Ethiopian exporters are almost blind to international accreditation and certification systems. Even though there are significant outsourcing market opportunities in Europe, USA and Japan, Ethiopian exporters could not benefit from this, largely because they fail to meet standards. Such problems are not uncommon across sectors prioritized by the Ethiopian government, including coffee, leather, textile, garment, fruits and honey. The presence of few quality accrediting companies, both private and local, does not help Ethiopia buck this trend, chiefly because they lack international accreditation. EBR’s Ashenafi Endale probes into the matter.
When the European Food Safety Control System rejected honey exported from Ethiopia two months ago, the event surprised many in the business community because the type of pesticide residue detected in the honey is not even registered in Ethiopia. The Ministry of Agriculture later traced the origin of the pesticide residue to western Ethiopia, to a border area with South Sudan.
This is not a single incident. At different times, items exported as far as Japan or meat to Middle Eastern countries have failed to pass safety tests. Such repetitive circumstances ill-portrays Ethiopia, which is thriving to achieve export led economic growth. It also worsens the external balance of payments position of the country, whose export earnings hovered around three billion US dollars over the past decade. Even though export destinations of the country have greatly improved over the past decade, the issue of quality poses a big challenge towards diversifying products that could potentially change the country’s position in international trade.
The European Union has placed tighter regulations especially since 2017. With such intensive food safety controls in the international market, rejected export products from Ethiopia is growing. While this has discouraged many exporters to shift business line, it has increased the cost of exporting items. In fact, Ethiopian exporters lose USD83,127, if a 20 feet container is rejected. Dumping expense, which is covered by the exporter, costs USD200 per 20 feet container, according to a study conducted by the former Ministry of Science and Technology (MoST), jointly with the World Bank in March 2018. To be exact, Ethiopia incurs over USD272 million every year due to export quality problems, of which more than 99Pct is incurred due to nonconformance cost.
“Border rejection happens frequently mainly because of quality reasons,” says a Manager at Babich Agro Industry, which exports honey and coffee to neighboring countries and beyond Africa. The company lost two containers of honey before due to issues related with moisture and sugar content level. “Honey exporters send samples to Germany for USD200 to USD400 per parameter. European Union countries and Japan have very strict requirements,” explains the manager.
The number of Ethiopian items rejected in Germany’s and United Kingdom’s borders increased from just five in 2015 to 11 in 2017, according to research conducted by Bless Agri-Food Laboratory Services and Addis Ababa Chamber of Commerce and Sectoral Association, in February 2018. The problem has been worsening ever since, affecting Ethiopia’s export performance significantly. Especially, substandard quality and defaulting is posing a threat to the export sector. As a result, international buyers are offering the least price for genuine and organic Ethiopian products, just because the exporters are unable to meet the quality requirements.
Stakeholders say this is mainly because the export sector is now flooded by exporters who are hunting after foreign currencies in order to back their import businesses. “Currently, exporters are quoting up to six different prices for a single buyer in Europe, compromising quality,” said Misganu Arge, State Minister of Trade and Industry, while launching the Export Contract Administration Task Force on October 21, 2019. “Many countries are complaining to the Ethiopian government about substandard and faulty export items as well as exporters misbehavior.”
Ethiopia’s export performance has been way below targets for the last seven consecutive years due to poor supply systems, clumsy market expansion strategies, and the parasitic interdependence with import business. “Exporters are engaged in the business just to access foreign currency for their import business. They export with cheaper prices and sell the items they import with inflated price to compensate their loss while exporting. Export and import should become independent businesses by themselves,” said the State Minister.
On top of hurting the export performance, such realities have left an inedible mark on the image of the country in the global market. “Close to 1,000 kilograms of paprika pepper powder that we exported to Europe was rejected in 2017. The buyer shared the disposal cost with us. However, we have stopped exporting the item ever since, largely because of the huge loss that we encountered and unfair competition with unofficial actors whose cost is very low as their export is simply shipped without rigorous quality checks,” says Michael Girma, manager of Minugsa Trading, a company that used to export Ethiopia’s traditional foods and household items to Europe and the US.
