Manufacturing Industries Report Final

Amahara National Regional State (ANRS)
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TABLE OF CONTENT LIST OF TABLES.............................................................................................................B EXECUTIVE SUMMARY....................................................................................................I 1.0 AN OVERVIEW OF INDUSTRIAL DEVELOPMENT IN ETHIOPIA...........................1
1.1 Historical Background............................................................................................................................................1 1.2. The State of the Manufacturing Sector ...............................................................................................................3 1.3 Regional Distribution of Industries in Ethiopia...................................................................................................7 1.4 Industrial Policies and Strategies..........................................................................................................................8
2.0 THE STATE OF MANUFACTURING INDUSTRIES IN AMHARA REGION...........10

2.1 The Structure of the Manufacturing Industries.................................................................................................10 2.1.1 Small Scale Industries and Micro-enterprises.................................................................................................10 2.1.2 Medium and Large Scale Industries................................................................................................................11 2.2 Contribution of the Manufacturing Sector to RGDP and GIVA ....................................................................11 2.3 Size of capital employed in the sector .................................................................................................................12 2.4 The Enterprises of the region by size of employment........................................................................................13 2.5 Level of Technology under Utilization................................................................................................................13 2.6 Industrial Raw Materials and Inputs..................................................................................................................14
3.0 PRIVATE INDUSTRIAL INVESTMENTS IN THE REGION 1992-2003 ..................15

3.1 Investment Pattern and Trend ............................................................................................................................15 3.2 Zonal Distribution of the registered Projects ....................................................................................................16 3.3 Implementation Status of the registered Industrial Projects ...........................................................................17
4.0 PROSPECTS AND CONSTRAINTS FACING THE DEVELOPMENT OF INDUSTRY.......................................................................................................................20

4.1 Opportunities.........................................................................................................................................................20 4.1.1 Agriculture..........................................................................................................................................................20 4.1.2 Mineral resources ...........................................................................................................................................24 4.1.3 Tourism...........................................................................................................................................................27 4.1.4 Export Potential...............................................................................................................................................28
Development Studies Associates (DSA) & Shawel Consult International (SCI)

4.1.5 Domestic Market for manufactured goods ....................................................................................................28 4.1.6 Regional Markets for Domestic Industrial Products ......................................................................................29 4.2 Constraints.............................................................................................................................................................33 4.2.1 Poor facilitation of private investment in the region......................................................................................33 4.2.2 The time required to get access to investment land .......................................................................................33 4.2.3 The inadequacy of the incentive system.........................................................................................................34 4.2.4Lack of Adequate Infrastructural Facilities .....................................................................................................34 4.2.5 Shortage of skilled man power .......................................................................................................................34 4.2.6 Lack of adequate supply of raw materials and intermediate inputs................................................................34 4.2.7 Limited access to bank credits for investment and working capital...............................................................35
5.0 THE WAY FORWARD..............................................................................................36 6.0 PROJECT TITLES RECOMMENDED FOR FURTHER STUDY..............................42
6.1 Agro-industry .......................................................................................................................................................42 6.2 Non-Metallic Minerals Industries........................................................................................................................42 6.3 Chemicals and Allied Industries .........................................................................................................................43 6.4 Metal and Engineering Industries.......................................................................................................................43
LIST OF TABLES
TABLE 1: THE STRUCTURE OF THE ETHIOPIAN ECONOMY AT CONSTANT PRICES..............................................................................................................................4 TABLE 2: EXPORT EARNINGS OF THE MANUFACTURING SECTOR.......................6 TABLE 3: REGIONAL DISTRIBUTION OF MANUFACTURING INDUSTRIES.............7 TABLE 4: NUMBER, SIZE OF INVESTMENT AND ANNUAL PRODUCTION OF SMALL SCALE INDUSTRIES AND MICRO ENTERPRISES IN THE ANRS...............10 TABLE 5: CONTRIBUTION OF THE ECONOMIC SECTORS TO RGDP....................12 TABLE 6: GROSS INDUSTRIAL VALUE ADDED BY INDUSTRIAL SIZE..................12 TABLE 7: THE ENTERPRISES OF THE REGION BY SIZE OF FIXED CAPITAL......13 TABLE 8: THE MANUFACTURING ENTERPRISES OF THE REGION BY SIZE OF EMPLOYMENT...............................................................................................................13 Development Studies Associates (DSA) & Shawel Consult International (SCI) b
Amahara National Regional State (ANRS) TABLE 9: PRIVATE INVESTMENT PROJECTS REGISTERED IN THE AMHARA REGION (1992 -2003)..................................................................................................15 TABLE 10: APPROVED INDUSTRIAL INVESTMENT PROJECTS (1992-2003).......16 TABLE 11: ZONAL DISTRIBUTION OF THE REGISTERED INDUSTRIAL PROJECTS......................................................................................................................17 TABLE 12: STATUS OF LICENSED DEVELOPMENT PROJECTS AS OF JULY 7, 2003.................................................................................................................................18 TABLE 13: STATUS OF LICENSED PRIVATE INDUSTRIAL PROJECTS................18 TABLE 14: IMPLEMENTED INDUSTRIAL PROJECTS AS OF JULY 7, 2003...........19 TABLE 15: ESTIMATES OF AREA, PRODUCTION AND YIELD OF MAJOR CROPS FOR PRIVATE PEASANT HOLDINGS IN THE AMHARA REGION (2000/2001)........21 TABLE 16: ESTIMATED NUMBER OF CATTLE, SHEEP, GOATS, POULTRY AND BEEHIVES IN THE AMHARA REGION.........................................................................24 TABLE 17: POPULATION OF THE AMHARA REGION (JULY, 2004).......................29 TABLE 18: MARKET FOR MAJOR DOMESTIC INDUSTRIAL PRODUCTS IN ANRS 2003/2004........................................................................................................................30
Executive summary
The report on the manufacturing industry is one of the components of the comprehensive study that the ANRS launched to assess the resource potential and investment opportunities of the region. More specifically the study is intended to analyze state of the manufacturing sector in the region, identify the constraints that hinder the growth of the sector and to recommend measures that would enable the region to build a strong and vibrant industrial sector. The Amhara region whose population in 2004 was estimated to be 18.6 million occupies an area of 159,173 square kms. The average population density is 114 people/sq. km. Bahir Dar, the capital city of the region with a population of 152,000 is one of the major urban centers of the country. While the region is divided into 11 administrative zones, the size of the urban population in 2004 was estimated to be about 11 per cent of the total population. Thus, about 89 per cent of the population live in rural areas. Accordingly, the livelihood of the vast majority of the population is dependent on agriculture and in particular on rain fed agriculture. The total area under cultivation varies from 2.9 to 3.2 million hectares, depending on the year to year weather conditions. As it is true in the rest of the country the productivity of this vast land is very low due to the low level of technology employed and poor farming practices. The water resource potential of the region both in terms of irrigation (700,000 hectares) and power generation is very enormous. The water potential and the presently low agricultural yield indicate the huge agricultural potential of the region. Lake Tana, which happens to be the largest fresh water lake in the country with an area of 3,600 sq. kms, has also significant fishing potential. Although the geological study of the region is far from being regarded as adequate, the indications found from the limited studies undertaken so far are encouraging. From the little that is known the existence of metallic minerals such as gold, associated minerals such as Sulphides, non-metallic minerals such as Kaolin, Silica, Limestone, Gypsum, Coal, Opal and Bentonite have been reported. There are also signs that suggest the possible existence of oil gas. The manufacturing sector in the region is still at its infant stage. Only 8% of the manufacturing industries are located in the region. However, the contribution of the manufacturing sector to the average Gross Domestic Production (GDP) of the region is below 2%. The manufacturing sector is dominated by small and micro-enterprises, the bulk of which are engaged in food processing (grain mills, bakeries, pastries and edible oil mill). There are very few industries under the category of medium and large scale which are Development Studies Associates (DSA) & Shawel Consult International (SCI) i
Amahara National Regional State (ANRS) all state owned, with the exception of the 5 (five) industries that are recently privatized. The most obvious conclusion of the assessment is the need to pay adequate attention to the development of the industrial sector of the region. The potential to significantly increase the productivity of agriculture and hence the income of the population suggests the strong opportunity to enhance the growth of the economy through the development of manufacturing industries. In addition to producing consumer goods and intermediate goods (i.e. construction materials), the region has also the comparative advantage to develop industries for the export market. The availability of an abundant supply of relatively cheap and industrious labor and the relative proximity of the region to the port of Djibouti could give it the type of advantages that the East Asian and South Asian countries exploited to penetrate into the export market. Of course the existence of the potential is no guarantee that development will automatically follow. Apart from England and USA which were the trail blazers of industrliazation, development in general and industrial development in particular has always been the result of a conscious and concerted effort. In view of this that the region should make a conscious and programmed effort to forge ahead with the development of manufacturing industries need hardly be emphasized. Equally evident is of course the need to devise an appropriate industrial policy and strategy that could guide and encourage the flow of both domestic and foreign private investment into the sector Chapter 1 deals with the historical background of the manufacturing sector in the country. This is expected to create a better understanding of the status of the manufacturing sector in the region which is described in Chapter 2. In Chapters 3 and 4, the state of private investment in the industrial sector is critically analyzed and the factors and constraints that deter the flow of private investment into the sector are examined in detail. The analyses of the state of the sector is followed by the chapter that outlines the industrial policy of the region and what needs to be done to promote the growth of manufacturing industry in the region. The final chapter provides the list of potential investment ventures or titles in the manufacturing sector which, if proved to be viable with further studies, could help to induce and promote private investment in the region.
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1.0 An Overview of Industrial Development in Ethiopia

