Big Business with Big Potential
In one of Maritu Legesse’s popular songs there is a lyric that reads “Wesheten new enji endiaw segedereder, enes lagere lij wuha shiche lider”. which can losely be translated as “I’ve been hiding my feelings; but [for you], I would even [waste/spend my time] selling water.” Asserting that she is willing even to sell water, which is too cheap to take to a market, to show what she would do for her loved one. Traditionally, selling water which was even as mentioned in the song, unimaginable, at least not in the Ethiopian context. Now, things have changed, and water has become by far, one of the most sellable products in the country.Nebiyu Getachew, who made a fortune in his youth, spends most of his afternoons chewing Khat. A couple of bottled water usually accompany this habit. For these two bottles of water, he pays about 20-26 birr.
“I have been using bottled water for chewing Khat for more than 10 years now and it has become part the custom” he told EBR. To curb his expenses, Nebiyu has tried tap water instead, but claims that this did not get the “mood” right. These days many people like Nebiyu who chew Khat prefer bottled water, during munching. Though, some will also consume soft drinks. “Bottled water sales is where the larger part of my profits come from” Semira Ali, one of the owners of the Khat selling establishments around the locality commonly known as Hayahulet, in Addis Ababa told EBR. “Most of my customers consume one to two liters of bottled water per day”. In shops that retail Khat, bottled water is a staple, constantly on display.
Bottled water has become an essential aspect of life not only in the Khat Houses and shops, but also in the general urban lifestyle.
A decade ago, the idea of bottled water for many Ethiopians was a trend that characterized the Diaspora and the modern, wealth-driven way of life. Today, it is common to see people purchase bottled water along with their groceries in super markets and kiosks. Young people order bottled water in cafés and restaurants. In several offices, bottled water also has become another choice in addition to the “tea or coffee” offered by secretaries to visitors. Bottled water has a constant presence at meetings and discussion forums. Urbanites from many different walks of life have made it part of everyday consumption.
Since the introduction of the product to the country through the Highland Springs brand by Appex Bottling Company in 1999, the sector has seen tremendous growth.
Now, around 50 bottled water producing plants are operational in Ethiopia. According to a Central Statistics Agency (CSA) 2010/11 survey, about 51 soft drinks and bottled water manufacturing factories have been operational with a registered capital of ETB1,106,223,000. Their production has reached more than 1.3 million hectoliters and the gross value of production has passed ETB3.6 billion in the same survey period. According to the same source, the sector has created approximately 8,000 jobs.
There are many reasons for this fast growth. The general economic growth the country has been registering in the past decade is just one reason. Though this growth is accompanied by unprecedented inflation, the income of the urban population has also shown tremendous growth. According to the MoFED’s 2012/13 report on economic performance, the per capita income of Ethiopians has reached USD550 from a merely USD100 a decade ago.
Many factors, such as the growing number of conferences and summits in Addis Ababa, the increased tourist traffic, and the expansion of the hospitality sector have contributed to this growth. This can be easily seen in the growth of the number of soft drinks and bottled water producing factories from 13 in 2006/7 to 53 in 2010/11. Furthermore, according to sources at the Ministry of Industry, several other companies are in the pipe line to join the industry.
It is clear that even foreign actors are perceptive of this growth and the potential this sector has in Ethiopia. Take Maticline Machinery Co. Ltd as an example, the Chinese company, which specializes in machinery installation in bottled water producing plants, opened an office in Ethiopia in 2009. Peter Peng, the general manager of Maticline Machinery Co., Ltd, told EBR that the company gives technical support, machine installation and re-installation, and consultation services for many bottled water producing companies.
A bottled water producing plant can be established with a total capital of USD800,000 – 1.6 million depending on the size and capacity of production. For example, a project that produces 600,000 bottles per hour with 600ml bottle would cost around USD800,000.
According to a business consultant , the running as well as manufacturing costs of producing bottled water is relatively cheaper than other industrial products. A unit cost of bottled water of 600 ml can be less than two birr while it can be sold at up to five birr.
“There is a huge demand for bottled water which producers could not satisfy,” says a marketing manager at Aquaddis spring water, produced by Asku PLC. “For a country of 90 million, only one million bottles of water are supplied per day” he told EBR. He adds that even in the rainy season, when the drinks market is expected to slow down, the market for bottled water continues “unbelievably high”. The company has increased the production capacity of Aquaddis by around 100Pct to 240,000 bottles per day since it purchased the company from its Indian owners three years ago.
One distinct feature of bottled water products is that production and marketing is not confined to Addis Ababa, as is quite common with other products. Several companies produce and market their products in other regions as well.
In Tigray for example, according to the region’s Investment Bureau, there are about ten bottled water companies that are established with an estimated ETB50-70 million capital. .
Many new companies are also eyeing the sector. “There is a huge gap between demand and supply of bottled water” says Adebabay Biru, an industrialist who recently established Guna Springs at the Guna Mountain, near Debre Tabor, South Gondar Zone of the Amhara Regional State. This was done with a total capital of ETB30 million. After satisfying the local demand, Adebabay plans to export his product to the Sudan, only 400 KM away from the factory.
Aquaddis also has a similar plan for the near future; to export bottled water to earn foreign currency. “The water quality has been approved by several institutions, here and abroad” says the marketing manager at the company. “We will start exporting soon after we satisfy the local demand through the expansion of our factory,” he adds.
“Producing and marketing bottled water is actually not as easy as many would think” says Adebabay. Like any other manufacturing business, the bottling industry needs the appropriate technology, correct installation of machines, well trained employees, an efficient and effective management system, and the right amount of energy.
One of the main challenges the sector faces is the regular interruption of electricity. In producing food and drink items, a five minute disruption in electricity supply does not just cause five minutes of trouble. If quality is to be maintained, all the materials in the process are discharged and new inputs added. This takes not only time but also money, as companies incur additional costs when replacing the inputs.
As one of the fastest growing economies in Africa, and home to the continent’s second largest population, Ethiopia represents a compelling investment opportunity, particularly in consumer oriented sectors. The expansion of bottling firms as well as the increased production and marketing of bottled water are clear indicators of high demand for such products. To satisfy this demand, production and marketing of high quality bottled water will surely increase.
Ethiopia has been identified as the water tower of Africa due to the potential of its water wealth; as seen in the country’s abundant rivers, lakes and reserves of underground water. If the bottled water industry grows and production is improved and able to meet international standards, Ethiopian companies will soon be able to penetrate the international market of bottled water. EBR
2nd Year . November 2013 . No9