Putting aside safety controls, the main reasons for the rejection of export items from Ethiopia is the absence of internationally recognized testing labs in Ethiopia, in addition to poor post-harvest management and low level of awareness about internationally recognized quality certifications among exporters. An assessment conducted by MoST indicates that in 2015, only 5.7Pct of industries engaged in the food manufacturing sector have internationally recognized quality certifications, 21Pct in leather, 36Pct in textile and garment, and 16Pct in other sectors. The figures have slightly changed since then. In terms of size, 25.5Pct of large sized firms have certification, while three percent of medium and small firms are certified. Among companies owned by foreigners 17.4Pct of them are certified, while it is 3.5Pct for domestic companies. Additionally, although Ethiopia has 2,195 product standards domestically, only 621 of them are currently implemented.
This has another dangerous side. “Our company, for instance, totally cut using local inputs as we only import and use raw materials picked by our customers abroad,” says Getachew Biratu, general manager of GG Super Garment. “Buyers are not interested to use local materials because of quality issues, and this will decide Ethiopia’s export performance in the future. This is mainly due to the absence of traceable local supply, predictable and internationally recognized quality maintaining system, and the lesser amount of attention given to the issue.”
This is an argument shared by Tirsit Taye, manager of WFN Industries, an apparel manufacturing company, which used to export up to 10,000 shoes to Israel, Canada and Mozambique. She says outsourcing opportunities are going to other African countries since finding quality raw materials has become a serious difficulty in Ethiopia. “Many outsourcing orders are diverting to Kenya, Uganda, Rwanda and other competitive countries in the region,” Tirsit warns.
Internationally, quality certificates are strictly required, especially while exporting items to developed countries with various parameters for each item. This also applies to Ethiopia, which is signatory to International Laboratories Accreditation Cooperation (ILAC) and also African Accreditation Cooperation (AFRAC). This means certifications issued by the Ethiopian Conformity Assessment Enterprise (ECAE), a public enterprise established for profit and accredited by the Ethiopian National Accreditation Office (ENAO), are accepted internationally. The institution can also check and accredit testing laboratories. However, there are only less than ten laboratories for industrial and agricultural items in the country, despite the presence of thousands of companies exporting hundreds of such products.
Bless Laboratory Services is among the 26 laboratories operating in the country and the second internationally accredited private lab in Ethiopia. Established six years ago by Belete Beyene, founder of Helina Enriched Foods, Bless performs chemical, microbiological, and physical tests of 100 food products every week. The opening of the laboratory reduced the price of testing by ten-fold compared to prices abroad, although an adjustment was made last year. Be that as it may, the ENAO, which is an associate signatory to the ILAC, IAF and AFRAC, accredited 26 laboratory facilities across sectors, of which 18 are laboratories used by heath institutions.
Bless and Ezana Gold, a member company of EFFORT, which owns a mining lab, are the only internationally accredited private facilities, while nine others are owned by government institutions, including ECAE. Ethio-Agriceft, member company of MIDROC, is also building an internationally accredited private laboratory.
The public standard and quality maintaining institutions are responsible to the MoST, which recently split to Ministry of Innovation and Technology, and Ministry of Science and Higher Education. The Ministry of Trade and Industry (MoTI) is also one of the key implementing institutions.
Only products and facilities accredited and certified by ILAC and other internationally recognized institutions can provide internationally recognized certifications. Laboratories that meet local requirements introduced by the Ethiopian Standards Agency (ESA) can have recognition locally. However, their witness might not be accepted internationally because parametric requirements vary depending on the laws of recipient countries. This means Ethiopia needs to have such facilities adequately or send samples to countries where there are such facilities.
Currently, Bless performs 6,000 samplings and 20,000 testings annually. The establishment of Bless and the opening of branches of other internationally accredited companies in Ethiopia significantly slashes the testing price compared to testing abroad, in addition to solving the foreign currency shortage problem.
Although some exporters complain the prices at Bless are very expensive, Yonatan argues otherwise. “It is cheaper compared to ECAE and it depends on the number of items the exporter wants to ship. If an exporter, for instance, wants to test products in a container containing ten items, equal number of parameters are required for each item, and this pushes the price up to ETB100,000,” he explains.
On the other hand, Ethiopia still has no internationally recognized labs for various exportable items like meat, diary, textile, apparel, honey and others. “We send samples to Germany via DHL, and expect the result at least after 20 days. We pay Euro200 per sample. Currently we totally stopped producing fortified items due to absence of local laboratories,” says Eyob Woretaw, Operations Director at Addis-Modjo Edible Oil Complex S.C.
In Ethiopia, National Quality Initiative has been left for the government, particularly to the ECAE. The international trend, however, shows that government hands such basic conformity assessment services to the private sector. While this is yet to be seen in the case of Ethiopia, Ethiopian exporters continue to face considerable difficulties in meeting the product quality required to successfully compete with other producers in the international market.