1.1 Historical Background
Historically the establishment of a modern industrial sector in Ethiopia is believed to have started towards the end of the 19th century with the commissioning of the railway line from Djibouti to Addis Ababa. The Government of the day enjoyed a strong political status and stability as a result of which many foreigners were attracted to come and settle in the country. Initially it was the demand of the foreign communities as well as the increasing number of diplomatic missions established in Addis Ababa that neccessitated the manufacturing of at least some of the very basic goods needed for a modern life. The first factory, believed to be a flour mill, was set up in Holleta in 1896 and by the year 1927, a total of about 25 factories were established in Addis Ababa, Dire Dawa, Massawa and Asmara, where the presence of foreigners was significantly high. The major commodities produced in these factories included, textiles, cement, tobacco, edible oil, soap, flour, and salt. The owners were mostly foreigners, mainly settlers from Armenia and Greece with the exceptions of some printing presses, which were state owned. Between 1928 and 1941, the number of factories gradually increased with the addition of about 10 modern manufacturing centers, which included the Textile and Cement Factories in Dire Dawa. The Second World War had all the lessons for the country to give renewed emphasis for promoting industries. It was not difficult to realize the superiority of the Italians in terms of mechanized armaments and modern warfare, as a major factor contributing to their brief occupation of the country between 1935 and 1941. The increasing influence of the modern industrialized states such as the United Kingdom the USA in the countrys affairs also had a positive contribution to the development of the manufacturing sector in the subsequent years from 1941 to 1960. During this time, the promotion of foreign investments, particularly in the establishment of industrial enterprises, was at its peak. Important policy measures were designed and implemented to attract foreign investors. Incentives such as tax holidays lasting from 5 - 10 years, tax exemptions of dividends, expatriation of profits, low level of duty and taxes on imported raw materials and factory inputs, and access to credits on favorable terms were granted to potential investors. These policy measures were no doubt instrumental in the drive for the establishment of the manufacturing Development Studies Associates (DSA) & Shawel Consult International (SCI) 1
Amahara National Regional State (ANRS) industries in the era of the Imperial Government. Suffice it to note that the bulk of the manufacturing sector still in operation were mainly those that were established in that era. The Imperial Government adopted an import substitution strategy as a step towards diversifying the country's economy. Consequently, the entrepreneurs concentrated on the production of consumer goods and intermediate products capable of substituting imported items. However, the lack of a reliable supply of locally produced raw materials due to the low level of agricultural productivity could not enable the import substitution policy to yield high results. The failure of the agriculture sector to grow rapidly affected the industrialization policy in two ways. In the first place as it could not supply the raw material requirements of the industrial sector reliance on imported raw materials continuously kept the industries at cost disadvantages. This meant that the industries were not internationally competitive. Secondly, the poor performance of agriculture by keeping the income of the bulk of the population at low levels could not provide the domestic market that industry required for its growth. The high cost of production also made the goods produced beyond the purchasing power of the population. The Imperial Government was replaced by the Derg, which nationalized all private industrial establishments, commercial firms, Banks, Insurance Companies and all sorts of private holdings, and considered agriculture as the basis for all development activities. This of course totally arrested the prospect for the growth of private investment. In terms of policy also the Military Government at least initially leaned more towards changing the rural economy. To this end farmers co-operatives and large scale commercial farms were accorded high priority. The operational status of the nationalized manufacturing industries under the Military Government was characterized by low level of output and poor quality of products as a result of the absence of incentives, low level of technical and management skill, reduced capacity utilization, lack of imported raw materials and inputs due to shortage of foreign currency. All of these factors contributed to the poor performance of the manufacturing sector thereby minimizing its contribution to the country's economy. With the nationalized and the newly set up manufacturing industries, all operating under state ownership, the progress of industrial development was curtailed by several factors. The smallness of the domestic market continued to put brakes on the growth of industry. Cost and political considerations made the export market increasingly inaccessible. The increasing dependence on imported raw materials, inputs and spare parts were becoming heavy burdens on the limited foreign exchange earning capacity of the country. All these constraints and obstacles severely impeded the growth prospects of the manufacturing sector. Development Studies Associates (DSA) & Shawel Consult International (SCI) 2
With the fall of the Derg and the demise of its socialist policy in May 1991, the Transitional Government declared an economic policy based on market forces and private ownerships with the objective of mobilizing the initiatives of the whole society to rapidly transform the economy. The new economic development direction was initially elaborated in the Agricultural Development Led Industrialization strategy that is now popularly known as ADLI. The main objective of ADLI is to bring about the structural transformation in agriculture which in-turn would provide the raw material, foreign exchange and market required for the development of industry. The strategy is still valid and is regarded by the Government and its development partners as the right track that will enable the country to get out of the poverty trap that has entangled it.
1.2. The State of the Manufacturing Sector

That the industrial sector is one of the most dynamic sectors of an economy is now a common sense. It produces the capital goods required by the economy and strengthens the links between the different sectors of the economy. It generates employment opportunities which with its growth become increasingly substantial. Industry also plays a leading role in the development of skilled manpower and in the building of the technological capabilities of an economy or a country. The development of industry is also becoming a prerequisite for the rapid growth of the tertiary sector which in modern economies is becoming increasingly important both from the point of employment creation and improvements in the standard of living of the population. It is in view of the significance of the sector in the transformation of an economy, that the degree of industrialization of an economy is regarded as one of the measures of the level of development of a country. Hence the categorization of countries into industrialized, industrializing and least industrialized counties is not accidental. In fact it is synonymous with the categorization of countries into developed, developing and least developed countries. The people of Europe, North America and Japan with a population of about 600 million are industrialized, and they are considered to be the leading beneficiaries of industrial development. The people of China, Brazil and India with a population of about 2.4 billion are categorized as industrializing and are considered to be semi-beneficiaries of industrial development. The majority of the people of Africa, Asia, Latin America and other developing countries estimated at about 3 billion are not as such beneficiaries of Industrialization. Hence they are referred to as least industrialized countries, of which Ethiopia is a part. To the extent that industrialization is synonymous with development there is no doubt that Development Studies Associates (DSA) & Shawel Consult International (SCI) 3
Amahara National Regional State (ANRS) Ethiopia must give high priority to industrial development and to the multitude of benefits that accrue from it, through the formulation and implementation of appropriate policy and strategies both at Federal and Regional level. Despite the relatively long history of industrial development, as all pertinent indicators prove the manufacturing sector in Ethiopia has shown very little progress. As a result the manufacturing sector is undoubtedly found at low level of development. This is an inescapable conclusion when one considers the contribution of the sector to the Gross Domestic Production (GDP), employment, and exports. At country level the manufacturing sector currently accounts for about 12% of the GDP. In fact the share of medium and large scale manufacturing industries is only about 7% of the GDP while the small scale and micro-enterprises account for about 5%. These figures are the lowest even by the Sub-Saharan African standards. The contributions of the different sectors of the economy to the overall GDP, is shown below in Tables 1. As the table shows in 1994/95 the contributions of large and medium scale industries to the GDP was 4.4 per cent while in 2001/02 it still remained at 4.4 per cent showing no improvement at all. During the same period the share of small scale and handicrafts actually declined from 2 peer cent to 1.8 per cent. While shortages of raw materials and technical inefficiencies are the main explanations, the lack of growth in what should eventually emerge as the leading sector of the economy is a cause for concern. On the whole the growth of the economy in this period was mainly accounted for by the rapid growth of the services sector.
TABLE 1: THE STRUCTURE OF THE ETHIOPIAN ECONOMY AT CONSTANT PRICES
No. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0
Description of the Economic Sector Agriculture, Forestry and Fishing Mining Large and Medium Scale Industries Small Scale and Handicrafts Construction Trade, Hotels and Restaurants Transport and Banking Services Public Administration and Defense Education Health Other Services
Percentage Share of the GDP 1994/95 2001/02 49.7 43.2 0.4 0.6 4.4 4.4 2.0 1.8 1.7 1.5 2.6 2.7 8.1 8.6 5.6 6.5 10.5 15.2 2.3 2.8 1.2 1.2
Source: Ministry of Finance and Economic Development Development Studies Associates (DSA) & Shawel Consult International (SCI) 4
The role of manufacturing industry in terms of employment generation has not also been significant. At present the manufacturing industries provide employment opportunities to only about 3% of the labor force employed in the modern sector of the economy. The small scale industries and micro enterprises provide much of the industrial employment. One of the problems of the manufacturing sector is the slow growth of industrial employment and the low productivity of the industrial labor. The productivity of labor in China is about nine (9) times that of Ethiopia. The shortfall in labor productivity in Ethiopia, which amounts to only 11% of the Chinese, outweighs by far the shortfall of wages, which is 33% of that of China and 40% of Bangladesh. (RE: World Bank Report, 2004). Another manifestation of the industrial underdevelopment in Ethiopia is its heavy dependence on imported raw materials and intermediate inputs on one side, and its very small contribution to exports on the other hand. The extent of foreign dependence of the sector and the share of manufacturing industries in export trade is expressed in quantitative terms as follows: capital goods supply spare parts supply raw material supply Industrial goods export 99% imported 93% imported 50% imported 17% of the total export
The table below gives a more detailed picture of the contributions of the manufacturing sector to the total export earnings of the country from 1992/93 up to 2001/02. Although the contributions of the sector to exports are limited, the development in the last few years was quite encouraging. Thus, in the last ten years in absolute terms the total value of industrial exports has more than tripled, increasing from Birr 170 million in 1992/03 to Birr 567 million in 2001/02. During the same period, however, total export earnings have almost quadrupled, increasing from Birr 949 million to Birr 3.5 billion. It is because of the significant increases of the over all export performance that the relative share of earnings from the manufacturing sector has not increased. On the contrary its share has actually declined from 18 per cent of total export earnings in 1992/03 to about 16 per cent in 2001/02. While efforts in the last few years have positively influenced the contribution of the manufacturing sector to the total export earnings of the country the sector still remains heavily dependent on imports.

TABLE 2: EXPORT EARNINGS OF THE MANUFACTURING SECTOR
(000 Birr) No. Year Total value of Exports 949,164 1,419,229 2,834,844 2,607,156 3,891,533 4,141,582 3,637,247 3,957,802 3,679,837 3,499,316 Export Earnings of the Manufacturing Sector 170,331 302,457 506,705 458,846 516,617 482,066 275,985 343,166 699,237 566,991 Percentage Share of the manufacturin g 17.94 21.31 17.87 17.60 13.27 10.91 7.59 8.67 19.00 16.20
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/2000 2000/2001 2001/2002
Source: Annual Report 2001/2002, National Bank of Ethiopia One worrying state of affairs of the Ethiopian manufacturing sector is its structural stagnation in terms of type of goods produced, ownership and level of technology. The Ethiopian manufacturing industries produce mainly basic consumer goods. Food, textile, beverage and leather goods account for well over 60% of the total output of the manufacturing sector. Capital goods industry is virtually non-existent. Most of them are small in size, and they are technologically obsolete. In terms of ownership, most of the large and medium scale industries are still owned by the state and the privatization effort does not seem to have yet gained strong momentum. Private investment is mainly limited to the small scale and micro-enterprises. Recently private investment is also making head way in the large and medium industries but it is still quite limited. In general, the Ethiopian manufacturing sector has not changed in structure. There is hardly any transformation in production from consumer goods to capital goods, from small scale to large scale mass production, and from low to advanced technology. As one could easily conclude from the heavy dependence of the sector on imports for the supply of capital goods, raw materials and intermediate inputs, the extent of linkages-forward and backward - within the manufacturing sector as well as with other sectors such as the agriculture, mining, transport and communication is very low. Petroleum products, imported 100% from abroad costing huge amounts in foreign currency, Development Studies Associates (DSA) & Shawel Consult International (SCI) 6
Amahara National Regional State (ANRS) accounts for over 70% of the energy in use, although the potential for hydro electric power and other renewable energy sources is immense. Given this, if the current trend in the increases of oil and petroleum products continues unabated the effect on the manufacturing sector could be very serious. Likewise decline in foreign exchange earnings as a result of fall in the volume of exports or fall in international price of primary products, could also have significant impact on the growth prospect of the sector. In brief the industrial sector does not have the base to contribute neither to the integration nor to the technological growth of the economy
1.3 Regional Distribution of Industries in Ethiopia

