of acceptable quality (in
terms of safety, health, and environment) are imported or locally produced as well
as to ensure that manufactured products are of high quality and aligned to the
international standards.
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ix. Undertake comprehensive marketing research that focuses on regional market to
identify medium and long term competitive advantages of Ethiopian steel
Industries.
6 Creating access to finance (bank loan, foreign currency) and updating incentive
packages for steel industries as strategic development subsector
Rationale: Shortage of Foreign Currency and Working Capital
Strategic Interventions
i. Establish, in due course, a separate bank or a loan institution for the steel industry
(together with subsectors under the manufacturing industry).
ii. Increase the duration of fiscal incentive packages such as income tax holidays
which is currently rather short (between 3-5 years on average) for competitive
steel industries based on merit criteria such as value addition and technology
transfer.
iii. Facilitate foreign currency for steel industries as they are not currently involved in
export.
iv. Attract capable FDI and joint venture with their reasonable initial capital
investment.
v. Encourage and enforce private commercial banks to engage in provision of long-
term loan for steel industries.
vi. Establish a system that promotes investment in steel industries through stock
market financing system.
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7 Upgrading and setting up infrastructure facilities and separate power
transmission Rationale: Lack of Infrastructure
Strategic Interventions
i. Expand railways and road transportation as most of the steel industry raw materials
and products are heavy and bulky, and they are transported by these modes of
transportation in a landlocked country such as Ethiopia.
ii. Generate and install a separate power supply for the steel industries, while
industries themselves should install energy saving technologies and alternative
energy sources.
iii. Adopt international best practices of water use or recycling in steel plants. A system
that demands steel industries to use water resources properly and economically
must be established and implemented.
iv. Provide adequate land at the preferred steel industry locations in due time to avoid
delay in the commencement of operations. Potential environmental and social
impacts of industry locations must be taken into account from the socio-economic
points of view before licensing, based on the feasibility studies.
v. Form steel industry clusters in the industrial parks, especially for small and medium
sized units/service/steel processing centers and create related common
infrastructure on a consortium basis to optimize land use and scale economy.
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8 Enforcing sector-specific energy and environment policies and regulations and
conducting periodic environment and energy audit Rationale: Lack of Sector-specific Energy and Environment Policies
Strategic Interventions
i. Set national energy standards through benchmarking international best practices.
ii. Enforce recycling of waste heat and energy in the steel production process and
ensure that the energy consumption should meet national standards for the
maximum allowable values of energy consumption.
iii. Set a system of pre-assessment (feasibility study) and post-assessment on energy
conservation of project construction, and promote energy benchmarking,
diagnosis and tapping.
iv. Put into force a system that demands steel industries to submit regular reports on
energy utilization to the Ethiopian Energy Authority and concerned
stakeholders and demand the latter to publicize the result.
v. Set up advanced information technology which is applicable to steel industries
and which can dynamically supervise and manage energy production,
distribution, utilization and secondary energy usage.
vi. Enact strict environmental tax laws to ensure that growth of the industry should
not be at the cost of the environment.
vii. Set a procedure for reporting environmental data by the steel plants with respect
to the status on resource consumption, emissions, effluent and waste recycling.
viii. Set strict requirements on disposal of outdated steel technologies and that do not
comply with green resilient economy.
ix. Use Direct Reduce Iron (DRI) as it is easily movable, can be used in all
scales(from small to large scale industries), uses alternative energy sources
(natural gas, coal), and it is environmentally friendly.
