The buildings sub sector in Ethiopia is booming because of increased private and public investment on projects such as private housing and commercial edifices. The growth of the buildings sub sector has caused skyrocketing demand for construction materials especially on finishing materials such as wood, ceramics, paper, glass, plastic and metals as well as finishing mortars and concretes. Despite the surge in demand, the country is unable to produce enough materials locally to satisfy the demand leaving house developers and contractors with imported items and escalated prices. EBR’s Ashenafi Endale explores the extent of the problem and some of the attempts taking place in the country to substitute imported finishing materials locally.
For Samuel Dangachew and Feven Girum (names changed), putting the final touches on their dream home proved difficult and extremely stressful than their wildest imaginations. For the married couple with two children, the decision to move back from their adoptive home in Norway back to Ethiopia was a long time in the making.
Although they secured 90 meter square plot of land almost a decade ago in Akaki Kality District, it was only last years that they decided to move back to their home country and start building their own houses. But things were not as easy as they hoped.
From the start, the couple endured shortage of supplies and price hikes especially from the mid of last Ethiopian fiscal year in several construction materials including cement and reinforcing bars. But the back breaking challenge came when the construction of their three story house reached its finishing stage.
“I’ve never been more stressed out in my life as I was when we moved back to my parents place a year before we started working on the finishing of our home,” Samuel recounts. “Prices always go up, nothing goes according to your plan or schedule and you can never get a product you buy today, say a day or two after in the market.”
In recent years, the buildings sub sector started to boom especially in the capital following the surge of demand for houses by residents. Real estate companies are also participating in the construction of houses especially in the past decade. Data obtained from the Ministry of Urban Development and Housing reveal that 65,300 building permits were issued to developers in the country between 2009/10 and 2015/16. The states of Amhara, Oromia as well as Addis Ababa city administration take the largest share issuing 74Pct of the permits with 19,307 in Amhara, 16,277 in Oromia and and 12,552 in Addis Ababa.
Besides private and real-estate developers, the government has been busy constructing low cost houses for the lower as well as middle income households in the capital and some regional cities. To date, close to 200,000 condominium houses were transferred to residents in Addis Ababa while 94,000 housing units are under construction in different schemes in the city, according to the data obtained from the Addis Ababa Housing Development Project Office. Addis Ababa city is currently home to roughly a million registered home seekers from its 40/60, 20/80 and 10/90 housing schemes.
TheFreeDictionary.com, an American online dictionary and encyclopedia define finishing materials in construction as items used to improve the building structures, protect structural members from atmospheric as well as other effects and improve its decorative qualities. Some of the main finishing materials include items that are made from wood, ceramics, paper, glass, plastic and metals as well as finishing mortars and concretes.
With the construction sector booming in Ethiopia, the cost associated with it is also escalating. In fact, stakeholders stress that especially the cost of finishing materials is becoming a headache for house developers as well as contractors.
“Finishing materials take 60Pct of the total cost of the project at our office, while the rest goes for structural costs,” states Adhanom Gebretsadik, lead engineer at Addis Ababa Construction Bureau, a Bureau in charge of constructing office complex buildings for federal and the city administration in the capital.
Central for the shortage of finishing construction materials and their inflated price is that significant quantity of these inputs is imported. Quite a few local manufacturers are not at a stage where they can produce good quality materials. “Our problem is that most of the types of finishing materials are not available from local manufacturers or the materials produced locally fail every set of standard tests, so we largely depend on imports.” Adhanom noted.
The supply chain of finishing materials is also long contributing to the ever rising cost of buildings. This often affect construction schedule. “Lack of sufficient finishing materials supply is a huge part responsible for the delay.” Gashaw Gebregizbher, communication head at the city’s Housing Development Project Office told EBR.
The Office, which purchases hundreds of construction material items for a given project sourcing finishing construction materials like doors, windows, paint, PVC pipes and other plastic products, as well as ceramics and some sanitary products locally. It has established a substantial value chain involving more than 3,000 micro and small enterprises that are engaged in manufacturing of these items and generate as much as ETB4.6 billion on a yearly basis and creating 60,000 jobs.
However, when it comes to certain products like fiber glass, electronic fittings, advanced bathroom materials, agro stone chemicals, cables, the Office is completely dependent on imports. “This is negatively affecting our ability to deliver the houses on time,” Gashaw lamented.
A growing trend in developing a taste for trendy interior designs and home appliances is also pushing the demand for imported finishing materials into uncharted territories. “People are now becoming more conscious of creating vibrant working and living spaces in their offices and homes,” argues Fekreselam Tadesse, an architect who works at Aero, an interior design company.
Aero only started operations four months ago, but already, it has signed finishing deals with five construction sites in the capital. For Frezer Teshome, founder of the start-up, despite the growing demand, the business is not as rosy as it seems. “In negotiating deals, we propose a 15Pct price variation of plus or minus due to the chronic lack of finishing materials in the market,” Frezer complained.
“The problem is also compounded with the crippling shortage of foreign currency to finance all the imports including finishing materials. It’s a no brainer that the price will sky rocket in face of the recent devaluation of the local currency against the basket of major hard currencies.” Frezer stated.
As the result, Frezer at times feels pressured because he cannot deliver on time due to meager finishing materials in the market and his infant business suffers when customers delay payments due to the ever rising cost of the finishing items.
“We usually run out of bathroom materials, ceramics, wood and electronic products and paints and take longer periods to replenish our stock due to supply gaps,” explains Tilahun Jabir, sales manager at Lefedi General Trading, a company that sells finishing materials. “The problem is so deep rooted that at times prices may simply increase by hundreds of birr out of the blue mainly due to shortages.”