One of the weaknesses of the development of manufacturing sector in Ethiopia is its uneven and unbalanced regional distribution. Table 3 shows the regional distribution of manufacturing industries in Ethiopia for the years 1995/96 and 2000/2001. In 1995/96 68 per cent of industries were concentrated in and around Addis Ababa. Orormiya was a very poor second accounting for only 11 per cent of the industries while the Amhara region was in the third place with only 6 per cent of the industries situated in its territories. Over the years, however, the regional distribution is showing slight improvements. Thus, in 2000/01 the share of Addis Ababa declined to 61 per cent while the share of Oromiya increased to 15 per cent and that of the Amhara region to 7 per cent of the total number of industrial establishments in the country. While the redressing of the imbalance, albeit very modest, is a positive development that much remains to be done is quite obvious
TABLE 3: REGIONAL DISTRIBUTION OF MANUFACTURING INDUSTRIES
Regions Addis Ababa Oromiya Amhara SNNP Tigray Dire Dawa Harari Afar Gambella Somali Sub-total
1995/96 No. of Establishments 438 71 40 35 21 25 7 2 2 1 642
2000/2001 NO. of Establishments 68.22 485 11.06 122 6.23 58 5.45 54 3.27 37 3.89 24 1.09 7 0.31 3 0.31 2 0.16 4 99.99 796 %
% 60.93 15.33 7.29 6.78 4.65 3.01 0.88 0.38 0.25 0.50 100.0
Source: Central Statistical Authority, Survey of Manufacturing Industries Development Studies Associates (DSA) & Shawel Consult International (SCI) 7
1.4 Industrial Policies and Strategies

Historically the earliest industrial development policies and strategies which were devised in the 1950s were targeted mainly to attract foreign investment to develop industries that will mainly cater to produce goods that will meet the consumption requirements of the population. Considerations of efficiency apart the policies have succeeded in attracting foreign investment. Thus, by 1974 there were over 270 factories in the country that were of course mainly owned by foreign investors. The Industrial development policy of the Dergue with its emphasis on the development of light industries as a base for the development of the capital goods producing industries was also in essence based on the objective of import substitution. The fundamental departure of the Agricultural Development-Led Industrialization (ADLI) that guides the development of industry is its recognition of the need to ensure the parallel development of agriculture and industry to achieve sustained and integrated development. It is a policy that is based on and intends to develop and strengthen the linkages between agriculture and industry. Industry must have adequate supply of raw materials which in the present realities of Ethiopia can be secured mainly from the growth of agriculture. It also needs at least in the initial phases source of foreign exchange and capital which at this stage of the countrys development can mainly be mobilized from the agriculture sector. Industry also needs strong and rising market that can be developed through the sustained growth of agriculture which happens to provide livelihood for about 90 per cent of the polpulation. On the other hand agriculture also needs strong and rising markets in order to ensure its sustained growth and this can be developed with the growth of industry and the urban economy as whole. The strategy recognizes the private sector as the engine of industrial growth. The governments role to intervene in the market is mainly justified with the objective of correcting the market failure to ensure the rapid growth of the free economy. On the other hand given the stage of the countrys development, the strategy acknowledges the importance of public-private partnership in areas where the capacity of the private sector would be limited. In July 2003, the Federal Democratic Republic of Ethiopia adopted a new strategy known as Industrial Development Strategy (IDS). The main objectives of the strategy seemed to be the further enhancement of the role of the private investor as the engine of industrial development and also the identification of the priority areas in the industrial development strategy of the country. Accordingly export-led industrialization and competitiveness have been accorded special emphasis. In light of this the strategy also Development Studies Associates (DSA) & Shawel Consult International (SCI) 8
Amahara National Regional State (ANRS) identified areas that will be accorded particular attention. These included textile and garment, leather and leather products, agro-processing, food Industries (meat, cereals, edible oil, fruit, and sugar), construction as well as small and micro-enterprises. In all the sub-sectors the strategy also gave due recognition to the promotion of labor intensive industrialization. In the strategy, emphasis is given to the partnership between domestic and foreign investors, Government and private investors, investors and peasants as well as employers and the industrial labor force. The role of the government in the creation of enabling environment for the private sector and industrialization has also been well articulated. Accordingly, the Government would continue to play a proactive role in the training of skilled manpower, development and provision of dependable infrastructural facilities (transport, telecommunication, electric power, water and land) and in developing appropriate and efficient institutional frame work (Administrative, finance and legal) that will serve the private investors more efficiently and diligently. The Governments policy of capacity building also recognizes its commitment to develop the capacity of the private investor particularly the small investors. In reviewing the industrial development policy environment of the country mention should also be made, albeit briefly, of the investment policy in force. In the last ten years the Government had continuously revised its investment proclamation. Although such swift changes of policies would not be appreciated by businesses who generally favor stability, that the changes have been for improving the business environment is very encouraging. The investment proclamation provides due incentive to investors. However, tax incentives, although important, are only one of the factors that influence the decisions of private investors. The efficiency of the administration, the availability of foreign exchange, bank credit, the size of the domestic market, the prospect for rapid economic growth, the general business environment,etc are also factors that heavily weigh in the minds of investors in making investment decisions. In the final analysis the extent to which the incentives have succeeded in attracting investment is some thing that has to be evaluated in relation to the flow of private investment and in particular to that of that of foreign direct investment.
2.0 The State of Manufacturing Industries in Amhara Region

2.1 The Structure of the Manufacturing Industries
Even at the risk of being redundant a very brief analysis of the size of the industrial sector of the region in terms of its contribution to GDP, employment, etc and the structure of the manufacturing industries would be essential. It will certainly provide a clear picture of where the region stands and what needs to be done to promote the growth of the manufacturing sector and hence the growth of the regions economy. 2.1.1 Small Scale Industries and Micro-enterprises The majority of the manufacturing industries currently regulated and supervised by the Amhara Regional Government are pre-dominantly of small scale nature. Most of them are simple food processing units. Out of the 5,712 small and micro-enterprises that are found in the region, 4,807 are grain mills providing milling services, and 135 are bakeries and pastries. Of the total establishments grain mills account for 84%.The role of the remaining sub-sectors such as textile, leather, wood, paper, metal and other nonmetallic products is, therefore, negligible. The table below shows the number, size of investment and annual production values of the small and micro-enterprises currently operating in the Region.
TABLE 4: NUMBER, SIZE OF INVESTMENT AND ANNUAL PRODUCTION OF SMALL SCALE INDUSTRIES AND MICRO ENTERPRISES IN THE ANRS
Enterprises Industrial Sub-sector 1. Food Including grain mills(4807) 2. Beverage 3. Textile 4. Leather 5. Wood 6. Paper/printing 7. Chemical 8.Non-metals minerals 9. Metals Total Number 5211 3 15 4 92 1 1 40 150 5712 % 94.45 0.05 0.27 0.07 1.67 0.02 0.02 0.73 2.72 100.00
Size of investment Fixed capital (000 Birr) % 227,628 27,314 28,511 73,603 6,872 2,830 108 4,018 6,760 377,643 60.28 7.20 7.50 19.49 1.82 0.75 0.03 1.10 1.79 100.00
Annual Production Value (000 % Birr) 609,337 73.00 15,262 114,449 23,264 34,028 2,400 12,628 23,380 834,747 1.83 13.71 2.79 4.08 0.29 1.51 2.80 100.00
Source: ANRS, Trade & Industry Bureau, Statistical Bulletin IV, December 1998 Bahir Dar Development Studies Associates (DSA) & Shawel Consult International (SCI) 10
2.1.2 Medium and Large Scale Industries The medium and large scale industries in the Amhara Region which numbered 11 were until quite recently totally owned by the state. Recently, however, Gondar Soft Drinks, Dessie Soft Drinks, Gondar Ginnery, Gondar Meat Processing and Kombolcha Meat Processing, were privatized. Thus, the number of state owned factories has been reduced to 6. These consisted of the Bahir Dar Textile, Bahir Dar Edible Oil Mill, Kombolcha Textile, Debre Berhan Blanket, Kombolcha Tannery factories and Gondar Printing Press. The total amount of their capital including their working capital is estimated at Birr 385 million (BOTI, 2000). All in all the industries provide employment opportunities to about 4,872 persons. The relationship between these centrally managed public industries and the Amhara Regional socioeconomic system is mainly expressed in the form of employment generation, and to some extent in the supply of local raw materials. In accordance with the economic policy of the country the development of medium and large scale industries is entirely left to the private sector. Thus the development of the sector would be measured by the flow of private investment into the sector. According to the data gathered from the region from 1992 to 2002 a total investment of Birr 766 million was registered by the private sector in manufacturing industry. On the basis of this data the annual private investment that flowed into the sector would on average amount to Birr 76.6 million. This is certainly very much less than what the development needs of the region would justify. Given the size of the population and the huge potential to increase production by improving productivity and employing resources that were not utilized so far (e.g. Irrigation potential, power generation, tourism etc) the region has the capacity to support a much faster growth of manufacturing industry. Hence, that the region must devise a more appropriate strategy to encourage the flow of private investment into the sector goes with out saying.
2.2 Contribution of the Manufacturing Sector to RGDP and GIVA

The contribution of the industrial sector as a whole to the GDP of the region (RGDP) is not high. As table 5 shows from 1993/94 to 2003/04 the average contributions of the agriculture sector was about 64 per cent while that of the industrial sector was only about 22 per cent. As the same table shows the contribution of the manufacturing sector was on average only about 2.1% per year. As the figures confirm the manufacturing industry of the region can only be described as one that is yet in an infantile stage
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TABLE 5: CONTRIBUTION OF THE ECONOMIC SECTORS TO RGDP
Socio-economic Average Nominal Sectors RGDP 1. Agriculture 60.89 2. Industry 25.01 2.1. Manufacturing 1.89 2.2. Non-manufacturing 23.12 3. Services 14.60 Total 100.00 Source: ANRS, BoFED, Estimation of RGDP, 2004
Average Real RGDP 63.78 22.12 2.10 20.02 14.10 100.00
As table 6 shows the Gross Industrial Value Added of the manufacturing sector in the Amhara Region which was estimated to be Birr 186.66 million in 1993/94 increased to Birr 339.85 Million for the 2000/01 respectively. Although the size of the sector is small the growth realized over the years is quite significant as the value added originating from the sector has doubled in the years under review. A very encouraging aspect of the growth is the increase in the share of medium and large scale industries whose share increased from 37 per cent in 1993/94 to 53 per cent in 2000/01. While the increase partly represents the increase due to increases in productivity it also shows the contributions of the growth of private investment in the sector.
TABLE 6: GROSS INDUSTRIAL VALUE ADDED BY INDUSTRIAL SIZE
1993/94 Value in million Birr % Medium and large 62,509 37.06 Small scale 17,655 10.47 Cottage & handicrafts 88,498 52.47 Sub-total 168.66 100.00 Source: ANRS, BoFED, Estimation of RGDP, 2004
Industrial Classification by Size
2000/01 Value in million Birr % 180,673 53.16 28,560 8.41 130,610 38.43 339.85 100.00
2.3 Size of capital employed in the sector

