(I t

'l'HE HOLE OF l'jJ<:TAL INDUS'my IN TrtE E'l'HlOPIAN

....-----:::::-
ECONOf;fy -AND FACTORS INFLUENCING I'l'S PRODUC'l'IVITY

A 'l'hes is
Prese nted to
The Scho ol of Grad uate Stud ies
Addi s Ababa

In Part ial Fulf illme nt

of the Requ ireme nts for the Degr ee
Mast er of Scien ce in
Econo mic Deve lopm ent and Pla nning

By

~feri Rega ssa___

June , 19t19
 ADDIS ABABA UNIV £RSITY

Schoo~ of Gr£~ra~e S~ u ales

THE ROL E OF 11ETAL INDUSTRY IN THE ETHIOP I AN ECONOMY

AND FACTORS IN FLU ENCING ITS PRODUCTIVITY

by

Teferi Re ga ss3 /I.. A.. ~P. II. 11

Co ll ege of Social Science
(~UMB:J

Ap proval by Board of Examiners:

,-
I / : -' ,./ _... .:~~ f ___________________
~_ ' __

Advisor

L. c'(. A(urRe I"THI

:0--...,---- ----
Exa mi:ter

I~bt
____ ___
~
1\114W
---L_ -----~----.-
.
ExamJ...n~r
 - i -

TABLE OF CONTENTS

TABLE OF CONTENTS
v
LIST OF TAilLES
ix
ACKNOWLEDGEMENT
x
ABSTRACT

CHAPTER
1
1. INTRODUCTION •• • ••• • •• • ••••• ••••• ••••• ••••• •••••
Statem ent of the Prob lem. ....... ....... .... 1
1.1
Objec tives of the Stud y.... ...... ...... .... 5
1.2
1.3 Signi fican ce of the Stud y.... ...... ...... .. 5
Metho dology . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 6
1.4
1.5 Sourc e of Data and Uata Colle ction Proce ss. 10

2. THE ROLE OF METAL INDUSTRY IN DIFFERENT SOCIO-

14
ECONOMIC SETTINGS • ••.• • •. • . • •.•.•• ".". ...... . ..
2.1 The Histo rical Development of the Indus try... 14

2.2 The Integ rated Uevelopment of the ~etal

Indus try. . . .. . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 20

2.2.1 The Need for Integ ration ••••• ••••• ••••• 20

2.2.2 An Approach to the Integ rated Uevel op-

ment of the Sub-S ector in the Natio nal
econom y. . • . . • . . • • • • . . . . . . . . . • . . • . • • . • 21

2.3 The Role of the Metal Indu stry. ...... ...... . 28

2.3.1 Contr ibutio n to Outpu t ...... •..•• •.. 29

2.3.2 Contr ibutio n to Value Added •••••• •• 30
2.3.3 Annua l Growth Rate of Produ ction ••• 32
2.3.4 Contr ibutio n to Employment • • •••••• •• 32
2.3.5 Contr ibutio n to Foreig n Exchange •••• 34
2.3.6 Contr ibutio n to Government Revenue ••• 38

2.3.6 .1 Net Opera ting Surp lus.. ..... 39

2. 3.6.2 Indir ect Taxe s..... ...... ... 39
 - ii -

CHAPTER
3. THE RELATIVE IMPORTANCE OF THE METAL INDUSTRY
III THE ETHIOP IAN ECO NOt4 Y.... ....... ....... ....... . 47

3.1 The Struc ture of the Sub- Sect or.... ....... ... 47
3.1.1 Geographic Dist ribu tion. ...... ...... .. 47
3.1.2 Distr ibutio n by Ownership Type ....... . 49

3.2 The Contr ibutio n t o Value of Prod uctio n..... . 52

3.2.1 The Struc ture of Outp ut... ....... ..... 54

3.2 . 2 Value Adde d.... ..... .... ... ...... ..... 55

3.3 Employment and Income Gene ratio n..... ....... . 58

3.4 The Contr ibutio n to Government Reve nue.. ..... 63
3.5 The Centr ibutio n to Foreig n Exch ange ....... .. 65
3.6 The Linkage Effec ts of the Indu stry. ....... .. 67

4. FACTORS THAT INFLUENCE THE PRODUCTIVITY OF

78
THE METAL SUB -SEC TOR ....... ....... ....... ....... ..

Intro ducti on. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

4.1
4.2 Facto rs that Determine Produ ctivit y of
the r·. 1etal Sub -Sec tor.. ...... ...... ...... ..... 81

4.2.1 The Natur e and Quali ty of th e Raw

Mater ials Use d.... ...... ...... ...... .. 82

4:2:2 Produ ction Proce ss Emp loyed ....... .... 82

4.2.3 The Effic iency of Plan ts.... ...... .... 83

4.2.3 .1 Frequ ent Machine and

Equipment 8reak down ....... ... 83
4.2.3 .2 Enter prise Capac ity
Utiliz ation •.... ...... . -..... 87
 · ... , .
- iii -

CHAPTER
3
4 , 2.4 ThE: Continuity of "roduct ion ... .. . ' ,' , • • ,
4. 2. 5 The Supp l y of Skilled Manpower in
All Job Cat cBo ri e ~ ~ •• . 0 ~ • • • <> .. P........ 91

4.2.6 The Supply of Finance . . ............... 94

4.2.7 Sources and Costs of Raw Materials.... 100
4.2. 8 Manag€rial and Administration System,
Wage and Job Promotion Policy and
Employees Relations.... . .............. 101
4.2.8.1 Corporation-Plant Relation-
ship and Performance Evaluation
and Incentive Systems........ 101
4. 2. 3. 2 r,bas ~r ement of Performance
of Enterprises and Authority
of Enterprises ~o Sign Cheque
and Loan Contacts............ 103
4.2, 8.3 Organ i zed Formal Groups of
Ent erprize Leve 1 . . . . . . . . . . . . 104
4. 2. 8.4 Policies Affecting Factory
Operations "~ ..... ~ . .. . . . . . . . 105

4.2.9 The Demant Pressure, the Transport

Facilities, Distribution System
and Market R e~ earch and Development... 106
CHAPTER
5. SUMMARY AND REC('~~ ''''TI1ATIONS ...... ",............... 114
5.1 Summary • •• ••• ~ •••• •.• ~ •• • ••••••••••••• • •••••• 114
5.2 Recommendations .. ~ ~ .. ~ ." ~ ~ ..... ~ ............. 120

APPENDIX I • • • ~ ••.• • ~ •• • .• ~ .. ~ ~ .. . ~ . .. ~ ~ ~ <> • •, • • • • ft • • • • • • • • • • • 124

APPENDIX II .. , ... o •• • • • ••• • ~".... . ........ . ................ 131
APPENDIX III .. . .... .. . .. .... ... , . ft ~ .. . . ... . ... . .. . . .. ........ 134
BIBLIOGRAPHY •.• 0 •• • • ~ ~ ... ~ ~ • ~ • , ~ ~ ~ • 0 •• •••• • •• " ....... ,. • • •• • • 155
 - iv -
L!f'T OF TABLES
-- -
TABLE
16
1. The World Produ ction of Crude Stee l..... ...... ...... .
17
2. The Growth of the World Iron and Steel Produ cti on... .
3. Growth in the Patte rn of World Consumption and
19
Produ ction of Crude Stee l..... ...... ...... ...... ......
4. The Share of Each Branch in Indus trial Produ ction
30
in Diffe rent Economies ..... ..... ..... ..... ~ 1', ••• • " , •
S. Value Added Struc ture of Hanuf acturi ng in the
• 31
USSR 1912 - 1962 .. ... . •.• ... ...... .... ~ .• • . . . •• • . . .
6. The Struc ture of Manufacturing Value Added of
Easte rn European Coun tries for Pre-War and Post
War Yefrs (as a Perce ntage of Total Manu factur ing
Value Added )...... . . ..... . ..... ..... ..... ..... ..... .. 31

7. The Sr~re of Each Bran-:h in Indus trial Employment

in Diffe rent Economies. . ..... . .... . ..... ..... ..... .. . 33
8. Expo.:' ts of Manu factur es of Selec ted Centr ally
Plam~ ed. Developed Market Economies and
Developing
35
Mark.et Econ omies ..... ... ..... ..... ..... .. ..... ..... .
9. Net Opera ting Surpl us of Manufacturing as a
Per-:e ntage of Net Su:-ph,s for Indus try and the
~ 40
Economy as a Vl:lo 1e ..•.. e ••• • • • • • • • • • • • • • • • • • • • • • • • •

10. Indir ect Taxes by Activ ity as a Perce ntage of

Indus tries Total Indir ect Taxes and Total Indir ect
42
Taxes for the Econ omy.. ........ ........ ........ ........ ........ ...

11. Geographic Distr ir'!!i on of Metal Hrmu factur ing

1983/8 4 G.C ...... ...... .... ~. ...................... . 48

12. Distr ibutio n of Value of Produ ction at Const ant

1980/81 Price of H3t r. : I,!<:!!:'"":!ctur ing by
Admi nistra tive Regio:1s aI.d Awrajas 1985 /86.. ....... .. 49
 - v -
Page
T~BLE

13. Distr ibutio n of Neta l Manuf actur ing by Typ e of

Ownership 1983/ 84 . • •.•• ~ • • no ... o. ~~, ... . o............ 50

14. Patte rn of Ownership of Metal and Elect rical

Estab lishment s in 1975/76 and 1984/85 GoC, ••• ,.... . 51
State Contr ol of Iron and Steel Produ ction ,. ...... . 51
15.
16. Value of Produ ction at Const ant 1971 Price of
Natio nal Metal Works Corporation and all Other
Corpo ration s Admi nister ed by the Minis try of
Indus try between 1975/76 and 1983/ 84.. . ..... ..... .. 53

17. Perce ntage Dis tribu tion of Value of Produ ction

55
by Indus trial Branch . . . ~"., .. .. . , ... ".. ..... ..... ....
18. C ensu ~ Value Added of Metal and Total Manu factur ing
Indus ':Ories at Market Price for 1978/79- 1982/83 G.C. 57

19. Ratic of Value Added at Market Price to Gross

Valu 3 of Production~ ~ ..•. " ... ~ .. .. ..... r. .... .. . ...... . 58

Number of Permanent Indus trial Emp l oyees .. ..... ..... 59

20.
21. Per centa ge Share of Perso ns Eneaged by Sex and
Na!i-o na1ity and Indus trial Group -pt:bl ic and Priva te
G.C .. ... ~ • . ~......... 61
19 ~} 3/8 4 G ..... . . . . ft ........ .. . e •• ••

22. Th ,) Struc ture of i'laees and Salar ies of Persons

En:ployeed by Sex and Natio nality 1933/84 G.C. ....... 61

23. T.le Val'iou,; i'orr.1s of t:le Cont:7ibution of th e Metal

Indus try t o the Gover;1ment Reve,':ue from 1984/85 to
:986/8 7 G,C •• o . .. . ~ . ,. . ... . . . . . • • , . . . . . . . . . . . .. . . . . . . . . .
64

Indir ect Taxes for 19 78/79 - 1982 /83 G. C... ...... .... 65
24.
25. Sales of Metal Produ cts to Diffe rent Secto rs of
68
the Eccnomy 1986/ 8 7 G.C . .. .. ., .. , . . ... . .... . ...... .
26. Value Added of Metal Estab lishm ent by Corpo ration
and by Types of Goods Produced for 1985 /86... .. . ... 69

27. Value Added of Metai E~tablishment Ly Corpo ration

on the Basis of Indus trial Input Resou rces for
~~ ~ ~ ... 71
1985/ 86 .. .. . . .. .. ~ . . oO, ••• •• , . 0 " •• 0 . • . .. . . . •• •••
 - vi -

TABLE
28. Number/Percent age of Factors Indicated by Respondents
by Rank Matrix for th e Absence of Timely Repair
of ~.Iach in ery .. ... . . .... .... . .. ............ ............. 84
29. Classification of Problems by Types of Products...... 86
30. Recommendati ons of Enterprises t o Hinimize
Machine Breakdown .. ~ '. . • • • . . . • • . . .. • . . • • • • • • • • • • • • • • • • • 86
31. Number and Percentage of Enterprises by Degree
of Cause s of Under Utilization....................... 88
32. Classification of Problems by Types of Ent erprise
Enduse Products ..... ......... ...•.... , . . . . . . . . . . . . .. . 89
33. Number/Percentage of Enterprises by Rank of
Reasons for Prolonged Vacancies.. . .... . ............. 92
34. Class ification of Problems by Types of
Enterprises ... ~ .. 0 0 0 ••••• ,. ....... ~ ~ . . . . . . . . . . IO • • • • • IO.. 93
35. Rel ationships of Number of Vacancies with
Number of Personnel Trained ..••••••••• ~ ............. 94
36. Num:,er/Percentaee of Enterprises by Rank of
Reasons for Financial Shortage...................... 95
37. Classification of Probl ems by Types of Enterprises.. 97
38. NU"'lber/Percent age of Ent erpr ises by Rank of Reasons
for Increasing Stocks of Finished Goods and Raw
Materials . .... ~ .•. o~e ....... . . . . . . . .. . . . . . . . . . . . . ...... 98
39. Number/Percentage of Enterprises by Rank of
Recommendati ons t o Improve the Financial Position
of the Enterprises. ~ . ..... " o . eo . . .. ~ ~ .. . ........ .. .. • 99
40 . Number/Percentage of Enterprises Responding to
Government Overall Policies as Bottlenecks
of Operation .. 0 .... . . . r • 0 • • • ~ • ~ •••• h ~ • d • d • • • • • • • • • • 106
41. Data Base ••••••••••• d . ~ • •• ~ . ..... . ...... ~. .. ... .... 126
42. Estimated Cc ~ =fj, ; ~~,;s of ~. he /.lodel 1, Kotebe
Metal Tools Factory, 1~ ~ 1- 1 9£8.e~. ,,~ . 1> ............ 128
 - vii -

ACKNOWLEDGEr1EN'fS

all those
It is a pleas ure to expre ss my heart felt appre ciatio n to

who have encou raged me to compl ete this thesi s.

Dr. Fassi l G/Kir os. my thesi s advis or. has be~n most helpf ul at

diffe rent stage s of this proje ct. His guida nce and patien ce in
ciated and
review ing vario us draft s of this resea rch are great ly appre

have transf ormed it into a hopef ully und~rstandable thesi s.

tment
My speci al thank s also go to Ato 'faye Meng istie. AAU. Depar
Unive rsity of
of Economics and Mr. Micha el E. Uaw senio r econo mist at
commented
Aberd een and F. A.O. Consu ltant , Addis Ababa. who read and

on chapt er 4 of the thesi s.

us
I shoul d also like to expre ss my thank s to exper ts in vario
and more
depar tment s of Natio nal Metal Works Corpo ration . plant s
ance in
parti cular ly to Kotube 11etal Tools Facto ry for their assist
illeg ible
secur ing data and W/t Hareg ewoin Kebede for typin g the often

first draft .
 - v.f .~. i -

ABSTRACT

The purpo se of this thesi s is to exami ne th~ rel(\ti ve impor tance

produ ctivit y situa tion

of the metal indus try in the Ethio pian econem y and
" c'>jec tive. the
in the metal facto ries. In the pursu it of the form'"
ind. us~ry in diffe rent
histo rical develo pm'mt and ':h" role of the metal

Rett~r.gs vis-a -vis the Ethio pian re~lity were analy sed.
socio- econo mic
conom ic facto rs
To achie ve the latte r objec tive . econo mic and r.on-e

prc ~uctivi:y have been er.a~ysed. Bn s ~ d cr. the findin gs.

influe ncing

made to make "elev ant policy ::ece~endations in

attem pt has be ~n

for the devel op-

order to : impro' Te the role and map out the s t rategy

ment of t!"e s ·,h-se ctor ar:c im~ :: Jve t~.~ facto ' use effic ie ncy of the

sub-s ector . The proble m has n ris~n b"c'lu s e e = th" 1;. t tIe recog nition

pr ~v ided to the suo-s ector in Eth".~:':'a.

and suppo r:.

The r e :;ults of ~he study ir.dic ate ·.ha'; th'" succe ssful develo pment

" c o'.~",ic ar,d socia l progr ess

of the sub-'s ector plays a key role in thoo
"ub-sec ~cr is impor tant
of a count= y . Al!ho' .lgh the potent :'." l rol" of th'"
tha n the role of the
in the Ethio pi'ln p.conom y, :l.t is still by fa. lCl;1er
found that the
sub-s ect o r in diffe re nt e conom ic s e tting s. I t is also

has :.ncre asing ly becom e assoc i.ate d wi~h high cost of pro-
sub-sec ~_ or

It there fore pays to focus on the strate gy fo~ the develo pment
ductio n.
l and opera tiona l
of the sub-s ector and the remov al of all mana geria
indus try more
bottle necks to progr essiv ely impro ve and make the

profi table .
 Chapt er 1

Introd uctio n

1.1 Statem ent of the Proble m

tant role
In count ries where iron and steel indus try playe d an impor
close ly linked
in the proce ss of indus triali zatio n, its develo pment was

with the other secto rs of the economy. At the end of the eight eenth
of agric ultur al
centu ry it provid ed the main input s for the produ ction
les and machi ne
imple ments , and later on for the manuf a cturin g of texti
l
tools .
gener ated an
Durin g the ninet eenth centu ry th" ma s sive const ructio n

accel erated growth of the iron and steel indus try. Then a new forwa rd

impet us appea red in the twent ieth centu ry becau se o~ the growt h of the

autom obile indus try. For examp le , the world crude steel produ ction
ction of 747
increa sed f rom 113 millio n tons in 1945 to a peak produ
2
millio n tons in 1979.

The last ten years (197 4-1984) have been G perio d chara cteriz ed by

the need to econo mize on mater ials and energ y. Thi s is becau se of the rise

ts of the inter -
in the cost of energ y, parti cular ly that of oil, the effec
ms which will be
natio nal "mone tary shock s" and the diver se othe r proble

discu ssed in chapt er two, This has had a dampening effec t on inves tment s
ck in steel pro-
in energ y-inte nsive indus tries, and has resul ted in cutba

ductio n and consu mptio n in the world . The fluctu ation s of world steel
shown in the
produ ction and consu mptio n betwe en 1974 and 1984 have been

recen t works of Unite d Na tions Indus trial Devel opmen t Organ izatio n

(UNIDO).3

Sever al studi p. o o1.~ ' ~dicate that the gener al trend s in the i,on

and steel indus try are not refl ec~e <! ·mifo rmly throug hout di ffe rent

count ries and regio ns. In develo ped count ries for examp le, the trend of
 - 2 -

specific steel consumption is decreasing while in developing countries

it is increasing. The consumption of developing countries grew from

96 million tons in 1980 to 100 million tons in 1984, although the

increases in production uere not uniformly distributed among these

. 4
countr1es.

Among the developed countries the United State has experienced the

most serious crisis in the iron and steel industry, with consumption

having fallen to the level of 1960 during 1984, and production below the

1960 figure in the same year. The situation in the EEC manifests a

similar pattern, with the production level of 1984 falling to less than

that of 1968, and consumption to less than that of 1964. In Japan, the

situation is nlightly better. A small increase was achieved ill production

and consumption in 1984 in compnrison with previous years. In the

Commission for Mutual Economic Assistance (CMEA) countries prOduction

5
and consumption continued to increase but at a very slow rate.

In spite of the recent overall decline of production in the metal

industry, it is universally recognized that the successful development

of the subsector plays a key role in the economic and social progress of

a country , In addition to the promotion of the development of other

sectors, it can mak~ si~~ifir~ r. t contribution to the gross domestic pro-

duct, employment, foreign exchange earnings nnd the government revenue.

This industry can lead to the generation of surplus which is essential

for capital formation and modernization of the economy. It is this

branch of industry which produces capital goods which in turn are used

for the production of other goods and services. Hence, it can be con-

sidered as the core industry of the economy. In the recognition of

their development strategy to the subsector.

 - 3 -

ries in
Relat ively more empha sis i s given to it in socia list count

early stage of devel opmen t. Vario us count ries, includ ing some Afric an
develo pment of
count ries have also as si gned .relat ive impor tance to the
• 6
metal 1ndus try.
, medium or
The indus trial estab lishm ents may be class ified as large
cteris tic of
small scale depen ding upon their sizes . The gener al chara
ologi cal
the large -scale metal indus try indic ates that it has techn

comp lexity , large capac ity and econo mies of scale . It also requi res

of quali fied
large -scal e suppo rting infra struc ture, a large propo rtion
indus try will
manpower and high capita l inves tment . This level of metal
ries where the
not be appli cable t o great major ity of devel oping count
tively suppo rted
resou rces are limite d and large invest ment may not be effec

by exist ing econo mic struc ture.

ity the
In count ries where agric ulture is the main economic activ
rate-s ized steel
appro priate strate gy would be to pr omote small and mode
to be succe ssful
and capit al goods indus tries. This appro ach has been sho~~

in very many count ries. For examp le, the indus try was develo ped at the
, Czech oslov akia
outse t in small works hops in the Peopl e's Repub lic of China
the drive was in
and Franc e. HO>1ever, at a later stage of develo pment ,
of scale as well
favou r of large r indus tries in the searc h of econo mies
7
as bette r quali ty produ cts.
the estab -
The exist ing situa tion in Ethio pia does not seem to allow

lishm ent of large -scale metal lurgic al activ ities. The pre-c ondit ions for

For examp le, the

devel oping the indus try are not suffi cient ly avail able.

marke t is limite d. The impor ts of basic iron and steel produ cts in 1979-1981
tons. By 1984
were a minimum of about 40,73 3 tons and a maximum of 46,748
 - 4 -

this has incre ased to about 71,00 0 t ons. This quan tity is not suffic ient

for settin g integ rated he avy iron and steel YlOrks. However, it is

suffi cient for settin g up a small -scale plant .

in Ethio pia.
Miner al prosp e cting is a t 3 very l ow stage of develo pment
11 perce nt of the
So far, geolo gical mapping has been under taken for only
it has been
area of the count ry. Some 20 millio n tons of iron- ore depos
h to suppo rt
ident ified in Wolle ga and it is believ ed that this is enoug
y for Ethio pi a
a small -scale p13nt . There fore, appro priate curre nt polic
basic and ~
appea rs to be that of streng theni ng the existi ng small -scale
ondit ions for
engin eering works and e stabl ishin g new ones, until the pre-c
r appro ach for
large -scale produ ction are fulfi llad. This is the prope
ctor.
the effec tive promo tion of the develo !'ment of this subse
can play
In spite of the poten tial dynamic r ole that the sub-s ector
under stood or
in vari ous economies, it is a subse ctor .,hich is not well

provid ed with adequ a te suppo rt in Ethio pia.

role playe d
First , the need is felt for a bette r under stand ing of the
A searc h of the
by the sub-s ector in diffe rant socio - economic settin gs.
been condu cted
pertin ent litera ture revea ls no evide nce that resea rch has
economy in gener al
to show the role and place of the metal indus try in the

and in the manu factur ing secto r in parti cular . This wider surve y and

e the role of
analy sis of the sub-s ector makes it possi ble to chara cteriz

Ethio pian metal indus try in the economy.

nition
Secon d, it seems that the sub-s ector lacks appro priate recog

on the part of the Government. The amount of invest ment alloc ated, the
t of resea rch
overa ll condi tions instit uted by the Gover nment , the amoun
it is one of
work devot ed to improve the sub-s ector , etc. indic ate that
r. The need is
the most negle cted indus t r ies in the manuf actur ing secto
s und er which
ther efore also f e lt to indic ate the app r opri a t e cond ition
l opmen t of the
t his ind ustry c"n p l ay a more effec tive ro l e i n t he deve
 - 5 -

the metal
Third , since n(, gener al "valu ation has eITer been done of
produ ctivit y
indus try it is impos sible to say anyth ing regar ding the

situa tion. It is there fore, believ ed that this inforQ ation gap might
and reali stic
have contr ibute d to a failu re of introd ucing effic ient

polic ies.
rise to
It is the recognition of these proble ms which has given

the objec tives of this study .

1.2. Objec tive of the Study

The speci fic objec tives of this study are the follow ing:
socio -
1) To analy se the role of the metal indus try in diffe rent

econo mic settin gs;

try in
2) To estab lish the relat ive impor tance of the metal indus
the
the Ethio pian economy, in the light of the analy sis under

first objec tive ;

ries;
3) To analy se the produ ctivit y situa tion in the met a l facto

and
menda tions
4) Based on the nbove findin gs, to make relev ant polic y recom

in order to:

a) impro ve the role of and nap out the strate gy for the

develo pment of the sub-s ector , and

b) impro ve the facto r use effici ency of the sub-s ector .

1.3. Signi fican ce of the Study

te vary from
The circum stance s under which indus trial enter prise s opera

time to time and from count ry to count ry. A clear knowl edge of these

r plan for the

parti cular circum stance s is essen tial in order to bette
 - 0 -

future strategy of development. This is l a cking in the Ethiopian case

as evidenced by the dearth of rese arch in this field.

As explained in the foregoing paragraphs this study is a modest attempt

to fill the information gap. Furthermore, the study will serve as a humble

beginning to arouse the interest of other researchers to undertake extensive

and intensive studies in this particular field.