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9 Expanding and enhancing collaborations between the industry and support
institutions Rationale: Inadequate Support Institutions
Strategic Interventions
o Upgrade the capacity of the existing MIDI in terms of technology transfer,
research and publications, training, and developing policies, roadmaps and
strategic frameworks.
o Strengthen and sustain university-industry-TVET linkages for mutual benefits and
capacity building in various aspects of the steel industries. Such linkages can be
also extended to research institutes and centers to enable industries build their
research culture and capabilities and access technology transfer.
o Establish, step by step, more institutes or research & development centers to
supplement MIDI or to focus on areas that appear to be beyond the reach of the
institute. It would be appropriate to also establish some Centers of Excellence
(CoEs) with a view to addressing issues pertaining to R&D, technology, product
diversification, and human resource development.
o Initiate the establishment of steel industry association and provide it with
necessary supports for its proper functioning and sustainable growth. Such an
association provides a wide variety of services such as technical information and
advice, education, training and skills upgrading, research and publications,
marketing, and many other development supports. It may also act as a source of
power and strong voice for the industries in dealing with both challenges and
opportunities, and as a forum for industry communication and networking.
163
10 Developing steel industry strategy and roadmap
Rationale: Lack of Roadmap/Strategy Direction
Strategic Interventions
i. Develop clear strategic/roadmap directions that properly guide transformation of
steel industry within the specified time span (i.e. 2025).
ii. Enforce steel industries to develop their own development plan within the
framework of the national plan (roadmap).
iii. Establish a system and networking that coordinate the development efforts of
many stakeholders (policy makers, regulatory bodies, industries and other
concerned parties) to minimize information asymmetry on the same or similar
national issues.
164
8. Implementation Framework
Table 57: Analysis of strategic interventions and policy issues
No Strategic objective Strategic interventions Implementation time framework Responsible bodies Remark
Phase I (2016-2020) Phase II (2020-2025) 1.
Develop human resource skill development system that ensures the availability of required human capital
Expand the existing fields of studies
Mining, Metallurgy , Materials Science and Engineering
Mining , Metallurgy , Materials Science and Engineering
MoST, MoE, MIDI, Universities(STUs), Research Centers and Institutes, IoTs
Establish new iron and steel specific fields of study
Foundry and Alloy MoST, MoE, MIDI, Ethiopian Steel Association , Universities, Research Centers and Institutes
Offer short and long term on-the-job training
o Rolling and forging
o Process control automation
o Plant management along with energy and environment
o Production, quality improvement and process
o R& D on machineries (furnace and heat treatment etc.)
Raw material preparation,
Cock preparation Sinter preparation Iron making
Steel making
MIDI, Selected Universities, Ethiopian Steel Association, Industries, and Research Centers and Institutes
165
Establish research institutes that focus on postgraduate studies and research
MSc or M.Tech. level both for technical and managerial staff
PhD, and Post-Doctoral programs
MoST, MoE, MIDI, Research Centers and Institutes, Ethiopian Steel Association , Universities
Promote joint venture scheme
Transfer of knowledge, skills, and appropriate technologies
Transfer of knowledge, skills, and appropriate technologies
MoI, Industries, Ethiopian Steel Association, EIC, MoT
Strengthen linkage and collaboration among support institutions, research centers universities, TVETs and steel industries
Transfer of knowledge, skills and technologies
transfer of knowledge, skills and technologies
Ethiopian Steel Association , MoST, MoI (MIDI), TVET, Universities
Minimize high turnover of employees
Improve working and career conditions.
Improve working and career conditions.
