Basic Metal and Engineering Industries
Firm-Level Study:
Results of parts conducted by JICA/MPDC
5th High Level Forum on Industrial Development inEthiopia
Toru Homma
Senior Advisor on Private Sector Development
Japan International Cooperation Agency (JICA)
Homma.Toru@jica.go.jp
With JICA experts in charge:
Addis Ababa, 6 July 2010
- Mr Kyoji Uzuka (Basic Metal)- Mr Eizo Maeda (Eng. Industries)

Contents of today’s presentation
today’s Outline of the Basic Metal and Engineering

Industries Firm-Level Study Major findings from the JICA’s part: basic
metal industries
 Major findings from the JICA’s part:engineering industries (part 2: power sector
and construction machinery industries) Recommendations derived from the findings
and conclusions21. Outline of the
Basic Metal and Engineering Industries
Firm-Level Study
Firm-Level

3

BMEI Firm-level Study
Initial outline
Period: February – June 2010
(JICA 2 Experts: from 12 April to 18 June) Organisations: Metal Products Development Center(MPDC), Engineering Capacity Building Programme(ecbp) and JICA
 Implementation:
 The MPDC team headed by the MPDC Head
 Phase 1(field survey – collecting data and basic dataprocessing): by MPDC and ecbp
 Phase 2 (analysis): The MPDC team supported by experts
from ecbp (demand side – user industries) and JICA (supply
side – BMEI industries) and MPDC local consultants

Field survey: 10 basic metal companies, 30
engineering companies, 10 user companies
 It was requested to JICA in relation to the EthiopiaJapan Industrial Policy Dialogue4Study flow
(provided at the Kick-off Meeting in MOTI in April)

5

Table of contents of the study report
 I. Background: MPDC
 II. Basic metal industries: JICA with MPDC
 III. Engineering industries (Part 1: Sugar and cement

industries): ecbp
 IV. Engineering industries (Part 2: Power andconstruction machinery industries): JICA with MPDC
 V. Experience of other countries: ecbp and JICA
 VI. Summary of lessons, recommendations andconclusions: ecbp and JICA
 VII. Executive summary: MPDC and ecbp
 VIII. Annex. Processed data: ecbp and JICA

6

Table of contents (JICA’s part) (1)

II. Basic Metal Industries









II-1. Iron ore exploration and possible utilization
II-2. Material flow
II-3. Existing capability assessment
II-4. Identification of capability required
II-5. Identification of the gap
II-6. Technical recommendation on how to fill the gap
II-7. Examples of other countries
II-Annex.
1. Analysis of questionnaire
2. Company visit report
3. Firm code – firm name list
7

Table of contents (JICA’s part) (2)

IV. Engineering Industries Part 2 (Power andConstruction Machinery Industries)

IV-1. Power sector
IV-2. Construction machinery industry
IV-Annex
1. Experience of other countries
2. Approach to casting industry
3. Company visit report8Definition of
Basic Metal and Engineering Industries
Basic Metal Industries (ISIC Rev.3.1 Div. 27):

production of metal from ore, scrap and conversion of billet, slab
etc. into primary metal products
Engineering Industries (ISIC Rev.3.1 Div. 28-35):
28.Manufacture of fabricated metal products, except machinery andequipment
29.Manufacture of machinery and equipment n.e.c.
30.Manufacture of office, accounting and computing machinery
31.Manufacture of electrical machinery and apparatus n.e.c.
32.Manufacture of radio, television and communication equipment
and apparatus
33.Manufacture of medical, precision and optical instruments,
watches and clocks
34.Manufacture of motor vehicles, trailers and semi-trailers
35.Manufacture of other transport equipment
9

Metal and Engineering Industries Sub-sector
5-Year Development Plan 2003-2007 EFY(BMEI 5-Year Plan)








Prepared by Ministry of Trade and Industry (MOTI) / Metal
Products Development Center (MPDC) in May 2010
English version of the summary of the report prepared as an
input for the PASDEP II, which is likely to put focus on BMEI
as a prioritised industry for import substitution
It identifies that 85% of the demand for BMEI products are
currently fulfilled by imports.
It sets various targets including: (i) Gross production value in
2014/15 to be 5 times of that in 2010/11; (ii) Steel demand togrow 28% p.a.; per capita steel consumption to grow from
12.1kg (EFY2002) to 34.72kg (EFY2007); (iii) future 5-year
demand for BMEI products by major industrial sectors; (iv)
domestic capacity targets (%) for each industrial sector andeach year.