1.4. Methodology

1. In pursuit of the first objective, analysis will be made of the

follm,in g:

a) the historical development of the industry;

b) the development strategies and models for promoting integrated

development between the sub-sector and other sectors of the

economy, especially in the light of the present situation and the

future outlook of the development of the industry at world level,

based on selected country experiences;and

c) the impact of the industry on output, emp loyment, foreign exchange

and government revenue.

Simple analytic techniques such as averages, percentages, trend

analysis and figures as well as qualitative methods will be used in the

analysis of the information available.

2. To establish the relative importance of the metal industry in the

Ethiopian economy, analysis will be made of the following:

a) the gross dO\llldstic product, i.e. output and value added of the

sub-sector and other sub-sectors of the industry;

b) employment and income generation, considering number of workers

both Ethiopian and expatriate, p~rmanent and seasonal, and wages

by type in major sub-sectors of the industrial branches;

 - 7 -

c) gover nment rev cnu~;

d) foreig n excha nge ;

rent
e) the possi ble linkage effec ts withi n the sub-s ector and diffe
ector
secto rs of the economy, i.e. the exten t to which the sub-s
s for
purch ases dOMe sticall y produ ced inpu ts and pr oduce s input

other s ector s of the economy; and

f) the struc ture of the sub-s ector , i.e. owner ship, regio nal

distri butio n , etc.

e analy tic
Again the analy ses have been based on simple and comp arativ

techn iques . However , it might be noted here that the contr ibutio n to
nge earne d due
foreig n excha nge is measur ed by the amount of foreig n excha
t of foreig n ex-
to the eA~ort of the sub-s ector 's outpu t, and the amoun
. The latte r
chang e saved becau se of produ cing forme r ly impor ted goods
ates. For this
will be bas ed on the dome stic reSou rce cost (DRC) estim
one by Gusin ger
purpo se two DRC estim ates for Ethio pian manu factur ing,
compa rison.
(1972) and the other by the World Bank (1 983 ) are used for
cts for 1980/ 81
Melis achew 's estim ates of DRC ratio of vario us metal produ
the enter prise s
are also consi dered to asses s the degre e of effici ency of

in savin g foreig n excha nge.

to determ ine
3. Economic and non-e conoo ic facto rs have been consi dered

produ ctivit y situa tion in the indus try.8 These facto rs includ e the

follow ing:
ction
a) the natur e and quali ty of the raw mater ials used and produ

proce ss emplo yed;

ent
b) the si ze and effici ency of plant (i.e. indus trial equipm

employed) ;

c) the conti nuity of produ c tion and the exten t of effec tive

utiliz ation of manpower;

 - 8 -

ce,
d) the supply of skil led manpower in all job cat egori es, finan

and i mport ed and domes tic r aw mater ials;

e) manag erial and admin istrat ion syst e~, wages and job promo tion

polic y, and emp loyee s rel a ti ons;s nd

butio n
f) the demand press ure, the transp or t facil ities and distri

system of raw mater ials and indus tri al produ cts.

1'0 reinfo rce the above analy ses a detai led study is
condu cted of

Koteb e Tools Facto ry. This has requi red the estim ation of produ ction

funct ion .
.
.at1ng prod
uct10 • ns. 9
' n f uncno These
l' here 0 s 0 f est1m
are f our met hd
, the instru -
are the covar iance matri x metho d, the fac 't or share s me thod
are metho d.
menta l varia ble method and the single -equa tion le as t-squ

1) The covar iance ~~ tri x method has not been used exten sively .
icien ts
This is becau se the equat ions are non-l inear in the coeff
e sizes ;
and littl e usefu l inform ation is avail "bl e for small sampl
ation .
2) The facto r shar es me thod is a ne glec ted me thod of estim

This is becau se th~marginal produ ctivit y relati on was not used

in estim ation and does not enabl e to test hypot heses about

econo mies of scale ;

used.
3) The instru menta l varia ble method is also a ree thod hardl y
menta l
Ta find varia bles with the chara cteris tics of the instru

varia bles in cross -secti on studi es is very diffi cult.

ar
4) The singl e equat ion least- squar es method is the most popul
funct ion.
method of estim ating the param eters of the Cobb- Dougl as
of
The attra ctive prope rties of this method are simpl icity
ts, and
comp utatio ns, the small stand ard error s of the coeff icien

the high l eve l of effici ency in predi cting outpu t for given

input s. It is this method which is used in this study .

 - 9 ••

gener ate the

Multi ple regre ssion ha s been applie d in the analy sis to

estim ates of the parame ters of th ~ model. Elast icitie s of outpu t and
ated. The pro-
margi nal produ ctivit ies of e3ch f ac tor can thus be estim
ept term.
ductio n funct i on is t ested both "ith ane witho ut the interc
d norma lly
"Line ar produ ction funct ions of manuf acture d produ cts shoul
r input s are
have zero interc ept, since outpu t is zero when the facto
zero. ,,10

The model s are in the form of

E
Y = Bo + BIL + B2K + B3 R + B4 0 1 + B50 2 + B60 3 + B7 + BSXl + BgX2
X + B X4 + U and
+B
IO 3 I1
E BgX2 + BIO X3
Y = BIL + B2K + B3R + B4 0 1 + B50 2 + B60 3 + B7 + BSXl +
+B X +U
ll 4
"hich are
The follow ing are candi d"ate expla nator y varia bles all of
ction and
quant ifiabl e (exce pt the perio dic campaign natur e of produ
d by quali tative
emplo yee relati ons, the analy ses of which are supple mente
the patte rn of
inform ation ), and are consi dered as the determ inants of

produ ctivit y:

i) Labou r =L
ii) Capit al =K
iii) Raw mater ials = R

iv) Occup ationa l categ ories = °

a) produ ction worke rs = 01
b) profe ssion al and techn ical worke rs = °2
c) admin istrat ive emplo yees = OJ

v) Energ y =E
vi) Bottle necks in raw mater ials = X1
vii) Bottle necks in spare parts = X2
viii) Bottle necke in mi~ cellaneous input s = X3
 .- 10 -

ix) Bottlenecks in machine bre akdown = X4

BO' B •••• Bll are the parameters to be estimated and U stands
l
for the random disturbance t erm .

In this analysis. ou t put is not t aken in physical volume estimation.

Since products are heterogeneous this method of measurement poses a problem.

Hence . in the absence of homogeneity. value estimation is used.

Monetary va lue is considered for raw materi a ls and energy. The

occumpational categorie s are represented by the number of workers. In

the case of capital. a stock of capital approach is us ed in this study.

This is parti cularly relevant in the context of underdeveloped countries

where stocks are mostly used for a period far beyond their accounting life.

All the variables used in valu~ terms are in 1983 prices. Production

bottlenecks are estimated by the average day time lost in three months

(i.e. stoppages). The problems related to measurement of inputs are

discussed elsewhere. ll

1.5. Sources of Data and Da ta Collection Process

This study relies on data and information gathered from both primary

and secondary sources as follows:-

1) The data and information source s to provide the theoretical

framework of metal indus r.ry in different socio-economic settings

are published documents 0': the international agencies such as

UNIDO. Interna tional Labcur Organization (ILO). the World Bank

or the United Nations Year Book of Industrial Statistics. Inter-

nat i ona l Iron and Steel Institute (IISI). and the provisions of

Monrovia Strategy. Lago s Plan of Action and the Final Act of

Lagos. Fortuna t e l j, t he above documents are available in the

documenta ti on Cent er of t he Univer sity l ibrary and ar e used

extensive l y by the ac ~c.or.

 - 11 -

2) Regarding the data and informati on to ~s tablish the relative

importance of the metal industry in the Ethiopian economy, the

sources are both published and unpublished materials of the

Central Statistics Office (Results of the Annual Survey of

Manufacturing Industry. the Statistical Abstract, etc.), the

Ministry of Industry's Statistical Bulletins I, II, III, and

IV of 1983, 1984, 1986 and 1987, respectively and o'thers, as

well as the records of each factory under the study and the

National Metal Corporation.

3) To analyse the productivity situation of the metal industry

data and information on economic and non-economic factors are

obtained from the questionnaire that is distributed to sixteen

factories operating under the National Metal Corporation. Other

sources include both published and unpublished records of each

f a.c tory , the Metal Corporation and the Ministry of Industry. On

different occe.sions interviews >rith the authorities concerned are

made extensively so as to upda te the information.

4) The data and information for the case study are secured on a

quarterly basis from the files and records of the factory since

1981.
 - 12 -

Notes to Chal'~

try
1. UNIDO Secre tariat : Issue Paper I, "The Iron and Steel Indus
rated
Prese nt Situa tion, Prosp ects and the Need for more Integ
tries"
Devel opmen t of the Iron and Steel and Cap ital Goods Indus
t of
June 1986, p.4: and Pierr e Judet , "The Integ rated Developmen
Devel oping
the Iron and Steel Indus try and Capit al Goods Secto rs in

Coun tries" UNIDO, June 1986, p.l.

Indus try
2. S. Samar age Punga van, "Inte grate d Devel opmen t of the Steel
ultura l
Parti cular ly Mini- Steel Linke d to Capit al Goods and Agric

Machine" UNIDO, 1986, p.l.

t Between
3. See Piere Judet , op.ci t., p.l, UNIDO, "Inte grate d Developmen
Studi es"
the Iron and Steel and Capit al Goods Secto rs; Concr ete case
p.l.
June 1986, pp. 6-' 7; and S.Sam arage Punga van, op.ci t., 1986,

4. UNIDO Secre tariat , Issu!' Paper I, op.ci t., p.6.

, op.ci t.,
5. For a full accou nt of what has been s aid, see pierr e Judet
and Steel
pp. 5-8;an d Pierr e Judet , "The \{orld Crisi s of the Iron
try in
Indus try and its Impac t in the develo pment of the Indus

Devel oping Coun tries" UNIDO June 1986, pp. 47-52 .

t of the
6. Danie l B. Ndele la, "Pros pects of an Integ rated Devel opmen

Iron and Steel Indu~try and Capit al Goods ;East and South ern Afric a
UNITED
Coun tries" , UNIDO, Vienn a, Austr ia, June 1986, p.29;a nd
of the
Natio ns, "The Lagos Plan of Actio n for the Imple menta tion
I)",
Honor ovia Strate gy for Economic Devel opmen t of Afric a (Annex

Augus t 1980.
Steel and
7. See UNIDO, "Inte grate d Development Between the Iron and
pp. ~.
Capit al Goods Secto rs; Concr ete Case Studi es" June 1986,

UNIDO Secre tariat : Issue Paper I , op.ci t;198 6, pp.3- 5 and S.Sam arage

Punga van, op.ci t., pp. 2-3.

 - 13 -

8. See for example, SI'apan Kumar Mitra, "Material Management in Modern

Industry", .:£he Economic Studies an· Independently Monthly Journal of

Socio-Economic Outlook and Trend., Vol. 21 (2) Calcutta (1981), pp.153-l54,

Ministry of Industry Plan and Programme Office, "The State of Manu-

facturing sector of the Ethiopian Economy after Nationalization"

Paper submitted to the first National symposioum on Industrial

Development in Ethiopia, A.A. (August 1986). Ral~al Raj Dawar,

"Determinants of Idle Cane Crushing Capacity in Sugar Industry of

Haryana" The Economic Studies an Indepe'!dent Monthly Journal of

Socio-Economic Outlook and Trend, Vol. 21(10) Calcutta (1981) pp.

515-519 . Kawal Raj Dawar, "Unutilized Capacity in Haryana Sugar Mills"

The Economic Studies an Independent Monthly Journal of Socio-Economic

Outlook and Trend , Vol. 22(VI) Calcutta 1982, pp. 29;;-300., and

Wondirrmeh Tilahun, "Productivity Implications of two Economic

Propositions of Ethiopian Manufacturing Enterprises "Ethiopian

Journal of Development Research. Vol. 5-7, 1983, pp. 55-67.

9. A.A. Walters, " Production and Cost Functions; An Econometric Survey"

Econometrica 31 (January - April), 1963, pp. 1-66.

10. A Koutsoyiannis, Theory of Econometrics, Second Edition, the

MacNillan Press Ltd. 1977, p . 65.

11. A.A. Walters, op.cit, 1963, pp. 1-6.

 Chapter 2

The Role of Metal Industry in_Different Socio-economic Settings

The purpose of this chapter is to review the role of metal industry

in different socio-economic settings. Its organisation includes the

following main sections : the historical development, the pattern of

integrated development and the role of the metal sub-sector.

2.1 The Historical Development of the Industry

Iron ore has been extracted and iron produced from it since ancient

times. However, Iron and Steel industry as a sector of the economy began
th
to develop rapidly in the first half of the 18 century. The industry

had benefited from the first boom of the industrial revolution in Great

Britain and Western Europe.

th
At the end of the 18 century, agriculture, the first customer of

the iron and steel industry had made use of the improvement of iron and

steel production. Later on the industry provided the main inputs for
l
the manufacturing of steam engines, textiles and machine tools.
th
During the 19 century, iron and steel production took a real leap

forward due to the increase in construction of railway networks. Between

1860 and 1880, a significant technological development took place in the

industry. This enabled it to meet the demands of different sectors of

the economy such as ship building, construction, etc.

th
In the 20 century, the automobile industry generated another greater

push for growth and technological change in the iron and steel industry.

It was necessary to supply the automobile industry with special steel

as well as giant furnaces, continuous casting , continuous rolling mills,

etc. Since the end of the second World War, there has been an accelerated

growth of the industry. For example, the world crude steel production had

increased by 561.1 percent or multiplied by 6.6 in the period of 35 years

from 1945 to 1979.

 - 15 -

The world iron and steel products increased si?nificantly for almost

three decades since 1950. Th", ).evel of ')roductf.Jn which was 192.0 millions

of tonnes in 1950 increased by 304 .2 pe rcent t o 776.0 millions of tonnes

2
in 1979.

The growth of iron or e production in the US SR and U.S.A., the two

giant producers of the mineral in the world is particularly noteworthy.

In the USSR for a period of 59 years between 1913 and 1971 iron ore

production has ~een cons tantly increas ing. It increased fr om 9.2 million

tonnes in 1913 to 203 million t onnes in 1971 - an increase of 2106.5

percent. In the United States, albiet growth was irregular, total

3
production gre"", by 24.7 percent between 1937 and 1970.

The last ten years have been a per i od characterized by the need to

economize on materials and energy. This is because of the rise in the

cost of energy particularly that of oi l, the effects of the international

"monetary shocks" and the diverse other problems which will be discussed

in detail in this chapter. This factors had a dampening effect on invest-

menta in energy intensive industries, and resulted in cut-back in steel

production and consumption in the world.

The trend of world production of crude steel from 1974 to 1985 is

eiven in Table 1. The production which has rpac~,ed the level of 710

million tonnes in 1974 collapsed to a level of 643 million tonnes in

1975, rose again to 716 milli on tonn~~ in 1978 and then up to 746 million

tonnes in 1979, to fail again to 645 million tonnes in 1982. A recovery

began in 1983 with a production of 663 million tonnes; the recovery was

maintained in 1984 and 1985 .

.-.--"""
'.
 - 16 -

Table 1. The World Production of Crude Steel

(in million of t onnes)

Annual growth
r a te between
Years 1974 1975 1978 1979 1982 1983 1984 1985 1974-1985
(%)*

Production 710 643 716 746 645 663 710 719 0.11

* Growth rate is computed by the author.

Source: Pierre Judet, "The World Crisis of the Iron and Steel Industry

and its Impact in the Development of the Industry in Developing

Countries, "UNIDO, June 1936, p.l. The fi gure for 1985 was

obtained from B.R. Nizhawan, "Global Iron and Steel Industry,

Some Reflections and Projections", UNIDO, June 1986, p.20.

Over those twelve ye ars bet\,een 1974 and 1985 , the average annual

growth rate of steel production did not exceed 0.11 ?ercent. Had the

comparison been with 1979 production, the average annual growth rate

would have been ne gative.

If we consider the world iron and steel prod ucts since the Second

World War, we can observe the following . Over the 25 years from 1950

to 1974, the average annual growth rate was 10.7 percent. But the

annual growth rate fell to -0.14 percent between 1974 and 1933. (refer

to Table 2).
 - 17 -

Table 2. The Growth of The World Iron and Steel Production

(in million of t onnes)

Annual Growth
rate* between
Year 1950 1960 1970 1974 1979 1980 1981 1982 1983
1950-74 1974-83
(%) (%)

Produc-

tion 192.0 345.5 559.8 716.0 777.0 749.4 744.6 684.2 706.6 10.7 -0.14

*Growth rate i s computed by the author.

Source: Pierre Judet, ~cit., p.10.

The restructurine process taking place on the world-wide level has

reduced total wor ld demand for steel. This process is characterized by

4
the following developments.

a) The changes in technoloe ical process of the capital goods

industry (the industry with which iron and steel industry

has important linkaees), requiring steels of hi gh performance

and lower cost;

b) The trend towards the production of smaller and more fuel-

efficient automobiles, which was initiated by the energy

crisis, requirine new types of steel which are stronger and

li ghter, and substitution of steel by other materials such

as plastics and ceramics;

c) The development of micro-electronics which ha s an impact on

iron and steel industry by strengthening the tendency to

reduce the amount of iron and steel used per unit of output

and by increasine the demand f or higher quality steels;

 - 18 -

d) The advan ces in chemi cal-pr ocess technn lor,y and indus try
se
which requi red incre asing amount of stain less steel becau
-
of its hi gh resist ance to corro sion, welda bility and forma
of
bility , as well as the tenden cy to reduc e the thickn ess

tubes by using high streng th mater ials;

try
e) The need for iron and steel mater ials by oil and gas indus

which are more econo mical and light er to use, as well as

and
capab le of withs tandin g sever e enviro nmen tal condi tions;

f) The crisis of tracto r-bas ed mecha nized agric ultur e, with

the
tract or sales down by 25 perce nt throug hout the world and
imple ments
creat ion of less sophi sticat ed agric ultur al machi nery,
ositio n
and tools thus reduc ing the quant ity and chang ing the comp

of steel used.

off or
The reduc tion of iron and stee l produ ction has trigge red

accel erated a move towar ds quali ty. The day of gener al-pu rpose steel
er
is over. Today the trend is towar ds iron and steel produ cts of light

weigh t, with highe r stren gth and of more preci se quali ty.
mptio n
Gene rally, the tenden cy is towar ds a reduc tion in the consu

For examplp., in the Feder al Repub lic of Germany betwe en

~
of steel .
to 370 kg of
1970 and 1977 speci fic steel consu mptio n declin ed fro 412
steel per 100
steel per 100 kg of elect ric machi nery; 873 to 668 kg of
100 kg of rail-
kg of ship build ing produ cts; 612 to 557 kg of steel per
of nuts and bolts .
way rollin g stock ;and 883 to 783 kg of steel per 100 kg
diese l
In the Sovie t Union , betwe en 1950 and 1980, the wei ght of
(HP). In
locom otives was r educe d from 30 to 15 kg per horse power
used for
Franc e, durin g the same perio d the resist ance of the steel
ted in savin g
concr ete reinfo rceme nt was multi plied by 4, which resul
of 1,600,000 tonnes of r'li.n£ orcing steel as opposed to what would have

been used in 1956 f or th" "aoe volufile of cC>lstruction.

In the United States, the average .."ight of an aut.ofilobile declined

from 1800 kg in 1970 to 1397 kg in 19HO and to 925 kg in 1985. It was

possible to t:lanufacture th" same number of automobiles usine 770,<'00

tonnes of steel in 1985 instead of 1,570,000 tonnes in 1975.

General trends in t~e iron and steel industry are not reflected

uniformly throu chout different countrie5 and r ogions. The development

of iron and st(", l production and consumption has varied very considerably

from one regiol of thq wor 1 d " " r nt h ~". Table 3 illustrates the

structure of l '1e world cons ump t i ou and pr oduction of crude steel by

region betwe ~n 1971 and 1903.

of C ...._-.:de St';!el
___ ____ •
"~_ M_"" _ '

(i.n ;:>I~ !'c~n t a g ~)

Region Pr.-oduction

197~
...... _-- ----_.
1.974 1983 1971 1974 1983

EEC 18. 1, 17 .6 13.4 7.2,0 22.0 16.5

North An!e rica 23 .9 22 . 3 16 .0 20 . 6 20.5 13.2

Eastern Europe 27.1 27 . 0 31.8 28.0 26.1 31.13

Uapan 10.0 10. 3 10 . 0 15 . 1 16 . 5 14.7

Other OECD Countri~s 3 .3 7.9

"_ 00-_ _ _ . _ "_ 6 .7
_ _ ___ _ _ . . ~ .,..
6.1, 6-3 _._---
7.2

(Latin America) l 3.4) (4 . j ) ( 3.5) (2.4) (2.5) (4.4)

(Asia (7 . 3) (7 .:) (;A. 7) (5. 3) (5. 8) (11.4)

(Africa) (0.7) (0. 9) (1, 9 ) (0 . 2) (0.3) (O.I,)

(Middle East) ___ ~2.:.22__(1. 6 L....Q·~ L ___ .._

Total 100
---. - -- ..100
--~- .-~------
WJ 1.00 100 100

Source:- Pie rr e Judet, " Th<e L, CCZ::- ,,:- cd Dev" l ootlOsn t of the Iron and Steel
Induo try and thf:! Ci1~i:':L!l I~C:-O·-i SeC~Ul'S in DLvelt'pine Coun t ries ",
UNID;) , J u,,";;! 1 ': _, r'l (-7,
 The pattern of consump ti on in the EEC and North America decreased

less rapidly bet"een 1971 and 1974 than bet"een 1974 and 190 3. In

Eastern Europe a 4. 8 percent gro"th ,,"s r egistered tet"een 1 ~ 74 and 1983.

But Japan maintained its share in 1983. In the other Organization for

Economic Coo~eration and Development (OECD) countries, decline "as

observed in the t"o periods. The developinr, countries gained 9 percentage

points bet"een 1974 and 1983. These gains came mainly from the Asian

countries. It is believed that it is this increment in the trend of

consumption of the developing countries and changing technology in

developed count·: ies, "hich appreciably transformed the structure of the

world consumpt,on of crude s t ee l. It ha s reduced the level of consumption

of developed countries from the 1~vel of 86.1 percent of world consumption

in 1974 to 77.4 percent in 1933.

Almost ~ he same trend as "orld consumpti on of steel was maintained

in the case Jf world prOduction of steel. The chanre in the structure

was brounht about mainly by the Growth in the share of the developing

countries (Table 3) . The share increased by S.7 points bet"een 1971 and

1983. Wit~in the developing countries themselves there were contrasting

developmer.ts, the 8 ro','~h beie8 generated mos tly from the Asian countries.

2.2. The Intefjr!1ted D~velop~?- t of the }letal Industry

2.2.1. The Need for I£te nraticn

The world economic situation has led most developed countries to

establish barriers to imports as well as credit restrictions. These

actions forced the develop inn countries t o promote policies for a more

intecrated development among the cifferent sectors within their own

economies. This strategy of development is most necessary and ur gent

 - 21 -

in those industrial sectors where future crowth is very much affected by

, ,
restr1ct1ve 'h
measures, as 15 t e case o.f t he meta I '1nd ustry. 6

Because of its si gnificant role of supplyinC basic inputs to the

main sectors of the economy, the iron and steel industry in deve l oping

countries can contribute t o the creation of a coherent national pro-

duction system. It, therefore, follows that the industrialization

process in developing countries should account for all the possible

links between the metal industry and the other sectors of the economy.

But the modality of this integration process will depend upon the

specific struc t ural characteristics of the different developinr. countries.

The characteristics constitute mainly the availability of raw materials,

the level of technical development and manpower trainine, and the basic
7
needs of the populations.

2.2.2. An Approach to the Integrated Development of the Sub-Sector

ln the National Econorrw

To build a more resilient and self-reliant economy, the interrelated

development between the ir on and steel and the capital goods industries

and other sectors of the economy is necessary. However, there is a

marked difference in the app roach to the integrated development not only

between the develo~ing countries but also between each country in the two

sets of countries. The difference in the appr oach stems from the di fferent

economic and social characteristics of each of these countries.

An illustrative model of the inter-relationship between the various

iron and steel products and the various sectors of an economy, relevant

to developing countrie ~ , i3 C i "p ~ cchematically in fi Gure 1 below .

 - 22 -

Initially it will be relevant f or develorinr countries to go in

for lir,ht and silll)Jle steel products "hich require less sophisticated

technoloflY f or their prod uction. Thi s partly retluces the financial

constraint which is beine felt today by many developing countries.

But later on, as the economy develo?s and the needs become more

diversified, steel productr, of more sophisticated technology will be

required.

As can be observed from Fi gure I, the metal industry sub-sector

has the multiplier effect in stimulating all round growth of the economy.

There are linl,ages with minine, power, transport, engineering industries,

agroindustries,irrigation, storages and processing of agricultural

produce, light consumer industries etc. resulting in the growth of all

8
these sectors.

The gr owth models with bias on heavy industries may be suited for

large populous developinp, countr:es with innate potential of natural

resources to be exploited. Thin will not be applicable to a great

majority of developing countci0s since their resources are limited.

Since heavy industries are cepi tal-intensive and typified by longer

gestation period, the economieq of these countries will not have the

financial, technological and skilled manpower capability to sustain

the industries.