Ethiopian Steel Association , Industries, MIDI, MoSA, Labor Unions and Associations
Plan in detail for HR trained at various levels of education MoST, MoE, MoI(MIDI), Universities(STUs), Research Centers and Institutes, IoTs, Ethiopian Steel Association
Technicians at TVET level 43856 79466 Engineers and Applied Science(BSc)
13557 27473
MSc and MBA 2606 3153 PhD 15 150
2. Minimize heavy dependence on imports of raw materials by exploring and exploiting potential local
Enact and revise laws governing the management of natural resources
Apply Environmental policy and Mining Law of Ethiopia
Apply Environmental policy and Mining Law of Ethiopia
Minister of Environment, Forest Development and Climate Change, MoI, Investment Agency, Minister of Agriculture and Natural Resource Development, Ministry of Mines, Petroleum and Natural
166
resources
Gas Conduct a comprehensive feasibility study to identify the potentials of raw materials
iron ore, coal, limestone, and natural gas
Ministry of Mines, Petroleum and Natural Gas, MoI, Ethiopian Steel Association, Universities
Enhance R&D application for efficient mining, processing and metallurgical techniques (beneficiation) for low-grade iron ores
MoST, MoI (MIDI), MoE, Ethiopian Steel Association, Universities and Research Centers and Institutes
Construct a system of scrap management. MoI(MIDI),MoT, EIA,ECA,
Enact tax relief law for imported steel scrap ECA, MoI (MIDI), Ethiopian
Steel Association
Facilitate a system that promotes bulky purchase through long term contractual agreement
pig iron, scrap, coal and additives
Ethiopian Steel Association, MIDI, MoT, EIA
Increase dependence on local raw materials
50% locally produce (sheet metal
100% locally MoI(MIDI),MoT, EIA, ECA, Geological Survey
100% Billet, Bloom and Slab
3.
Diversification and value addition of
steel products
Incentivizing and de-incentivizing steel industries
Import substitution Import substitution and export oriented steel products
ECA, MoT, MoI (MIDI), MoT, EIA, Ethiopian Steel Association,
Enforce and support steel industries to produce high quality products
Square steel billet,
Square bar, Cold rolled steel, Galvanized steel Hot rolled steel,
steel plate,
Sheet metal, alloy and non-alloy Stainless steel electrical galvanized
steel automotive material
ECA, MoT, MoI (MIDI), Ethiopian Steel Association, EIA, Research Centers and Institutes
167
Increase efficiency 60%(roadmap) 85%
Industries, Ethiopian Steel Association, Universities, Research Centers and Institutes
Set standards for steel industry technology selection
Ethiopian Conformity Assessment, MIDI, MoT, Universities, Research Centers and Institutes
Put into force regulatory systems that ensure standardized products, both domestic and imported
MoT, MIDI,EIA,MoT
Establish effective coordination, collaboration and commitment among stakeholders
Ethiopian Steel Association, MoI, MoT
4.
Establish R&D centers at company and national level to imitate, improve and innovate technology
Encourage steel industries to adopt appropriate technologies which have synergy with the natural resource endowments of the country
ECA, MoT, MoI (MIDI), Ethiopian Steel Association, Universities, Research Centers and Institutes, EIA
Adopt advanced steelmaking technologies and equipment
Continuous casting, continuous rolling, controlled rolling and controlled cooling
beneficiation, preliminary process of liquid iron, medium capacity direct reduction, secondary smelting at converters
ECA, MoT, MoI(MIDI), Ethiopian Steel Association Universities ,Research Centers and Institutes, EIA
Encourage and enforce steel industries to set up research and development department
copying, modification
innovative edge, and for developing original technologies, equipment, and products
ECA, MoT, MoI (MIDI), EIA Ethiopian Steel Association, Universities ,Research centers and Institutes,
Create linkages between ECA, MoT, MoI(MIDI),
168
laboratory‐based R&D and actual industrial application
Ethiopian Steel Association
Set minimum threshold budget that industries should allocate to R&D from their sales turnover.
Awareness creation 0.15 – 0.25%
MoI(MIDI), Ethiopian Steel Association, EIA
5.
Build local & international market research capability and market information system
Make market research an issue of the steel industries
Design appropriate marketing strategy
ECA, MoT, MoI(MIDI), Ethiopian Steel Association
Undertake continuous awareness creation for local users
MoT, MoI(MIDI), Ethiopian Steel Association
Control unfair marketing practices that jeopardize the healthy competition of steel market by enforcing mandatory steel product standards
MoT, MoI(MIDI), Ethiopian Steel Association
Facilitate business environment for steel industries by organizing domestic and international product expos, experience sharing symposia and merit based recognitions on regular bases
ECA, MoT, MoI(MIDI), Ethiopian Steel Association
Apply strict market entry and exit requirements through setting mandatory standards on steel products
ECA, MoT, MoI(MIDI), Investment Agency
Design special incentive packages for selective steel industry towards making
MoI, EIC, MoT, MIDI, Universities , MoT, MoFEC, MoTR, NBE,DBE, ERCA,
169
them regional player.( allow special human resource access arrangement(foreign experts), subsidize transportation cost, special budget R and D grant, extending tax exemptions, allow special joint venture that enable local firms penetrate steel market in regional countries…)
NPC
Arrange and sponsor special oversea training program and benchmarking for selected steel industries based on merit based selection criteria to further build their productive capacity to world standard.