As the table below shows the fixed capital of the 99.2% of the enterprises does not exceed Birr 250,000 each. The number of enterprises with investments exceeding Birr 1 million is only13 or 0.24% of the total.
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TABLE 7: THE ENTERPRISES OF THE REGION BY SIZE OF FIXED CAPITAL
Size of fixed capital (Birr) Up to 250,000 Between 250,000 and 1,000,000 Above 1,000,000 Total
No. of Enterprises 5,473 31 13 5,517
Percentage Share 99.20 0.56 0.24 100,00
Source: ANRS, Trade & Industry Bureau, Statistical Bulletin II, Bahir Dar, 1998
2.4 The Enterprises of the region by size of employment

The employment criterion also confirms the smallness of the enterprises. As the table below shows the number of enterprises employing up to 5 persons is about 5221 or 94.64% of the total. Enterprises employing over 20 persons are only 15 in number and they constitute only about 0.27% of the total. The cost of labor throughout the Amhara region is relatively low which would have been exploited if private foreign and domestic investments had expanded rapidly.
TABLE 8: THE MANUFACTURING ENTERPRISES OF THE REGION BY SIZE OF EMPLOYMENT
Employment Size Up to 5 People 6-10 People 11-20 People Over 20 People Total
Number of Enterprises 5,221 230 51 15 5,517
Percenta ge Share 94.64 9.17 0.92 0.27 100,00
Source: ANRS, Trade & Industry Bureau, Statistical Bulletin II, Bahir Dar, 1998
2.5 Level of Technology under Utilization

As stated earlier, the manufacturing industries of the region are dominated by simple food processing enterprises composed of mainly grain mills, bakeries and edible oil mills. The operational technology of the 4,807 grain mills is based on a two-stone mill technology imported from Denmark, China and India. The 245 edible oil mills utilize conventional motor driven expellers. A qualitative assessment of the technologies in use proves that they are very simple, but inefficient and expensive. They are not far from the traditional Development Studies Associates (DSA) & Shawel Consult International (SCI) 13
Amahara National Regional State (ANRS) technologies employed by the vast majority of the population, except for the drive motor and energy source in use to replace human or animal power. Almost all of the small scale and micro-enterprises, which dominate the manufacturing industries of the Amhara region are operating on traditional technologies handed down from generation to generation without any form of scientific change built into them for a long time. The productivity of such traditional technologies is extremely low and hence demands technical transformation.
2.6 Industrial Raw Materials and Inputs

The basic raw materials and inputs utilized by manufacturing industries usually originate from the agricultural and mineral sectors. In an industrial sector that is well integrated with the economy a strong and growing linkage and interdependence is expected between the three sectors.
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3.0 Private Industrial Investments in the region 1992-2003

3.1 Investment Pattern and Trend
The new economic policy based on private initiatives and market forces has created the opportunity for those that possess the capital and entrepreneurial ability to invest their capital and know-how in the development of the economy. The ANRS had also benefited from this renewed and rekindled hope of the private sector. Thus as the table below shows from 1992 to 2003 the Amhara region has succeeded in attracting private investors with 506 projects whose capital at the time of registration amounted to Birr 5.5 billion. If all the registered capital were fully implemented they would have generated permanent employment opportunities for 100,000 persons. On the basis of the registration annual private investment would be, on average, about Birr 500 million. Compared to the development needs of the economy the size of investment is not big. However, for a private sector that was emerging from years of subjugation and suppression the development can not be belittled. As can be seen from the table below the industrial projects, which were registered in the years under review were 157 and constituted about 28% of the investment projects registered. In financial terms, the capital of the industrial projects amounted to Birr 1.46 billion or about 26.4 per cent of the total registered capital. Both in terms of number of projects and registered capital industry came second to agriculture.
TABLE 9: PRIVATE INVESTMENT PROJECTS REGISTERED IN THE AMHARA REGION (1992 -2003)
No. 1 2 3 4 5 6 7 8
Sectors Agriculture Industry Construction Hotel & Tourism Trade Transport Social Services Mining & Energy Sub-total
No. of Projects 141 157 36 93 21 2 51 5 506
% 30.0 27.9 7.1 18.4 0.9 0.4 10.1 0.9 100.0
Capital Investment (000 Birr) 1,658,438 1,463,961 1,155,583 295,493 179,627 31,801 263,606 512,066 5,560,575
% 29.8 26.4 20.8 5.3 3.2 0.6 4.7 9.2 100.0
Employment opportunity No. of % Persons 82,306 82.1 8,262 8.1 3,252 3.3 3,074 3.0 756 0.8 105 0.1 2,596 2.6 29 100,380 100.0
Source: Investment Office, Amhara National Regional State Development Studies Associates (DSA) & Shawel Consult International (SCI) 15
Amahara National Regional State (ANRS) Table 10 provides a further breakdown of the flow of investment to the different sub-sectors within industry. Accordingly, the food sub-sector accounted for 73 projects or 47 per cent of the total industrial projects registered. In terms of capital the food projects involved Birr 318.8 million while their employment contribution would have reached 3,125 persons. The beverage and metal sub-sectors were in the second and third places with investment magnitudes of Birr 457 million and Birr 256 million, respectively. If all the registered investments were fully operational they would have created employment opportunities for 8262 persons which would have been about 8% of the employment impact of the total registered investment during the years under review.
TABLE 10: APPROVED INDUSTRIAL INVESTMENT PROJECTS (1992-2003)
Sub-sectors Food Beverage Leather & its products Textile Household & Office Furniture Metal products Non-metallic products Chemicals Paper & printers Others Sub-total
No. of Projects 73 10 10 5 7 17 11 10 8 6 157
% 47 6 6 3 5 12 7 6 5 3 100
Capital Investment (000 % Birr) 318,857 21.8 457,175 31.2 102,300 7.0 75,004 30,460 256,350 113,172 73,293 13,251 24,099 1,463,961 5.1 2.1 17.5 7.7 5.0 0.9 1.7 100.0
Employment Opportunities No. of % Persons 3,125 38 1,244 15 496 6 298 186 590 889 471 230 733 8,262 4 2 7 11 6 3 8 100
Source: Investment Bureau, Amhara Regional State
3.2 Zonal Distribution of the registered Projects

The distribution of industrial projects in general is bound to be influenced by the availabilities of facilities like power, telecommunication, water, roads etc. in addition to this access to market and raw material sources are also factors that private investors would critically assess. As the distribution of infrastrture facilities and the concentration of the urban population are presently limited to few urban areas, the distribution of industrial projects is also limited to the few urban centers. Bahir Dar, for example has the highest density, registering 50 industrial ventures, followed by South Wollo and Development Studies Associates (DSA) & Shawel Consult International (SCI) 16
Amahara National Regional State (ANRS) North Gondar with 37 and 26 projects, respectively. The capital investment to be deployed is about Birr 309.9 million, Birr 582.9 million and Birr 349.7 million for Bahir Dar, South Wollo and North Gondar zones, respectively. The employments generation expected is also 2,885, 2,077 and 1,681 for the three zones respectively. There are no significant industrial investment attractions towards the Oromia Zone, East Gojjam, South Gondar, North Wollo, North Shewa and West Gojjam zones. Table 11 shows the zonal investment ventures registered in each of the zones in the Amhara Region.
TABLE 11: ZONAL DISTRIBUTION OF THE REGISTERED INDUSTRIAL PROJECTS
Zones North Gondar South Gondar North Wollo South Wollo Oromia North Shoa East Gojam Awi West Gojam Bahir Dar
No. of Projects Quantity % 26 7 16 5
Capital Investment (000 Birr) 349,693 29,745 % 23.9 2.0 2.2 39.8 0.2 2.6 1.6 4.1 2.5 21.1 100.0
Employment Opportunities No. of % People 1,681 20.3 185 146 2,077 14 183 246 531 314 2,885 8,262 2.2 1.8 25.1 0.2 2.2 3.0 6.4 3.8 34.9 99.9
3 2 31,737 37 24 582,956 1 1 2,341 5 3 37,376 11 7 23,995 11 7 60,344 6 3 35,883 50 32 309,891 157 100 1,463,961 Source: Investment Bureau, Amhara Regional State
3.3 Implementation Status of the registered Industrial Projects

Out of the total of 506 private projects licensed up to July 7, 2003, only 201 were operational while 92 were under implementation. The remaining 213, which made about 42% of the total registered projects were not implemented. In terms of capital, the projects that were operational and under implementation constituted about Birr 2.1 billion or 37.6% of the total registered capital. As the figures reveal the performance was not satisfactory. The projects fully operational and those under implementation provided employment for 39,112 persons which is only 39% of the total employment expected to be generated by the licensed projects as a whole. The details are shown in table 12 below Development Studies Associates (DSA) & Shawel Consult International (SCI) 17
TABLE 12: STATUS OF LICENSED DEVELOPMENT PROJECTS AS OF JULY 7, 2003
Status of Licensed Projects Not Implemented Under Implementation Operational total
No. of Projects No. % 213 92 201 506 42.1 18.2 39.7 100.0
Capital Investment (000 Birr) % 3,469,537 392,862 1,698,176 5,560,575 62.4 7.1 30.5 100.0
Employment Opportunities No. of % Person s 52,955 53.0 8,313 39,112 100,380 8.0 39.0 100.0
Source: Investment Bureau, Amhara Regional State Table 13 looks into the implementation status of the registered industrial projects. As the available data shows only 51 projects were already operational, while 35 were under implementation. The remaining 71 projects were being expected to enter the implementation phase through time. In terms of investment outlay, the projects that were operational were worth close to Birr 800 million, while the capital out lay for those under implementation was Birr 142 million. Thus, in terms of capital out lay the performance was 64% which compared to the over all performance was very satisfactory. The over all status of implementation of industrial projects and the breakdown by sub-sectors are provided in Tables 13 and 14
TABLE 13: STATUS OF LICENSED PRIVATE INDUSTRIAL PROJECTS
Projects Not Implemented Under implementation Operational Sub-total
No. of Capital Projects Investment Quantit % (000 % y Birr) 71 45 524,456 35.8 35 51 157 22 142,066 9.7
Employment Opportunities No. of % Persons 4,103 50 1,283 2,876 8,262 15 35 100
33 797,439 54.5 10 1,463,961 100.0 0 Source: Investment Bureau, Amhara Regional State
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TABLE 14: IMPLEMENTED INDUSTRIAL PROJECTS AS OF JULY 7, 2003
Sub-sectors Food Beverage Leather & Leather Products Textile Household & office Furniture Metals Non-metal Chemicals Paper & Printing Others Sub-total
No. of Projects Quantity % 23 4 6 3 1 7 1 3 1 2 51 45 8 11 6 2 14 2 6 2 4 100
Investment Capital (000 % Birr) 83,115 10. 0 397,875 50. 0 63,778 8.0 52,564 1,866 163,644 5,550 19,749 4,168 5,130 797,439 7.0 0.2 20. 0 0.7 3.0 0.5 0.6 100 .0
Employment Opportunities No. of % Persons 880 31.0 840 297 255 12 208 111 143 35 95 2,876 29.0 10.0 9.0 0.4 7.1 4.0 5.0 1.2 3.3 100.0
Source: Investment Bureau, Amhara Regional State As indicated earlier that private investment is beginning to participate in the economic transformation of the country is by itself a very encouraging development. However, many countries that have made the transition to market economy at about the same time that Ethiopia made have shown significant progress. In light of this the stride made by private investment both at country and the regions level in the last ten years was far from being satisfactory. While at both country and the regions level the total amount of capital registered is relatively high, at both levels the implementation is very low. Unfortunately not much is known about the factors that are behind the mismatch between registered and realized capital both at country level and at the regional level. The time it takes to get land, bank loans, etc could provide some of the explanations. But these can not account for the whole gap. Some may have just registered to get the license, and some could still be waiting for opportune moments to come, others may have made change of minds. It is unfortunate that actual explanations are not exactly known. What ever the explanations that even if the whole registered investment was fully realized it would still be very much short of the development needs of the region. Hence, that much needs to be done to promote private investment in the region goes with out saying. 19
4.0 Prospects and constraints facing the development of industr y