In small agricnltural countries the appropriate strategy would

therefore, be for the develGI' i!l~nt of mini-steel plants catering inputs

for small-scale capital good s i'l0·'"tries and simpler agricultural

tools and implem"'1t '" Thir rc ~I-" >lay to create a coherent national

production system.
 - 23 -

Fig ure 1
n and
Proces~Integrated
Economic Development wit h Iro
Ste el Ind usm
-- --- -
~y

ing Ra il Road Water {;;]~

TRANSP ORT

"-V
ita ] Goods
.- J-J IRON and STEEL Ind ust ry
f
k~ Manpower
"
1/
-' -

\! Re fra cto ry
res and ~'-
sumable Goods \

-<

\ Ag ric ult ure "=:J

Ag ric ult ure imp lem ent s
Ag ric ult ura l ma chi ner y
Ag ric ult ura l she ds (si 16s )
De fen ce Fas tne r
Co nta ine rs and pac kag ing Power machine Ele ctr ica l ma chi ne
Irr iga tio n too ls
Pet rol eum
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --ust--
-- -- --
e:-
--
S.
--
Samarg pur gav en, "In teg rat ed Dev elo pm ent of Ste el
,
Ind
Au str
ry
ia,
So urc al Good "UNIDO
to Ca pit
-- Pa rtic ula ry Hin -St ee1 , Lin ked
Jun e 198 6, p . 4.
 - 2/, -

The survey carried out by the UNIDO Secretariat on 74 mini-plants

located in 23 developing and in 13 developed countries, revealed the

9
following important features. Their production in general is

oriented towards domestic consumption, and hence the int egra tion of

the plants "ith the construction and capital goods sector is stronger.

Hini-plants reveal an important integration with key sectors of

the national economy. In countries where there is a considerable

development of iron and steel and capital goods industries, the re-

lations between them is stronger than metal industry and the construction

sector. However, there are other countries where the iron and steel

and the capital goods industries present a low degree of development.

In these countries the relations of the iron and steel industry with

the construction sector is stronger than with the capital goods

industry.

Therefore, from the above historical patterns of linkages , it may

be concluded that over successive periods (with possible overlaps),

the iron and steel industry is primarily linked to the demand for

constructi on, gradually including meta l nmnuf acture, and then to the

production of equipment and machinery (capital ~oods) ranging from the

simple to the complex. Fig. 2 shows the dynamics of the relations

bet"een the iron and steel, capital good s and the construction sector.

Assuming that iron and steel products are divided roughly into

seven categories in accordance with a line of increasing conr.Jlexity

 - 25 -

a = that simple agricultural machinery and tools production

demand the products of S2' 54 and S6 as inputs;

b = Sl' S2' and S3' on the other hand, find ou tlets 1n the

construction of infrastructures of categories II'

Figure 2. Dynanucs of the Relations between Iron and Steel Industry

and Capital Goods and Construction Sectors

Construction Iron and Steel Cap i ta 1 goods

11 Housing----------------:>~ C simple agricultural

l
machinery and tools

12 Industrial - - - - - - -

building

13 Infrastructure

(rail r oads, brid ge~__~~ ~----tL----------C2 Metal working equipment

hi ghIJays, ports) C Vehicles

3
(Automobiles)

S ~
7

(S 8 )~~~----------------C4 Aeronautics

(Aircraft)

Sl :: ordinary long products;reinforcing bars-small diameters.

S2: l ong products: r einforci ng bars, li ght and medium sectors

and light welded tubes.

 - 26 -

S3 long products: heavy sec ti ons

S4 hot r o lled sheet ir un heavy (laree) welded tubes

S5 col d rolled shee t iron, he avy shee ts , galvanized sheets

S6 hi gh-quality stee ls of all shapes and seamless tubes

S7 high-alloy steels of a ll shapes_

S8 alloys of aluminium, titanium, magensium etc.

Source:- UNIDO Secretari at, ISSUE Paper I, "The Iron and Steel
Indu3try: Present Situation, Prospects and the need for
more Integrated Development of the Iron and Steel and
Capital Goods", UNIDO, June 1986, p. 12 and Pierre Judet,
~~ ;i!., p. 34.

The identification of this kind of relationships can e stablish

a basis f o;: the realistic definition of an approach for more integrated

deve l opmen t of the iron and steel si de of the ca?ital gouds industries

in the dev~ l op in e countri es.

A re-;iew of the experiences of a number of industrialized market

economie ~, socialist ar.d developine countri e s suggests the following

considerations:

a) Tu create a basis f or a more independent and self-sustained

economic and social deve l opment it is necessary to promote

more in':" v, <:tion bet,..-;en the sub-sector and other sectors

of the economy . The stra teey must be based on the specific

conditions in the national economies of each country, i.e. the

availability of raw mater ials, the leve l of technical develop-

ment and manp ower tr ainine and the basic needs of the pop ulation.
 - 27 -

b) There is no single model for the planning of integration

between the sub-sector and other sectors of the economy.

Among the options that may be relevant in specific cases

are planning based on "demand pull" from capital goods

sectors of the economy, or on "demand push" from the iron

and steel industry leading to expansion and diversification

of other sectors.

c) In developed countries, generally speaking, the iron and

steel industry and the capital goods industry have followed

a prJgressive and continuous process of development. But

in the developing countries, these industries emerge in

many instance in their present day form without any prior

process of steady transformation of small undertakings into

l arge- scale units. The iron and steel industry is estab-

l ished wi th modern imported technology.

d) I n the developed countri es there is considerable interplay

between the iron and steel industry and the capital goods

industry . But in the devel oping countries, the interplay

is basically at the outset with the construction sector.

Therefore, the steel industry has developed right from the

start in its modern form.

e) The main motivation for iron and steel development in

developed countries is in response t o the machinery and

equipment requj~ ements of various economic sectors. But

in the case of dev 210ping countries the motivation stems

from the need for radonal USe of th" national resources

at their disposal, such as, iron ore, coal, energy , etc.

 - 23 -

f) Among the developed countries studied, there are differences

betl/een the approach t o ceve l opr"ent by the iron and steel

industry and the capital goods i ndustry. In the early days

of their development there cms integration betl/een these

industries in nearly all cases. Subsequent development

has however, shown two approaches of development of the

sub-sector. Some iron and steel undertakings diversified

their production in the manufacturing of capital coods and

electrical products, whereas other specialized On the

production of steel or capitai goods.

g) The::-e are also differenc.e s between the developing countries

studied in regard to the approach to development adopted by

the iron and steel industry. In some cases, iron and steel

production has been exclusively for internal developn~nt,

while in others, exports have played a si gnificant role in

t he dynamics of their development.

2.3. The Role of the Metal Industry

This section is concerned with the analysis of the role of the

metal industry in different economies. It is organized according

to the following elements: contribution to output and value added,

annual growth rate of production, contribution to employment and

annual growth rate of employment, contribution of foreign exchange

and Government revenue.

 - 29 -

2.3.1. Contribution to Output

Of the contributions to the entire industrial production in 1980

those of the manufacturing industry are the highest throughout the

different economies. This is followed by mining and quarrying, elect-

ricity, gas and water. The highest contribution of manufacturing was

in the centrally planned economies and the lowest in the developing

market economies. Over 50 percent of the contribution to the entire

industrial output came from heavy manufacturing in all economies

except for developing market economies which constituted only 26.6

percent (Tab1.e 4).

The contribution of the metal sub-sector to the entire industrial

production is the highest of all sub-sectors of the industrial sector.

In 1980, for instance, basic metal, metal products, machinery and equip-

ment contributed in total, to the entire industrial production, 35.4,

36.1, 41.3 and 14.1 percent in the world, centrally planned, developed,

and developing market economies respectively. Similarly, the contributions

of the sub-sector when converted to the manufacturing sector were 45.2,

40.9, 49.6 and 28.4 percent respectively. The contribution of engineering

industries is more significant than the basic metal industries in all

economies. The contribution of each branch of industry to the entire

industry output is presented in the Table 4.

 - 30 -

Table 4. The Share of Each Branch in Industrial Production in

_Different
._ . ::':":...:0====
Economies

in percentage (1900)

Centrally Develop ed Developing

Branch Activity World Planned Market Market
• Economies Economies Economies
Mining and quarrying 15.2 7.13 8. 8 44.9
Manufacturing of which 7(;.3 UG.2 83.2 49.6

Food, Beverage and Tobacco 10.7 16.5 9.2 10.6

Textiles 4.4 7.7 3.3 5.0
Chemical, Pe t r oleum and
Plastic Products 11. 2 12.4 11.3 10.0
Basic Metal Industries 6.1 5.7 7.1 3.3
Met a l Products, Machiner y
and Equi pment 29.3 30.4 34.2 10.8
Light Manuf.lcturing 28.3 36 .8 26.9 24.5
Heavy Manufacturing 50.0 51.4 56.3 26.6

Rlectricity, Gas and Water 6.5 4.0 8.0 4.0

All Indus t ::y 100 100 100 100

Source:- VN. Industrial Statistics Year book (Vol.,I,1984) pp .6IS-622.

2.3.2. Contribution t o Value Added

The contributions of the manufacturing sub-sectors to total manufac-

turing ~ave changed over time i n many countries. For instance, in USSR

the share of heavy industries was relatively low during the first years

of the revolution. It ranged between 27. 7 and 33.1 percent between 1912

and 1929. In 1933, the shar e of he avy i ndustries in the manufacturing

value added was 51.2 percent, and thereafter it increased steadily.

On the other hand, the share of light manufacturing industries in

the USSR dropped from 71 . 4 percent in 1912 to 31.4 percent in 1962.

(Table 5).
 - 31 -

Table 5. Value Added Structure of l;anufacturing in the USSR 1912-1962

(in percentage)

Particulares 1912 1925 192 7 1923 1929 1933 19 37 1955 1960 1962

Heavy Hanufac-
turing '27.7 29.4 31.1 31. 3 33.1 51.3 62.7 64.3 67.2 67.6
- Basic metal 7.4 3.9 5.2 4.9 4.9 5. 3 7.6 13.5 12.5 12 .5
- l1etal Produc-
ts (engin-
eering) 10.3 11.9 14.0 14.0 15.5 30.4 36.9 38.7 30.2 39.3

Light manufac-
turing 71.4 68.6 68.0 67.6 65.6 47.3 36.4 34.7 31.3 31.4

Source:- Obtrdned from Paul Gregoy, Socialis t and Non Socialist Industrial-
izadon Patterns,! A Com;>arative Ap pr~sal, 1~, PI" 28-29 as
us ~d in the papar by Yeheyes Asse f a, Possibilities and Constraints
of Developing Heavy Industr ies in Ethiopia" A.A. July 1986. 1' .42.

In the USSR, the contr ibution of metallurgy to manufacturing ' value

added ranged between 17.7 and over 50 percent from 1912 to 1962. This

made the sub-sector the major contributor t o the grouth in the value

added share of heavy manufecturing .

Simi lar behavior in othe r soci a list countries is reflected by the

data in ,:able 6.

Table 6. The Strt.:c tm:e of Marufacturin Value Added of Eastern Euro e

Countr{es-f~Pi:~r and Post ~lar Years as a percentaee of
total manufac tur:lrii; va lue added)

Particulars !:!ungary GDR Czechos1. Bulgaria Romania Average

1937 1963 1936 1963 1928 1965 1936 1963 1930 1958 Pre Post
War War
Heavy Nanufac-
---
turing --_._-_.
3lJ , --,----'"
61 51 65 40 68 22 53 30 59 36 61
Of "hich Basic
Metals 7 14 6 D 4 17 1 14 3 10 4 12
Netal Prod ucts
(Eneineerinf, ) 17 31 27 34 19 34 5 22 3 28 15 30
Li ght Manufact-
urin~ 61 35 46 80 64 42 65 35
Manufacturing - 31 37 31 41