MoI, EIC, MoT, MIDI, Universities , MoT, MoFEC, MoTR, NBE,DBE, ERCA, NPC
6. Create access to finance (bank loan, foreign currency) and update incentive packages for steel industries
Establish a separate bank or a loan institution for steel industries
MoT, MoI(MIDI),
Increase the duration of fiscal incentive packages for competitive steel industries
ECA, MoT, MoI(MIDI), Investment Agency
Facilitate foreign currency for steel industries MoI(MIDI)
Attract capable FDI and joint venture Patent based ECA, MoT, MoI(MIDI),
Investment Agency
Establish a system that ECA, MoT, MoI(MIDI),
170
promotes investment in steel industries through stock market financing system
Investment Agency
7.
Set up & upgrade infrastructure facilities and separate power transmission
Expand railways and road transportation networks MoI(MIDI), Ethiopian Steel
Association
Generate and install separate power supply for the steel industries
Alternative energy sources
MoI(MIDI), Ethiopian Steel Association
Adopt international best practices of water recycling in steel plants
MoI(MIDI), Ethiopian Steel Association
Provide adequate land at the preferred steel industry locations
MoT, MoI(MIDI), Investment Agency
Form steel industry clusters in the industrial parks
MoI(MIDI), Ethiopian Steel Association
8.
Enforce environment and energy sector specific policies and regulations and conduct periodic environment and energy audit
Set national energy standards through benchmarking international best practices
Minister of Water, Irrigation and Electricity, Ethiopian Conformity Assessment
Enforce recycling of waste heat and energy in the steel production process
Awareness creation and capacity building
Meeting international standards
Minister of Water, Irrigation and Electricity, Ethiopian Conformity Assessment, MoI(MIDI), Ethiopian Steel Association
Set a system of pre-assessment (feasibility study) and post-assessment on the energy conservation
Minister of Water, Irrigation and Electricity, Ethiopian Conformity Assessment, MoI(MIDI), Ethiopian Steel Association
Ensure regular submission Minister of Water,
171
of reports on energy utilization
Irrigation and Electricity, Ethiopian Conformity Assessment, MoI (MIDI), Ethiopian Steel Association
Enforce efficient energy and water utilizations standards
Energy audit, power factor corrector
Energy audit, power factor corrector
Minister of Water, Irrigation and Electricity, MIDI, MoT ,Universities, Research Centers and Institutes
Set up advanced information technology to supervise and manage energy production, distribution, utilization and secondary energy usage
Minister of Water, Irrigation and Electricity, Ethiopian Conformity Assessment, MoI (MIDI), Ethiopian Steel Association
Enact strict environmental laws to ensure that growth of the industry should not be at the cost of environment
MoI (MIDI),Minister of Environment, Forest Development and Climate Change, Ethiopian Steel Association
Set a procedure for reporting environmental data by the steel plants with respect to the status on resource consumption, emissions, effluent and waste recycling
MoI (MIDI),Minister of Environment, Forest Development and Climate Change, Ethiopian Steel Association
Set strict requirements to dispose outdated steel technologies that do not comply with green, resilient economy
MoI(MIDI), Minister of Environment, Forest Development and Climate Change, ECA, MoT, Ethiopian Steel Association
9. Expand and Upgrade the capacity of MoI
172
enhance collaborations between the industry and support institutions
MIDI
Strengthen and sustain the university-industry-TVET linkages
MoI, MoST, MoE
Establish more institutes or research & development centers
MoI, MoST, MoE
Establish and support steel industry association
MoI( MIDI), Universities, Research Centers and Institutes
10.