Because of this, house developers like Samuel find themselves in the desperate predicament of being tangled between ever rising prices and poor quality sanitary, wood, electronic and paint products to finish their construction projects.
“The only hope is producing the items locally with good quality.” underscores Tilahun. In fact, Lefedi has started sourcing ceramics from Di Yuan Ceramics, a Chinese company based right here in Ethiopia. The company situated in the Eastern Industrial Zone in Dukem in the state of Oromia established at an initial capital of USD23 million, produces all sizes of ceramics using similar technologies in China.
Such endeavors are expected to reduce extreme dependency on ceramics imported that covers now 95Pct according to the Chemical and Construction Industry Inputs Development Institute (CCIIDI). Ethiopia imports roughly 27.5 million meter square of ceramics annually. According to the data obtained from the Ethiopian Revenue and Customs Authority, the country’s import bill for ceramics increased from USD1.82 million in 2011 to USD7.9 million in 2016.
The only ceramics producing plant in the country until very recently was Tabor Ceramics, which was privatized nine years ago with a cost of ETB208 million. The factory still supplies wall and floor ceramics for government housing projects and insulators for the country’s power company.
However, Nigat Melak, senior expert at the Ceramic and Related Industry Development Directorate at the MoI says Tabor “could not meet the growing demand because it uses an outdated technology and imports ball clay from England, which sores its production costs.”
Thanks largely to the operations of Di Yuan that supply the market with products, the country’s ceramics imports are decreasing currently despite the growing demand. The company started production some five months ago with the production capacity of 11 million meter square ceramics annually.
“The price of locally produced ceramics is 30Pct lower than the imported ones on average.” said Frezer. He also underscored that despite the lower cost, “locally produced ceramics, recently joining the market have a comparable quality with their imported counterparts.”
The country is making strands in locally supplying its ceramics demands. In addition to Di Yuan, two more Chinese investments are set to start production within the next eight months in Dukem and Arerti, in the state of Oromia. “The projects in the pipeline are expected to cut ceramic imports by as much as 40Pct.” Nigat told EBR. “But, a combination of lack of infrastructure in power, water and roads and stiff bureaucracy are deterring new investment in the sector.”
In light of the challenges in finding good quality products and shouldering the burden of limited foreign currency, importers are opting for low cost – low quality products in huge volumes. Ephrem Hailesillasie, general manager of EKT Ceramics agrees with this notion.
“Only a few importers are taking the risk to import quality products; the common practice is importing cheaper goods in large numbers. The only way out of the current situation is local production with an emphasis on quality.”
Companies like Di Yuan will prove critical in addressing the problem for good. “We source 90Pct of our input locally and have penetrated the market by cutting the distribution price by half,” said Johnson Wong, general manager of Di Yuan. “Labor, power and transportation costs are our competitive edges while we produce the same quality ceramics as in China.” he added.
Di Yuan, which has annual producing capacity of 11 million meter square of ceramics, plans to use Ethiopia as its regional hub from where it will export its products to nearby African countries, according to Wong.
The future for ceramics looks bright in Ethiopia with an increasing number of foreign companies intensifying production locally. But the same cannot be said for electronic finishing items like bulbs.
“Light bulbs are particularly in short supply,” says Salah Kedir, manager at Classic Electrical Trading. There is not much in terms of new money coming into bulb production in the country. In fact, Daylight Applied Technologies, a member of MIDROC Technology Group and the only company engaged in the production of bulbs has pulled the plug off producing light bulbs.
The company used to produce a light bulb called Sara a decade ago before the factory shifted its set up and started producing corks and soft drink glasses. “The cost of electric filaments was higher than the retail price of the bulbs and there was a sharp increase in demand for glasses in the country, so we had to change our operations,” Abdulmelik Aman, manager of Glass Manufacturing Operations at the factory told EBR.
Though standing slightly on a better footing than the situation in bulbs, supply of paint from local companies is improving. “We stopped selling imported paint a few years back. True, basic colors for wood, metals and tile are produced locally, but there are still some color types imported,” explains Mohammad Mohajir, sales officer at Nesru Sani Building Materials operating at the heart of Kazanchis where most of the finishing material shops are located in the city.
There is a similar story of shortages of locally produced finishing goods made from woods as well. “Ethiopia plans to locally source furniture by as much as 80Pct by 2019/20 .” says Hiwot Woubshet, director of Wood & Related Products Development Directorate at the CCIIDI. “Local companies are not willing to invest on technology transfer and crucially on developing the skills of their staff.” She complained Chinese and Turkish companies dominate the local furniture market with a predominantly imported catalogue of goods.
While potentially considered largely symbolic in light of the gigantic demand, there is some good news in terms of locally produced finishing items like aluminum. B&C Aluminum has started to actually export aluminum profiles to Egypt.
“The problem in not making any impressive progress in the market being supplied with quality local goods boils down to the mentality of our society, where investors seek quick gains and consumers prefer imported goods; hindering local capacity,” noted Abeje Adenew, an expert at the Institute.
Ethiopia, a country with a population that has one of the lowest purchasing powers, cannot remain addicted to imported merchandize especially in a sector where import substitution can have the dual effects of saving the nations forex coffers and also create employment. And simple folk like Samuel and Feven would not have to make substantial financial sacrifices in checking boxes in their life missions.
6th Year . November 2017 . No.55