Foreign Currency Shortages

Foreign Currency Shortages, Illegal Imports Cast Shadow on Booming Local Mobile Phone Assembly

Though mobile technology has been relatively slow to come to Africa, data demonstrates that reality is quickly changing. A report by Political Feature Consultancy states that 90Pct of Africans will use mobile phones by 2017. In Ethiopia, the number of mobile phone subscribers has reached 32 million and that figure is likely to change fast, as on-going network coverage keeps growing. This has inspired several mobile phone manufacturers to establish operations in the country. The government says that this segment of the manufacturing sector is important to create jobs and save foreign currency. That is why it provides numerous incentives for companies engaged in the sector. Industry insiders, however, say foreign currency shortages and the illegal smuggling of mobile apparatuses – which controls 65Pct of the market – are threatening their operations. EBR’s Fasika Tadesse spoke with the involved parties about the promise and difficulties facing the sector.

Over the past five years, the number of mobile phone subscribers in Ethiopia has increased exponentially. According to a report the World Bank released, the number of mobile phone subscribers in the country was only 8 million in 2010. That figure escalated to 32 million in 2014. This growth pushes demand for mobile phone apparatuses, which allows for the business of mobile phone assembling and manufacturing to flourish.
Since the emergence of mobile phones in Ethiopia, most subscribers have been using imported mobile phones, like Nokia, Samsung, Huawei and iPhone branded mobile devices. However, in recent years, an increasing number of subscribers have been purchasing locally assembled devices.
The growth of mobile subscription in Ethiopia then started attracting companies to join the sector. One example and pioneer in the sector is Tana Communications, a joint venture between TIRET, an endowment enterprise affiliated with the Amhara National Democratic Movement (ANDM), and Janora Technologies, in 2010.
Kiros Ayne, a driver who transports bottled water and beverages from Addis Ababa to Nekempt, in the Oromia Regional State, has been using a Techno Mobile smartphone for nearly two years.
His decision to use a locally assembled smartphone did not come of his own volition; it was circumstance – and cost – that were the determining factors. A few years ago, he bought a Samsung mini Galaxy for ETB5,000. However, the device was stolen soon after he purchased it. “For me it was unthinkable to buy a Samsung again [because] it is expensive,” he told EBR. “So I bought [a] Techno mobile [phone], which operates with [the] Android system and functions [the same] as my previous phone, for ETB2,800.”
Manufacturer of Kiros’s mobile phone device, Techno Mobile Group, is one of the eight manufacturers of mobile phones in Ethiopia. The remaining seven companies are, SMADL, Oking, Ken Xen Da, Tana, G- Tide, HDASE, and Brillion, according to the Association of Information Communication Technology of Ethiopia.
Mobile phone manufacturers say there is good reason to commence operations in Ethiopia. “The untapped market for mobile phones [attracted] SMADL to establish its company,” said Hugh Huang, sales director of SMADL Communication Terminal Factory PLC, a company that was established in June 2011. The company has a production capacity of 100,000 units per month and employs 100 workers.
In addition to the existing companies, there are a few more in the pipeline to join the sector, according to Ethiopian Investment Commission. Of the 11 investors who obtained a license to establish mobile phone assembly factories between 2006 and 2015, five are in the implementation stage, while six are already operational.
“We set up our company in September 2011 for a trial [period] with uncertainty and 30 employees” said Levi Girma, partner at Techno Mobile. He was a mobile phone importer before he partnered with Chinese investors to set up Techno Mobile in Ethiopia. Contrary to the expectation of the owners, the company attained a great deal of success, which forced them to plan for their phase two project, according to Levi.
Within six months of the commencement of production, the management of the company was pushed to plan an expansion, following the increased demand from consumers for their products, according to Levi. Currently, the factory has hired 900 workers and has sold 6 million phones. Last year, the factory managed to earn USD4 million by exporting mobile phones to other African countries, including Nigeria and Rwanda.
Gradually, locally-assembled mobile phones are becoming a popular choice among Ethiopian consumers and their availability in the phone retail shops has increased.
The growing popularity of locally produced mobile phones is a change that Mihret Alemu, owner of Mercy Mobile, a mobile retail store located in Merkato, has witnessed first-hand. “Recently, locally-assembled phones are getting more space in my display, as they have variety of models and reasonable prices,” she told EBR.
Mihret’s assessment is correct: local phone manufacturers are making a concerted effort to produce more varieties of phones for consumers. The existing factories offer two types of phones: feature and smartphones, each of which has a different price range. As a value addition, the companies offer several applications already installed on the phones, including local Ethiopian languages and calendar applications that are developed locally.