Develop steel industry roadmap and strategy
Develop clear roadmap/strategies
MoI(MIDI), Ethiopian Steel Association
Enforce steel industries to develop their own development strategic plan
MoI(MIDI), Ethiopian Steel
Association
Establish networking among steel industry stakeholders
MoI(MIDI), Ethiopian Steel
Association
173
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177
Annex 1: Iron ore occurrence and deposits of Ethiopia
No Locality Estimated reserve Ore type 1. Adwa(Tigray) 5Mt(Adwa+Axum+Enticho) Magnetite, Limonite
1. Aira (Welega) <10Mt Hematite, Magnetite 2. Assale (Tigray) <10Mt Magnetite 3. Beligal (Tigray) No data Magnetite, Limonite 4. Bikila (Welega) 57Mt Magnetite 5. Billa(welega) No data Hematite, Magnetite-Hematite 6. Bissidimo (Harar) No data Hematite, limonite 7. Chago (welega) 0.2Mt, 64%Fe Magnetite-Hematite, Limonite-Hematite 8. Chilachikin (Tigray) No Data Hematite 9. Dimma (Welega) 0.05Mt, 65%Fe Hematite, Magnetite, Limonite-Hematite,
Magnetite-Hematite 10. Enticho(Tigray) See above Limonite 11. Famasari(Wollega) 65-68% Fe Hematite, Magnetite
12. Galetti(Harar) No data Hematite, Magnetite, 13. Gambo(Wollega) No data Magnetite 14. Gamalucho(Kaffa) 12,50 Mt Magnetite 15. Garo (Kaffa) l2.5OMt Hematite, Limonite 16. Gato (MaiGudo)(Kaffa) .075 Mt,40% Fe Hematite, Limonite 17. Ghimirabasin (Kaffa) No data Hematite, Limonite 18. Gordona(Korree)(Wollega) 0.27 Mt. 63% Magnetite- Hematite, Magnetite 19. Kata Valley(Wollega) 0.10 Mt, 69% Fe Magnetite, 20. Kenticha(Sidamo) No data Magnetite 21. Kunni(Harar) No data Hematite, Magnetite 22. KurkureValley(Kaffa) No data Hematite, Limonite 23. Like(Kaffa) No data Hematite, Magnetite 24. MelkaArba(Sidamo) 4.60 Mt 25. MelkaSedi(Kaffa) 12.50Mt Hematite, Magnetite 26. Shakisso(Sidamo) No data Magnetite 27. Ujau(Harar) No data Hematite-Magnetite 28. Wcllega 4.48 Mt Magnetite, hematite 29. Worakalu(WoIIcga) 0.05 Mt.62%Fe Magnetite-Hamatite 30. Yubdo(Wollega) 0.O5Mt,71%Fe Magnetite 31. AdiBerbere(Tigray) No data Magnetite 32. Gambela-Dembidolo No data Magnetite 33. Gimbi-Daleti(Wollega) No data Magnetite 34. Dombowa(Kaffa) 12.50 Mt Limonite 35. Wankey (Area)
Wabera- Kiltu(Wollega) No data
36. Belowtuist(Wollega) 2.50 Mt
Magnetite,Hematite, Limonite
178
Annex 2: Summary of SLOC factors
Strengths:
Firms/industries have clear structure with division of duties and responsibilities of each
functional unit
There is clear and adequate coaching and mentoring system even if there exists
implementation problems in some firms/industries
Giving a short or long, on or off job training by internal or external experts for both new and
senior employees in most firms/industries even though there is language barrier when
external experts used as trainers.
Employees METEC industries gains skill of technology transfer by performing reverse
engineering through their R&D.
Few firms/industries are certified by ISO and Ethiopian conformity assessment.