102. Major findings
from the JICA
’s part (Chapter II):
JICA’sBasic metal industries11II-1. Iron ore exploration andpossible utilization
Promising site: Bikilal Iron Ore Deposit (West
Ethiopia) – estimated quantity 22 mil tons
 Two previous studies: (i) Ethio-Korean, 1988, (ii)
Swedish Boliden Contech, 1995
 Relatively low Fe content (41%) but high TiO2 (1518%) and V2O5 (0.18%) contents, which increase theore value Was not proved to be strictly economically feasible atthat time but…
 Production cost is Birr2.5/kg (if converted in current
price) which compares to steel scrap cost Birr3-5/kg


Recommendation: It is worth while re-investigating its
feasibility under the current high mineral price situation.
12

Direct Reduced Iron (DRI) (1)World DRI production
continues to increase
as an alternative tothe blast furnacebased integrated ironmaking in developing
countries.

(Source) Ravenscroft, C., Midrex
Technologies Inc., presented at2010 SEAISI Conference(Source) American Iron
and Steel Institute13Direct Reduced Iron (DRI) (2)Among various kinds of DRI production process have beendeveloped, MIDREX has been the most major one while
FASTMELT is updated energy-efficient process.

Recommendation:
Examine if any type of DRI
is suitable for the current
situation in Ethiopia
through F/S.
(Source) Brochure of Midrex technologies, Inc14

II-2. Material flow: Iron and steel in EthiopiaThe steel industry heavily depends on raw material import.
It tends to concentrate in the downstream sub-sectors.
There are many missing data.

Recommendation: establish data collection system and clarify thematerial flow further so that appropriate intervention can be made15

II-3. Existing capability assessment (1)Production capacity of the major 14 BM companies exceeds 1
million tons. Half of them have been recently installed.
Production capacity and actial production in 2009/10 (Unit: ton)

New facilities installed in the last five years (Unit: ton)
Firm_Code
3
5
N/A
ST
10

(Source) questionnaire andhearing by the Study team16

II-3. Existing capability assessment (2)Iron and steel manufacturing processes which are covered by
Ethiopia are still limited and need to be explored toward
upstream processes.

Iron and steel manufacturing process(Ethiopia’s coverage is marked with circles(Source) JFE 21st Century
Foundation (2003)
17

Basic metal companies surveyed Basic metal industries (14 companies): Billet (5 companies) Reinforced bar (6 companies)
 Hollow section (4 companies) Corrugate sheet (6 companies) Wire (3 companies) Nail (4 companies)18

II-4. Identification of capability required

According to the 5-year projection, steel consumption
grows 28% p.a. and 2014/15 demand will reach 3
million ton.
Steel consumption projection(Source) MOTI/MPDC (2010) Metal and engineering industries 5-year plan etc.

19II-5. Identification of the gapAccording to the 5-year projection, domestic production willgrow faster than the steel consumption grow. This will result
surpassing the total demand in 2014/15.
Estimation of basic
metal production(ton)(Source) MOTI/MPDC (2010)
Metal and engineering
industries 5-year plan etc.

Estimate
capability
requirement
(ton)

20

II-6. Technical recommendation
how to fill the gap (1)Expanding domestic production processes
toward upstream semi products
Widening domestic downstream
production lineup

Increasing existing capacity utilisation to fill
the demand (by production management)
Increasing existing capacity utilisation to fill
the demand (by decreasing power cut)on

Existing
production
capacity

Do

m
es
tic

pr

od

uc
tio

Establishing iron making process
such as DRI

Imp
ort s
ubs
titut
i

gr
ow
th

tm
en
t

n

In
ve
s

Scenario to achieve domestic production growthand import substitution

Kai
zen
21

II-6. Technical recommendation
how to fill the gap (2)Widening domestic downstream production lineup

Sequential order example:
Cold rolled coil & sheet heat treatment,
galvanising & coating 
pipe & tube
 hot rolled sheet & coil

(Source) American Iron and Steel Institute22II-6. Technical recommendation
how to fill the gap (3)Basic metal products technological development scenario

Short-term

Mid-term

Long-term23

II-7. Examples of other countries (1)Minimum efficient scale and initial investment cost for
major process according to other countries’ experience Conventional
 Simple rolling of steel bars and shapes: 100,000 t/y (US$20

million) Steel rolling companies which uses electric furnace: 300,000
t/y (US$100 million)
 Simple rolling and hot strip milling of steel sheets: 2 million t/y(US$400 million)
 Blast furnace - integrated steel mill: 3 million t/y (US$4 billion) Alternative
 Hot coil production based on electric furnace and thin slab
continuous casting: 1 million t/y (US$300 million)
 Direct reduction method: 0.5-1.0 million t/y (US$100 million)(Source) Sato, Hajime (2008) Steel Industry in Asia: Development andRestructuring, IED-JETRO.