4.1 Opportunities
In view of the deteriorating prices of primary products vis--vis manufactured goods, it is imperative to take issues of industrial development seriously. In nearly all models of economic development, industrialization is regarded as a prime mover of the structural transformations of an economy. In other words industrialization is the path for making the transitions from agrarian, low productivity and low income state into an integrated, dynamic, diversified and high productivity economy. However appealing the arguments sounds the case for industrial development cant be made on grounds of its economic and technological advantages only. Every country or region should make an assessment of its potentials not only to make the case for industrial development but also and more importantly to determine the pattern of industrialization. An industrial development strategy that is not based on a countrys potential is not likely to succeed unless the country in question has a special access to the international market! In light of this the Amhara region should also critically examine its potential for the development of industry. In assessing the regions potential for industrial development one must start with the obvious assumption that industry, manufacturing industry in particular is first and fore most required to process the raw materials of the agricultural and mining sectors and there by create additional values to the economy. In addition industry is also required to meet the capital and input requirements of the material producing sectors like agriculture, mining and other sectors of the economy. Meeting the consumption requirements of the population is of course a well known task of industry. Last but not least is the production of goods for the international markets. In identifying the opportunities for the industrial development of the region it would, therefore, be essential to look into the prospects and opportunities of the region in agriculture, mining, water resource, tourism, etc the consumption requirement of the population and the opportunities for export.
4.1.1 Agriculture
The sustainable development of manufacturing industries to a large extent depends on the productivity and commercialization of the Agricultural sector of the Amhara Region. The share of the Agricultural sector of the Amhara region out of the countrys agricultural production is estimated at 30% for crop production and 34% for livestock population. The quantity of cereals Development Studies Associates (DSA) & Shawel Consult International (SCI) 20
Amahara National Regional State (ANRS) and oil seeds produced in the region in the year 2000/01 is shown in Table 15. Even with the present level of production that the region has a significant potential for the development of Agro-processing manufacturing industries is quite obvious. The total quantity of cereals and oilseeds produced in 2000 was estimated to be 33 million quintals or 3.3 million metric tones. This quantity is produced with the average yield which ranges from 4 -10 quintals per hectare which even by the Sub-Saharan African standard is very low. The region can easily double and even triple the existing levels of yield per hectare by supplying the farmers with improved seeds, increased supply of fertilizers and better and more productive farm management techniques. There is no doubt that the improvements will lead to very huge increases in the volume of crop production. Apart from the gains in productivity through improved technologies the size of crop land that the region has is also enormous. Although the total land under cultivation is estimated to reach up to 3.5 million as the study that was conducted to assess the resource potentials of the region showed the regions has well over 2 million hectares that is best suited for the crop production. This is a very enormous potential. Through improvements in productivity and by diversifying into high valued industrial crops the region can significantly build strong foundation for industrial development. Although suitability studies that establish the potential for different crops has not been undertaken the potential of the region in terms of the production of oil seeds, industrial crops like cotton, and coffee, horticultural products is well established from the long years of farmers practices.
TABLE 15: ESTIMATES OF AREA, PRODUCTION AND YIELD OF MAJOR CROPS FOR PRIVATE PEASANT HOLDINGS IN THE AMHARA REGION (2000/2001)
Crop Type
Total Area (000 Hectares) 2,644.91 949.53 287.87 308.30 377.76 520.87 187.85 12.91 560.09 % 76.46 27.44 8.32 8.91 10.92 15.06 5.43 0.37 16.19
Total Production (000 Quintals) 27,513.86 7,685.36 2,488.52 3,225.03 6,488.83 5,707.91 1,789.48 128.73 4,513.33 % 83.28 23.26 7.53 9.76 19.64 17.28 5.42 0.39 13.66
Yield (Qnt/Ha ) 10.40 8.10 8.64 10.46 17.18 10.96 9.53 9.97 8.06 21
Cereals Teff Barley Wheat Maize Sorghum Millet Oats Pulses
Amahara National Regional State (ANRS) Yield (Qnt/Ha ) 10.38 6.92 6.69 6.90 6.50 7.54 3.98 3.74 2.84 5.98 6.44 5.70 6.35 -
Crop Type
Total Area
Total Production (000 Quintals) 1,896.19 624.75 289.73 835.55 365.49 501.63 1,011.26 695.15 86.67 47.71 59.14 75.39 47.11 33,038.45 % 5.74 1.89 0.88 2.53 1.11 1.52 3.06 2.10 0.26 0.14 0.18 0.23 0.14 100.00
(000 % Hectares) Horse Beans 182.60 5.28 Field Peas 90.24 2.61 Haricot Beans 43.28 1.25 Chick Peas 121.14 3.50 Lentils 56.27 1.63 Vetch 66.57 1.92 Others 254.37 7.35 Neug (Niger Seed) 186.02 5.38 Linseed 30.47 0.88 Rapeseed 7.98 0.23 Ground Nuts Sunflower Seeds 9.18 0.27 Sesame 13.23 0.38 Fenugreek 7.42 0.21 Sub-total (Cereals 3,459.37 100.0 and oil seeds) 0 Source: Statistical Bulletin No. 245, May 2000, CSA.
On top of this as the water resource potential study of the region has concluded the region has the water potential and suitability of land to develop as much as 700,000 hectares from surface water only. This is with out considering the small scale irrigation that could be undertaken by farmers through water harvesting and diversion of small rivers and springs. Certainly it will take long time and huge resources to realize these potentials but that the region has the resource potential on which it could forge ahead with an industrialization program is self evident. The realization of these agricultural potentials could pave the road for the development of a wide range of agro-industries which also have strong export potentials. The lines in agro-industry are wide. If we take cotton as an example it could lead to the establishment of ginneries, where the cotton seeds are separated from the cotton fiber, thread factories, fabric production plants and garment industries where the fabrics are converted into different types of ready-made garments and clothing, etc. Like-wise the livestock resource potential of the region could lead to the development of industries in meat processing, dairy processing, leather and leather product industries. The livestock resource of the region is currently estimated to be between 9 - 10 million cattle, 3 - 5 million sheep, 3 - 4 million goats, 12 13 million poultry. There are also close to 900,000 beehives capable of producing about 9,000 metric tones of honey annually. The productive management and development of this resource will Development Studies Associates (DSA) & Shawel Consult International (SCI) 22
Amahara National Regional State (ANRS) significantly contribute to the expansion of the manufacturing sector and also to the increased participation of the region in the export market.
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TABLE 16: ESTIMATED NUMBER OF CATTLE, SHEEP, GOATS, POULTRY AND BEEHIVES IN THE AMHARA REGION
No. 1.0 2.0 3.0 4.0 5.0
Description Cattle Sheep Goats
2000/2001 9,118,660 3,818,050 2,957,510
2001/2002 10,360,070 5,232,300 3,800,800
Poultry 11,947,700 13,139,590 Beehives 706,590 870,320 (Excluding (7,066 M. Tones) (8,703 M. Tones) Nomadic Areas) Source: Statistical Abstract, 2003, CSA. 4.1.2 Mineral resources
Potential Manufacturing Industries Meat and Dairy Processing, Leather and Leather Products Manufacturing, Meat Processing, Wool and Wool Products Manufacturing, Sheep Skin and Related Products Meat Processing, Goat Skin and Related Products Meat Processing, Honey and Wax Production and Packing for Export
Unfortunately, the mineral resource potential of the Amhara region has not yet been adequately explored. Thus, the extent of mineral potential and the type of industries it could support to develop could not be discussed with high degrees of certainty. So what is attempted below is only to give a very sketchy picture of what can be done with the mineral resources that the rudimentary information indicates. These studies have confirmed the occurrence of non metallic minerals such as lime stone, sand, clay and coal in many parts of the region. Further geological assessments and analyses would of course be needed to determine the qualities and quantities of the reserves. On the whole from the qualitative assessments made so far the availability of the following industrial minerals in abundant quantities is established. Limestone Limestone is abundantly found in Blue Nile Gorge, Jemma and Winchet areas in Gojjam and North Shewa. This industrial mineral is a primary raw material for cement and other building material industries as well as chemical industries. 60% of Portland cement is lime, which is produced by burning limestone. The mountains of limestone in Amhara region can be converted into millions of tons of Portland cement for the construction sector. At the moment, the region gets cement for all construction purposes either from the Mesebo Cement Factory located at Mekele or from Mugher Cement Factory at Mugher, which are both far from the region involving significant costs of transport. Development Studies Associates (DSA) & Shawel Consult International (SCI) 24
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Amahara National Regional State (ANRS) Gypsum Gypsum is another non-metallic mineral which is found in many parts of the region in abundance. Gypsum is used as a fertilizer for arid and alkaline soils. It is also utilized as a retarder in the production of Portland cement, as well as in the production of chalk and other types of construction materials. It can also be further processed for the export market. Silica Sand Silica Sand contains about 95% to 98% of silica, which is a basic raw material for the glass industry. The silica sand found in the vicinity of Jemma and Wonchit in North Shewa is suitable for the production of glass bottles, sheet glass and other types of glass wares. It is also used in the production of cement, abrasive materials and brick. Coal Coal is a well-known source of energy. Its historical significance and contribution for the success of the Industrial Revolution in Europe is well known. Even today, it is used as source of energy as well as in the manufacture of steel as element carbon. An estimated quantity of about 14.5 million tons of coal is potentially available at Chillga, in North Gondar. The existence of about 3.3 million tons of coal has also been reported in North Shewa. The energy equivalent of the two deposits would reach 256 million GJ, assuming a minimum calorific value of 20 MJ/kg. This is a significant amount of energy worth exploring. If exploited, it could serve as a source of energy that could be utilized for generating electricity and steam, for making bricks, for drying agricultural crops like tobacco, dehydrated vegetables, and other agricultural products. Almost all industrial boilers installed at important manufacturing plants (food processing, textile, leather, and cement factories) within the country are utilizing furnace oil imported via Djibouti port at high prices. Substituting the current amount alone with coal would mean saving a substantial amount of expenses that are otherwise incurred in hard currency for the region and the country as well. The occurrence of coal has also been reported at Wuchale, in Wello. The exploitation of this very important mineral found in great abundance is something which the Regional Administration should give immediate attention.
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Amahara National Regional State (ANRS) Opal Opal is one type of gemstone reported to be available in abundance in North Shewa zone of the Amhara Region. It has a potential of earning a huge amount of income if processed for export. Bentonite Bentonite is a non-metallic mineral used for the manufacture of drilling mud, a chemical utilized for drilling applications in oil fields, deep water wells, pile preparations and other geological exploration works. It is also used as a soil conditioner for the agricultural sector. Its occurrence has been reported in Chilga area in West Gondar. Kaolin, Clay and Red Sand The occurrence of these materials has been observed in Awzit/Debre Tabor, along Gonder-Metema road, near Bahir Dar, in Awi zone, and near Dangla. Kaolin is a very important ingredient in the paper industry for the preparation of coating materials to increase the surface quality of paper. Kaolin, Clay and Red Sand are also used as filler materials in rubber, paint and construction materials production industries. 4.1.3 Tourism The tourism potential of the region is well established. In fact given the nature of the tourist attraction cites found in the region which happened to be mainly historical and religious the domestic tourist potential itself could be quite significant. Given the large number of the Amhara nationals that live out side the region and the size of the population that is increasingly becoming interested in the history and religion of the country the potential to develop domestic tourism is enormous. By designing appropriate marketing strategies and promotional efforts the region can effectively exploit this potential to enhance the growth of the economy and to generate employment opportunities. Among the international tourists the Diaspora is also gaining significance from time to time. If the region aggressively moves to exploit its comparative advantage in this regard and manages to increase the flow of tourists into the region the development of tourism can also lead to the development of manufacturing industry.
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Amahara National Regional State (ANRS) 4.1.4 Export Potential One could easily draw parallel between the objective conditions of some of Asian countries that have managed to transform their economies through the promotion of labor intensive industrial products and that of the present day Amhara region. Like most of these countries the region has an abundant supply of labor with the requisite attitude towords work. What it is lacking currently is the skill which can of course be developed particularly with the presently strengthened vocational training schemes. In some respects the region also possesses better advantage than most of these countries. Comparatively speaking unlike most of the Asian countries the region possesses huge potentials particularly in terms of agricultural products. Through foreign investment the region should be able to combine its abundant supply of labour with the availability of resources and produce goods that are competitive in international markets. In fact in the realities of the present world producing with cost advantage is not an option that is left for export products only. Unless the industries are competitive in their cost structure even producing for domestic consumption would be difficult in the realities of the present open economies. Indeed now days being competitive has become matter of survival even in the domestic market. The drive for industrialization must be approached with competitiveness as the ultimate goal. If such an understanding prevails right from the inception up to the commissioning of industries there is no reason why the region can not develop industries that would be competitive in the international market. This is of course easier said than done. The throat cutting competation in the international market should not be underestimated. But no one has other options. The only way in which we can emerge out of the present poverty trap is by being competitive only. 4.1.5 Domestic Market for manufactured goods
Ethiopia is a very populous country. The Amhara region has the second largest population, next to Oromia region, and no doubt both the region and the country at large represent huge market potential for industrial development. Like all the other potentials of the country the market potential of the country and the region have not been not developed. Because of low productivity and wide-spread underemployment of labour and other resources the size of the present market for industrial goods is limited. Table 17 shows the population of the region by zone. As indicated earlier the purchasing power of the average person is quite low due to the relatively low standard of living. So in the short run the size of the market might be a constraint rather than a potential. However, with the drive to increase the productivity of agriculture, expand infrastructure developments and reduce Development Studies Associates (DSA) & Shawel Consult International (SCI) 28
Amahara National Regional State (ANRS) absolute poverty the market will certainly develop as a big potential for industrial development. The per capita consumption of the population of goods that are regarded as very basic is presently very low even compared to counties that are found more or less at similar stages of development. Thus with improvements in income the demand for manufactured items like textile products and footwear, food products , building materials and other basic goods is bound to increase enormously.
TABLE 17: POPULATION OF THE AMHARA REGION (JULY, 2004)
No.
Zones
Male
Population Female
Total
Area (Sq. Kms)
1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 Total
North Gondar South Gondar North Wollo South Wollo North Shoa East Gojam West Gojam Wag Hemra Agew Awi Oromiya Bahir Dar Special Zone
1,391,791 1,170,388 821,845 1,372,544 1,025,211 1,102,165 1,158,690 178,839 466,247 303,325 78,955
1,359,966 1,134,835 823,285 1,418,824 1,023,457 1,124,712 1,158,245 178,487 474,063 303,297 73,832
2,751,757 2,305,223 1,645,130 2,791,368 2,048,668 2,226,877 2,316,935 357,326 940,310 606,622 152,787 18,143,003
48,204.39 14,337.53 16,400.98 16,956.06 16,070.23 14,103.62 13,972.36 8,329.70 6,364.26 4,434.53 28.0 159,173.66
Populati on Density (People/ Sq. Km) 57.1 160.8 100.3 164.6 127.5 157.9 165.8 42.9 147.7 136.8 5,456.7 114.0
9,070,00 9,073,003 0 Source: Statistical Abstract, CSA, 2003
4.1.6 Regional Markets for Domestic Industrial Products As indicated earlier, while the population of ANRS is about 26 percent of the countrys population, industrial production in ANRS is only 4.4 percent of the industrial production of the country. With the exception of Addis Ababa, all the other major regions of the country could be safely assumed to consume industrial products proportional to the their share of population. In other words, if ANRS has 26 percent of the countrys population its share of industrial consumption is assumed to be 26 percent of the industrial consumption of the country (imported industrial products are not considered since most of them are consumed in Addis Ababa and in a few large urban centers). It should be noted that the assumption that industrial consumption is proportional to population size does not take into account some income differences between regions. But current regional per capita income does not vary significantly between regions. Development Studies Associates (DSA) & Shawel Consult International (SCI) 29
The fact that ANRS produces only 4.4 percent of the countrys industrial production but consumes 26 percent of the industrial production shows that ANRS does not produce all the domestic industrial products it consumes. Actual observation verifies this fact i.e. with the exception of a few types of industrial products all other industrial products consumed in the region are produced by other regions of the country. In other words, ANRS is an industrial products deficit region. In this sub-section, a brief assessment of the magnitude of the regions market of major industrial products is made. The assessment considers national and ANRSs production of each major products, estimated consumption of each product by ANRS and estimated surplus or deficit of each product in ANRS. The following table shows domestic industrial production by medium and large scale industries in the country and in ANRS. Apparent consumption in ANRS is assumed to be equal to the share of ANRS population which is 26 percent of the countrys population.
TABLE 18: MARKET FOR MAJOR DOMESTIC INDUSTRIAL PRODUCTS IN ANRS 2003/2004 Product FOOD Marmalade Tomato Paste Milk-Pasteurized Edible Oil Oil Cakes Flour Fafa Pasta & Mecoroni Biscuits Sugar Tea Molasses Sweets Animal Feed BEVERAGES Beer Wine Liquors Alcohol Soft Drinks Mineral Water
1
Unit
National Production
ANRS Production 134* 242* Consumption1 277 214 10936 5187 4367 36530 1223 4588 1740 44776 1220 11523 208 1418 Surplus Deficit 277 214 10936 5187 4125 36530 1223 4588 1740 44776 1220 11523 208 1418
ton H.L ton
108 1846 121739 6931 18958 155692 18481 36208 7361 198762 5976 35749 1460 5800
H.L
1,246965 40107 48002 7211 1052348 398844
404281 33466 24701
324210 9190 7745 4217 174022 97307
80071
324210 9190 7745 4217 140556 72606
Consumption here refers to apparent consumption or to what could have been consumed if the product is available in the Region
30