Almost all visited firms/industries have insurance coverage for their employees
Have marketing and promotion department but they are an identifying specific targets for
promotion problems
Limitations:
There is no clear guidelines, rules and regulations which leads to personalized decision in
most visited firms/industries
Lack of efficient procedures to serve the customers in some firms/industries
Lack of automation production process and accounting system in most firms/industries
Most firms/industries have no clear strategic plan/road map to cop up with global market
trend
Lack of selling branches, no branded products and
To satisfied customers demand in some firms/industries there is shortage of budget
Lack of sufficient and variety of transportation
In most firms/industries the machines are outdated and require high maintenance cost
There is no clear awareness and practice in the firms/industries concerning environmental
impact and controlling mechanisms
Lack of applying continuous quality management system
179
There is no organized and efficient raw material in some cases dominancy of few suppliers,
Additionally, in most firms/industries there is no modernized raw material handling system
Most firms/industries do not focus on product diversification
Most firms/industries have no R & D
Opportunities:
Availability of tax holiday, importing duty free machineand land supply
Priority given by Ethiopian shipping line for raw materials of steel during shipping
Availability of green, yellow and red custom service provision which will minimize delivery
time
The conducive environment of Ethiopia for investment
Strong commitment from the government side for manufacturing industries
Availability of low cost electrical energy supply
Availability of cheap and trainable human resource
Challenges:
Shortage of foreign currency to import raw materials and spare parts
Lack of adequate availability of skilled human power on the local market resulting in high
turnover
Shortage and inefficiency of transportation system to transport raw materials, finished and
semi-finished products from source to destination.
Shortage of scraps in the local market and fluctuation cost of raw materials due to global
conditions which affects accessibility of raw materials
Shortage and quality problem of spare parts avail in the local market
Electricity interruption
Lack of incentive to encourage local producers
180
Annex 3: Experience from Benchmarking
Introduction
Two members of the team of this project paid a visit to China to benchmark best practices of the
country in steel industries. This part briefly summarizes key lessons and experiences gained from
the benchmarking. Prior to the visit, the team had identified a number of areas for benchmarking.
Unfortunately, however, the areas identified were not fully addressed during benchmarking due
to some coordination problems on the side of the host country. However, in collaboration with
Ethiopian Policy and Research Center, the team has tried its best to optimize the benchmarking
experiences through all possible ways to achieve the desired objectives. Some of the major areas
targeted for the benchmarking are attention given for the steel industry and supportive institutes
and centers.
The team was able to find out the establishment and expansion of support institutions was
important in China. Two most influential institutions in the country are the Central Iron and Steel
Research Institute (CISRI) and Automation Research Institute for Metallurgical Industry
(ARIMI). CISRI was founded in 1952, and ARIMI was set up in 1974. About two and half
decades later, (in 1999), both CISRI and ARIMI were transformed from public institute to state-
owned enterprise. In order to play a more crucial role in the transformation of the iron and steel
industry of the country, ARIMI was merged into CISRI in 2006 and the China Iron and Steel
Research Institute Group (CISRI Group) was founded.
Since its foundation, CISRI has registered significant achievements in human resource (e.g. 3
members of Chinese Academy of Sciences, 4 members of Chinese Academy of Engineering, and
members of Chinese Academy of Engineering, and 479 senior engineers), and scientific and
technological aspects (e.g. 88 state invention awards, 164 state science and technology awards,
and patents). Continuous technology progress of steel industry has been achieved by investing in
and buying technology: in fact, one of the key success stories of China‟s steel industry is the
continuous progress in the steel industry technology through both investment in R & D and
acquisition of technology from advanced countries in comprehensive packages.
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Technology and productivity path of china steel industry (1990-2005) is summarized as follows:
Continuous casting: The c.c. rate was enhanced from 25.7% up to 99.5% in 1990.
PCI: grow from 50kg/t up to 149kg/t in 1990
Continuous rolling: adopted by all mills
Energy saving technologies: Energy consumption was reduced from 1611kgce in
1990 down to754kgce in 2005.