Value Added to CNP 7.<3,2 52.2 31. 7 31. 2 20.0

Source:- Paul Gregory,
~-

~~~it, p. 47. ,I
 - 32 -

Produ cti on-

2.3.3 . . _1-Gr-owth
,\nnua -._of
- -Rate ---- -.--..'
In terms of produ ction , ~he ent;.r e indus try had a posit ive trend
en 1972 and
erowt h rate in all t ype s of econm "ies in the pe riod bet"e
ally planned
19(;4. The hiehe st f,r o"th rnt" was r ee istere d in the centr

econo mies (5 5 perce nt) . Th i s was follO\ ,ed by 2. 0, 2.3 and 2.2 perce nt
develo ped marke t
growt h rates for the world as a whole , the deve1 0pine and
. . 1 10
econOm1es respe ct1ve y.
ction in
In sp ite of its high share in the entir e indus trial produ
to other
all econo mies, the erowt h rate of manu factur ing relati ve

activ ities is :· .ot tha t impre ssive. From 1972 to 19U4, for instan ce. its
h rate of
annua l erowt h rate for aE economies was less than the growt

elect ricity , ea s and wate r produ ction. This is with the excep tion of
was ereat er
centr ally :, ·'. anned econo mies wh ere manu factur ing growt h rate

than that of elect ricity , and e as and water , which were

5.7 and 4.n
. 1y. 11
perce nt re f)e ctlve

If we con ~ ider the diffe rent sub-s ector s of the manu factur ine
the metal sub-
indus try , of all slJb-s ectors the annua l grOI-lth rate of
develo ped
secto r i s relati vely impre ssive excep t in the case of the
For instan ce
marke t eoono mies (with annua l erowt h rate of 2.8 perce nt).

the rat . 3 of !;row~h w",re 5.6, 10.6 and 12. 7 perce nt f or the world ,

centr ally p la:1~~d and deVf, 10r ing marke t econo mies. 12

Simil ar t o the pa ttern of tllp. s~are of indus trial produ ction, the

manu factur ine secto r is dorr~ nant in provi dine employment oppo rtunit ies
2 and 93.2
in all types of econo miee , its share ranei ne betwe en 91.

perce nt (Table 7) . The hi ehest contr ibuti on to emp l oymen t durin e

the perio d c on~idered was in d~. c l o? ine marke t economies while the

lowes t was i n centr ally plann ed econo mies.

 - 33 -

yment
Of the manu factur ing indus try, the contr ibutio n to emplo
in the case
of heavy manu factur ing i s hi gher than the light indus try
mies. The
of centr ally plann ed econo mies and devel oping marke t econo
of count ries.
share of heavy indus try was over 55 perce nt in both sets
factur ing is
But in the case of develo ped marke t econo mies li ght cmnu

domin ant. In 1980, for instan ce, for develo ped marke t econo mies, the
was 64.0
share of light manu factur ing in total indus trial employment

perce nt as can be seen from Table 7.

Table 7. The Share of Each Branc h in Indus trial Employment in

Diff ~ rent Econo mies
(in perce ntage 1980)

Centr ally Devel oped Devel oping

\-Ior1d Plann ed Marke t Marke t
Branc h Activ ity
Econo mies Economies Economies

Minin g and g _ _____ _ .~_.....;6"":.;5,-_

· )~::n...
_ _ _4:.;.-=3,-_ ___.;::3"".,,,5_ __
91.2 92.6 93.2 __
Manu factur i 19'--_ _-_ _ _ --2.2 . 5
13.9 9.1 22.0 10.0
Food, Seve-c age and Tobac co
9.9 7.4 15.8 6.4
Texti les
Chem ical, Petrol eum, and
Plast ic Produ cts a.6 6.6 6.2 8.3
4.1 3.7 2.7 5.5
Basic Metal Indus try
Metal Pr ?duct s, Machi nery 37.4
and Equ;_pment 30.0 40.7 13.9
46.2 34.1 64.0 38.2
Light l1, nufac turine
Heavy M:!Uuf ac!~-.5:2iL 46 • 3 57 • 1'-__ _.:2"'8"'•.:6___ _-.:c5"'5.;..0"-_ __
~ricity. Gas and Water __~3~.~0___~2~.~3___ _~3~.~1~___ _.:3~._=3~_____
100.0 100.0 100.0 100.0
All Indus try
_ _ _ _
_0 _ _ _ _ _
_-

-622.
~~:- UN. Indus trial Stati stics Year Book (Vol. I,198 4), pp.6l8

yment of
The metal sub-s ector provi des the highe st level of emplo
develo ped
all other secto rs in all eCOl'ornies with the excep tion of

marke t econo mies. However, the contri buti0 n t o employment of the

 - 34 -

tri e s in all
ensin eerin e indus tries is hi gher than bas ic metal indus

economies ~

indus try
Gene rally, annua l gr owth r ate of employmen t in the entire

is not si gnific ant in all types of econo mies. Howev er . bet«e en 1972-

84, a relat ively hi ~h gr owth rate «as obser ved in devel oping marke t

econo mies (3. 8 perce nt). This was f ollo«e d by centr ally plann ed and

world econo mies, 1.1, and 1.0 perce nt respe ctive ly. The annua l rate

is -0.8
of growt h in d8velo ped marke t econo mies was negat ive, that

perce nt in the same perio d . Employment in all branc h activ ities of

ricity ,
these econom', ' s showed nega tive growt h rates (exce pt elect

and gas and 'ater which slwwed the only posit ive gr owth rate of 1.5
13
e ).
perce nt, an •• ne tal produ cts which showed zero growt h rat
sub-
It c ," a le o be ob served that in manuf actur ing , the metal
compared to
s ec t or is 'om;.nant in t he annua l gr owth rate of employment
t econo mies.
other sub 'c ~ ct ors in cp.ntr ally p l anned and devel oping marke

In the se ~ ou"t ries, th" aen'ta l r a t es of gr owth betwe en 1972- 1984 were
.
r :~ 3p o c. t:J.v e
1y 14
2 . 4 nn d t0 . 0 t .... ~ rcent r

a. c of the total value of expor ts .~he manu factur ing secto r is

the maj or const ituen t in indus triali zed count ries. For instan ce,

economi es,
fr om 197 3 t o 1984 out of the selec ted centr ally plann ed
a ranged from
the manu factur ing secto r's contr ibutio n in Czech os l ovaki

94.6 to 96 .4 perce nt. In Yugo slavi a and Polan d it range d from 91. 7
In the case
to 94.2 perce nt and 79.5 t o 36.3 pe rcent respe ctive ly.

of a develo ped nla rY ~t econo ~y , the Unite d State s, the share of expor ts

in manu factur ing was b ~ twe ~p. 79 .7 and 82.3 pe rc ent. In Franc e and
 - 35 -

same perio d.
Italy it was over 90 and 96 perce nt respe ctive ly for the
given in
Expor ts of selectee:! count ries of diffe rent econo mies are

Table 8 .
ped
From the Table it can be Seen that in the indus triall y develo
r in terms of
count ries, the metnl sub-s ector is the major contr ibuto

expor t eami nrs. In the perio d 1978 to 1934, f or insta nce, in

Yugo slavia
Czech oslav akia, the contr ibutio n was over 65 perce nt, in
Franc e over
and Italy over 45 perce nt, in Polan d, Unite d State s nnd
over 80
50 perce nt, and in Japan an extra ordin arily large share of

perce nt.

ed,
Table 8. Expor ts of Manuf actur es of Selec ted Centr ally Plann
Devel oped Harke t Economies and Devel ',p ing Marke t Economies
(in percenta8~ of total Value )

1978 1979 19f1O 1981 19!J2 1983 1934

Activ ities
Centr ally Plann ed Economies
1) Czech oslav akia

100 100 100 100 100 100

Total
94.6 94.9 94.8 95.5 96 .1 96.4
Manu factur ing
0.9 9.3 e .3 7. 6 7.1 7.0
Basic H", tal
50.3 56.9 60.3 63.6 61.0 62.4
Metal Manu factur ing
2) YuC,_'s lavia

100 100 100 100 100 100 100

Total
92.0 91. 7 93.1 94.0 94.2 92.2 94.1
Manu factur ing
fl.G 9.0 7. 8 6.4 6.5 7.9 8.6
Basic Hetal
 - 36-
Cont.

1970 1979 19 ~0 19J1 1932 19 133 19J4

Activ ities

1,0.4 38 .3 36.4 37. 3 40.3 40.2 39.4

Metal Manu factur ing
3) Palane!
100 100 100 100
Total
04 .3 36.3 79.1 79.5
Hanu factur ing
8. 9 e .3 7. [J 9 .4
Basic Netal
51.0 55.9 51.9 49.1
Netal Manu factur inG
DeveloEed Marke t Economies
1) U.S.A .
100 100 100 100 100 100 100
Total
79.9 79.7 GO.2 30.2 il l.2 fl1. 6 82.3
Hanu factur inr;
2.3 2.3 4.2 2.7 2.3 2.0 1. 8
Basic Metal
50.2 4u.l 47.1 49. 8 50.5 50.6 50.7
Metal Hanu factur ing
2) Japan
100 100 100 100 100 100 100
Total
99 .4 99 . 2 99 .3 99 .3 99 .5 99.4 99.5
Hanu factur in8
13.2 14. 8 13.4 11.9 12.2 9.S 9.0
Basic Heta l
67. 9 65. 0 66. 6 69 . 6 69.6 71.6 73. 8
Metal Manu fnctur ine
3) Franc e
100 100 100 100 100 100 100
Total
96.1 96.1 96.4 96.3 96.7 96.7 96.9
Manuf actur ing
6.7 5.il 6. 0 6.5 6.2 5.6 5.7
Basic Metal ,
42.1 40.4 42. 9 41. 7 40. 3 41. 7 40.7
Metal Nanu factur ing
Develo~inn 11arket Economies
1) India
Total 100 100 100
Manu factur ing 58 . 0 62.4 59.9
Basic Uetal 0. 8 0 .7 0 .7
Heta1 Manu factur ing 11. 7 11.1 12.1
 - 37 -
Cont.

l S73 1979 1900 19t31 1982 1983 1984

Activ ities
2) Ghana
Total 100 100 100 100
Hanu factur ing 23.8 20.0 26. 1 40.13
Basic t1eta1 0.0 0.0 0.0
Metal Hanu factur ing 0.2 0.2 0.2 0.2
3) Kenya
Total 100 100 100 100 100 100
40.2 44.2 54.2 53.6 47.0 39.S
Manu factur ing
Basic !-Ie tal 0.6 0.7 0.6 0.5 0.7 0.5
2.5 1.7 1.9 1.7 1.4 1.5
Metal Hanu factur ing
4) Gabon
100 100 100 100 100 100 100
Total
Manu factur ing 1.4 2.5 11.7 6.9 10.0
0.0 0.5 0.0 0.0
Basic Metal
0. 8 0.2 1.4 0.5 3.0
Hetal Hanuf actur ing
5) Seneg al
Total 100 100 100 100
Manu factur ing 64.4 67. 0 62 . 0 72. 8
Basic Hetal 0.1 0. 1 0.1 0.2
Hetal Manu factur ing 4.9 2.1 4.1 6.4
6) Somal ia
Total 100 100 100 100
Manu factur ing 3.2 10.6 11. 9 1.6
Basic Hetal 0. 0 0.0

Metal Manu factur ing 0 .1 0 .2 0 .3 0 .2

7) Liber ia
Total 100 100 100 lOll

Manu factur inB 4.0 5.3 6 .7 4.2

Basic Metal 0.0 0. 0 0.0 0.0
Netal Nanu factur ing 0'.5 0 .7 1.3 1. 0

Sourc e:- UN. Inter natio nal Trade Stati stics Yearb ook (VaL l.) 1984.
Vario us Table s .
- not avail able.
 - 38 -

In the case of developing countries, generally, the performance

of industry in the export sector is not impressive. However, develop-

ins countries which have a good i ndustrial base have pe rformed

satisfactorily in recent years. For exan~le, in Indi a the share of

manufacturing in export earnings was between 53 and 59 .9 percent

between 1978 and 1900. In Senegal the share varied between 64.4 to

72.0 percent between 1970 and 1931, in Ghana between 23.3 and 40 .8

percent between 1978 and 1931, while in Kenya, the share was over 40

percent. However, in those developing countrie s "ith poor industrial

base the industry made the least performance in the export sector.

For example, the contribution of the sector in Gabon, Somalia and

Liberia was less than 12 percent between 1970 and 1933 .

On ~ striking feature of the structure of manufacturing sector is

that as oP?ossed to the pattern of industrialized countries, in develop-

ing countries the contribution of the metal sub-sector to export earning

is insip,o ·.ficant. For example in India it was less than 13 percent in

1970/uO , while it was less than 5 percent for the rest of the developing

countries.

2.3.6. Contribution to Government Revenue

Industrialization is one of the effective tools of increasing the

national income of a country . Among the other benefits, t here is the

contribution which industry makes by generating a surplus (through

indirect taxes and operating surplus). This social surplus provides

funds to finance government programnes and development projects. It

is, therefore important to assess the relative significance of the

contribution of the metal sub-sector in this regard in different

countries.
 - 39 -

15
2.3.6.1. Net ~ratin '; Surplus

Table 9 presents t ha t net o?~ ratin e surplus of the activity as

a percentaee of net opera tinc surplus f or the industries t otal and

for the econol!lY as a whol e f or selected countries. As shown in the

Table, Manufacturing ha s the highest perc entaee share of net operatine

surplus in the industrial sector in the economy in all countries

considered except in Netherlands and Algeria. In the latter countries

the manufacturing sector is exceeded by Mining and Quarrying activities.

With regard tc sub-sectors of manufacturing, conditions varied accross

activities anJ countries. For example, in Japan and the Netherlands

the share of l!letallurgy i n both the industries t otal, and total for

the economy '<ere positive (values less than 10 percent for eneineering

and less t han 3 percent for basic metal industries). But, in 1982,

in U.S.A., Sweden and West Germany the share of basic metal industries

was charac~erized by negative values of bet"een -0 .2 and -9 .3, whereas

metal pro·Jucts constitut ed positive values of l e ss than 11 percent.

In Alger ia , in 1977, the share for both basic metal and metal products

combinec, both in the iudustry total and total for the economy was

negative i.e., -1.1 and -1.2 percent respectively.

2.3.6.2. ~!ect T~xes

The contribution to Government revenue of different economic

activities in different countries through the indirect taxes are

given in Table 10 . For the economy , total industries constituted

92.4, 96. 0, 10. 8 , 32.5, 27.6 and 65.5 percent in Japan, U.S.A., Sweden,

W. Germany, the Net~ ~ rlands and Al geria. Here manufacturing has a

 - - - - - - - - - - - - - - - - - - _..-.

- 40 -
Table 9. Net Operating Surplus of Manufacturing as a Percentage of Net Surplus for
Industry and the Economy as a Whole

Japan 1983 U.S.A. 1982 Sweden 1982 W.Germany 1982 Netherlands 1982 Algeria 1977

..... !:! >.

...... ...
-.-f I
<II I Jl~ Jl~ Jl~ ..c'" >.
Activity
0
"" 0u
..... <>l '"" '"
..... ..c:
'" El
........ 0
c: "'"I ....... ........ 0
c:
I
'" "' ......u ........ 0
c:
I
"'''' ..... ..... ... 0
c:
I
to"' ..... ..... ... 0
El
'" H <II <II
...,
<II " Q) <II <II " Q) <II <II <II c:
...."c:
!lQ)~
-0<11 <II
... d 0 "'CI.~ ... ... 0 "t:J.rot ... ... 0 "t1 0,.( +J ... ... 0 " .rot
"'CI <II +J
<II ... ... 0
-0 c:I •..t 0 ... ... u c: ... 0 00 u c: ... 0 o 0 u c: ... 0 o 0 u c: ... 0 o 0 u
<II
<II ~.zg ...
....... H '?.3<>l ....... Eo< H""<>l ....... H H ..... <>l H"'H H""<>l ....... Eo< H4o.( ~

Agriculture, Hunting 6.2 7.5 7.1 8.2 10.7 10.5 4. 8 5.9 10.2 11. 8 11.3 11. 9
Forestry
Mining and Quarrying 0.7 0.8 5.5 6.3 0.5 0 .5 0.6 0.7 23.1 26.7 51.5 54.5
Manufacturing 23.2 27.6 9.1 10.4 13.4 13.0 16.6 20.3 6.2 7.2 1.0 1. 0
- Basic ~letal
Industries 2.2 2.6 -0.5 - 0.6 -1.1 -1.1 - 0 .2 -0 .2 0.3 0.3
- Metal Products -1.1 -1. 2
(Engineering) 8.2 9.8 2.4 2.8 4.1 4.0 8.2 10.2 2.6 3.0
Total Industries* 100 119.4 100 114.7 100 97.6 100 122.7 100 115.5 100 105.8
. Total
--~-~-- - - - - - - - - - - - - -- - - - - - - -
- 100.0 -- 100.0 - 100.0 - 100.0 - 100.0 - 100.0

. ' Source:- Compiled from UN. Nat ional accounts Statistics: ~~in Aggregate s and detailed table (1984), Various
pages,
* The net operating surplus a s a perc~ntage of industries total may be higher or lower than the total for
the economy depending on t he adjustment factors between total industry and total for the economy.
 - 41 -

and 12.4
notab le share of indir ect taxes of 52 . 2, 13.1, 23.5, 14.5
n,
perce nt for the economy in the same count ries excep t Swede

respe ctive ly.

tries had
Out of the manu factur ing activ ities metal produ ct indus

contr ibute d 12 perce nt in Japan in 1933. For the rest of the count ries

r figure being
the share range d betwe en 0.3 and 2.8 perce nt, the forme

for the Nethe rlands and the latte r for U.S.A •• The contr ibutio n of

nt of the
basic metal indus try also range d betwe en 0.1 and 2.3 perce
the count ries
total colle ction of indir ect taxes in the econo mies of

under consi der ation in this study .

sub-
This Chapt er has focus ed mainl y on the role of the metal

secto r in diffe rent socio- econo mic settin gs. This wider surve y and
the way for
analy sis of the Bub-s ector is made with the view to open
sub-s ector
evalu ating the relati ve impor tance of the Ethio pian metal

in the for ~ hcoming chapt er.

S':!~ill...~!...l1ain _~indi~
sub-
In an effor t to analy se the histo rical develo pment of the
has been
secto r in the world , it was found that iron ore extra ction

one of the old~st activiti~s of manki nd. However, it began to

ry and cont-
develo p rapid ly in the first half of the eight eenth centu
Such growt h
inued to grow in the ninet eenth and twent ieth centu ries.
uptio n.
of the sub-s ector did not howev er, contin ue witho ut interr
ed by the
The last decad e in parti cular has been a perio d chara cteriz

need to econo mize on mater ials and energ y. This has resul ted in the

. As a resul t
declin e of steel produ ction and consu mptio n in the world
level to
a restru cturin g proce ss has taken place on the world -wide

reduc e total world demand for steel .

 - 42 -
Total Indir ect Taxes and
Table 10. Indir ect Taxes by Activ ity as a Perce ntage of Indus tries
Total Indir ect Taxes for the Economy •

U.S.A . 1982 Sweden 1982 W.Germany 1982 Nethe rlands 1982 Alger ia 1977
Japan 1983

0 ~~ I ~~ I
Q/>.
..ell I ~~
~~ I 0 I Ill ..... ..... uo
"'''' ..... ..... U 0
"'''' ..... ..... uo "'''' ..... ..... U 0

Activ ity
I
"'Ill .....
" Q/ .u
"C''''( "
..... uo
<II
Uk 0
<=
Ill"' .....
"'1j.,...
" Q/ .4-J
"U Q/
.....
" k0
'" "' Q/ <II
!j ..... .4-J
"'kO
"
Uk 0
000
<=
"<= '" '"
"C''''' .4-J
k 0
<II
0
U k
000
<= "C
<=
'" .4-J
" .....
k
<II
0
<II
Uk 0
000
<= "tI....
"
<=
Q/
k
.... UH
0
"
.4-J "
Uk 0
000
<= .,;.
. -;
-, ) -1
.~
H""'", .... UH .... UH H""' '''
l.:it~ I~""' ~
<= 0 oo~ <=UH H .... '" H""' '" ~

j,
k
.... UH H,,",

Agr i cul ture, Hunt- -0.9 -0.3 4. 8 1. 3 0.1 0 .04 u:.

i ng Fores try -0.48 -0. 4 1.4 1. 4 5.1 0.6

~unin g and Quarry- - 0 .8 -0.6 C.3 0.1 52.1 34.1

ing 0 .1 0 .1 10.2 9. 9 0.4 0. 1
21•• 4 2. 6 72.2 23.5 56 .7 14 .5 18.9 .2.4
Manuf a cturin g 56.5 52.2 13.5 13.1
Basic Heta1 0.4 0.1 0.2 0.1
Indus t r ies 2.5 2. 3 0.9 0.8 1.5 0. 2
2.0 1.3
}le ta1 Produ cts 5.1 1.7 1.0 0 .3
(Engin eerin g) 12 . 9 11. 9 3.1 2. 8 10.7 1. 2
10 . 8 100 32.5 · 100 27.6 100 65.5
To tal Indus tries 100 92 . 4 100 96 . 8 100
To tal - 100 - 100 - 100 - 100 - 100 - 100
.
. .

gates and Detai led Table (1984 ),

Sourc e:- Compiled fro; UN. Natio nal Accou nts Sta tistic s : Main Aggre
Vario us pages .
 - 43 -

In the development of the metal industry, the need for integration

and the approach to integrated development of the sub-sector in the

national economy are discussed at length. The discussion was accomp-

anied by a review of the experiences of various countries. The main

pertinent questions are the following: Which model is more suitable

for a developing country? Should a country start right from heavy

steel industry or small-scale steel plants? Should it be planning

integration based on "demand pull" from capital goods industries or

on "demand push" from the iron and steel indu3try leading to expansion

and diversification of other sectors? The selection of the modality

of integration process depends upon the specific characteristics of

the developing countries, such as the availability of raw materials,

the level of technical development and manpmler trainine, and the basic

needs of the population.

With regard to the role of the metal sub-sector in different

socia-economic settings, its contribution to the entire industrial

production is the highest of all sub-sectors of the industrial sector

(Le. over 35% in the world). Several countries' experiences have

shown that, the sub-sector is the major contributor to the growth

in the value added share of heavy manufacturing. The annual growth

rate of the metal sub-sector in terms of production is also relatively

impressive.

In terms of the contribution to employment the metal sub-sector

is the highest of all other sub-sectors in all economies with the

exception of developed mnrket economies. It is also observed that

in manufacturing, the metal sub-sector has the highest annual growth

 - 44 -

rate of employment compared to o ther sub-sectors in centrally planned

and developing market economies.

In the case of contribution to foreign exchange, in the

industrially developed countries, the metal sub-sector is the major

contributor in terms of export earnings. But in the developing

countries, generally, the role of the metal industry in the export

sector is insignificant.

The contribution of the metal sub-sector to Government revenue,

among other ~ays is through indirect taxes and operating surplus.

With respect to the contribution of the sub-sector to indirect taxes,

its share is the least in the industry total for all countries

considered in this study. With regard to net operating surplus of

the sub-se ~ tors of manufacturing, conditions varied across activities

nnd countries. For example, in some countries the shares of metall-

urgy in both the industry t otal, and total for the economy were

positive whereas it was negative in other countries.

 - 4S -

1. UNIDO Secreta riate: Issue Par, er I, "The Ir on and Steel Industry

Present Situation, Prospects (lnd the Need for mo·r e Integrated'.

Development of the Iron and Steel and Capital Goods Industries"

June 1936, p.4.

2. Pierre Judet, "The World Crisis of the Iron and Steel Industry

and its Impact in the Development of the Industry in Deve1ping

Countries". UNloo, June 1986. p. 10.

3. The Great Soviet Encylopedia, Third ed., Collier Macmillan

Publishers London, (Vol.9), 1975, p. 27.

4. UNIDO Secretariat : Issue Paper I, op.cit., pp.5-6.

S. Pierre Judet, "The Integrated Development of the Iron and Steel

Indust ry and Capital Goods Sectors in Developing Countries"

UNIDO, June 1906, pp. 13-15 .

6. UNIDO Se cretariat: Issue Paper I, op.cit., p.3.

7. ~, p .4 and UNIDO Secretaria t, "Integrated Develo;>ment between

the Iron and Steel and Capital Goods Sectors: Concrete Case Studies"

June 1986, p.4.

8. S. Samarag Pungavan, "Integrated Development of the Steel Industry

Particularly Mini-Steel, Linked to Capital Goods and Agricultural

Machine" UNIDO, p.24.

9. UNIDO Secretariat: Issue Paper 2, "The Mastering of Technology and

Development of the Iron and Steel Industry in Developing Countries",

June 1986, ".9.

10. UN. Industrial Statistical Ye arbook (Vol.II,1984) pp. 610-622.

11. ~.

12. lli!!..
13. Ibid.
 - 46 -

14. ~.

15. Accor ding to the UN, National Accounts Stat istics, O~ erating

Sur]Jlus is cl~ fined as the excess of Value Added over the sum of

compensation t o employees, consumption of fixed capital, and

net indirect taxes.

16. Indirect taxes are t'lxes chargeable to the cost of production

or sale of f;oods and services. They include import and export

duties, excise, sales and turnover taxes, lavies on value added

and operating surplus etc. Indirect taxes here refer to mean

less of subsidies receive.

 Chapter 3

This Chapter is concerned with the relative importance of the

metal industry in the Ethiopian economy. Its focus is on the structure

of the sub-sector i.e. distribution by region and ownership, the con-

tribution to value of production , employment and income generation,

Government revenue, fore ign exchange. and the linkage ef f ec t of the

industry.

3.1. The Structure of the Sub-Sector

3.1.1 Geographic Distribution

Me tal manufacturing is heavily concentrated in a small number of

locations. Only Shoa and Eritrea, in 1983/84 G.C., accounted for 100

percent of t he sub-sector in terms of number of establishments, employ-

ment, gro ss value of production and value added (Table 11).

Shoa alone had 63 percent of the es tablishments, 68.6 percent of

persons employed , and mo re than 84 perce nt of value added. The rest

of the contributions were made by Eritrea Administrative Region.

The concentration of metal firms is a lso heavy within regions.

For instance , in 1985/86 G.C., Ollt of the total value produced by

metal manufacturing in Shoa, ~enagesha Awraja (Province) produced

77.5 percent, whereas, the rest, 22.5 percent, was produced by Yerer

and Kereyu Awraja. In the case of Eritrea the whole value was

produced by Hamassen Awr aj a (Table 12).

This pattern of distribution has been largerly determined by the

concentration of the market and the availa bility of infrastructure.

The main urban centers and concentrated sources of demand for the types

of goods produced are located in Shoa and Eritrea, whe re Addis Ababa

and Asmara a re situated. These two a reas are a lso better endowed with

infr a s ~ r"cture , particularly electricity. telecommunications and

transport, than other parts of the country. 1

 - 48 -

Table 11: Geogr aphic Distribution of Na tal ~ianuf a cturing

1983/84 G.C. *

----_._-- - - - - - - - - - - - - - -
No.of No.of Gross Value Census
Region Industrial Groups Est ablish- P ·· r" 0'1S of Product- Value Added
ments Engaged ion at Market
Price

Iron and Steel basic 2 610 73,418 16,857

industries (7.4) (25.5) (53.6) (41. 9)
Shoa Fabrica ted metal products
except machinery and 15 1,032 43,688 17,028
equipment (55.6) (43.1) (31.9) (42.4)

Sub-T otal 17 1,642 117,103 33,885