Product Malt TOBACCO Cigarettes TEXTILES Lint Cotton Cotton Fabrics Nylon Fabrics Acrylic Yarn Cotton Yarn Blanket (Woolen) Blanket (Waste Cotton) Blanket (other) Apparel LEATHER & FOOTWEAR Leather Shoes & Boots Canvas & Rubber Shoes Plastic Footwear Leather Upper & Lining Semi Processed Skins Leather Garment Plastic Sole Crust & Wet Blue Hides WOOD Timber Plywood Particle Board PAPER & PRINTING Paper Boxing Paper CHEMICAL Soap Oxygen Paints Vaseline Paraffin Capsules Tablets Antibiotics Syrup Injection of 100A Ton M3 1000 lt2 Ton 1000 pcs. 1000 ltr. 1000 pcs. 14975 262047 8950 259 838 173864 201260 14933 24684 6600 3893 68132 2327 67 218 45205 52328 3883 6418 1716 3893 68132 2327 67 218 45205 52328 3883 6418 1716 Ton 8411 4274 2187 1111 2187 1111 M3 7219 944 7950 1877 245 2067 1877 245 2067 pairs 1000m2 1000 pcs 1000 lt2 Pairs 1000 lt2 1081488 143396 8352492 739 11736 8972 3486978 11067 3000000 281186 37383 2171648 192 3051 2332 906614 2877 281186 37282 1871648 192 3051 2332 96614 2877 Ton 1000m2 Ton 1000m2 pcs. doz. 21118 34594 1328 5164 5487 2260 90311 254912 273642 2000 15000 8 2260 5490 11334 345 1343 1427 588 23480 66272 71147 3490 3666 345 1343 1419 1672 23480 66277 71147 Unit Ton 1000 pcs. National Production 15256 277827 ANRS Production Consumption 3111 722495 Surplus Deficit 3111 722495
31