24

II-7. Examples of other countries (2)Southeast Asian countries have different experiences according totheir historical situations


Example 1. Indonesia
State enterprise-led integrated production system at a turning point One of a few countries which realised direct reduced iron integrated
production (natural gas based) Large market potential with 230 million population and less per capita
steel consumption (29kg, compared to Thailand 228kg, Vietnam 65kg)
 Struggling with high cost structure and weak competitiveness

Example 2. Vietnam
Government of Vietnam requested Government of Japan to provide
assistance for master plan making in order to develop domestic steel
industry Key recommendations: preferential tax system; maintaining ofintegrated steel mill competitiveness; infrastructure development;
advanced technologies; quality improvement; state-owned companies
reform; environmental conservation(Source) Sato, Yuri (2008) Iron and Steel Industry in Indonesia. (ed.) Sato, Hajime. (2008)
Steel Industry in Asia: Development and Restructuring, IED-JETRO.
(Source) JICA / Nippon Steel (1998) Master Plan Study on the Development of Steel
Industry in the Socialist Republic of Viet Nam

25

3. Major findings
from the JICA
’s part (Chapter IV):
JICA’sEngineering industries (part 2)– Power sector andconstruction machinery industries –26

IV-1-1. Overview of the power sector
Current capacity: 1,600MW
 Hydro (86%), Diesel (13%), Geothermal (1%)
 Frequent power cut is a major obstacle for industries
 Ethiopian Electric Power Corporation (EEPCO)’s
plan: 11,600MW to be newly developed = Hydro(10,710MW) + Wind (540MW) + Geothermal(350MW)(according to the Study analysis based on EEPCO data)Estimated potential 60,000MW in total: Hydro(45,000MW), Wind (10,000MW), Geothermal(5,000MW)27

IV-1-2. Existing technical capability
 Major part of power facility/equipment depends

on import or foreign companies’ engineering
services as “full turn key basis”
 Domestic companies focused Examples of domestic production experience

Penstock
Accessories for middle voltage transmission
High voltage transmission tower (prototype)
Wind power facilities (approaching)28

IV-1-3. Identification oftechnical capability required (1)

BMEI 5-Year Plan

EEPCO’s new strategies on increasing domestic
procurement

5-Year demand for BMEI products – 860,112 mil. Birr
5-Year gross value of domestic production – 430,056 mil.
Birr (Domestic capacity target 50%) = Power sector
provides 75% of whole demand from all major industries“Detailed Technical Requirement for Transmission Line
Materials”“Detailed Technical Requirement for Power Transformers
and Steel Structures”

Demand for steel fabrication in power plant andtransmission towerStudy analysis shows 650,000t demand in next 5 years
Plan for extension of 2,440km transmission line
Emerging demand for wind power farms – transportation
advantage for domestic companies29IV-1-3. Identification oftechnical capability required (2)Concrete demand for metal and engineering products
by EEPCO – various kinds of long and short lists








List of machinery/equipment and metal products for atypical hydropower plant (258MW)
List of parts and materials for Finchaa-Amerti-Neshe multi
purpose project
List of BMEI parts and components necessary for rural
electrification and distribution
List of machinery/equipment/metals/instruments for
procurement at the EEPCO mechanical workshop for 5
years after 2010

An example of accessories- Spacer30

IV-1-4. Technical recommendation on
how to fill the gap (1)Required technological capability and Acquired technology

Technological level

High-grade
stock

pen
High V Cable
Prototype
Accessories

Pen stock
High V tower

Transformer parts

Low P pipe
Low V Cable

Switchboard parts

Intake gate
M/L V Tower
Accessories

Power production

Power transmission

Power distribution31

IV-1-4. Technical recommendation on
how to fill the gap (2)Product series

BMEI related components newly requiredfor hydro-power/wind power sector: possible scenario

Pen stock

DesignManufacturing

Steel making

High Voltage tower

DesignManufacturing

Steel making

Accessories

DesignManufacturing

Manufacturing
Wind Power tower
DesignShort term

Year

Manufacturing

Steel making

Long term
32Capacity, gap and recommendations on
major power equipment
Gap analysis

Capability

Recommendation

Hydro Power plant
Penstock

Intake liners etc

2 companies have actual
resultCorrespondence for advanced
technology

Upgrading in technology and equipment(other company)

Huge gap

Technical cooperation / Equipments

Irrigation gate (1 company)

Not so large

Upgrading in technology and equipment
Design is important.

3 companies approach.

Current status unknown-

Wind power plant
Tower /Column

Transmission/ Distribution tower and accessories
High V Tower

A prototype (1 company)

New guide line of EEPCO

Adjustment for the guide line.
Standardization.

Middle V Tower(other company)

New guide line of EEPCODesign/equipment according to the guide line.
Standardization.

High V Accessories(other company)

Huge

Design/equipment according to the guide line.

Middle V
Accessories

Actual result (1 company)

New guide line.

Zinc dip equipment.
Upgrading by coupling of insulator.

Transformer(other company)

Huge

Technical cooperation / Equipments.

Small gap. But not for any kindof spare parts.