(53. 0) (68.6) (85.5) (84.3)

Iron and steel basic 1 142 8 , 609 2,474

industries (3.0) (5.9) (6.3) (8.2)
Eritrea F ab~ icated metal products
except ma chinery and 9 611 11, 224 3,830
_ _. equipment (33. 0) (25.5) (8.2) (9.5)
Sub-Total 10 753 19,833 6,304
(37.0) (31.4) (34.5) (15.7)

Iron and steel basic

industries 0 0 0 0
Fabricated metal products
Other except machinery and
Regions equipment 0 0 0 0

Grand 27 2,395 136,936 40,189

Total (100) (100) (100) (100)

Source: Computed C.S.O. Results of the Surve:i: of Hanufacturins

f~om

Industries, 1983/8 4, A.A., pp. 22- 23.

* Figures in parentheses represent percentage of total.

 - 49 -

Table 12. Distribution of Value of Production at Constant 1980/81

Price of l1etal Manufacturing by Administrative Regions

and A.~ajas 1985/86.

Region Awraja Value of Share in Percentage of

Production Total

Menegasha 84,548,000 69.5 (77.5)

Shoa Yerer and

Kereyu 24,554,000 20.2 (22.5)

Total 109,100,000 99.7 (100,

Eritrea Hamassen 12,503,000 10.3 (100)

Grand Total 121,603,000 100

Source:- Computed from the l1inistry of Industry, Statistical Bulletin

E::., Sept., A.A., p.17.

NOTE:- Fig~res in Parentheses represent Awraja's share in the region.

3.1.2. Distribution by Ownership Type

In terms of number of establishments, the larger proportion was

privately owned. According to 1983/84 data, privately owned metal

establishments constituted 51.6 percent, whereas the public sector owned

48.4 percent. However, 1n terms of number of employees, Gross value of

production, value added and net book value of fixed assets, the bulk of

the sub-sector was publicly owned. Public sector constituted over 99

percent for the last three items and 86.5 percent for the number of

employees (Table 13).

t
 - 50 -

T~ble 13. Distribution of Metal Manufacturing by Type of Ownership

1983/84

Social Sector*

Particulars Public Sector Private Sector All

Industries Industries Industries

Number of establishments 15 16 31
(48.4) (51.6) (lOO)

Number of Permanent 2,878 448 3,326

employees (56 . 5) (13.5) (100)

Gross value of production 132,103,000 8,022,000 140,125,000

\ ... ..., ...... J " T!Cir- '(f06) .

Value added at market 3 /.,848,000 3,397,000 38,245,000

price (91. 1) (8.9) (100)

Net book value of fixed 31,407,000 3,010,000 34,417,000

assets (91.3) (3.8) (100)

Source:- Computed from same source as in Table 12. p.72.

* Figures in parentheses represent percentage of totals.

In Ethiopia, at present, the public sector is expanding. This can

be seen from the pattern of ownership which emerged betwe en 1975/76

and 1984/85 G.C. For instance, publicly owned establishments which

accounted for 22.0 percent, increased to 51.4 percent in the ten years

period between 1975/76 and 1984/85 G.C. The share of the private

sector on the other hand declined from 77.4 percent to 48.6 percent

in the same period (Table 14) .

 - 51 -

Table 14. Pattern of Ownership of Me tal and Electrical Establishments

in 1975/76 and 1984/85 G. C." (in percentage of totals)

1975/76 1984/85
Industrial Group
Public Private Tota l Public Private Total

Hetal and Electrical 7 24 31 18 17 35

(22.6) (77.4) (100) (51. 4.) (48.6) (100)

Source:- C.S.O., Facts and Fi~ures, 1987, p.50.

* Figures in parentheses represent percentage of totals.

Table 15 provides the structures of ownership of iron and steel

production in different economies of the "orld. From the Table it is

possible to see that more than 50 percent of the \,orld iron and steel

industry is now state-owned.

Table 15. State Control of Iron and Steel Production

Country (:t) of Total

United States 0
Japan 0
EEC 51.7
Other GECD Countries 57.4
CI1EA countries 100.0
Principal developing countries
Brazil 54.6
Hexico 50.0
India 74.6
Venzuela 87.0
South Korea 60.9

Total 55.1,

Source:- Prierre Judet: "The World Crisis of the Iron and Steel
Industry and its Impact in the Development of this
Industry in Developing Countries" UNIDO, June 1986, p.38.
 - 52 -

3.2. The Contribution to Value of Production

As can be seen from Table 16 the value of production of the sub-

sector shown an increasing trend throughQut the period under considera-

tion. In 1975/76 the total value of produccion was Birr 38 million.

In 1983/ 84 it rose to the level of Birr 105 million which indicates

an increase of 172.4 percent over that of 1975/76. That meant that

the average annual growth rate was 12.2 percent over the period covered

except for 1981/82 when production declined by 46.3 percent over that

of 1975/76 level. The growth rate is by far better than the growth

rate of the sub-sector in the different economies of the world.

 - 53 -
Tab le 16. Va lue of Pro duc tio n at Co nst
ant 1971 Pri ces of Na tio nal
Me tal
Works Co rpo rat ion and All Oth
er Co rpo rat ion s Ad min iste red
by
the Mi nis try of Ind ust ry Bet
ween 197 5/7 6 and 198 3/3 4.
(in '00 0 Bir r)

Name of Co rpo - 197 5/7 6 197 6/7 7

rat ion
197 7/7 8 197 3/7 9 197 9/ 80 193 0/8 1 Growth rat e*
198 1/8 2 19 82/ 83 198 3/8 4 bet we en 197 5/7 6-
198 3/8 4 in
per cen t
Na tio nal He ta1
Works 38672 42573 509 U2 74612 82562 87933 172 .4
207 85 100249 105356 (19 .2)
To tal for the
Co rpo rat ion s** 753343 77356 8 787934 106772 3 121272 8 1301420 136812 1471567 95, 3
(l0 .6)
The sha re of the
me tal sub -se cto r
in cor por ati ons 5 .1 5.5 6.5 7.0
tot al (%) 6.3 1.5 6.8 7.2

Sou rce :- Mi nis try of Ind ust ry Pla n and

Programme Off ice , "Th e Sta te
of the }Ian ufa ctu rin g
Sec tor of the Eth iop ian Econom
y aft er Na t ion ali zat ion " A.A
., 198 6, p.5 .
* Fig ure in Par ent hes es are ann ual gro wth
rat es.
** The se Co rpo rat ion s inc lud
e tho se adm ini ste red by the
Mi nis try of Ind ust ry.
 - 54 -
Al th ou gh th e gr ow th
ra te of the su b- se ct
or in va lu e of pr od
is si gn if ic an t be tw uc tio n
ee n 19 75 /7 6 and 19 83
/8 4 G. C ., it s sh ar e
in du st ry 's to ta l ha in th e
s be en lo w. The sh
ar e va rie d be tween
5. 1 and 7. 2
pe rc en t in th e pe rio
d. The pe rio d 19 31
/ 82 G.C. was ex ce pt
io na l when
th e sh ar e ha d gone
do,m to 1. 5 pe rc en
t. However, th e an
nu al av er ag e
sh ar e ha d gone down
to 1. 5 pe rc en t. Ho
wever, th e an nu al av
er ag e sh ar e
was ab ou t 6 pe rc en
t. Compared to th e
sh ar e of th e in du st
ry in di ff er en t
ec on om ies of th e wo
rld th e co nt rib ut io
n of th e su b- se ct or
Et hi op ia n economy in th e
is in si gn if ic an t in
sp ite of th e hi gh gr
ow th of
pr od uc tio n. (T ab le
4) .

3. 2. 1. The St ru ct ur e of Ou
tp ut

The str u ~ture of pr od uc tio n in th

e Et hi op ia n M an uf ac
tu rin g se ct or
ha s hi st or ic al ly be
en do mi na ted by cons
um er goods en te rp ri
sh ar e of fo od pr oc es se s. The
si ng , be ve ra ge s and
te xt ile s in th e to ta
va lu e of pr od uc tio n l in du st ry 's
ra ng ed be twee n 62 .7
and 66 .9 pe rc en t du
and 19 85 / 86 G.C. (T rin g 19 80 /8 1
ab le 17 ). In th e ca
se of va lu e ad de d th
br an ch es of in du st e same
ry co nt rib ut ed as hi
gh as 70 pe rc en t be
tw ee n 19 81 /8 2
and 19 85 /8 6 G.C. 2

From Ta bl e 17 , it
ca n al so be se en th
at th e ne xt su b- se ct
or de r of im po rta nc e or s in
ar e chemi~al, le at he
r and sh oe s, m et al
wood an d wood pr od pr od uc ts ,
uc ts and pa pe r and
pa pe r yr od uc ts . In
pa rt ic ul ar , th e
sh ar e of th e m et al
pr od uc ts in th e va
lu e of in du st ri al pr
od uc tio n ha d
ra ng ed be tw ee n 5. 6
and 7. 6 pe rc en t fro
m 19 80 /8 1 to 19 85 /8
6 C.C. It s
sh ar e in va lu e ad de
d al so ra ng 2d be tw
ee n 3. 8 and 5. 9 pe rc
en t in th e
same pe r1. 0 d • 3
 - 55 -

Tab le 17. Per cen tag e* Di str ibu tio n of

Val ue of Pro duc tio n by
Ind ust ria l Bra nch

No. Ind ust ria l Branch** 1930/ 31 198 1/82 198 2/8 3 198 3/8 4 198 4/8 5 198 5/8 6
1- Food 26. 1 24. 0 25. 7 25. 7 25. 2 25. 5
2. Bev era ge 15. 8 15 . 7 15. 6 15. 5 17. 8 17 .5
3. Tob acc o 3.9 4.3 4.7 4.2 5.1 5.6
4. Te xti le 25. 0 24. 5 22. 6 21. 5 20. 0 20. 1
5. Le ath er and sho es 6.8 7.9 7.5 6.0 7.5 7.8
6. Wood and wood pro duc t
0.2 0.6 0.7 0.6 0.6
7. Pap er pri nti ng and
pub lish ing 5.0 5.1 4.8 5.1 5.2 5.3
8. Ch em ica l 3.0 8.4 9.1 9.3 8.2 7.2
9. Non-me tal lic min era l
pro duc t 2.2 2.8 2.4 2.1 3.2 3.7
10. Me tal pro duc ts 7.3 7.1 7.6 7.6 7.2 6.6

So urc e:- Some as in Tab le 12, p.1 5.

* Per cen tag es ~y not add to hun dre d bec aus e of

rou ndi ng.
** The se ind ust ria l gro ups inc lud
e onl y ma nuf act uri ng ind ust ry
adm ini ste red by the lIin ist ry
of Ind ust ry wh ich pro vid e 86
per cen t of per ma nen t em plo yne
nt and pro duc ed nO.3 per cen t
of the val ue add ed at ma rke
t pri ce of the ma nuf act uri ng
sec tor .
3.2 .2. Val ue Added

The val ue of pro duc tio n of an

ind ust ry inc lud es mo stly a tra
ns-
for ma tio n of pro duc ts wh ich
wer e pro duc ed in some oth er
ac tiv iti es.
Th ere for e, the net con trib uti
on of an ind ust ry to the eco
nomy is
 - 56 -

oeasur .od by the valu.o ad j ed . The newly cr"ate d va lue by the netal
indus try has been incr easing durin g the peri od under consi
derat ions.
For instan ce, the gr owth of value added at narke t price
betwe en
197·3/79 and 1933/ 84 G.C. was 38%, that me"-ns an avera ge
annua l growt h
rate of 6.4 perce nt (T able 13). However, this growt h rate is less
than the rate of growt h for the indus try in gener al.

A look intn the share of the sub-s ector in the indus try
total
value added at marke t price shm.,s that it varie d betwe en
3.3 and 4.2
perce nt in the perio d 1978/ 79 to 1983/3 4 G.C. Over these eight years
there was signi fican t differ ence on the ratio of value
added to gross
value of produ cti on. The ratio declin ed from 0.42 in 1976/ 77 G.C. to
0.29 in 19 83 / 54 G.C. Thus, the avail able evide nce seems to indic ate
that the metal sub-s ector has incre asing ly become assoc
iated with high
costs of produ ction. From 1976/ 77 to 1983/ 84 G.C. value
added in the
sub-s ector decre ased from 1.2 to 26 perce nt of the gross
value of
produ ction. This impli es that the gross va lue of produ ction attrib uted

to mater ial input s and utili ties (inter media te input s in

gener al),
incre a sed from 58 to 72 perce nt in the same perio d. (Table
19).
 - 57 -

Table 18. Census Value Added* of Metal and Total Manufacturing Industries at Market :
Price for 197 8/79 - 1983/34 G.C. (in '000 Birr)

Value Added at Harke t Price Percentage growth

rate** 1978/79 -
1978/79 1979/80 19 80 / 81 1931/82 1982/83 198 3/84 1982/33 G.C.

:'!eta1 industry 29054 33705 38449 364402 35376 40194 383 (6.4)

Total for manufacturing

industry 725844 945361 915 959 1017413 10711 61 1,962,236 64 . 8 (10. 8)

Percentage share of the

sub-sector in the industry 4.0 3.6 4.2 3.6 3,3 3.4

Source:- Same as in Table 11, Various issue.

;, Census value added is the difference between gross value of production and

industrial cost.

** Figures in Parentheses represent annual growth rates.

 - 58 -

Table 19. ~ Ratio of Value Added at Marke t Price to Gross Value of

Produ ction (in -'000 Birr) .

Year G.C. Value Added (VA) Gross Value of Produ ction Ratio of vA/vop
(VOP)

1976/ 77 17 ,339 41,709 0.42

1977 /78 18,12 7 54 , 423 0.33
1978/ 79 29,05 4 82,72 3 0.35
1979/ 80 33,07 5 106,4 98 0.32
1980/ 81 38 , 449 118 , 030 0.33
1981/ 82 36 , 402 118, 834 0.21
1982/ 83 36,37 6 124 ,880 0.28
1983/ 84 40 , 194 136,9 36 0.29

Sourc e:- Same as in Table 18.

3.3. Employment and Income Gener ation

We consi der below the direc t employment effec t of the sub-s

ector
betwe en 1973/ 74 and 1983/ 84 G.C . One should also bear in mind the indir ect
employment effec ts of indus trial estab lishm ents throug h
their linka ges.

As can be seen from Table 20 , the number of perma nent emplo

yees
of the sub-s ector showed an incre asing trend over the perio
d under
consi derat ion. The number , which was 1,401 in 1973/ 74. increa sed by 105
perce nt. reach ing 2,8 78 in 1983/ 84 G.C. This impli ed an avera ge annua l
growt h rate of 9.6 perce nt for those eleve n years (which
is equal to the
annua l growt h rate of devel oping marke t econo mies betwe
en 1972- 1984) .
These growt h rates are signi fican t when compared with those
of the
indus try's growt h rates , which were 66 perce nt durin g the
entir e perio d
and 6 perce nt annua lly.
 ,
- 59 -

Table 20. Number of Perma nent Indus trial Employees

YEA R S

1973/ 1974/ 1975/ 1976/ 1977/ 1978/ 1979/ 1980/ 1981/ 1982/ 1983/ Growth rate *
Name of Corpo ration 74 75 76 77 78 79 80 81 82 83 84 1973/ 74
G.C. G.C. G.C. G.C. G. C. G.C. G.C. G.C . G.C. G.C. G.C. 1983/ 84
Natio nal Metal 1401 1419 1427 1489 1823 1875 1951 2353 2437 2498 2878 105
Works
(9.6)
Total for the
66
Indus try 47507 50894 55205 6084 4 63288 63990 64771 69144 73374 75741 178928 (6 . 0)
The share of the sub-
secto r in the 3.0 2.8 2.6 2.5 2.9 2.9 3.0 3. 4 3.3 3. 3 3.7
Indus try Total (%)

Sourc e;- Same as in Table 16, p. 20.

* Fi gures in paren these s are annua l growt h rates .
 - 60 -

Although the growth rate of employment of the sub-sector is signi-

ficant compared to the industry's growth rate, its share in the industry's

total employment is not up to eA~ectation. The share varied between

2.5 and 3.7 percen t in the period 1973/74 to 19~3/84 G.C. The average

share over those eleven years was 3.04 percent the lowest and the highest

shares being registered in 1976/77 and 1983/84 respectively. This share

was the lowest co~ared to the share of the metal industry employment in

all economies of the world, which is on the average 34.1 percent in 1980

G. C. (Table 7).

The structure of persons engaged by sex and nationality, and by

industrial group (public and private) provides the following picture.

Of the total persons engaged and emp loyed in the industrial sector in

1983/84 G.C the share of the metal sub-sector ~1aS the least Le. 2.6

percent in both cases. It was textiles manufacturing which had the

highest share of employment, i.e. over 40 percent. This was followed

by food manufacturing with the share of 18.5 percent (Table 21).

The sub-sector absorbed in total 9.8 percent of foreigners (the

highest figure cor~ared to other sub-sectors), and 0.7 and 3.7 percent

of fema les and males engaged in the industrial sector.

In 1983/84 G.C. out of the total wages and salaries of the indus-

trial group, 3.8 percent was paid to workers of the metal sub-sector.

For comparison the share of other sub-sectors is also given in Table 22.

Textiles and food industries had shares to total pa~ent 31.7 and 13.9

percent respectively.

The metal sub-sector had a share of payMent of 15.9 percent of

total wages to foreigners, 1.4 percent to female workers and 4.4 per-

cent to male workers in the entire industrial sector. Here it is also

observable that 69.5, 19.3 and 0.9 percent of the total wages and salaries

payment were for males, females and foreign workers engaged in the entire

industrial sector respectively.

 - 61 -
Tabl e 21. Perce ntaee Sha re of Perso ns Engaged by Sex and Natio nality
and Indus trial Group -Publi c and Pr ivate 19 83/84 G.C.
(in Perce nt age )

Perce nt of Each Catee ory 1 Perce nt of Total

Indus trial Group Ethio pians Forei gners Total Employees 2
Male Female
Food Manu factur ine 22 11.0 8. 7 18 . 5 18 .5
Bever age Indus tries 9.5 4.2 8.7 7.7 7.7
Tobac co Manu factur ing 2.4 1.4 2.1 2.1
Manu factur e of Texti les 20.2 60.4 5.4 40.5 40.6
Iron and Steel Basic
Indus tries 1.2 0 .1 1.1 0. 8
Metal Produ cts 0.8
2.5 0.6 S.7 1.8 1.8
Uncla ssifie d 32.2 22.3 67.4 28 .6 28.5
Total for the Indus tri al
Group 100 100 lCO 100 100
Perce nt of the Grand
Total 65.7 34.2 0 .1 100 99 .6
Sourc e: - Same as in Table 11, p.3.
1. Perso ns engag ed (catee ory) : includ es paid emplo yees
and
worki ng propr ietors , activ e partn ers, and unpai d family
worke rs.
2. Emplo yees:- includ e all perso ns on the payro ll wheth
er
seaso nal or tempo rary worke rs.
Table 22. The Struc ture of Wages and Salar ies of Perso ns Employed
by Sex.
and Natio nality 1983/ 84 G.C. (in perce ntage )

\~ages end Salar ies Total

Indus trial Group Ethio pians Forei gners
Male Femal e
Food Manu fact urine 21. 7 11.9 5.9
Bever age Indus tries 18.9
9.2 5.3 20.8 9.4
Tobac co Manu factur ing 1.9 3.1
Manu factur e of Texti les 2.1
27. 3 51.4 1.7 37.7
Iron and Steel Basic
Indus tries 1.5 0.3 8. 1
Metal Prod ucts 1.3
2.9 1.1 7.8 2.5
Uncla ssifie d 35.5 26.9 55.7 34.1
Total for the Indus trial
Group 100 100 100
Perce nt of the Grand 100
Total * 69.5 19.3 0.9 100
Sourc e:- Same as in Table 21.
* does not add to hundr ed becau se the total includ es como ission
bonus es and allow ance for food and lodgin g .
 - 62 -

It is a f act that the sub-s ec t or r equir e s skilled managers, t ech-

nicians, production planners, designers, pro Bram~e rs, process and quality

controllers, skilled operators, skilled maintenance crew, other engineers

··
an d tec h n1C1ans. 4

For example , the employment structure i n the iron and steel

industries of average performance in the developed countries is said

5
to be as follows.

Engineers and executive = 3%

- Technicians, foremen and staff =: 17%

- Skilled workers = 68%

- Unskilled workers = 12%

On the other hand the structure of highly developed iron and steel

industries where automated process is used is s aid to be:

- Engineers and executive = 3%

- Technicians, f oremen and staf f 67%

- Sk illed workers = 30%

- Unskilled workers = 0%

In the case of Ethiopia the situation in the metal industry is

6
different. It takes the following structure.

- Professionals = 2.6%
- Semi-Professionals = 5.1%
- Skilled (9-12 Grades) = 26.5%
- Unskille d (below Grade 8) = 65.8%

Total = 100%
 - 63 -
There fore, the availa ble evide nce revea ls that the sub-s
ector is
far below the l evel of develo pment by the world stand ard
in terms of
the skill s of emp loyee s.

3.4. Contr ibutio n to Government Revenue

Indus trial publi c enter prise s contr ibute subst antia lly
to centr al
Government reven ues. The contr ibutio ns have taken three forms : capit al
charg e, corpo rate taxati on and resid ual surpl us. 7

Each year, indus trial publi c enter prise s are legal ly requi
red to
trans fer an amount equiv alent to five perce nt of the state
capit al
inves ted in them from pre-t ax incom e. This capit a l charg e which is
intend ed as a return on the Gover nment 's equity in each
enter prise , is
paid to the treasu ry. The corpo rate tax rate in Ethio pia
is 50 perce nt
and is levied after the capit al charg e.

By Procl amati on 163 of 1979 indus trial publi c enter prise

s are
allow ed to keep 10 perce nt of the af ter-ta x profi ts as
addit ion to
gener al reser ves, until such reserv es reach 30 perce nt
of the equit y
capit al. The other 90 perce nt of profi ts, called resid ual surpl us,
is
payab le to the natio nal treasu ry withi n seven months after
the end of
relev ant fisca l year.

The effec t of all these levie s is that enter prise s are

led to
exper ience subst antia l cash- flow proble ms. There fore,
they incre ase
their short term borrow ing from the Commercial Banks and
length en the
delay in payin g their levie s to the treasu ry.
 - 64 -

The vario us fo;:;ns of the contr ibutio n of the meta l indus

try to the
Government reven ue is given in Table 23. For example from 1984/ 85 to
1986/ 67 G.C. the metal indus try contri buted annua lly to
the Government
reven ue up to 18 millio n Birr of which indir ect taxes const
ituted about
half of the total , where as trans ferred resid ual surplu s
and capit al
charg e contr ibute d less than 8 and 2 millio n Bi rr respe
ctive ly.

With regar d t o the growth of the contr ibutio n durin g 1984/

85 and
1986/ 87 G.C, total contr ibutio n had gr own by 8.6 perce nt.
Capit al
charg e had incre ased by 64.2 perce nt "here as resid ual surpl
us and
indir ect taxes had increa sed by 5. 8 and 4.4 perce n t respe
ctive ly.

Tab le 23. The Vario us forms of the Contr ibutio n of the Metal Indus
try
to the Government Revenue from 1984/ 85 to 1986/ 87 G.C.
(in Birr)

Growt h betwe en
Items 1984/8 5 1985/ 86 1986/ 87 1984/ 85-19 86/87
in perce ntage

Capi tal Charg e 1,017 .000 1,821 ,000 1,669 ,852 64.2
(6.1) (11.4) (9.2)
Indir ect Taxes 8,295 ,000 7,458 ,000 8,656 ,000 4.4
(50) (4.21) (48)
Trans ferred Res~~duel
Surpl us 7,297 ,000 &,758 ,000 7,7 17,98 5 5.8
(43 . 9) (42.1) (42.8)
Total 16,60 9,000 16,03 7,000 18,04 4,467 8.6
(100) (100) (100)

Sourc e:- Natio nal Me tal Works Corpo ration .

NOTE : Figur es in paren these s are share s in perce ntage of

total .
The indir ect taxes , which are the main sourc e of Government
reven ue
in the metal sub-s ector , howev er, had a share rangin g betwe
en 2.B and 3.3
 - 65 -
per cen t in the ind ust ria l tot
al i ndi re ct tax es bet we en 197
8/7 9 and
198 2/8 3. Over tho se f ive yea
rs the e r owt h r at e for the me
tal sub -
s ect or wa s 62. 2 per cen t, or
on the ave rae e 12. 4 pe rce nt
ann ual ly,
whe rea s, for the ent ire ind
ust ry it was 75. 6 per cen t, tha
t is 15
per cen t ann ual ly. (T abl e 24 ).
Th is means tha t , o the r sub -se
cto rs of
the iDd ust ria 1 sec tor had sho
wn fas ter growth than the me
tal sub -se cto r
in term s of the ir con trib uti
on to the Government rev enu e
thr ough the
ind ire ct tax es.

Tab le 24. Ind ire ct Tax es for 197 8/7 9 -

198 2/8 3 G.C.
(in '00 0 Bir r)

Name 1978 /7 9 197 9/8 0 Per cen tag e Growth

1980 / 81 198 1/ 82 198 2/8 3 rat e* 197 8/7 9 -
G. C. G.C. G.C . G.C. G.C . 1982 /83
Meta 1ic Pro duc ts 5,7 60 8 ,57 8 9,7 15 9,3 49 9,3 42 62. 2 (12 .4)
Tot a l for the
Ind ust ry 187 , 944 272 ,23 0 296 ,59 4 312 ,63 5 330 ,00 6 75. 2 (15)
The sha re of the
sub -se cto r in the
Ind ust ry Tot a l
(7,) 3.1 3.2 2. 2 2.0 2.8
Sou rce :- Same as in Tab le 20, p.2 0 .

*Fi gur es in par ent hes es are

ann ual gro wth rat es.
3.5 . The Con trib uti on to For eig n
Exc han ge
The con trib uti on to for eig n
exc han ge i s me asu red by the
amount of
for eig n exc han ge ear ned , by
the exp ort of the sub -se c t or
's out put and
the amount of for eig n exc han
ge sav ed bec aus e of pro duc ing
for me rly
imp ort ed goo ds.
 - 66 -

The contribution of the sub-sector to forei gn exchang ~ through

export is almost nil. For i nstance, between 197 0 and 1982, the share

of basi c met a l and metal n~nufacturing in the tota l foreign exchange

earnings was zero , except f e r the 1979 neta l manufac t uri nu share of

0 .1 re rcent. Moreover, the sub-s~ctor compar ed with other sub-sectors

is the hi ghest de p ~nden t on imported inpu t singularly r equ iring over

80 pe rcent of its total inputs. This in fact has ID3de the sub-sector
. 8
a net 1mporter.

Several calculations have indicated that the attempt to save

foreign exchange through pr oducing formerly imported goods also was

nega tive. The sub- s ector did not help s ave forei gn exchange in general

as indicated by Dome stic Resource cost (DRC) es timation of 1972, 1980,

1983 , and 1986. 9

Based on the DRC calculations by Guisinger (1972) and Wor ld Bank

(1983) for iron and steel industry, ne gative value added to production

was obtained. This m~ant that the industry was 'absolutely inefficient'

in that it us ed tradeable inputs whose value (at world prices) was

10
higher than the value of the outp ut it produced. However, this

author's ca lculation of DRC (1.02) for all metal factories under the

National Met al Wo rks Corporation (NMWC) for the year 1986/ 87, classified

the sub-sector as marginally inefficient. It is also observed that

the sub-sector shows a positive private profitability whereas the

economic profit ability is ne gative. This is due to the protection

provided to the sub-sector by the Government. The rates of prot ection

are 1. 33 (nominal protection) and 1.36 (effective protection).ll

 - 67 -

The ine ffi cie ncy of the me tal

sub -se cto r to sav e f ore i. gn exc
han ee
may not hol d tru e i f det ail ed
pro duc t by pr odu ct ana lys is