Product Unit National Production 181725 90817 19917 11436 437 ANRS Production Consumption 47248 23612 5178 2973 114 Surplus Deficit 47248 23612 5178 2973 114
Tyres Tubes Electric Wires Polytheine Products Candles NON-METALLIC MINERAL PRODUCTS Cement Cem.Blockets & Tubes Cem Floor Tiles Clay Bricks Lime Marble Glass Bottles METAL Iron Bars Wires Nails Iron Sheets Crown Cork Motor Vehicle Spring
Pcs 1000 met. Ton
Ton 1000 pcs. M2 1000 pcs. Ton M2 1000 pcs.
1415187 10604 24596 14334 1579 344452 16658
367946 2757 63880 3737 4076 89557 4331
367946 2757 63880 3737 4076 89557 4331
Ton 1000 gross ton
10773 891 8664 70760 4498 469
2801 121 908 6111 1169 122
2801 121 908 6111 1169 122
Source: National production figures are taken from the Report on Large and Medium Scale Manufacturing & Electricity Industries Survey, CSA, 2005. Other figures are estimated by Consultants.
The table shows the annual production in 2003/2004 of major industrial products in the country and in ANRS and the estimated consumption volume for each type of industrial product in ANRS. Estimated consumption figures do not necessarily indicate demand. Regional supply surplus or deficit shown in the last column of the table is the difference between industrial production consumption in the region. The surplus is what is exported to the other regions of the country and the deficit is what is imported by ANRS from other regions of the country. It should be emphasized that the table does not include imports of industrial products into the country and their share in ANRS. If imports are included, the deficit will be much larger. A shown in the table, except for cotton fabrics and blankets, ANRS has supply deficit in all other major industrial products. The deficit shows the potential existence of market opportunities for industrial products in ANRS, which could be exploited by substituting regional production for imports from other regions. In other words, the deficit shows the opportunities for Development Studies Associates (DSA) & Shawel Consult International (SCI) 32
Amahara National Regional State (ANRS) establishing different types of factories in ANRS. However, whether or not such opportunities justify the actual establishment of factories should be ascertained by detailed feasibility studies for each type or group of industrial products. The intention of this subsection is to show a broad picture of the market potential for industrial products existing in ANRS.
4.2 Constraints
Expanding manufacturing activities in the Amhara region first and foremost requires the removal and reduction of a number of constraints that are presently inhibiting the growth and expansion of manufacturing enterprises. While the list is not complete the following are some of the major constraints that should be addressed in devising the industrial development strategy of the region 4.2.1 Poor facilitation of private investment in the region
Time is one of the most valuable elements of private investors. As investors have a lot of choices and options they are extremely sensitive to bureaucracy and attractiveness of the business environment as a whole. As studies and primary investigation showed bureaucratic burden is relatively more in Amhara than the other regions. The Amhara regional officials were not accessible to investors. If there is one useful lesson that should be learned from the experience of East Asian and South Asian countries is how they have been handling and still handle business investors. The attitude of I am the master does not work in business not at least in the present world. If private investment is to be developed the region should develop a more open attitude towards the investor. The foreign investor in particular needs special attention. 4.2.2 The time required to get access to investment land Getting access to the land required for investment was once a very critical problem. As matters stand now access to land is no longer a major problem at least for industrial purposes. The establishment of Industrial Zones at Bahir Dar 109 ha, Gonder 52 ha, at Kombolcha 47 ha, at Debre Birhan 56 ha, at Debre Markos 50 ha, and at Woldia 10 ha has indeed become a solution. Efforts have been made to reduce the lease cost of land and to also promptly allocate the land. This is certainly a move in the right direction. Going as far as giving the land free of charge is also a possibility worth considering. On the other hand as industrial development can not be perceived without a concomitant effort in the commercialization of agriculture, the problem of getting land for investors in rural areas is something that does not seem to Development Studies Associates (DSA) & Shawel Consult International (SCI) 33
Amahara National Regional State (ANRS) have been addressed adequately. This is one area which needs to be considered seriously and urgently. Without making progress in the rural land access to investors, the development of agro-industries in particular could be hampered seriously. 4.2.3 The inadequacy of the incentive system That the incentive system in force is not adequate is confirmed by the simple fact that the system has not managed to attract sufficient flow of investment, particularly foreign investment into the region. Notwithstanding the recent move by the administration to reduce the tax burdens as whole the region must devise incentives system that could compensate investors that come into the region for the extra cost they incur in terms of cost of transport ,etc. The very idea of having one incentive system for all regions with different comparative advantages is incompatible with competition and efficiency. 4.2.4 Lack of Adequate Infrastructural Facilities Infrastructure is an important factor for attracting private industrial investment to the region. The lack of adequate infrastructural facilities such as access roads, power supply, availability of water, banking and insurance services, airports, etc would certainly have an adverse effect on the industrialization effort of the region. In fact unless adequate measures are taken to reduce the infrastrtural constraints, industrial investment in the region could be seriously hindered. As matters stand now the waiting time to get telecommunication and power connection is higher in Amhara Region than all the other regions. All such weaknesses are factors that should be examined critically in order to make a head way in the industrial development of the region. 4.2.5 Shortage of skilled man power Industrialization needs adequate supply of skilled personnel. Due to lack of adequate industry oriented vocational trainings, the productivity of the engineers, technicians and machine operators, happens to be very low. This situation is further aggravated by the low level of wages, lack of social amenities and the impact of HIV/AIDS pandemics as well. Unless measures are taken to remedy the situation, shortage of skilled labor would have negative impact on the tempo of industriazation particularly in the development of the export industries. 4.2.6 Lack of adequate supply of raw materials and intermediate inputs
34
Amahara National Regional State (ANRS) The supply of raw materials and intermediate inputs through out the year is a pre-requisite for sound and healthy industrial investment. The agriculture and mineral sectors of the region are not yet adequately developed and commercialized to ensure adequate flow of raw materials for private investors, and to support the industrialization of the region. A break through in the present low productivity of the agriculture sector is of course a prerequisite for the growth of private investment in industry. 4.2.7 Limited access to bank credits for investment and working capital The critical role of financial intermediaries in the processes of development is their ability to ensure the flow of sufficient amount of investment funds to those who are engaged in businesses. They manage to do this through their unique position of mobilizing funds from those that want to save and providing loans to those who have shortages of funds to invest, expand their businesses or face shortages of working capital. While the financial intermediaries are there mobilizing savings the businesses in the region face critical shortages of working capital and also of investment capital. Access to the banks for credit facilities is obstructed with a lot of formalities and requirements that are unduly hindering the progress of private investment in the region. The most paradoxical part of the story is that while the businesses in the region are hungry for credits the banks in the region are so liquid to the point where they had to send the excess savings to headquarters. The causes of the paradox might be institutional as the banks are not answerable to the regional authorities. What ever the cause of the paradoxes, the situation has to be remedied if the region is to make progress in increasing the flow of private investment into the region.
35
5.0 The Way Forward

The most logical starting point of this chapter should of course be to see if there is any strategy or policy in force that actively influences the development of industry. If there is one such strategy the next logical step would be to review the strategy or policy and to assess if the strategy is still appropriate to promote the development of the sector or if amendments or supplements would be required to make it a more relevant and useful instrument of growth. The most important and the basic strategy that guides the development of the economy including industry, both at country and regional level, is the Agricultural Development-Led Industrialization (ADLI). The major objectives of this strategy include the achievement of economic growth, the promotion of inter-sectoral linkages in order to effectively and efficiently utilize inputs and outputs of the different sectors of the economy, the promotion of labor intensive technologies, the development of local technological capabilities, the gradual transformation of the manufacturing sector from small scale, handicraft level into the heavy industrial manufacturing level, and the promotion of export oriented industries. In order to achieve these objectives, among the broad areas of interventions that the strategy advocates, particularly for the development industry, the following are the important ones: Viz: Establishing appropriate industrialization, institutions for the promotion of
Creating a favorable environment for industrial development, Initiating and developing the backward, forward and horizontal linkages within the manufacturing sector, Creating a favorable financial environment and tailor-made financial institutions, Providing incentives for attracting more private investments into the manufacturing sector by providing various types of incentives, Expanding the provision of vocational education both in quality and quantity,
36
Amahara National Regional State (ANRS) Promoting the development of cooperatives, private share companies, and joint venture enterprises through appropriate policy guidelines and incentives, Establishing of a strong linkage between the manufacturing and other sectors of the economy, such as the agricultural, mining, construction and service sectors of the economy, Initiating and developing infrastructural facilities, such as roads, energy (electricity, fossil fuels and renewable forms of energy) water and communication through public, private and/or community involvement, Promoting the development of export oriented industries such as the textile, leather, floriculture, food and beverage (coffee, tea, cereals, oilseeds, and sugar) sectors, In addition to ADLI there are also a number of other Policies and Government Proclamations issued by the Federal Government and which have bearings on the industrialization process. These include the Investment Proclamation No. 37/1996, the Council of Ministers Regulation on Investment, Regulation No. 84/2003, Labor Proclamation No. 42/1993 and the Export Trade Duty Incentive Scheme under Proclamation No. 249/2001. The economic development strategy as well as all the above cited proclamations and schemes have all been duly adopted by the region and are in force influencing the development of the economy at large and the industrial sector in particular. While no policy should be regarded as sacrosanct and valid for all times and places at this stage of the countrys development, as pointed out earlier, ADLI seems to be the appropriate strategy at least to move the economy off the ground. ADLI is first and foremost justified on the high priority it accords to tackle the perennial food security problems of the country and of developing the raw materials, financial resources and markets needed for the industrialization process. Viewed from all angles developing the material basis of industry is a step that Ethiopia can not afford to by-pass. Thus, the principles on which ADLI bases the industrialization of the country are principles that are still valid and should be endorsed whole heartedly. The real issue facing the Amhara region with respect to industrialization is not, therefore, lack of strategy or policy. These are well articulated in ADLI and the recently adopted Industriazation Strategy of the country. The problems emanate from the lack of consensus on the priority that should be accorded to the industrial development of the region and the absence of a
37
Amahara National Regional State (ANRS) clearly defined program of actions and institutional developments to translate the strategies into practical achievements. The Amhara region is one of the countrys regions with very high density of population. The rate of population growth which is 2.8 per cent per annum is also quite high. As projections show every year the population of the region would increase by 500,000 people. The size of the labour force would also increase by at least 300,000 people per year. This demographic trend and the imperative to reduce at least the level of absolute poverty would necessitate a very proactive industrialization processes, particularly the development of export oriented industries, micro and small scale enterprises and the development of the urban economy in general. It is also the development of industry and the urban economy that could increase the demand for agricultural products that would be needed to ensure the sustained growth of agriculture. It is also the industrial development and the growth of the urban economy that could effectively increase the regional economic pie that could enable the regional government to get the revenue needed for the expansion of economic and social services. It is in light of these objective considerations that the Amhara region should accord very high priority to the development of industry. A very important corollary of this priority is the recognition that industriazation has always been the outcome of a consciously designed program of action and the result of very generous and unreserved support by the government or state. This is even more so in Amhara where the level of entrepreneurial development is low, saving is low and therefore the need for a conscious effort on the part of the state to influence developments and the flow of foreign direct investment becomes very crucial. The program of action should define the broad principles on which the industriazation of the region should be based and what the regional administration is expected to fulfill in order to promote the process of industrialization. Accordingly, the program of action is proposed to be based on the following five pillars: Viz 1. The industrialization process must be based on the regions potentials and should lead to very high degree of interactions between industry and other sectors of the economy and in particular with agriculture 2. The industrialization process should be based on the maximum use of the regions resource and in particular the labour resource 3. The industriazation process should aim at promoting efficient and competitive industries that would enable the region to promote exports 4. The industriazation process should aim at meeting the consumption needs of the population
38
Amahara National Regional State (ANRS) 5. The industriazation process should be a powerful engine for the development of technology and the sustained growth of the economy on the whole. The regional government should play a very active role in providing all the support that private investment needs to participate actively in the industrial development of the region. These include: 1. Devising an incentive system that would adequately encourage the flow of both domestic and foreign private investment into the various categories of industries that could be developed on the basis of the proposed five pillars of industrial growth. The incentives could range from the provision of land to tax holidays and even provision of financial supports to the most promising ones. While the specifics should emerge from concrete studies, that the existing centralized system of incentive should be improved goes with out saying. The improvements should lead to the development of an incentive system that reflects the specific objectives and comparative advantages and disadvantages of the region. Secondly, it should also be generous enough to attract both domestic and foreign capital. The regional government should see its advantages in terms of the additional goods and services produced and employment created and not in terms of the tax receipts forgone only. Governments should always aim at increasing and expanding the tax base and not at maximizing revenue from the existing tax structures. 2. The government should actively be engaged in building the capacity of business through training and institutional developments. Training in managerial skills, technical skills and in such areas like information system should be given high priority. Business has to day become highly information technology intensive and equipping the entrepreneurs and management personnel in this area should be continuously planned and executed. 3. The government in particular should devise the support it could provide to small enterprises in particular by continuously undertaking needs assessments 4. The government should also endeavor to establish special industrial development fund through which it can support particularly industries that are very promising from the point of view of enhancing growth or the promotion of exports 5. The government should also promote the expansion of financial intermediaries so that they are able to mobilize the funds needed for industrial development and influence the allocation of credits so that they support the industrialization process and in particular the growth of small enterprises
39
Amahara National Regional State (ANRS) 6. The Government through all the means at its disposal should be able to develop an atmosphere of partnership and win the trust and confidence of the investors in the region. In addition to such specific tasks the creation of an advisory and policy coordinating council in which the private investors would also participate might be helpful. The council could advise the government on policy issues that would help to promote investment in the region. Classifying the manufacturing sector into its basic and distinctive components, namely, Small Scale, Medium Scale and Large Scale Manufacturing Industries, and devising appropriate policies and regulations for their development would generate a much more effective and meaningful result. The basis for classification could be the number of people employed, the paid-up capital or the fixed asset. In most developing countries, employment is usually preferred to be a more useful basis for the distinction. Enterprises employing up to 15 people are classified as Small Scale (SSE), those employing between 16 and 75 people as Medium Scale (MSE), and those employing above 76 people as Large Scale Enterprises (LSE). The handicraft and cottage enterprises are categorized under SSEs. What ever criterion is adopted the point is to undertake a classification of the industries to ensure that the support provided is relevant to each group. The technological capabilities of the region are inadequate and would certainly pose as serious constraint in promoting and implementing industrial projects. For generations, both the region and the country at large have relied heavily on foreign sources of technology, particularly for medium and large scale industries. The production of the small and micro-enterprises are generally based on traditional and empirical technologies that are static and inefficient. There is no clear vision and strategy aimed at changing the level of technology that was in use for generations at the small scale and microenterprise level. The equipment and operating process in use by traditional weavers, potters, blacksmiths, carpenters and farmers are witnesses of the centuries-old technologies still in use in the region. The lack of vision and strategy in the area of industrial technology has limited the regions capacity for the adaptation and utilization of resource based simple technologies, even at small scale and micro-enterprise levels. The absence of important facilities such as research and development, design and fabrication are also the major impediments for industrialization. Technological development agendas are missing from the investment promotion activities being undertaken by the Investment Office of the region. Significant efforts should, therefore, be made by the Regional Administration to fill the gaps by setting up the necessary facilities that would work towards the development and dissemination of appropriate technology. Development Studies Associates (DSA) & Shawel Consult International (SCI) 40
The list is not exhaustive. The trust of the argument is to impress upon the administration the high priority that the development of industry merits in the specific realities of the region. The second important point is the acknowledgment of the role of the State Administration in influencing developments. Development in general and industrial development in particular has always been the result of deliberate and conscious guidance by the state. This is the important lesson that emerges from the assessment of the experience of East and South Asian countries and it is a lesson that should be firmly grasped. The argument is to come to the important conclusion of the need for the region to elaborate an industrial development program that should guide its action over the coming years. Let there be no mistake or misunderstanding. The trust of the whole exercise is to work out what the state can do to support, strengthen and encourage both domestic and private capital into the sector. It is to build the capacities of the private sector and to bolster its role in the economy in particular in the industrial development of the region.
41
6.0 Project titles recommended for further study