The main challenges in ensuring the quality of exported items in Ethiopia is the lack of adequate capacity to provide quality assurance services, inability of meeting market standards, prohibitive costs of compliance with international standards, and poor protection of public good elements. In accreditation services, the key weakness of Ethiopian laboratories and other quality assurances providers is that ENAO, from which most of them receive their accreditation, is not internationally recognized.
All tests and services performed by these providers are not internationally recognized, a major drawback for firms seeking quality assurance services to sell goods abroad and attain internationally recognized certification reports. To overcome this limitation, many laboratories have to pay extra to obtain accreditation from a foreign accreditation body recognized internationally. This means a transfer payment abroad and thus, a financial loss for Ethiopia. In this context, the benefits of the World Bank project arise primarily from its support for ENAO to obtain international recognition. ENAO is only an associate member of ILAC and IAF. Once this is achieved, laboratories paying a premium for accreditation from a foreign body can safely switch to accreditation from ENAO and have their products internationally recognized, reaping significant cost savings in the process.
“In other countries, internationally recognized certifying laboratories are the backbone of the export sector. This fact is totally undermined in Ethiopia, because quality assurance has been monopolized by government and there is no incentive for private sector to engage in the business,” says Yonatan Mengesha, Technical Director at Bless, who also compiled researches with Addis Ababa Chamber and Sectoral Association, on export quality issues. “It takes a minimum of ETB200 million to establish an accredited laboratory that gives up to six types of testing services. The minimum price for a single piece of quality lab equipment is ETB10 million, according to Yonatan. “With such a price, it is possible to establish a German-standard laboratory in Ethiopia. And it takes a minimum of ten years to return the investment,” he adds. “Government must provide land for laboratories, duty free import of equipment and provide loans to attract investment. The sector has been totally ignored compared to the incentives provided to export businesses.”
Without incentives and just hoping that the private sector engages in the sector is not unachievable. Bless, for instance, has incurred losses during the first three years of operations, according to Yonatan. “We witnessed a slightly growing profit only over the last two years. Once established, importing the laboratory chemicals continuously becomes the main cost. We stopped testing for some items because accessing the chemical is difficult,” he says. “Expanding the laboratory is also critical in order to include new items and widen the parameter coverage. Investing in quality manpower also takes huge and cautious investment.”
Tadesse Solomon, Country Director of DQS Group, a German-based standardization company suggests the government take corrective macroeconomic and policy measures to improve the exports of the country, to then persuade internationally-accredited chain laboratory companies to invest in Ethiopia. “Unless Ethiopia’s exports are not increased, big quality laboratory companies that have branches across the globe will not come to Ethiopia.”
Tadesse says quality is one way of branding export items. “Ethiopia has almost every genuine and organic product. However, it needs to export it without affecting that natural quality. Developed countries do not accept products even if the packaging is substandard.”
The Ethiopian government is recently feeling the pinch. A taskforce composed of officials from the MoTI, National Bank of Ethiopia and Ethiopian Commodity Exchange are charged with taking corrective administrative measures. Supported with a USD50 million loan from the World Bank, MoTI is also implementing the national quality infrastructure development project, which was launched in 2017. The project, which is categorized into three areas, aspires to address Ethiopia’s systemic quality issue within five years. It focuses on deepening the National Quality Initiative. The project rationed USD38.2 million for this purpose. Out of the total finance amount, USD7.3 million will be used to enhance private sector engagement and USD4.5 million will be directed to project management, monitoring and evaluation. The project targeted increasing the number of internationally accredited service providing institutions to 36 by 2022. It also looks to support ENAO obtain international accreditation, so that it can certify local laboratories. This alone can save Ethiopia USD3.5 million, which laboratories pay abroad to access accreditation yearly.
If the project is successfully implemented, it is projected to generate an additional export value of USD459 million, and savings in related costs of USD197.8 million, over the next ten years.
Further, the projects target reducing the existing cost of obtaining ISO 9001 standard from USD13,500 to USD700. Abate Argaw, private sector engagement specialist of the project, says it is in good progress so far. “Ethiopia’s economy has been growing but quality is undermined. The project helps develop proper infrastructure in order to facilitate the flourishing of internationally recognized inspection, testing, and certification businesses,” Abate underlines.
8th Year • Nov.16 – Dec.15 2019 • No. 80