SMADL currently has 40 phone models, ranging in price from ETB300 to ETB4,000. Techno also offers 40 models of phones, including a tablet and 4G phones in two brands: itel and Techno, ranging in price between ETB350 to ETB10,000.
Half of Techno’s products are smartphones, which follows global trends. But for SMADL, however, only 7 of its 40 products are smartphone models.
SMADL’s representative says that making the bulk of their products feature phones is economically expedient. “The Ethiopian market is mainly dominated by feature phones and, according to our assessment, only 15Pct of the people use smartphones, [most of whom live] in major cities,” explains Hugh.
Furthermore the sector gets attention from the government and has become one of the major manufacturing sectors that are overseen by the Ministry of Industry’s Metals Industry Development Institute (MIDI), according to Fiti Bekele, Corporate Communication Director at the Institute.
“The government realises the importance of phone manufacturers, as they contribute greatly to the national economy in saving foreign currency, employing a large labour force and helping the country to acquire more technology,” says Fiti. According to data from the Association, the existing factories contribute, on average, ETB130 million in taxes to the Ethiopian Revenues and Customs Authority annually.
Despite the sector’s contributions, industry insiders say that it is facing several challenges. Among the problems, the most significant one is a shortage of foreign currency to import spare parts and assembling components. During the time EBR visited the manufacturing plants of SMADL and Techno Mobile, both had halted production, as they did not have the raw materials necessary to process production, which was caused by a foreign currency shortage. Other problems facing the sector include illegally smuggled mobile phones that discourage consumers from buying their products.
Around 65Pct of the mobile phones in the Ethiopian market are illegally smuggled into the country, according to data from the Association. This figure, however, is down from 98Pct five years ago. Illegally smuggled mobile phones are not only a challenge for local manufacturers; they are also a reason for the international companies not to set up their factories in Ethiopia, such as Nokia. Two years ago, Nokia’s Jussi Hinkkanen, Vice President of Corporate Relations for the Middle East and Africa, said “illegal and counterfeit [mobile devices] prevents us from investing in Ethiopia,” in an exclusive interview he had with EBR.
Upon understanding the severity of the issue, MIDI conducted a research to assess the potential and problems facing the sector in 2014. “The study identified the sector as one of the [key] manufacturing industries and [that] it needs assistance from the government,”says Fiti.
Fiti outlines some of these benefits: “If the companies make a value addition on the products of more than 0.5Pct, the government will provide incentives, including duty-free import of raw materials, and [in addition to this] the Institute [will promote] the factories in different exhibitions” he says. However, the government pushes the assemblers to manufacture the phones locally.
Levi agrees with Fiti’s view on the importance of the industry in achieving Ethiopia’s development goals: “We are aspiring to build another Vietnam in Africa. We aspire to make Ethiopia a mobile manufacturing hub in Africa and to make that happen we have been working with our assembling material suppliers to relocate their manufacturing plants to Ethiopia,” he says.
As the number of mobile subscribers increases in Ethiopia, so will the amount of manufacturers. The state-owned monopoly, ethio telecom, has set out to increase the number of mobile phone subscribers to 60 million in 2020. Furthermore, a research report by Political Feature Consultancy, entitled ‘Africa 2015: Beyond Social and Economic Trends to Shape the Continent Now and Into the Future,’ projects that 90Pct of the African population will be mobile phone subscribers by 2017 and 30Pct of them will use smartphones.
To meet this growing demand, existing factories are planning to expand their investments to increase production. SMADL acquired land and is working on expansion to push its production capacity to 300,000 units per month – three times its current capacity. Techno Mobile is working to erect its phase 3 projects on a 26,000 square-meter plot of land it secured at the ICT Village located in the Bole Lemi area in Addis Ababa. After finalisation of the project, the factory plans to absorb 2,000 workers – more than double its current workforce and earn USD300 million form exports in the coming five years, according to Levi.
Still, Levi suggests that more needs to be done before the industry can reach its full potential: “To make all this happen, we need the government to prioritise the sector like other major manufacturing sectors such as textile and leather products in addition to the existing support and assistance,” he says. EBR


4th Year • October 16 – November 15 2015 • No. 32

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