The following industrial projects are strongly recommended for further study
6.1 Agro-industry
1. Sugar Industries 2. Leather & Leather Product Industries 3. Textile and Garment Industries 4. Edible oil and Fat Processing Industries 5. Meat Processing Industries 6. Processing of Animal By-products 7. Flour & Flour Products Industries 8. Lentils and other Pulse Processing Industries 9. Dairy Products Industries 10. Fish Processing Industries 11. Fruit & Vegetable Processing Industries 12. Honey and Honey Derivates Processing Industries 13. Wood and Forestry Products Processing Industries 14. Spices Processing Industries 15. Beverage and Tobacco Industries 16. Animal Feed Processing Industries 17. Manufacture of Solid Fuel from Agricultural Residues 18. Manufacture of Starch and Starch Products 19. Production of Malt 20. Production of Beer and Other Fermented Beverages
6.2 Non-Metallic Minerals Industries

The non-metallic industrial sub-sector offers tremendous investment opportunities by virtue of its potential for establishing both backward and forward linkages between the industrial sector and other sectors of the economy, namely mining, construction. The following small, medium and large scale industrial projects are recommended for further consideration by potential investors. 1. 2. 3. 4. 5. Cement and Cement Product Industries Ceramic Industries Glass Production Industries Brick and Tile Industries Gypsum & Chalk Industries 42
Amahara National Regional State (ANRS) 6. Coal Product Processing Industries 7. De-mineralized Water Production 8. Gemstone Processing Industries
6.3 Chemicals and Allied Industries

Chemical and allied industries are virtually non-existent in Amhara Region. The sub-sector is highly diversified and produces various products. To this end, the regions industrial investment focus of the sub-sector should be forwards consumer oriented chemical and allied industries. The following small and medium scale industrial investment areas are recommended for potential investors. 1. Organic Fertilizer Industries 2. Soap and Detergent Industries 3. Essential Oils and Cosmetics Industries 4. Plastics Processing Industries 5. Ethanol Production Industries 6. Starch and Starch Based Industries 7. Pharmaceutical and Veterinary Drugs Processing Plants 8. Pulp and Paper Industries 9. Paper Converting Plants 10. Printing Industries 11. Educational Materials Production Industries 12. Natural Gum Processing Industries 13. Manufacture of Abrasive Product 14. Retreading of Rubber Tires and Production of Rubber Products 15. Production of Plastic Products
6.4 Metal and Engineering Industries

The development of metal and engineering industries is a pre-requisite for industrial development of the Region in particular and the nation in general. It helps create an independent industrial development trend once initiated. The sub-sector is currently dominated by simple metal fabrication activities such as doors, windows, metallic frames, and equipment for workshop use. The metal and engineering sub-sector is a strategic sub-sector involving design and fabrication activities, and produces various types of capital goods and production machinery and equipment. Hence, its contribution to the development, transfer and acquisition and adaptation of technological capabilities is very significant. The following small, medium and large scale investment areas are recommended for engagement.
43
Amahara National Regional State (ANRS) 1. Agricultural Equipment and Implements Industries 2. Transport Equipment Industries 3. Agro-Industries Processing Equipment Industries 4. Industrial Equipment Producing Industries 5. Construction Equipment Industries 6. Workshop Machinery and Equipment Producing Industries 7. Household Equipment Producing Industries 8. Energy Equipment Producing Industries 9. Pipes and Fittings Producing Industries 10. Pumps, Turbines and Hydraulic Devices Producing Industries 11. Spare Parts Producing Industries 12. Wire Drawing 13. Casting of Iron, Steel, and other Non-ferrous Metals 14. Manufacture of steel Containers, Vessels, Tanks and Reservoirs 15. Manufacture of Fabricated Metal Products
44

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Amahara National Regional State (ANRS)

Amahara National Regional State (ANRS)

2.0 THE STATE OF MANUFACTURING INDUSTRIES IN AMHARA REGION...........10

3.0 PRIVATE INDUSTRIAL INVESTMENTS IN THE REGION 1992-2003 ..................15

4.0 PROSPECTS AND CONSTRAINTS FACING THE DEVELOPMENT OF INDUSTRY.......................................................................................................................20

Development Studies Associates (DSA) & Shawel Consult International (SCI)

Amahara National Regional State (ANRS)

Development Studies Associates (DSA) & Shawel Consult International (SCI)

Amahara National Regional State (ANRS)

Development Studies Associates (DSA) & Shawel Consult International (SCI)

Amahara National Regional State (ANRS)

1.0 An Overview of Industrial Development in Ethiopia

Amahara National Regional State (ANRS)

1.2. The State of the Manufacturing Sector

Amahara National Regional State (ANRS)

Development Studies Associates (DSA) & Shawel Consult International (SCI)

Amahara National Regional State (ANRS)

1.3 Regional Distribution of Industries in Ethiopia

1995/96 No. of Establishments 438 71 40 35 21 25 7 2 2 1 642

Amahara National Regional State (ANRS)

1.4 Industrial Policies and Strategies

Development Studies Associates (DSA) & Shawel Consult International (SCI)

Amahara National Regional State (ANRS)

2.0 The State of Manufacturing Industries in Amhara Region

Amahara National Regional State (ANRS)

2.2 Contribution of the Manufacturing Sector to RGDP and GIVA

Development Studies Associates (DSA) & Shawel Consult International (SCI)

Amahara National Regional State (ANRS)

Average Real RGDP 63.78 22.12 2.10 20.02 14.10 100.00

Industrial Classification by Size

2.3 Size of capital employed in the sector

Development Studies Associates (DSA) & Shawel Consult International (SCI)

Amahara National Regional State (ANRS)

No. of Enterprises 5,473 31 13 5,517

Percentage Share 99.20 0.56 0.24 100,00

2.4 The Enterprises of the region by size of employment

Number of Enterprises 5,221 230 51 15 5,517

Percenta ge Share 94.64 9.17 0.92 0.27 100,00

2.5 Level of Technology under Utilization

2.6 Industrial Raw Materials and Inputs

Development Studies Associates (DSA) & Shawel Consult International (SCI)

Amahara National Regional State (ANRS)

3.0 Private Industrial Investments in the region 1992-2003

No. of Projects 141 157 36 93 21 2 51 5 506

% 30.0 27.9 7.1 18.4 0.9 0.4 10.1 0.9 100.0

% 29.8 26.4 20.8 5.3 3.2 0.6 4.7 9.2 100.0

No. of Projects 73 10 10 5 7 17 11 10 8 6 157

Source: Investment Bureau, Amhara Regional State

3.2 Zonal Distribution of the registered Projects

No. of Projects Quantity % 26 7 16 5

3.3 Implementation Status of the registered Industrial Projects

Amahara National Regional State (ANRS)

TABLE 12: STATUS OF LICENSED DEVELOPMENT PROJECTS AS OF JULY 7, 2003

Status of Licensed Projects Not Implemented Under Implementation Operational total

Projects Not Implemented Under implementation Operational Sub-total

Employment Opportunities No. of % Persons 4,103 50 1,283 2,876 8,262 15 35 100

Development Studies Associates (DSA) & Shawel Consult International (SCI)

Amahara National Regional State (ANRS)

No. of Projects Quantity % 23 4 6 3 1 7 1 3 1 2 51 45 8 11 6 2 14 2 6 2 4 100

Development Studies Associates (DSA) & Shawel Consult International (SCI)

Amahara National Regional State (ANRS)

4.0 Prospects and constraints facing the development of industr y

Cereals Teff Barley Wheat Maize Sorghum Millet Oats Pulses

Development Studies Associates (DSA) & Shawel Consult International (SCI)