is made. The re
are me ta 1 pro duct s Wh 1C
' h are e ff"lC1 , s av1'ngforc '
ent In 1 gn exc hang e. 12
On Md isa che w's pro duc t spe
cif ic or-c cal cu l ati. ons of 198
0/8 1, the
var iat ion s from pro duc t to pro
duc t can eas ily be not ice d.
For ins tan ce,
two pro duc ts Le . str uct ura l.
me tal pro duc ts and sic kle s ~7er
e cat ego ris ed
as ' ext rem ely eff ici en t', han
d too ls as ver y eff ici en t, iro
n and ste el
eff ici en t and cor k ver y ine ffi
cie nt.

3.6 . The Lin kag e Eff ect s of the Ind

ust ry
The lin kage eff ect s wit hin the
sub -s ect or and dif fer ent sec
tor s of
the economy wi ll be me asu red
by the ext ent to wh ich the sub
-se cto r
pur cha ses dom est ica l ly pro duc
ed inp uts and pro duc es inp uts
for o the r
sec tor s.

If we l ook a t the tot al sal es

of w£ ta l pro duc ts to di ffe ren
t sec tor s,
it is po ssi ble to eva l uat e the
str eng th of the r e lat ion shi p.
The hig hes t
rel ati on shi p was reg ist ere d
wit h the con str uct ion s ec tor
, f ollo we d by
agr icu ltu re and consump tio n
sec tor s . In 1986 / 87 G. C, of
the tot al sal es
58 per cen t was sol d to the con
str uct ion sec tor . Agr icu ltu
re con sti tut ed
13. 8 per cen t, hou seh old and
off ice fur nit ure 10. 7 per cen
t, hou seh old
ute nsi ls 8.4 per cen t and oth
er pr od uct s 9. 1 pe rce nt (Ta ble
25) .
In 1985 / 86 out of the tot al
est abl ish me nts adm ini ste red
by the
Mi nis try of Ind ust ry, con sum
er dur abl es wer e pro duc ed on
l y by Nat ion al
Me tal Har ks est abl ish me nts
(th ose est abl ish me nts co nst itu
tin G 100 per -
cen t of val ue add ed and of num
ber of est abl ish me nts ). En gin
eer ing goo ds
pro duc ing est ab l ish me nts und
er the Me tal Co rpo rat ion con
sti tut ed 67
p~rcent of the tot a
l est abl ish me nts and 91 per cen
t of the val ue add ed.
In term s of int erm edi ate goo
ds and li ght consumer goods
pro duc -
ing est abl ish me nts , the ir sha
re bot h in the number of es tab
lis hme nt
 - 68 -

Table 25. Sales of Metal Products * to Different Sectors of the Economy

1986/87 G.C. (in percentage of total)

Construction Agricultural Household Household Other Total

materi als equipment utensil and office pro-
furniture ducts

Sales 58.0 13.0 0.4 10.7 9.1 100

Source :- Computed from Consolidated Financial Statements of National Metal

Works Corporation.
i, Produced in establishments administered by the Ministry of Industry.

and value added were 17.1 and 10.7 percent, and 1.0 and 0.3 percent

respectively. However, the service rendering establishments were

non existent in the sub-sector (Table 26).

If we observe the inter"al structure of the sub-sector in terms

of establishments by type of goods produced and value add~d, the

following can be said. Light consumer, consumer durables, intermediate,

and engineering goods producing establ~shments constituted 4.d and

6.1 percent, 57.1 iind 3fJ.1l percent, 28.6 ilnd 37.3 pt!rccnt, and 9.5

and 17.8 percent of total establishments a nd value added respectively

';Table 26). Ther",for", consum"r durab l e production takes the highest

share in terms of number of establishments and value added followed

by intermediate goods production. Howeve r, there are no service

r endering establihsments in the Corporation. For comparison th~

percentage total for the corporations in the manufacturing sector is

provided in Table 26.

The percentage shar~ of establishments and value added on the

basis of industrial r " source inputs for 1985/86 G.C. is given in

Table 27 . Import based industries were dominant within the sub-

sector both in the numbEr of establishm"nts and va lue added. Le.

 - 69 -
Table 26. Value Added* of Me t a l Establishmen t s by Corporat i on and by
Types of Goods Produced for 19U5/B6 (in percentage)

Light
Name of Consumer CO nSUffil2r Intermediate Engine", ring Service Tota l
Corpuration Par ticula rs goods Durables Goods Goods Rendering

Na tional No. of Estab l ish-

Me tal ment 4.8 57 .1 28 .6 9. 5 a 100

Works Value Add" d 6.1 38.8 37.3 17 . 8 a 100

Tot[:. l fur No . of estab l i s h-

Corporations ments 63. 0 7.4 21. 6 1.9 6.1 100

in the in-
dustria l Value Added Jb . 9 1.7 15 . 1 0. 9 3. 4 100
s e c t or

Metal Worls No.of es t ablish-

in t h" ments 1.0 100 17 . 1 66.7 0 13

Total Value Added 0 .3 100 10 . 7 90.6 0 4.4

Sourc..! : - Sam" as in Table. 12. p . 59.

* Value Added a t Mar ket Price.

 - 70 -

76.2 and 88.5 perce nt respe ctive ly. This was follow ed by domes tic
fores t resourc~s basad indus tries. The share of the metal estab lish-
ments in the tota l manu factur ing secto r is also conta ined
in the
Table . For instan ce, impor t based indus tries, of Metal Corpo ration

const ituted 32 perce nt of the manu factur ing estab lishm ants
and 13.7
perce nt of the value added .

It can also be seen that the ir,lp ort depen dence of the Na
t ional
Metal Works Corpo ration is the highe st of the other corpo
ration s of
the indus trial secto r. That is, 80.4 perce nt of the total input s was
impor ted in 1981/ 82. Th" share of impor t ed input s for other corpo -
ration s range d betwe en 7.8 and 70 perce nt. 13

If we look at the inter nal struc ture of impor ted input s

consu mptio n
of the sub-s ector in 19UO/Ul, we find the follow ing situa
tion. The share
of impor ted input s was 100 perce nt for struc tural metal
produ cts and
corru gated iron sheet s, wher~as for hand tools it was 95 perce nt, cork
94 perce nt, iron and steel 79 perce nt and stick le 76 perce
nt. 14 There fore
the detail~d produ ct by produ ct analy sis of input consu mptio n would
provi de the diffe rent degre e of dep~ndence of each produ ct on impor ted
input s.

From the above discu ssion it is possi ble to conclu de that

the
forwa rd linkag e effec t 'of the sub-s ector is relat ively
strong a nd
impor tant wher eas the backw ard linkag~ effec t is weak, demanding for
appro priate m~asures to be taken .
 - 71 -
Table 27. Valu~ Added * of Metal Estab lishm ents by Corpo ration on the
Bas is of Indus trial Input Resou rce for 1985/ 86 .
(in perce ntage )

Domest ic Domes tic Dom<,stic Dom" stic Impor t

Ag ricult u- Lives to- Fores t Mine ra l Based Total
i'(ame of Co rpo r a tion Parti cular s ral based ck Based Resou rces Re8oU~~e8 Indus tries
Indus trij!s Indus t- Indus tries., In-
ri2s dustr ies

Nation n l He t a l No . 0f e stab lishments a a 14.3 9.5 76.2 100

Wo rkers
Value Added 0 a 8.6 2.9 88 .5 100
Tot a l f or th~ Corpo - No . of estab lishm ents 48.2
ra tion s in the
7.4 4.9 8. 6 30.9 100
Indus trial s~ctor Value added 60 . 2 3.4 1. 6 6. 4 28 .1 100
P~:rce nt ag~ vf Me tal No . of es tablis hment s 0 0 37.5 14.3 32.0
Corpo ration in the 13
To t a l Value added 0 0 23 .2 2.0 13.7 4.4

Sourc e : - Same as in Table 12 p. 58.

*Value Added is at marke t price .

NOTE : - Estab lis hment s are group ed ad "dom estic based ", if more
than 50% of their input
is local resou rces and "impo rt based " , if mor e than 50%
of their total input is
impor ted. (Inpu t includ es raw mate rials, indire ct mater
ials and utili ties used,
exclu ding labou r input ).
 - 72 -

Summary of Main Findin gs

This Chapt er has analy sed th" relati ve impor tance of the
me tal
indus try in the Ethio pian economy. In th~ study of the struc ture,
it was found that the sub-s ector is heavi ly conce ntrate d
in a small
number of locati ons and in the hands of the priva te indiv
idual s.
However, in terms of number of employee s, gross valu ~ of produ ction,
and value added the bulk of the sub- secto r is publi cly owned
.

In the case of contr ibutio n to value of produ ction, it was

obser ved
that the sub- secto r has shown an incre asing patte rn betwe
en the years
1975/ 76 and 1983/84 G.C. Altho ugh the annua l growt h rate of the sub-
secto r in value of produ ction (19. 2% ) b~twcen 1975/ 76 and 1983/ 84 G.C.
is s ignif icant r elativ e to the growt h rat e of th ~ total of all corpo ra-
tions '(10. 6% ), its sha r e in the indus try ' s t o tal has been
low. The
share varie d betwe en 5.1 and 7.2 pe rcent in the same perio
d. This share
in value of produ ction is by far l ess than th~ shar ~ of the sub-s ector
in all indus tries of the World (35.4%), Centr ally Plann ed
(36.1% ),
Devel oped 14ar ke t (41.3 %) and Devel oping Marked (14.1%)
Economies in
1980 (Table 4).

The contr ibutio n of the sub-s ector in t erms of value added

to
the total indus try also va ried betwe en 3.3 and 4.2 perce
nt at market
price in the perio d 1973/ 79 to 1983/ 84. The metal sub-s ector is
incre asing ly becoming assoc iated with high cost of produ
ction becau se
value added declin ed from 42 to 28 perce nt of the gross
value of produ c-
tion in the same perio d.
 - 73 -

In terms of employment and income generation, it was found that

the sub-sector's employment showed an increasing trend over the period

between 1973/71, and 1983 / 84 G.G. However, its share in the industry's

total employment has b~en low compareu with the share in all other

economies (refer to Ta ble 7) . The level of income generated by the

sub-sector is also the least when assessed on the basis of the

industry's total. The available evidence reveals that the Bub-sector

is also far below the level of development by the World standard in

terms of the skills of employees.

In the case of Government revenue contribution, the sub-sector

has shown a positive growth between 1984/85 and 19U6/87 G.G. Among the

components of the total revenue collected, indirect taxes were the most

important followed by residual surplus anu capital charge respectively.

With regards to the contribution t o foreign exchange some calculations

indicated that the sub-sector did not help obtain and save foreign

exchange.

In terms of the linkage effects both within the sub-sector and

the sub-sector with other sectors or the economy, it is observed that

t he forward l inkage effect of the Bub-sector is relatively strong and

important whereas the backward linkage effect is weak, demanding for

appropriate policy measures to be taken.

 - 74 -
No t es t o Chapter 3

1. World Bank, Ethiopia: Industrial Sector Keview Dec. 16, 1985, p.12.

2. Ministry of Industry, Statistical Bulletin IV, September 1987 A.A.,

pp. 55-56.

3. Ibid. This contribution of metal sub-sector is by far less than the

contribution that tha same industry makes in different economies.

That is the share in industrial production was 35.4, 36.1, 41.3 and

14.1 percent in the World, Centrally Planned, Developed 11arket and

Developing Market economies respectively (Table 4).

4. Yeheyes Assefa, "Possibilities and Constraints of Developing Heavy

Industry in Ethiopia", A.h. July 1986, p.19.

5. Ibid. p. 20.

6. National Metal Works Corporation.

7. World Jank, op.cit., pp. 40-41.

8. UN . 1934 Industrial Trade Statistics Yearbook Vol, I., p. 524 and

World Bank, op.cit., p. 96.

9. Melisachew Mesfin, "Industrialization and Tariff Protection in

Ethiopia", M.Sc., Thesis Unpublished A.A.U. May 1984, p.64,

World Bank, op.cit., p. 120 and the author's calculation of DRC

for the Sub-Sector for 1986.

10. World Bank, op.cit., p. 120.

J
 - 75 -

11. Technical Derivation of DRC for National Metal Works

Corporation 1986/87 G.C.

(Value in '000 Birr)

Shadow Economic
Item Value Price Price

Total Sales Revenue (R) 144,578 0.75 108,434

Electricity 1,923 1 1,923

Wood and Charcoal 204 0.75 153

Fuels Consumed 1,494 0.95* 1,419

Total Imported Materials Consumed 60,497 0.75 45,373

Total Local Materials Consumed 32,371 0.75 24,278

Traded Input Costs (TIC) 96,489 73,146

Repair and Naintenance work 451 0.86* 388

Water 18 0.75 14

Stationary and Telephone 154 0.75 116

Transport Cost 130 0.80* 104

Insurance Premiums 871 0.75 653

Other expenses 14,064 1 14,064

Total \<1ages 11,583 0.75 8,687

Other Labour Costs 1,958 0.75 1,469

Total Capital Costs 10,023 1.05 10,550

Domestic Factor Costs (DFC) 39,252 36,045

•
Market Valu~ of Fixed Assets 37,004
 - 76 -

(Va lue in '000 Bir r)

Ite m Shadow Economic

Val ue Pri ce Pri ce
Working Ca pit al
68, 502
Dis cou nt Rat e Pri vat e
0.0 95
Re tur n on Fix ed As set s

(37004XO.095)
3,5 15 1.0 5 3,7 00
Re tur n on Working Ca pit al

(68502 X 0 .09 5)
6,5 08 1.0 5 6,8 50
To tal Ca pit al Co sts

3515 '" 6508

10, 023 1.0 5 10, 550
To tal Wages
11, 583 0.7 5 3,6 87
To tal No. of Employees
3,3 37
Sk ille d
1,0 70
Un ski lled
2,2 67
Av era ge Wage
3.4 7 2.6
Val ue Added

(144578 + 96489)
48, 089 35, 288
Gro ss Ou tpu t
144 ,57 8 108 ,43 4
To tal Lab our Co sts
13, 541 10, 156
(11 ,58 3 + 1,9 58)

* World Bank Co nve rsio n fac tor

s. Oth ers are the sta nda rd con ver
sio n
fac tor s (SCF)
 - 77 -

(Value in '000 Birr)

Priva te/So cial Indic ators

R(P) = Gross Outpu t in Priva te Price s -- 11.4,578

TIC (P) = Trade d Input Costs in Priva te Price s = 96,48 9
DFC (P) Dome stic Facto r Costs in Priva te Price s = 39,25 2
Priva te Prof itabi lity 8,837
R(E) = Gross Outpu t in Economic Price s = 108,4 34
TIC (E) = Trade d Input Costs 1n Economic Price s = 73,146
DFC(E) = Dome stic Facto r Costs in Economic Price s = 36,045
Economic Profi tabil ity (757)
NPC = Nominal Prote ction Coeff icien t = R(P) = 144,5 78 = 1.33
R(E) 108,43 4
EPC = Effec tive Prote ction Coeff icient R(P)- TIC(P) = 48089 = 1.3
R(E)- TIC(E) 35288
DRC = Domestic Resou rce Cost DFC(E) = 36045 =1.02
R(E)-T IC(E) 35288
12. Me1isachew Mesfi n, op.ci t., p.64.

13. World Bank, op.ci t., p.96.

14. Me1isachew Mesfi n, op.ci t.

 Chapt er 4

Facto rs that Influe nce the Produ ctivit y of the Metal

~Sector.

4.1. Introd uctio n

This chapt er analy ses the determ inants of produ ctivit y of

metal
facto ries in the count ry with a vie,. to sugge sting measu res
which could
improve finan cial and economic effici ency in the sub-s ector
. We shall
begin with a brief descr iption of the management struc ture
of the 8ub-
secto r by way of introd uctio n.

The indus trial secto r is organ ized into three hiera rchic ally
struc tured lev~ ls of management. At the top is the Minis try of Indus try
which exerc ises overa ll contr ol in accor dance with the polic
ies and
direc tives of the Counc il of Minis ters and the Offic e of
Natio nal
Committee for Centr al Plann ing (ONCCP). Management is excer
cised throug h
the corpo rati ons organ ised along produ ct lines which in turn
contr ol
indus trial enter prise s. l

In wha t follow s, we will examine brief ly the organ izatio n

and
management struc ture of the ~tinistry of Indus try, the Natio nal Metal
Works Corpo ration (IDIWC) and the metal enter prise s.

The Hinist::-y of Indus try was estab lished in 1979 to contr

ol and
manage the natio naliz ed and newly estab lished enter prise s. 2
The Minis try
is organ ized into two main divis ions, i.e. Opera tions, and
Development
and plann ing. Each of these divis ions is headed by a Vice-
Minis ter
and is respo nsible to the Minis ter. The Opera tions divis ion is divid ed
into three paral lel depar tment s,nam ely finan ce, produ ction
, sales and
techn ical, and manpower and labou r affai rs. All of these
depar tment s
repor t to the Vice Minis ter for Opera tion. The Developmen
t and plann ing
 - 79 -

division is again divided into thr ee par a lle l de? artments, i.e. planning

and programming, technology selec ti on, and organisation and method

departments. Each of these departments is responsible to the Vice-

Minister heading the Development Division. Below these departments

are the corporations. Also included are br anch offices of industrial

share companies (in which the Government owns a majority share holding)

which report directly to the Minister.

There are two main standing management committees in the Hinistry.

One is an executive committee, comprising the Minister, Vice-Ministers,

all department heads and the heads of other sections. The other is a

management ccmmittee which comprises members of the Excutive Committee

plus all corporation general managers and deputy general managers.

The functions of both committees are essentially to review the

existing situation and to discuss problems rather than to make decisions

over opera tional matters. The Office of National Committee for Central

Planning (ONCCP) retains control over most operational matters such as

establishment of annual production targets , overall limits for capital

expenditures, foreign currency allocations for import purchases, and

changes in selling prices. 3 Therefore, the opportunity of the Ministry

to properely manage the industrial sector enterprises is severely

limited. In fact, its role up to now has largely been to supervise

the implementation of the directives of the ONCCP and other higher

bodies.

The Corporation is not involved in direct production. Its role

is to provide an intermediate level of authority and control between

the Ministry and the factories. It also provides ~lagement assistance

to plants.
 - 80 -

The organ izatio n struc ture of the Corpo ration follow s that
of the
Minis try.4 There are two main divis ions, Opera tion and
Devel opmen t,
each heade d by deput y Gener al Manager repor ting to the Gener
al Manager.
The Opera tion and Development divisi ons are divid ed into
four and three
paral lel depar tment s respe ctive ly. Gnder Opera tion, there
are admin -
istra tion, finan ce, produ ction, and comm ercial depar tment
s and under
Devel opmen t Divis ion, there are indus trial engin eering ,
plann ing and
proje ct depar tment s. Below each depar tment there are main
sectio ns
fulfi lling speci alized funct ions. There are 22 plant s curre
ntly
opera ting under the Metal Works Corpo ration repor ting direc
tly to the
Gener al Manager of the Corpo ration . However, five of them
are engag ed
in wood works while one is in chemi cal produ cts.

The Corpo ration holds month ly 1l'.anagement meeting s which

consi st
of the corpo ration Gener al and Deputy Manag ers, all corpo
ration depar t-
ment heads and plant 1l'.anagers. As with meeti ngs at the Minis try, this
management meeti ng is essen tially for discu ssion of proble
ms and not
for decis ion making over opera tiona l matte rs.

The management struc ture at the level of the plant s is broad

ly
simil ar to that of the Corpo ration . 5 There are four depar tment s below
the Gener al Manager, heade d by their respe ctive manag ers.
The depar t-
ments are admi nistra tive, techn ical, finan ci a l and comm
ercial althou gh
they may be known by diffe rent names at diffe rent plant s.
Below each
depar tment there are diffe rent sectio ns with speci alized
funct ions.
 - 81 -

Plant manag ers have overa ll respo nsibi lity for the day-to
-day
management of their plant s. Altho ugh manag ers have respo nsibi lity
for plant s, they have almos t no autho rity. All opera tiona l decis ions
are taken at highe r level . For examp le, plant manag ers have no contr ol
over the quali ty and type of goods to be produ ced and sold,
sellin g
price s, recru itmen t, promo tion or dismi ssal of emplo yees,
capit al
expen diture , etc., and thus are pract ically unnbl e to play
a direc t
role in impro ving plant effici ency. Becau se they can only make
sugge stions , this resul ts, as some one obser ved, in frust
ratio n and
indiff erenc e on the part of manag ers. There i n need for decen tralis a-
tion of autho rity to plant manag ers since these are the
peopl e who,
being on the spot, are knowl edgea ble of preva iling condi
tions and what
actio ns need to be taken . This should contr ibute to much
impro ved
indus trial perfo~ance. 6

4.2 Facto rs that Deter mine Pr~!ivi!x of the Me tal Sub-S ector

Economic and non-e conom ic f actor s have been consi dered

to determ ine
the produ ctivit y situa tion in the indus try. Sixte en plant s admin istere d
by the Metal Corpo ration have been surve yed. The surve y requi red the
coope ration of sever al depar tment s both at the Corpo ration
and plant
ing
level s. The perso nnel involv ed in compl ed the requi red
inform ation
in the quest ionna ire were plant manag ers, and heads of
admi nistra tion,
techn ical, finan cial and comm ercial depar tment s of the Corpo
ration and
plant s as well as members of staff . All of the respo ndent
s are holde rs
of first degre e or above . The facto rs consi dered in the
study are the
follow ing: the natur e and quali ty of the raw mater ials
used; produ ction
proce ss emplo yed; effici ency of plant ; the conti. r.uity of
produ ction and
 - £2 -

the exten t of ef fe ctive utiliz a tion of manpower; cae supply

of skille d
manpower in all job categories ; finan ce; sourc es and costs
of impor ted
and dome stic raw mater ials. Other facto rs includ e the managerial and
admin istra tion system , ,. age and job promo tion polic y end
emp loyee s
relati ons; and the demand press ure , and trans port facil ities
and
distri butio n system s.

4.2.1 . The Natur e and Quali ty of the Raw Hater ials Used.

The level of quali ty of raw mater ials used in produ ction

has a
stron g beari rg on the quali ty of f inishe d produ cts and thereb
y affec ts
the comp etit i venes s of the enter prise in the marke t. The use of high
quali ty raw mater ials incre ec es t he qua lity and stren gth
of produ cts.
This in tur n affec ts the pro aucti vity and profi tabil ity
of enter prise s.

The major ity of the enter pris e s of the Hetal sub-s ector
survey ed
repor ted t hat they us e medium quali ty r aw mater i a ls. Out of the
sixtee n enter prise s surve yed, 25 perce nt I ndic a ted t hat
they have
been using the highe st qua lity of r aw 1OL:~ 2ri a ls and 69 perce
nt the
medium quali ty. 'lhe rest of the ent e ::-p ds ~ s indic ated that the quali ty
level of raw mater ials is not known.

4.2.2 . Produ cti on .Proce s~ r:'1l(l l oyed

The arrang ement of indus tri a l p l an ts can be one of the main

facto rs
affec ting the produ ctivit y of an en te r?=i se . The arrangement is
diffe rent from facto ry to f a ctory depen ding on the type
of produ ction
proce ss adopt ed. Those enter prise s which have adopt ed proce ss layou t
were only 13 perce nt, wher eas those which applie d line,
produ ct and
flexib le l ayout s const itute 31 perce nt e ~ ch . Howev er, the follow ing
fund ament a l const r aints ;;er ~
,' _ _ _ . ... _ 1
~7 2ever al enter prise s:
 - 83 -
i) misl.) ca tion of ;]lachi a"" . (This i s parti c"lar ly true in
the
cas~. of sickl es fac t or 1,,8 wioeo r " harel"n::'ng is tnking pla ce

befe re notch ing. Wi t h notch ing t he ha rde neel pa rt reduc es the

stren gth of the sickle s);

ii) the typ e o f line l ayout tha t some f actor ies a dopte d does

not a llow on~ op er a t or to pe rfvrm two or mor~ short opera tions;

and

iii) the existe nce of a consiel ~ rabl~ amount of distan ce betwe en

machi nes along the line has le d t o addit ional costs of

trans portin g mater ia ls and to up ~ ra [e at l ess than full

capac ity.

4.2. 3 .1. Fr~quent Ma ch ~ne and Equip ment Breakdown

The f~equent machi ne anel equipm ent breakd own cause s disru ption
of produ ction proce ss and s"rio us produ ction cutJow ns.
The exper ience s
of the scrvc yed enr.er prises in the metal indus try indic
ated that all of
them hav e f a ced d~srup tion af t he produ ction proce ss due to machi ne and
equipm ent breakd own. Howe ver, the fr e quenc y of the breakd own varie s
from facto ry to fact ory. For examp le, among the repor ting enter prise s
those which faced the proble m often , sometim~s and rarely were 6,69
and 25 perce nt r ~6p ectiveLY.

It is a distur bing facto r to obser ve tha t 75 perce nt

of the enter -
prise s compl ained about the absenc~ of timel y maint enanc e of broke n
machi nes. The facto rs respo nsible for the delay of ma intena nce are

summ arized in Ta ble 28 .

 - G4 -

Table 28. Facto rs Indic ated by Respo ndents by Rank Matri x for
th ~ fibse nc~ of Timel y Repai r of Machi
nery

Knnk Numb .. r Perce nt

Facto r 1 2 345 Total %* 1 2 3 4 5