How to break the limit.
(Rapid modeling etc)

General equipments/ machine
Spare parts

Actual result (1 company)

33

IV-1-4. Technical recommendation on
how to fill the gap (3)General technical recommendations (i) Strengthening of design capacity







Training / capacity building of design engineer
Disseminating CAD/CAE
Wind power facility as a large potential for designing
Standardisation of specification, etc.

Development of new products







Concrete products to be developed: for example, penstock,water gate and valve for dam, transformer, induction motor /direct current synchronised motor etc.
Feasibility study on domestic production of motors
High voltage transmission products
Various parts for wind power generation system
Existing capacity utilisation and joint product development,
etc.
34

IV-1-4. Technical recommendation on
how to fill the gap (4)General technical recommendations (ii) Management







QA/QC system, inspection ability, preventive maintenanceKaizenUtilisation of MPDC as an incubator
Human resource development on basic elemental
technology

OthersMore opportunities for domestic engineering companies tobe engaged in public investment projects as required
Electricity stabilisation
Cooperation with Ethiopian Association of Basic Metals andEngineering Industry
Reverse exhibition35

IV-1-4. Technical recommendation on
how to fill the gap (5)Technical recommendations for some identified companies(Example of Company A)
Capacity analysis

Expected products to be developed/produced






Huge capacity in terms of quantity of machinery, available production
process etc.
65% of total sales – middle/low voltage transmission accessories, etc.
Water gate and its valve, gear box for gate
Core part of transformer such as conductor wire
Distribution panel/board, transformer container, motor, etc.

RecommendationsDesigning technology upgradeTechnical collaboration with other companies
Galvanising by the hot dip process of zinc to be required.
Casting technology improvement, etc.

[Recommendations for some other companies
are also available in the report]36

IV-2-1. Overview of the construction
machinery industry









Can be classified into two groups
Type A: simple design; forhousing/building construction;
portable; many domestic
manufacturers existingType A typical machinery:portable concrete mixer; hollow
block making machine (HBM); jaw
crusher
Type B: heavy duty; for road
construction and large concrete
structure; with wheels; almost allimported
Type B typical machinery:
Concrete mixer lorry, motor
grader, road roller etc.

(Above) portableconcrete mixer.
(left) HBM.
(below) concrete
mixer lorry37

IV-2-2. Existing technical capability
Type A: almost all the process are available
domestically including steel welding, machining, gear
making by casting and gear cutting. No bottlenecks areobserved including parts supply and man power/skill.
Enough number of makers for local demands.

Type B: produced by only a handful countries. Verydifficult to enter this market. Except for concrete mixer
lorry, which could be locally fabricated if there are somedemands(Source) Brochure of Midrex technologies, Inc38

IV-2-3. Identification oftechnical capability required
Continuous demand for Type A machinery.
 Some demand for concrete mixer lorry: imported
amount in 2008 is 894 tons (if the average lorry size is
8 tons, 112 lorries.
 No significant visible demand for high level Type B
products. However, spare parts demand for these arehigh.
(Source) Brochure of Midrex technologies, Inc

39

IV-Annex. Experience of other countriesTechnology development in local firms


JICA projects on casting technologySome examples including an Indian company adopted Toyota
production system including TQM and Kaizen
Examples of the projects in Brazil, Indonesia, Ghana

Approach to casting industry in Ethiopia: Recommendations

How to get good cost cycle:
Cost down ➙ Increasing order ➙Increasing production ➙Cost decrease
New products development➢Civil engineering: Offering new design.
➢Cement ball :World wide goods. Quality/cost.
➢Development of agricultural equipment: Irrigation. Pump.
➢Cooperation with machine maker: Axle shaft drum, hub (Imported), Balance weight
for tractor (Imported), Incinerator (Big volume of grates)➢Export of machined parts. (engine parts)➢Export of machined and assembled parts.

40

Recommendations and Conclusions











Ethiopia’s basic metal and engineering industries have promisingpotential to contribute as an import substitution industry.
Development scenario with investment for the basic metal industries
are various: (i) iron making using Bikilal ore with direct reduced iron
method should be re-examined; (ii) widening downstream domestic
production line up should be pursued; (iii) expanding toward upstream
process should strengthen the steel industry.
Major part of the huge demand for the BMEI products for the power
sector, the top consumer of the engineering products in the next 5years, are currently fulfilled by import but there are various products
which could be domestically produced in future.
Asian and other countries’ experience could provide useful lessons.
Technical capability and human resource development, particularly on
basic elemental technology such as casting, are fundamental tocreate sound industrial base. Quality/productivity improvement suchas Kaizen should complement from managerial aspect.
Designing capacity enhancement is also required to exit from “full turnkey” dependent situation which disturbs industrial development.
41

Thank you

JICA’s VISION
JICA’s“Inclusive and Dynamic Development”
42