Slag splashing technology: The campaign life of BOF linings was extended from
700~800 heats to over 10,000 heats.
Key lessons from benchmarking
a) Overall observation
The main reason behind the dramatic transformation of China‟s iron and steel industry is the
attention given by the government from the very beginning by comparing steel with food. For
Example, Mao‟s motto “Once we have enough steel and food, we are afraid of nothing” is an
indication of the attention the country has given for the sector. China was able to build basic
productive capability that has helped the country to boost the transformation of the industry and
registered an amazing growth in the steel production. The development trajectory of China‟s
steel production is summarized as follows.
o From 0.158-100 Mt in 47 years (1949-1996), 100-200 Mt in 7 years (1997-2003) and
from 200-400 Mt in 3 years. The implication here is the fact that laying foundation for
the transformation costs more time for doubling of the production of the steel industry.
Currently, China is producing more than half of the world‟s steel for the world market
and domestic consumption.
o China is one of the major steel consumers in the world and it only sufficiently satisfied
the domestic market in 2005 with 700 Mt of steel consumption demand per annum while
the total production was 804 Mt. With regard to growth rate comparisons, steel
production grew with 15.35% while consumption grew with 13.90% from 2000-2013.
This also indicates that the majority of steel production has been utilized for the domestic
market at early stage of the development, which in turn means that steel is very critical
for growth driven economy.
b) Specific lessons
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o Huge public investment in the expansion of productive facilities from 2000 to 2009, with
97.229 trillion RMB total investment (about 15 trillion US dollar in current exchange of 1
$=6.5 RMB) in 10 years period.
o Continuous improvement in efficiency of steel production of steel production by
developing necessary human capital and by expanding capable support institutions.
Among such institutes, China Iron and Steel Research Institute Group (CISRI Group),
was the only center that the team was able to visit for benchmarking and took significant
lessons. It had been founded to support human resource development and to undertake
research activities on the iron and steel industries focusing particularly on state-owned
companies.
Focus areas of R&D on iron and steel industry in CISRI:
I. Materials science and engineering
o Structural materials (alloy steels)
o High temperature materials
o Functional Materials
o Powder metallurgy
o Corrosion and surface engineering
o Refractory metals
o Ceramics and refractory II. Metallurgical technologies
o Iron making
o Steel making
o Continuous casting
o Rolling
o Galvanizing and coating
o Design and engineering
o 220 new technologies were integrated
o Secondary energy recovery up to 90%; energy consumption dropped by 100kg
coal/t-steel; melting time dropped from 35 minutes to 25 minutes; emission level
of waste gas and dust is world class.
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III. Automation and control
o Production process automation, application software
o Hybrid process information, energy management and control
o AC frequency variable speed regulation
o Large scale hydraulic servo cylinder and servo system
o Recovery and use of waste energy and heat
o High voltage large power transistor
o Fieldbus
IV. Analysis and testing
There are two national testing centers for iron and steel industries: The National Analysis Center
for Iron and Steel (NACIS) and The National Quality Supervision and Inspection Center for Iron
and Steel.
o Arbitration center of product quality
o Research center for new methods, standards and instruments
o Service center for materials testing
o Training center for professionals
These centers have been approved by Rolls-Royce since 2001 and NADCAP Accreditation in
2005. As clearly indicated, there is continuous improvement in the technology progress of the
China steel industry development.
The direction of the technology improvement is multidirectional like towards energy saving and
eco-friendly technology with high efficiency and standards(advanced steel like micro-alloying,
application of high strength auto-steel, engine power, and material development) are given
attention for future development of the steel industries in China.This means thatenergy
conservation, clean steel production, sustainability of resource access,and high end steel products
are also given attention from technical production points of view.