Proble m of gettin g spar~

parts 9 1 1 o0 11 69 81.8 9.1 9.1 0 0

Burea ucrati c Proce dure 1 2 1 1 1 6 33 16.7 33.3 16.7 16.7 16.7
Lack of skille d tech-
nicia ns 113 10 6 38 16.7 16.7 50 16.7 0
Machi nery too old to
permi t quick maint en-
ance 360 00 56 33.3 66.7 0 0 0

* Perce ntage of total enter prise s surve yed.

Most of the enter prise s respo nded that the proble m of gettin
g
spare parts , and the fact tha t machi nery were too old to
permi t quick
maint enanc e, hav~ been the outsta nding facto rs respo nsible for the
delay of mainte nance . Bure aucra t ic proce dures , and lack of skille d
techn ician s, are also i n<lica ;:" J as facto rs for the delay
of maint enanc e
by some e nterp rises; sever al of the enter prise s ranke d
these facto rs as
the first and secon d most impor ta nt maint enanc e proble ms
as is evide nt
from Table 28.

As the freque ncy of the machi ne and equipme nt breakd own

is
diffe rent from fact ory to facto ry, the cause s for th~ delay of main-
tenan ce are also diffe rent in gravi ty from one group of
facto ries to
anoth er; For examp le, the proble m of gettin g spare parts affac ted

agric ultur al equipm ent and tools ent erpris es and house hold
utens ils
enter prise s more than a ny other group of enter prise s; the
fact that
 - 85 -

machinery is t o old to p~rmit quick maintenanc e af fe ct e d household

ut.msils i olluwlld by construction emd agricultur<!l tools plants more

than any other gr o,",ps of ~n t(r pr is es; l ack of skille d technicians

affected more the construction and house hold utensils enteprises, and

bure aucratic procedure aff~cted construction ma terials more than any

other group of enterprises (se~ Table 29). However, although different

levels of importance are attached to problem factors by different

enterprises, the fact r ema ins that many of the problems are in common

to many of the enterprises and contribut u to the lowering of pr oductivity.

The recommenda tions of reporting enterprises to minimize machine

breakdown a r e giVen in Table 30.

As shown in table 30, the majority of the enterprises surveyed

recommended similar methods to minimize breakdowns and provide timely

maintenance. For instanc~, the enterprises that have recommended to

provide them with workshop facilities to produce spare parts and

replace old equipment as rapidly as possible constituted 81 percnt

respectively. Similarly , thos~ which have recommended the methods

such as giving training to the work force, introducing individual and

group incentive schemes, strengthening shop floor supervision, and

practicing preventive maintenance constitute 75 pe rcent, 63 percent,

SO percent, and 6 percent respectively.

It is observed also that several enterprises have applied some of

their recommendation t o minimize machine br ~ akdown. For example, to

strengthening shop floor supervision has been used by 88 percent of the

recomending enterprises; tra ining to the work force has been applied by
 - 86 -

Table 29. Classification of Problems by Types of Products

Construction Agricultural Household Household Other

Materials Equipment Utensils and and Office Products Total
and Tools Furniture Furniture
Factor
--- -- - - >-4 Number % Number % Number % Number % Numb~r % Numb"r %*
Problem of getting spa re
parts 2 18 3 27 3 27 2 18 1 9 11 69
bureaucratic procedure 2 33 1 17 1 17 1 17 1 17 6 38
La ck of ski11ud technicians 2 33 0 0 2 33 1 17 1 17 6 38
Machinery too old to permit
quick maintenance I 2 22 2 22 3 33 1 11 1 11 9 56
--- ~ •..
P~ rcentage of t otal enterprises surveyed .
'"
Table 30. i{2commendations of Enter:erises t o Minimize Machi!!e. _B.!_e_akdo~

----._--_. ------ -----

Number of Percentage of Tota l
Recommendation l\e sponse Enterprises Surveyed

Give training t o the work froc e t o enhance th~ir competence

in using the machine 12 75 I

Introduc" individual and group incentive sch • .D<ls to : ~,··'. rd

diligent operators individualy and in gr0up for minimizing
breakdowns due to negligence 10 63
Strengthen shop fl oor supervision to ensure that every worker
handles machines with appropriate cara 8 SO
Provide workshop facilities to produce spare parts 13 81
Replace old equipment as rapidly as possible 13 81
Practice preventive maintenance 1 6
 - 87 -

50 percent ; provili ing wor ks hop f Gci l iU c. s t <.' pr()Quc," spa r e pa rts by

46 pe rcent ; introduci ng i nd ividua l anll gr oup in c ,. n tiv ~ schemes by 30

percent ; replacing ol d cquip"""nt by 23 percent ; and practicing preventive

maint~nance by 100 pe rcent.

4.2.3.2. Ilnterprisu Capacity Utiliz a tion

According t o the r ~sp uns~s of e nt~rp rises a ll of them have b~en

operating below their capacity for ove r five y"a rs now. Capacity

utilization r a nged betwe en 33 a nd BO percent according to the re-

spondents. The problems summeriz ~ d in Table 31 were reported as

causes of working less than full capacity.

The maj ority of the entdrprises reported that constraints result-

ing from r aw mate rials shortage s, r eduction in the number of shifts

or the impossibility of increasing the shifts and poor communications

(in the f orm of ma lfunctioning t e l ephone syst em, inefficient postal

sC!rvictls clnd poor transportation) a s thl: most common and the 5trong~st

cons traiuts to capacity utilization. The failure to develop or evolve

the technol ogy t o produce spa re pa rt s l ocally, lack of motiva tion to

work on the part of workers, and frequent machine br~akdown have been

the other outstanding causes of underutilization of capacity during the

period 1983 to 1988 (Table 31). Most of the ent e rprises considered

these factors as primary causcs of the underutilization. Th~ examina-

tion of problems by types of enterpris~s indicat~s that the importance

of problem factors varies from one gr oup of ent erprises to another.

This is because of specific conditions of enterprises. For example,

most of the factors listed affected plants of construction materials

and househol d utensils more than any other group of e nt e rprises (Table 32):
 - 88 -

Table 31. Number and Percentage of Enterprises by Degree of Causes

of Under Utilization

Primary Secondary Minor Total

C a use Number % Number % Number % Number %

Shortage of supply of electricity and water 2 15.4 1 7.7 10 76.4 13 81.0

Frequent machine breakdown 2 14.3 6 42.9 6 42.9 14 88.0

The failure to develop or evolve the
technology to produce spare parts locally 5 35.7 5 35.7 4 28.6 14 88 .0

Reduction in the number of shifts or the

impossibility of increasing the shifts 9 60.0 2 13.3 4 26.7 15 94.0

Poor Co~unicati~ns 8 57.0 1 7.1 5 35.7 14 88 .0

Constraints resulting from raw materials shortages 9 60.0 6 40.0 0 0 15 94

Delays experienced due to unnecessary bureaucracy 2 15.4 2 15.4 9 69.2 13 81

Shortage of specialized labour 3 25,0 4 33.3 5 38.5 12 75

Competition from legally importe substitutes 3 33.3 3 33.3 3 33.3 9 56

Compe tition from smuggled substitutes 2 28.6 3 42.9 2 28.6 7 44

Security reasons I 2 66.7 0 0 1 33.3 3 19

Lack of motivation to work on the part of workers I 4 33.3 5 41.7 3 25 12 75.0

* Percentage of total enterprises surveyed.

 - 89 -
Tab le 32. Cla ssi fic ati on of Pro ble ms by
Types of En ter pri se End use
Pro duc ts

Group of En ter pri ses

I Co nst ruc tio n Ag ric ult ure Ho use hol d
t-lat eri als Ho use hol d Oth er
Equ ipm ent Ut ens ils and off ice
and To ols Pro duc ts To tal
Fu rni tur e
Number % Number % Number % Number % Number % No. %*
Fre que nt nac hin e breakdown
4 29 2 14 4 29 3 21 1 7 14
The fai lur e to dev elo p or evo 88
lve the tec h-
nol ogy to pro duc e spa re par ts
loc all y 4 29 2 14 4 29 3
Red uct ion in the number of shi 21 1 7 14 88
fts or the
im po ssi bil ity of inc rea sin g
the shi fts 4 27 3 20 4 27 3
Poo r com mu nic atio ns 20 1 7 15 94
\ 4 29 3 21 4 29 3
Co nst rai nts res ult ing from raw 21 0 0 14 88
sho rta ges ma ter ialL
4 27 3 20 4 27 3 20 1
Sho rta ge of spe cia liz ed lab our
14 33 2 17 3 25 3 25 0
7

0
15

12
94

Lack of ~otivation to work on the pa rt of 79

wo rke rs
I -4...-- -33 2 17 4 33 2 17 0 0 12 79
* Per cen tag e of tot al ent erp ris es sur vey ed.
 - 90 -
Th ere for e, the pol icy meas ure
s t o cor re ct the sit ua tio n wi
ll var y in
ent erp ris es depend ing on the
gr avi ty of the pro ble ms , des
pit e the fac t
tha t some gen era l probl ~ms app
lic abl e to mo st en t erp ris es ex
ist .
4.2 .4. The Co nti nui ty of Pro
duc tio n

The con tin uit y of pro duc tio n

are imp ort ant for eff ect ive
uti liz a-
tio n of manpower. Based on
the res pon ses of the six tee n
ent erp ris es,
it is obs erv ed tha t 44 per cen
t of them had exp eri enc ed a
com ple te
clo sur e. The ran ge is bet we
en 1 month and 1 yea r in ma
jor ity of the
cas es. However, thr ee ent erp
ris es had the exp eri enc e of
8 to 13 yea rs
clo sur e. Pa rti al clo sur e of
fac tor ies (i. e. clo sur e of cer
tai n dep art -
me nts ) is a fre que nt phenomeno
n in many of the en ter pri ses
.
The rea son s for the com ple te
or pa rti al clo sur e of fac tor
ies are
giv en as fol low s:

i) mar ket def ici enc y res ult ing

ma inly from the com pet itio n
of
leg all y import ed and smuggled
sub sti tut es. Th is is pa rti -
cul arl y tru e for the sic kle s,
pip e, hou seh old ute nsi ls, and
tra cto r ass em bly pla nts .
ii) sho rta ge of raw ma ter ial s.
Thi s is the cas e of she et me
tal
fac tor y and iro n and ste el fou
ndr y.
iii ) sec uri ty pro ble m. Th~s is pa rti cu lar ly tru e for fac
tor ies
loc ate d in Asmara.

The number of pro duc ts pro d:·c

ed by a fac tor y ran ged bet we
en one
and fif ty. The re has bee n cha
nge s in the typ es of the se pro
duc ts in
the 13 per cen t of the sur vey
ed ent erp ris es bas ed on ma rke
t demand. For
some ent erp ris es a qui ck sh
ift fro~ one to ano the r pro duc
t was dif fic ult ,
bec aus e among oth er thin~ s,
the P ~0~ uction pro ces s is rig
id to allo w suc h
 - 91 -

a sh ift or it tal< .es " 10:lg per

i od to get app rov a l fro n hig
her au tho rit ies .
It is als o obs erv ed tha t pro
duc tio n of sev era l typ es of
pro duc ts is
adv ant age ous for an ent erp ris
e, it per mit s ent erp ris es to
con cen tra te
on the pro duc ts wit h f avo ura
ble demand con dit ion .

4.2 .5. ~upply of Ski lle d ~wnpower in All Job Ca teg ori es
The pro ble m of hir ing new em
plo yee s at the rig ht tim e to
fil l ope n
vac anc ies is one of the fac tor
s pla yin g a ma jor rol e in pro
duc tio n.
Ac cor din g to th ~ res pon ses of
the sur vey ed ent erp ris es, all
rep ort ed
tha t the re is 11 pro ble m of hir
ing new employee s at the rig
ht tim e.
The re are many vac anc ies in
,o.n ter pri ses . However, the number
var ies from ent e rpr ise ~o ent erp ris es. Out of 130 ave rag e number of
wo rke rs the ran ge is bet we en
les s tha n 5 and mor e tha n 26
vac anc ies
per pla nt. ~o r ins t anc e, 25
per cen t of the ent erp ris es hav
e more tha n
26 vacanci e~ wherp.as 19, 31
and 19 per cen t of them hav e
bet we en 21- 25,
5-1 0 and l es s tha n 5 vac anc
ies res pe cti vel y . Th ere for e,
94 per cen t of
the ent erp r ise s hav e some lev
el of vac anc ies (i. e. alw ays
les s tha n
100 perce ·~t sta ffi ng) .

Sim i lar ly the ave rag e l eng th

of tim e of the se vac anc ies var
ies fro m
ent erp ri s e to entp.rpri "~ , i
, e. bet we en les s tha n one mo
nth to ove r a
yea r. For exa mp le , in 50 pe
r~e~ t of the ent erp
ris es the vac anc ies re-
~~ined ope n on the
ave rag e ove r 12 mo nth s, wh ere
as, in 44 per cen t of
the ent erp ris es bet~een 1-6
mont h s . The longer a pla ce
sta ys vac ant ,
the more the neg ati ve eff ect
of it on pro duc tio n.
Sev era l rea son s hav e bee n rep
ort ed by the ent erp ris es for
the
pro lon ged vac anc i(!s, he Gho
'.-n i:-. Tab le 33 m03 t of the ent
erp ris es
ind ica ted tha t len gth of hir
ing pro ces s and sho rta ge of
n~:lcida te8
 9- -,
wit h the req uir ed s kil "s are
~eapons f 07 the pr o l ong ed voc anc ies
. A
goo d many of the ent erp ris
es hav e a~so ind ica ted tha t exc ess ive sto
cks
of fin ish ed goo ds d ue to sa'.
es pr obl em ar.d unr e lia ble
~' ,pply of raw
ma ter ial s (wh ich dis cou rag
ed ent erp "is es t o pus:-. c:::
proG1pt em plo ym ent ),
and un att rac th- e sal ari es
and wag es a re rea son s wh i c
" ::av e made it
dif fic ult to fil l vac anc ies
at t~e ri gr= time. Th~ ma
jcr ity of the se
ent erp ris es hav e ran ked the
abo ve as the ma in =ea son s
of pro lon ged
vac anc ies . How eve r, the =ea
son s di ·', not h ave t!1e same
deg ree of re-
lev anc e to all gro ups of ent
erp ris es. Th is C'ln be obs
erv ed frcl II exa min -
ati on of rea SO'.1es acr oss the
gro ups of enterF ri~es (T abl
e (34 ). For
exa mp le, con s t ruc tio r. pla ntr
are r.:'ghly affec ~, ,,d by man
y of the rea son s
Tab le 33. ~: lDber/Perce~tage~~nte
!:E,,!. s.=~ ~~k of Rea son s
::or t he Pro lon ged Vacar..~ies 3

~!k
._- -.- - - - - _._ - - - - - - - - - - -
1___ ,
Rea son s ._ _' __~~_ _%_ No. % No.
Sho rta ge 0: per son nel \
.-'- - ----,%----No.- -
% No. % No
------
wit h tha '!·e ql~ir F: ~. ~lt:'::" 3 7 70 o o o o o o 10 6
Pro ble m cf obt air .ing I
rel eas e c,f per soc nel
fro m oth ,· r sec tor s
3 75 o o o o o o 1 25
Un att rac tiv e s.:l la7 :'e s 4 2
and wag " s 3 [;2. 9 I 14. 3 3 l,2 . 9 0
0 0 0 7 4
Un con du: :i ve t;c! 'k ,,:::\· i ro. \
me nt 4 66. 7 0 0 0 0 2 33. 3 0
Len gth of emp loy men t 0 6 3
pro ces s 10 83. 3 I 8.3 I 8, 3 0 0 0 0 12 7
Ex ces siv e sto cks of
fin ish ed goo ds due to
sal es pro ble m a::d un-
rel iab le sup ply of raw
ma ter ial s 7 100 0 0 0 0 0 0 0 0 7 4
~'-- -- ..... --
~---- ---
--
* Percent~ge of tO~Rl
e~terprises su~vey ed >
 - 93
Table 34. Class ificat ion of Proble ms by Types of Enter prise s

of Enter prise s I Const ructio n Agric ultura l House hold House hold Other
Mate rials Equip ment & Utens ils Offic e
------ Produ cts
Reaso ns 1\ rotal
I tools Furni ture

:Number % Number % No. % No • .. % No. % No. %*

Short age of perso nnel with the
~
r equire d skill 4 40 2 20 2 20 2 20 0 0 10 62
Una ttrac tive salar ies and wages 2 29 1 14 2 29 2 29 0 0 7 44
Lengt h of emplo~ent proce ss 4 33 ~ 17 2 17 3 25 1 0 12 . 75
Exces sive stock s of finish ed goods
due to sales proble m and un-
reliab le suppl y bf raw mater ials 0 0 2 29 3 43 1 14 14 7 44

* Perce ntage of total enter prise s surve yed.

 - '4 -
tha n aUf oth er bro uP v i pl <1H c.~J huc. Lhl !j :""Cd. uet a.l:l~ c-.:\:d by ~Ac l!ssiv
~
sto ck of finl.sh~ d guo ds. Thi s imp li a s tha t dif f2r /
;' ut pol icy mCi'lsura::s
mu st b e prl; :scr ibc cl. to i Ulprc
ve tIle! t;it u;; tio ll in dif xl:
r:.!1\ t t.:>ntc rpr is'18
and gro u p of e nt e rpr ise s .

Ent~rpriscs hav e ma nag l.'! u t u ov(! rc olt t~ th~ probl~ms of tillin~

v a c anc ie s in s,.;v.,;,!cil l way
s 111 clud ing th~! U[; ,. of t l.:Hl.p lJra rj db d ov..:::rtim·~
wo rk,n :s. ,i s ind i.oa t " d by
!Jl. 3 pe rc en[ ,)~ th " ent e rpr is e s.

Trd inl ng imp ruv es eh" ski

ll of wo rk... r s m .d th~r,,-by imp rov (;s pro -
duc tiv 1ty . It was f c und t11 "t 8tl p" rcc
n t of th , " nt ~ rpri Si' " hOtv
"

c- v e. r:i th0 pro pu rci ou o f

wor ker s wh icn obt hin : d tr cl. iair~B dit f c r t,".d fr om
onto. t.!nt ~ rpri s~ r.tno th<.! r
t (; J r :, nE; ing b\!cw~~(:n 1.7 und 15 p ;:2 rc t~ ut uf th2
t o eal wur k~ r$ vf £l iac t o ry. Th ~ .:ll1 ulys iB o r r .:! l ati oll s hip
s of nUlub ~ r
of vac iin cie s wit h thu num
ber or p ... rs 0nn\::l; 1 cr.:~~n,'-~ d in (;..lc h t..;nt ~ rpris t.:
ind ica t.::d t!-i;:! t chi:! ~ nt.-:rpr iscs tifil :h cth: l {~ .:i. s t nmn b.::r of v ;.J c anc iu u

(Ta bl" 35) .

TAbl';;! 35. lc.: 1d tio ns hi pG (If N U fiLb --} r vI V :..!. C~H,G"",':-. 5 wit h Nu;.ub'! r
of P ~\ rsun n(:. l Tr,~in ::; d.

Numb e r of 1) \·F rc ;.;.n t a6 ~ cf Av cr;:l ge P i:: rc '~ nt C!gl:

Num ber of V~l c anc:l.~ s eilc ,.; rpris r~s
T nt~l t)! Tra int: d P\.~ rs v ns
En( .c reri 8~s
Le s& the n 5
3 l~ 13. 4
5 - 10 6 31
L1 - ;<5
4.5
3 19 4.5
More tha n 26 4 25 9.7

b h 0 1·t ....1gli in u rd ~ r t o fU. lii ll th (w' l.r ()b j ~ ct1ve s. J~s i nc.ic·::Itt!d by ;~ nt ~ r-
pri Uc 3 th l~ r c 2.rE! 0 v ,:; ri.:'! t y of r C.1. £h.m s f ur tht~ i i. a i.:,nci-:.'.l pr c ol ~m . Thl;S~
5rt.::! sumre.".:-i~ e d in Ta bll:. 36.
 - 95 -
r~b1£ 36. Numb2 r/P erc en t aga of Encerpris~s by Rank of R~aS0ns f or
Fin uuc ial Sh o rtag~

K.'.. nk 1 2 3
Kee , 5·)n s
~ 4 r el t a l
Numbtr % Numb c;! [ -, Nmnber
10
% Numb"r % Number
Un r",l iab h sup ply of rdW 1ll3t -------
er i '.1s
%*
Cau sin g und ~ r utili~ a t1
Qn and unr g-
c( ,vwr :-ib l..;: cus ts
7 53. 9 3 23 .1 3 23. 1 0 0 13
..~gl.:.ir:g M2ch i ndr y rrncl uqu 81
ipm \2nt ~
frll qu' .!n t br~ .J kd (\ wns :.nd
hig h
ul.:: h-~t.~ n i1n CL c o sts
2 LO 6 60 2 20 0 0 10 63
C(;u scr. ...ti nts rt.' l [l t~d t o Pr Jc l ame. tio n
1'-1 ,) • 1b3179
(j 53. 3 4 26. 6 3 20 0 0 15 94
i"~1. 1url,;: ur J-cl .:.t y uf p & y~r..t! nt fo r
1nt ~r r ~: c[~ry cr~dit s~ l es
2 33. 3 1 16. 6 3 50 0 0 6 30
cxc css iv ..: st\.. ,ck s ;.;f i inishf.=. d goc ds 5 36. 5 5 3[;. 5 3 23 .1 0 0 13 01
.t<.isin5 C v st tJ i [ dW lu.a ter ial s 0 72. 0 2 1il. 2 1 9.1 0 0 11 69
tii5h~c ~) s( ot bur ,... d UC [ .1CY
i" 1 20 U 0 4 80 0 0 5 31
t1i:avj rl: li3.n cc un QU ':lIl
tity ()f p r .:) uu cti on
thc1n c o st ~J f pr odu cti on as
m~as ur e of
~a [ ~rpr is ~ p~rfo rma nc e
2 2u . 6 2 ':0. 6 0 0 3 42. 9 7 44
A Th~ p~ rc entag~ is the perc~ntage of t 0 t31 ~nt~rpris~ sur vey od.
 - 90 -

Th" "''' i,'r ity of th", cnt~rp ri s"s (i.~. LVe r SO p~ rc 8 nt) indic a te d
tha t thi;. COllst rdint s re l n t ~d to l:' r~j cl;)u"'.:l ti (:,n No . 16 3/7 9 7 (tt1\ Pro clama -
tlun t o Pr()vic le f ur th..:! i{8gu l;J ti o n f! nd Coo rdina ticln
(;· f Publi c Finan cia l
Ope r a ti un " ). uTlr ~l i a bl " supply o f r a w lDe t e rLll s (c
du s ing und" r utili za-
tio n a nd unr €c fJv e. rable c ~·s ts) , ~x c t;! ssive st ocks o f finisht ..!d g{l()ds , a nd
rising c o st of rtlW m~::. t e ri a ls [is th \! outst cHluin 6 r
e.1. s nns c Cl u s in ~ finan cial
pro bl"ms . Agein g machi nery .:md fr c qu" "t e qui pment br e"kd(.,wn .
a nd high
ma intcn anc..::= c os t s ·1re a lso r ea suns o f the fin ancia
l pr.:)blems o f most
of the e nterp risi,;!s . wi th SGrne vf chI,;! t;;:n t~r prisc s he.llVY r~lid ncc un
quant ity of prGdu ction r a th ~ r th.:m c u st o f prc, ducti on a s 1l measu re o f
e nterp rise p€' -rfunnance , f a ilure o r delHY c,f pHymc
nt t or inter f act o ry
credi t s.-tles , and hight -cust uf burei-lUcrncy nr~ c a us ,;: s ..; £ dec lining
fin3n cia l J?0 sitio n .

Hl.Jwev ~ r, th~ eX~:H..o 1 lv' ti...:: n '-.f the r L: :JSi.~ns 3ffi(.. ng g rt·up s 1..1£ enter prise s
indica ted 1. h~! t their signi ficbn ce uiff er~ d fn ... m u l1 E; g r o u~) ;..::f enter prise s
t o a nu th"r (Ta bh 37). On tht! o thl!r h,md. the r " ei r e g r uups ,) f ente r-

pris e s which a r" s e v",r~ly a ffl!ccu d by ,, 11 facL rs. This incluG e d

c Dnstru c tivn m"t <! rio ls. h,.'u sl!hJl d ut ensil s "nd hvu
se hc' l d a nd " ffic ~

furni tur " . This impli<=s thac the po licy llI"a sur~s r ~ quir eJ should of
occe.SS 3.t'y v a ry fr ;)m e nt;.!rp rises t :J ;;:nt e r pris e dnd
fr om one. gr oup o f
enter prise t o a n (l th~r ••

Sellin 6 on credi t is a c emrnon a ctivi t y vf e nt e rpris es.

In[l ny Fo r
inst ance. 81. 3 p e rce nt of thl! ell t e r p ris ~s ",, 11 pr od ucts Llfl credi t . but
only 61 p"rce nt of them c o llect receiv ab h s ·)11 time . Abc ut 38.5 perce nt
do no t c 0 l1Ect ~ ll time un .:lCCLlu nt o f s av e r a l r cc;l. s ons. The r ea s uns n r~

the inca:,>:.; city (If ell" ur gduiz il tiollS t " c u ll~ct a nd the reluc t a nce o f
the J"bco rs t o pay. 8.11 of t he c nt "rpri se s which f ·o.c ed these pro blems
 - 97 -

T~bl~ 37. Cla ss i fic a tion of Proble ms by Type s of Ent e rpris e s

uf Ent=r l' ri s;;s 1Cons t r uc tion Agri. Equi? House hol d House hold Othe r
i"'ill t e I' ials & Too l s ",t' ensii s & Offic e Produ cts Tutal
Furni tu re
Number % Numb" r % Nunb er % Number % NUl!.be r % Numbe r 70:1
Unr~li aD le s upply of r aw rr.a teria ls
~
c'1usi ng uncle I' utili za tic\n And un-
c 0 v~r :..lb l 'i c e sts 14 31 2 15 4 31 3 23 0 0 13 81
J:lg e ing ill2! chin.::. ry tin d frequ en t equip -
miot b r ~akd jwn ilnd hibh md int enanc e
ClJ sts
I 3 30 2 20 2 20 2 20 1 10 10 63
Cul1st r.:l ints rt!la t e d t ..:) Pr o clDma tiun
~~; :- . 163/7 9 I4 27 3 20 4 27 3 20 1 7 15 94
tixces siv" st e cks " i finish ad sood s

I:
23 3 23 4 31 3 23 0 () 13 &1
":{isint! c o st ,,)f r aw ma teric: ls
27 0 J 4 36 3 27 1 9 11 69
'* Pt;!rc entag e I..i f the t o tal ;:;nt~rprises surve yed.
 - 98 -
ranke d them as the first and secon d most impor tant reason
s for not
colle cting the receiv ables on time . This situa tion there fore resul ts
in finan cial diffic ulty.

As obser ved, stock s of finish ed goods and of raw mater ials

have
the tenden cy to increas~ ove r time in some cas~s. The enter prise s
indic ated the reaso ns which are summarized in Table 38.

Table 3&. Numb er/Per centag e of Enter prise s by Rank of Reaso ns for
.J
Incre asing Stock s of Finish ed Goods and Raw Mate rials

kank 1 3 4 Total
Rea son No. % No. % No. % No. % No. %*

The poor quali ty of

produ ction 2 50 o u o 0 2 50 4 25
The high price s of
prouu cts o 0 o 0 2 100 o 0 2 13
The low purcha sing
capac ity of distr i-
butio n orga niza tion 10 100 o 0 o 0 o 0 10 63
Th" low purch asing
capac ity of consu mers o o 4 100 () o o o 4 25

x P~rc~nt~gc ot total ent~rpris~s surv0y~ d.

As can be obser ved from Table 38, the low purch asing capac
ity of
distri butin g organ1zat~ons is the most outsta nding reaso n for the
incre asing t enden cy of stock s. However, a few enterpris~s indic at ed
the poor quali ty of produ ction, and low purch asing capac
ity of con-
sum"r s as rea sons for incr" as ing 8cock s of finish ed goous
and raw
mat e rials resul ting in tindn cia l probl~ms.
 - 99 -
In g~n~ral th e e nt~rprises rt:coDUn8ndi.d and ranke d thf: measur es
sununa ri zl..: u in t E. bl~ 3Y to overCO lnV th~ir fi n('~nc1 a l probl ~ ms a risinB
from th" va rious condi tions discu ssed abo v~.

Ta bl" 39. Num.1.)f~ r /PerCl!ntli~c

of Ent~rEris(;:s b:z: J.{ank of J.{ecolDJDemla tions
to Improve th" Finan cial Posit ion of th" EntEr pris", s.

~ I<ank 1 2 3 4 5 Tota l
Recom menda tion
"'-- . No. % No. % No. % No. % No. % No. %*
i{"pla cemen t of agein g
machi nery 2 20 1 10 6 60 0 0 0 0 10 63
Introd uctio n of
Plann ed mainl:~nanc~ 3 27.3 3 27.3 4 45.5 0 0 0 0 11 69
Sea rch for r ~ li ,1b l "
suppl y of raw
mater ials 8 72.7 2 l!l.2 1 9.1 0 0 0 0 11 69
lmpro vu: inter -
organ izatio n fin ancia l
desci pline 3 33.3 II 0 0 0 0 0 6 66.7 9 58
Produ ction of spare
parts to r"duc e cost
and train ing of
parso nnel 4 40 5 50 0 0 0 0 1 10 10 63
Bette r use of labou r 1 33.3 1 33.1 0 0 1 33.3 0 0 3 19
Incre astng the range of
produ ct >! , revis ion of
procla matio n 163/7 9 and
incEm tive policy 3 100 a 0 0 0 0 0 0 0 0 0

""'P~rcen~ug~ of Total enter pris es surv,"yecl .

 - laC -

The maj ority of the enter prise s (Le. over 60 pe rcent )

sugge sted
that the search for r(;!li nl> l e suppl y o f r aw m[!ter ia l
s, pr oduct i on o f
sp are parts l ocall y, tr a inine of pers onne l, and introd
uctio n of
plann ed mai ntena llc e Dr e n~ede d t o i mprove the finan c i e l concl iti c ns of
enter prise s. Other r ccotmJ(mdat i ons includ e the impr oveme nt of int er-
organ iza tiona l finan cia l di scipl ine , replac ement of agein
g machi nery,
bette r use of labou r, incre asing the r ange of produ cts,
as well as
revis ion of pr 0clam ation 163/7 9 and incen tive policy , and
reduc tion of
labou r cost. Mos t of the enter pris e s ranke d thes e reconn
;lenda tions as
the mos t i mport ant t o h upr ove the finan cial posit ions of
the enter prise s
(Tabl e 39).

4.2.7 . SOl'.rces and Costs of Raw Mate rials