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Table 58: Evolving of techno-economic indexes of China steel industry
year Specific energy consumption(tce/t)*
PCI (kg/t)
Coke rate (kg/t)
BF productivity (t/(m3.d)
BOF campaign (heats)
CC ratio (%)
2000 0.92 117 437 2.15 3500 86.97
2001 0.88 122 422 2.34 3526 89.44
2002 0.82 126 417 2.46 4386 93.03
2003 0.77 118 430 2.47 4631 96.19
2004 0.76 116 427 2.52 5218 98.35
2005 0.74 120 412 2.64 5647 97.51
2006 0.65 134 397 2.71 6824 98.53
2007 0.63 136 396 2.74 8558 98.69
2008 0.63 134 400 2.63 9233 98.85
2009 0.62 145 374 2.62 9435 99.38
2010 0.604 149 369 2.59 10427 99.47 Source: CISRI
c) Side event (unintended)lessons
Well planned and high quality of urban infrastructure development
Low level of labor turnover or longer period of service of experts in their position
Full facility and commitment of experts and officials to the vision and missions of their
respective duties
High level of coordination and cooperation in both horizontal and vertical hierarchies of
government machineries with clear responsibility and accountability
d) Challenges and problems they have been working on
Over capacity of the steel production (domestically and globally)
For example, in 2013, the capacity of crude steel was 1.1 billion tons and the output was 780
million tons. The capacity utilization was roughly 70%. In 2014, because of a weak iron ore
price, the capacity utilization was raised to 74%. However, there are efforts of restructuring the
industry by the government by way of merging and acquisition.
Energy consumption and pollutant emission
The CO2 emission was increased by 2.39 times, and reached up to 1.5 billion tons, due to the
increase in crude steel output by 4.69 times. The CO2emission accounts for16% of total
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CO2emissions. However, there is an effort to solve the challenge of environment and resources
through investment on CO2 reduction technologies through Eco-friendly steels.
Quality and brand problems
The problems related with quality and branding lie in irregularity in quality due to large number
of steel mills of different technology and management levels; product homogeneity (red sea
competition) and lack of brand power in both local and global marketing.
Recommendations for our steel industry
o Investment on high level of skill development areas(MSc, PhD, Post-doctoral) in iron and
steel areas;
o Both managerial and technical positions of the steel industries must be given equal
attention;
o Well-organized and equipped laboratory arrangement for R and D in steel industries that
provide comprehensive services (e.g., laboratory, research, training, certification
services) with mandatory regulation that forces steel industries to get these services;
o Strong collaboration among research centers/institutes, science and technology
universities, and steel industries(to reduce information asymmetry);
o Need for detail technical evaluation by high-level task forces designated by the
government to finance steel industry;
o Need to create competitive environment among steel industries, both domestic and
global, through preparation of merit-based annual award system;
o Incentive-based import of the technology (buy technology), machineries, FDI, experts,
managerial experiences, i.e., import, master and absorb imported technologies;
o Gradual expansion of the scale of production from small to large industry (productive
capacity development);
o Using both local and imported raw materials alternatively based on variation of global
raw material prices (using local raw materials when global market prices rise and vice
versa); importing raw materials to start production soon as exploration of the minerals
will take more time (for example, China had been importing 70% of raw materials from
Australia at early stage);
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o Official signing of contracts with foreign firms/governments for technology transfer by
specifying appropriate technology;
o Government support should focus more on steel industry infrastructure development than
financing investment capital for industries;
o Involvement of professionals in steel policy making and revisions of policies;
o Competitive and achievement-based remuneration for research and development staff
personnel;
o The focus of the government should be provision of common technology and
information, not the advanced technology (which is the work of private firms or specific
industries);
o Enhancing competitiveness of steel industries by focusing on technology, cheap labor
cost and improved productivity of manpower;
o Strict standard in licensing and support both at national and local level (local and foreign
firms);
o Conducting regular and sudden monitoring and supervision on quality and standards of
products and communicating the result to the public and stakeholders
Conclusion
As indicated above, from the benchmarking visits to China, the team has gained insightful
lessons on many matters. Particularly, the dynamic paths in the steel industry development
through investing on human resource and technology accompanied by effective regulatory
systems makes a significant contribution for the transformation the sector.