All of the enter pris es surve yed use raw mater ials obtai
ned fr om
foreig n SOlrc es. Howev er, 69 perce nt of thet!! als o us e
raw mater ials
obt a ined !_r om domes ti c sourc e s. Aoong , those which oake us e of l ocal
s ourc es, :mly 18.2 pe rcent ranke d these sourCES as the
maj or one s
where as 81. 8 perce nt consi dered the maj or scurc es as be
ing f oreign.

In terms of raw mater ials acqu isition all f oreign purch

ases are
handl ed by the Corpo ra tion, where as l ocal purch a ses are
handl ed by
the respe ctive f a ctorie s.

Most of the enter prise s (75 pe rcent ) repor ted that they
usual ly
face rising co sts uf raw ma teria lS, and sever al r e as
ons were given
f or this situa tion. The reas ons given arc price rises in intern ation al
marke t (which 75 perce nt of the colte rprise s indic ated,
out of which 83
pe rc en t consid e red this a s the t!!a j or facto r ) , and the probl
em of trans -
pu rt t o Qove i op ort ed i nputs fr om the ports (kee ping imp
ort at the port
 .- 101 -

f or exten d ed periods which is indic at ed by 69 perce nt of

the ent erpri ses,
out of wi,ich 64 pe rc 8n t cons i de~cd [!.s t he most i mpnrt ant r e.eson ). Othe r
reaso ns inclu de , probl er.ls of stor[l ge f[lciliti ~s (.'hic h is indic ated by
31 perce nt of the cnter ? ri ses), and t he rise i n pric e in
the l ocal
marke t (which is exper ienced by 19 perc ent of the enter
prise s).

The nur ma l r eac tiou of ent e rpri ses t o a ris e! in the cos
t of rat.
mater ials t akes diffe rent f orms. Reduc ing c(;ntr ollab l e C( sts t o absor b
the rising cost is one way (prac tiseJ by 69 perce nt of
the repor ting
enter prise s, out uf which 82 perce nt cunsi dered it as the
most impor tant
measu re). Othe r react i ons are t o us e subst itute raw mater ials (unde
r-
t aken by 31 pe ~ cent of the ent erpri ses) or r ais ing sellin g price s of
the produ cts i~ demand condi tiuns permi t (indic at ed by 31 perce nt of

the enter pr is es). Howev e r, sinc e sellin g price s are fixed by hi ghe r
bouie s, r epurt i ng the matte r and ge tting resp onses from
the autho rities
take time .

4.2.3 . ~Jge ri a l and Adcin i s tr ati on System , Wage anu J ob

Prumo ti on Polic y and Empl oyees Relat i uns.

4.2. 8. 1. Corporati on-Pl ant Relat i onship and Perfo rmanc e

Eva lua ti on anu Incen tive System s.

11rrny enter prise s (38 perc ent) r epor t eJ that the Corp oratio
n does
no t given close atten tion t u them; the relati onshi p is
mostly by f ormal
repor ting . This is a r e sult of large number of the facto ries and the

incap acity of the CGrp or a tion. This was indic ated by 38 and 31 perce nt
of the enter prise s r espec tively . Hhat is mor e striki ng is tha t the
numbe r of fact ori es t hreat ens t e· be even more in the futur
e if and when
 the proj ects in t he Ten-Y""r Pe rs pe ctive Pl an are r ealiz
ed . Physi cal
(geog raphic ) distan c e is r ep o rt e~ by sever al enter prise s ·as a facto r
which has made cluse manage rial atten ti on very diffi cult.

t1any ent e r pris es have su uge st eti a nuruLe r of mea sures

t o impro ve
the situa tion. This inc lUlled , r eor ganiz ati on t o give interm ediate
leve l mana c em~nt as s istan ce to plant s, or unific .:lti on of the man.:1geIIlent

of fact ories where physi cal proxi mity all ow in orde r t o

reduc e labou r
nnd mnnatiement I.O St. Other sugge stion s include reor ganiz ation o f the

Corpo ration so that it only manag es ent e rpris es pr oduci

ng metal produ cts
(ente rprise s c ·' wood prouu cts beine assi gnEd t o the relev
ant cor?o ratio n),
and t o c ond uc ~ r es ear ch " ver title t o improv e the or ganiz ation of the
corpo raticn nne! t o streng then its n!anag ement .

A sy s t P::l of pe r f or mance "valu a tion exist s in all enter ?rise

s con-
ducte d t"ic e a ye ar f0r uepart ment heads and onc e a ye a
r f or othe r
worke rs. A·_1 of the :mter pris e s do not have the tradi tion of disclo
sinc
the evalua~i on t o the evalu at e,] t-lc)rke rs.

The l's e of an inc entiv e syst em i s i mp0rt ant t o ~nc oura 6e worke rs.
It was f o':nd that 94 perce nt of enter pris e s use
some kind of incen tive
system, F.:td t he r est d'. rJ :ou t becau se of marke t defic ienci
es in their
produ ct (if dem.:'.nd is d(' ffi ci cnt f or the pr ouuct then this
do es not
enco uraee enter prise s t o pr oduce t"hJre o f the pr oduct
).

Diffe rent types of incen tive system s are us ed by diffe rent

enter -
prise s t o encou rao;e worke rs t v pr oduce mor e . For examp l e , a 5:1 : 1
system (which is an incre ase in " ae es and salar i e s by five
perce nt when
sales incre as e, one ~e rc ent ~]h en pr ufit inc reC2se s , nnd one pe rce nt t-1hen
 - 103 -

prouuctivity increas",s) is a:,p li eu by 91, re rcent of the enter;:>rises.

However all enter,1rises are c ool"' 13inin~ aGainst the inc entive system

becuase it does not reflect the inuividual pe rf0rr.1iI11Ce of the workers.

Out o f th e 7 percent incre ase in war,es and salaries tho se who are l ow

income earners are llliotteu. a 3reater share (b ecause of the concept of

equity and the Government's attempt t o reduce income differentials amonG

workers). Employees earning up t o 650 Birr per month are incluued in

incentive system, but those earnin::; 650 per month or more are not included,

Therefore, the system do~s not serV8 as an effective incentive to indivi-

dual workers, nnd in fact has served as a maj or s ource of dissatisfaction

on the part of di li!}ent workers.

Salnry increments and bonus syst ems are apI'lied by 38 percent of

the enterI'rises (when profit of ever 250,000 Birr is made by the factory).

The piece r nt e system and a system of " ivinC annual awards are methods

used by 13 and 25 .)"rcent C' f the enterI'rises r espec tively. Other benefits

to empluyees (incluuing provision of fre~ educati on, ~edical and insurance

services, sales of pr0(!uc ts at reduced ;-ricc and provisi on of uniforms

and of other safety services) ar" alsu " iven even if not adequately by

the tlajority of the enterprises.

4.2.8.2. Neasurcment of Perform<:m ce of Enterprise and Authority

of Enterprises t o Sign Cheques and Lvan Contracts

Enterprises give little attenti on t o cost accountinr.. This is be-

cause all enterprises adopted quantity of :> r c,(]ucti cn (th e fulfilment

of plan tar ge t) as the mensure of en ter~ris e performance. This, in

fact, has a ne ~a tive impa ct on e fficiency o f enterprises. Auditiu3

of books of accounts is not up t o da t e f or 31 percent of the enterprises.

 - 104 -

The lev el of aut hor ity of the

ent e rpr is e f or si3nin !; che que
s is
up to a mnx ir.lU ," of 500 ,00 0 Bir
r if the ent e r ;,ri ses is l oca
teu in Asmara
and 50, 000 Bir r oth enl is e .
Thi s auo unt is sai d to be sma
ll re lat ive to
the cKls nit ude of ope rat i ons
of the ent erp ris es.

Sic nin g l oan c ont rac ts wit h

the ben ks and ren ewa l of exi
sti ng
cre dit fac ili ti es a r e tas ks of
the Corp or a t ion , wit h the cul
lab ora tio n
of the Hi nis try .

About 70 per cen t of the ent erp

ris es r epo rte d tha t they hav
e exp el i-
enc ed del ays in the flu w of
inf o rllk~ tio n. The fl ol< of inf orm atio n i s
somewha t slo w bot h fro m the
Hi nis try to cor por a ti on and
frum fac t ory
to cor por ati on a nd the n to the
Mi nis try . The de l ays are sai
d to be t oo
lon g by 15 per cen t, uod era te
uy 56 per cen t aml acc ep t ab l e
by 6 per cen t
of the ent erp ris es.

The re are a ls o inadequan ci

e s in phy si cal f ~ci litics t o Ben era te
the req uir ed dat a on tim e in
ove r 50 per cen t of the ent erp
ris es. The
ina deq uac ies in phy s ica l fac
i lit i es t ake the f oll ow ing f
orms : poo r
tr ans po rt and means of commun
ic a ti ons , shorta ~ e of dup lic
ati ng , typ e
wr itin e , add inf; and pho toc opy
ing ma chi nes , lac k of ade qua
te off ice s,
fil ing cab ine ts and sta tio nar
y ma ter ial s. Hany of the pr
obl em s wer e
ran keu by ent erp ris es a s bei
ng ser iou s.

4.2 .8. 3. Or gan ize d For ma l Groups at En

ter pri ses Lev el
Acc ord ing t o the res pon ses a
number of for ma l cro ups are
org ani zed
in 83 per cen t of the ent er pri
s es. The s e inc lud e an orz an
of the
Wo rke rs' Par ty of Eth iop ia
(lIPE), Ha rke rs' Con tro l Commit
tee (WCC) and
Tra de Un ion s. However, Rev olu
ti ona ry Eth iop ia Women 's Ass
oci a ti on (REWA),
 - 10' -
and 11evolu tiunar y Et hi cpi a Y"u
th Ass oci ati on (RE YA) hav e als
o bee n
o q~a niz ed in 57. 1 anu
11 per cen t cof the ent eri 'ris e
s res ;>e ctiv cly . It
is als o f oun d tha t wm aee rs
of 64 per cen t of the ent er pri
ses are
exe cut ive ",emter s of HPE. The
m::lj ori ty (91 per cen t) d the
ent er pri s es
hav e ind ica ted tha t par tic ipa
ti on in the groups tak es t oo
much of the
tim e ava ila ble f or r eGu lar
wor k. A number of I!lanar:e rs
hav e a lso com-
pla ine d aga ins t s ume wor ker s
f or the ir regul::lr ::Ibsence on
eve ry Tue sda y
and Thu rsd ay aft ern oon s t o ;>ar
tic ipa t e in the act ivi tie s of
urb an dwe lle rs
ass oci ati on s.

As is ovs erv ed, the re has bee

n a lac k of cla rit y or, pro bab
ly mis -
und ers tan ding ::Ibout the r ol e
of the or can iz ed boJ ies and
tho s e of
mana ~ers in run nin G
ent erp r ise cpe rat i ons . Th
is pr ob l em is more ser i ous
in en ter pri se s wh ere the ma
jor ity of the s t aff of the man
a[;e men t o;ro up
are not par ty member s. Peop
le in the ;>r oGu cti on cr uup som
etim es att em pt
t o us the f orma lly org ani zed
bod ies as an ins tru oen t to thr
eat en or
int ira idi at e the man"l (~ eme nt.

4.2 .8. 4. Po lic ies Aff ect inr: Fac tor y Ope
rat ion s
Severa l po lic ies of the Govern
me nt hav e bee n bot tle nec ks
in fac t ory
op era tion acc orJ ing t o 88 pe
rce nt of the sur vey ed ent erp
riS e S. The
fol low ing pol ici es wer e cit ed:
fin anc i al po lic ies ( ~a rticul
arly rel ate d
to Pro cl:: lma tion No. 163 /79 as
dis cus sed abo ve ), inc ent ive
po lic ies as
dis cus sed abo ve, pri c e pu lic
ies (fo r some fac t ori es are
sti ll sel lin g
th~ir produc ts at pr
ice s fix ed ten t v fou rte en yea
rs ago , a lth ough the
cos ts of pr odu cti on hav e bee
n inc rea sin s ove r time ), pro
du cti on po lic ies ,
::Ind f req uen t c h ange 0 f ~o ver "
nme nt po 11C1 es. 8
(Se e Tab le 40) .
 - 106 -

Tab le 40. nUl.1ber/Perc~n t.:l :; e .,) f En ter pri s es Rcs pc ndi uc.;
t e, Gov ern me nt
Ove ra ll P0 1ic ies £18 Bo ttle nec ks of Op erc ti ons

Hunber of Fac tor i es Per cen tag e of

Aff ect ed the Res pon dinl3
Fa cto rie s

Inc ent ive Po lic i e s

13 92. 9
Pri ce Po lic ies
13 92. 9
Fin anc ial Po lic ies
14 100 .0
Pro duc tio n Po lic ies
12 85. 7
Fre que nt rev i ew of GovernMent
Po lic ies 7 50
To tal fac t ori es res pon din g"
14 100 (88)

*The fi gur e in par ant h es is is

per cen ta5 e fr om the t o tal
ent er::> ris es sur vey ed.

4.2 .9. Th e Demand Pre ssu re Tra nsp ort

Fac ili tie s, Di str ibu tio n Sys
tem ,
aLL! Har ket Res ear ch and Dev elo
pme nt

The re are no f or e i gn s a l e s of
f ac t ory pr odu cts . However,
for
l oca l sal es a ll en t erp ris es
use the Gov ern me nt ret ail and
who les ale
or gan iza tio ns und er the rlin
ist ry of Tra Je suc h as Eth iop
ian Dom est ic
Di str ibu tio n Cor p ora tio n (ED
DC) or Eth iop ian Household and
Of fic e
Fu rni tur es En ter pri ses (ETHO
F), and the Hin ist ry of Co nst
ruc tio n. The se
are the ma jor dis tri bu tion out
l et s of t he pru du cts exc ept
f or the me tal
too ls f act ori es wh ich r ece ntl
y sta rte d t o use the ir wh ole
sal e and re-
t a il ou tle ts and pri vat e tra
der s.
 i.07 -
The pro ble ms Clss oc i e t Q,j wit
h usin ;.: EDDC and ETHDE' as
Gut le ts of
fac tor ies pro duc ts ar c:

i) acc ord inr ; t ,J tho se ent er;: >ri

ses wh ich fa c e m3 rke t def
i cie ncy ,
tha t no t enou ,~h eff ort is
mnde to sel l the en ter rri
ses '
pro duc ts by the ur nn iza tio
0 ns:
ii) the sta te or ~anizations pa rtic ula rly EDDC, ins tea
d of
ser vin 3 the cus tom ers by
usi ng the ir own wa reh ous es
rat her
sen d the m to co lle ct the
Fro duc ts fr om the fac tor ies
wit h
let ter s of pur cha se and thi
s in fac t res ult s in net
add it ion s t o the fac t ori es'
C(ls ts;
iii ) the .hs tri bu ti on inv olv es
- ma lpr act ice s (be cau se of the
cor r up ti on of dis tri bu tio
n £:r. 1i;l oye es);
iv) tr.1 nsp ort dif fic ult ies f or
the del ive ry of pro duc ts
fro m
tt l~ fac tor y, wh ich
.are mor e Ur Fli caL le t G fac
t ori e s in
t~er.1.:lra;

v) (bl ays o f the dis tri l,u ti on

oq; ani za tio ns t o set tle deb
ts;
vi) t he iml: 'os sib ilit y o f ob tai
nin ~ fir st han d inf
Jrm ati0 n
re l:jarl.~ in e.
c ons um ers I rea cti ons t o the
pro duc ts cue t o the
cre ati on of sta te dis tri bu
tio n or0aniz~tions be twe en
entcr~rises anJ c onsume rs;en~

vii ) ina deq uqc y o f wa'Ceh o u ~ e fac ili tie s bot h a t f a cto ry
a nd
mar ket lev els .

Many ins tit uti on s are inv o lve

": i n the set tin o of the pr1
ces of
fac tor ies ' F,r odu cts . The y arE the Cu r;.o r n ti on ,
the Mi nis try , the
ONCCP and the Co unc il of
ii ini ~ ter s . In iti a l pri ces are dec ide d.
bas ed
on ec st of pro duc tio n. How~ver, a s ind ic a ted abo v e in nany
ent er-
pri ses rev isi on of pri ces
hus not bee n nud e for the
l ast ten t o
 - 108 -

fourteen years. However, there is a need to make revisions of prices

because of the rise in the cost of raw materials, labour, energy (like

electricity, fuel and oil), spare parts, and taxes on scrap and other

purchases.

It is identified also that none of the enterprises devote any

part of their annual investment expenditure to market research and

development to improve the quality of products and efficiency of

enterprises.
 - 109 -

SUHHlIR Y

In this Cha:>ter an at t er..~~ t ha s ul3e n f.lad~ t o make an empiri ca.l

s tully o f f :lc t o rs influ enc in~ vr o . .:uctivity l.l f [!etlll fact ories ucministe red

by the Na ti ona l Metal Wor ks Cur por ati on . It i s f c untl t hat t lie sub-

sect or is or gnniz ed into three hicror chical l y structured leve ls of

manae ement. Thes e are the t1inistry of Industry, the Na tiona l Metal

Works Corpor a tion and the p l ants. Seve ral committee s exist a t each

level e ssentially f or r evi el-lin 3 anti di scllssinr; prob lems of pr oducti on

pr ocesses in t he e nt e r prises r a ther than f o r uecision making . Decisions

r e levant t o ;>roducts a r e made .:It still hi eher leve l (L e. the ONCCP a nd

Council of l-li nist ers ).

I-l ith r e~a rcl t o the f a ctors influ encin3 the pr oductivity of the

me tal suL-s ectur, a ho st of ec onomic and non-economic factors has been

cons i dered. It i s f ount! that several fact ors se ri ously iopair the

productivi t y of enterprises. Hcwever , it is a ls o observed that diff erent

prob l ems I-.ave aff e ctetl pr otluctivity t o different deer ees in different

e nt erprises antI t;r oups o f enterpris es . The r e for e, the po li c y measure s

r eq uired t o c o rre ct the si tua ti(;ns 10 the ente r prises must necessarily

vary.

The empirical finJin[l s o f the study showed several major prob l em

f a ct ors (a ttributed t o par ticula r causes and reas ons) that i mpaired

producti'\lity of the met.:l.l sub-sector . lIm'lever, the mo st COrnr.1on and the

st rGn~es t fnct or s which l ower proJuctivity are summariz ed bel oH:

i) The use of less than hi ~h quality r BI' ma t e rials. The

experi ences of the maj ority of e nt e r?rises have indic nted

tha t they us" HeJ iu[" quality uf raw materi a ls. This has to

some de ;~re" r educeu the quality and streu8th of pruducts;

 - 110 -

ii) The tYi.)t!s v f "iJruL.u ction pre ce sses aLlur t,~d by s C'tle
ente rpris es
which resul t in Qisl ocaci oll of r.""chi ne s, the ,Hffic ulty
of
usin[~ on e ,Jr.>er a t or t u pE:rf L, rIil tw~) or (;,_.·re short opera tiuns

and the existe nce of a consi derab le amount of distan ce

betwe en machin~ s;

iii) The frequ ent IlUlchine anti equipment ureak down which is

accom panied by the absen ce of timely repai r. The fact o rs

respo nsible f or the d~lay of maint enanc e arc the proble m
of ~ ettinG spare purts , t eo old l!1c1chinery to permi t quick

maint ~ nance. burea ucrat ic pr oceuu r" and l ack of skille d

teCh!l icilln s. The first two o f these f a ctors const itute the

most outsta ndins const raint s t o timely o ainten llnce;

iv) The proble m relate d t o enter prise s worki n2 less than full

cnr acity . The most i mpurt ant cause s c f this c ond iti on are

r", mater ials shurt aE,es, r ec!uct ion in the numbe r c f shift
s
o"c the impos sit ility " f incre asinl3 the shift s, poe r cormn
uni-
""cion, f " ilureo t v uevel c\, or evolv e the t"chn o l o~;y to prouu ce
spare parts l ocall y, machi ne br e akdv~~s , lack of motiv ation
t v wurk on the part of ' lOrker s, a ncl shorta t' e of speci alized

labou r;

v) The compl ete or parti a l closu re lO f enter prise s due to

marke t deffic iEncy , short ase of r 1!W mater i1!ls and secur
ity
rEaso ns;

vi) The diffic ulty of m1!king quick shift vf seme enter prise
s to
pruuu ce produ cts acco n l in 6 t o marke t demand;
 - 111 -

vii) The pro~lcm of hirint~ ne"' GD1?, l oYE'es :'ot the ri ~ht time t u

fill open vaC:luc ies o This is c£'.us \::d Ly 1e nt: th of emilloyment

pr o ce s s, sho rt a. :;c G( qU<11ifi c.J c::!n.': i Ja t es , e~:cessive s t ocks

o f finishe d ~L(J ds, wages, .::m d ul1c onJ.ucivc work e nvironment;

viii) The financial shur t:1GEs caused by t he r e quirement c f

PrlJcl oma tiuu N0 . 163/ 79, unr e li able supp l y cf r<'lW nu terials,

exces sive stocks uf finish ed 000::\ 5 (due t o l ow purchasinf,

capacity o f distribution ur sani zations and conS UElcrs , anu

poor quality of pr oduc tion) , ar;eing machine r y, r i sing cos t of

raw ~a teri a ls, heavy reliance un quantity rather than cos t of

F rOt~uct i on as .:l measure o f ent erprise perforGunce., failure

or delay of payment for interfnctory credit sa l es, and hi ;;h

cost of bur eaucrncy.

ix) The hirh dependence on imported inputs and r ising costs.

x) Poo r Elanagemi2nt relationship bet'tveen the Corporation and

•. l:ln ts, de lay in the fl cw of inforna ti on, .:mu l ack of usinS

:llterna tive channels of sale by plants in t i ne of excessive

s t ocks o f pr cducts;

xi) The absence of app r op riat e incen tive system which

r ef l ects the perfor mance of individua l worke rs and

the adoption of quan tity of pr od uction (the fulfillment of

? l an tar ~ et) as the measure of enterpr i se pe rformence

xi i) The sharing of or ganizeu fornnl £roups of t oo much of the

time of workers "nd the prob l ems r esultin,; from ov erall

Government po lici e~ relat ed to incentive, pri ce, financ e ,

and pro..!uctiou;
 - 112 -

xiii) Problc~ s nss uciated wi th the factories use of Government

distributi on outlets;and

xiv) The non-nvai l ab ility of funds anLi ort,:': an i za ti onn l units

for ma rket and dev el opment research at fac t ory l eve l.

 - 113 -

Note s t o Chapter 4

1. D.H.J. Sivitcr, "Financial Mann p,emcnt ?-nd Information System 1n

Public Ent e rprises in Ethiop i ~ I, A. A. June 1~86, 1'.2.

2. Ibid, pp . 11-15.

3. Ibid, pp . 6-10.

4. Ibid, pp. 11-15.

5. Ibid, Pl'. 17-18.

6. For the detail see Ibid., ,'p o 2-18.

7. The proclamation has cause~ financial detrioration hecause it

allowed payment of capital charee up t o 5 percent of the gross

profit and of indirect taxes 50 pe rcent of enterprise profit.

Again 90 percent frOTa the remaininG i='r ofit is paid as residual sur-

plus t o the Government Coffer. Thus enterprises will remain only

with 10 percent of tha t s,,,a11 aru'.I unt of enter;orise prof it. This

amount uf pr ofit is Sv s",all that it dc'es nut a ll ow the enterprise

to !'~1cve as requir ed. The Sali!0 proclanati on also preven t ed inter-

fact ory borro\olinc for ur Gent US2.

8. i.e. the fest chan ~~ inE of Governtlcnt po licies causing instability

of enterpriS8s cnvirc.Jnment, which is quite r e lated to the periodic

campai en nature o f production vlhich increases the enthusiasm to

'lOrk at one time and Sl01-1down it at another and the impossibility

of maintainine the enthusiasm a t a his her level all time .

 Ch apt er 5

S uw~ary and Recommendation

5.1 . Summary

In spi te of the po ten tia l dyn

amic rol e tha t the me tal sub
-se cto r can
pla y in var iou s eco nom ies , it
is a sub -se cto r wh ich is not
we ll und ers too d
or pro vid ed wit h ade qua te sup
por t in Eth iop ia. Th ere for e,
the foc us of
thi s stu dy has bee n to ana lys
e the rel ati ve imp ort anc e of
the me tal in-
dus try in the Eth iop ian econom
y and pro du cti vit y sit ua tio n
in the me tal
fac tor ies . To be abl e ach iev
e the for me r ob jec tiv e, the
his tor ica l de-
vel opm ent and the rol e of the
me tal ind ust ry in dif fer ent
soc io- eco nom ic
set tin g vis -a- vis the Eth iop
ian rea lity we re ana lys ed.
Sim ple ana lyt ic
tec hni que s suc h as ave rag es,
per cen tag es, tre nd ana lys is
and fig ure s as
we ll as qu ali tat ive app roa ch
hav e bee n use d in the ana lys
is of the
inf orm ati on ava ila ble . In the
pu rsu it of the lat ter ob jec tiv
e, eco nom ic
and non -ec ono mic fac tor s inf
lue nci ng pro du cti vit y hav e bee
n ana lys ed.
Da ta wer e ma inly obt ain ed from
the que stio nna ire tha t was dis
trib ute d to
six tee n fac tor ies ope rat ing
und er Na tio nal Me tal Works Co
rpo rat ion .
Sim ple ana lyt ic tec hni que s are
use d to ana lys e the dat a. To
rei nfo rce
the se ana lys es a cas e stu dy
was als o con duc ted on Ko teb e
Me tal To ols
Fac tor y.

The rev i ew of the his tor ica l

dev elo pm ent of the me tal sub
-se cto r in
the wo rld showed, tha t iro n
ore ext rac tio n has bee n one
of the old est
act ivi tie s of ma nki nd. Howev
er, it beg an to dev elo p rap idl
y sin ce the
fir st hal f of the eig hte ent h
cen tur y as not ed in the tex t.
Such gro wth
of the sub -se cto r did not how
ever con tin ue wit hou t int err up
tio n. The las t
dec ade in pa rti cu lar has bee
n a per iod cha rac ter ize d by
the nee d to
eco nom ize on ma ter ial s and ene
rgy . Th is has res ult ed in dec
lin e in ste el
 - 115 -

production and consuIilp tion 1n the \-Jorld ~ il.s a r e su lt a restructuring

proc~ss has taken place on a world wide l eve l to reduce total world

demand for s te el.

In spite of the recent overall decline of production in the metal

industry it is universally r ecogni zed that the success ful devel opment of

the sub-sector pl ays a key role in the economic and social progress of

a country. Thus in the development of the metal industry, the need for

integration and the approach t o integrated deve l opment of the sub-sector

in the nationl economy are widely discussed in this study. The alterna-

tive approaches of development observed from the exper i ences cf various

countries were to start rieht from heavy steel industry or small-scale

steel plants and plan int eeration based on "dem1lnd pull" from capi tal

goods industries Clr on "demand push" from the iron and steel industry

leading to expansion and diversification o f o the r sectors.. HowevE: r , the

selection of the modal ity of inteeratiun process depends upon the specific

chara ct e ristics of the deve l up ing countr i es such 'IS the ava ilability of

raw materials, the l eve l of technic l'll development and manpower tra inine

and the basic needs of the population.

In countries wher" agriculture is the ma1n economic activity the

appropriate strategy would be t u promute small and moderate-sized steel

and capital gouds industri es . However , at a l ater stage of development,

thb drive would need t o be in favour of l a rge r industries in the search

of economies of scale as well as better quality products. Therefore, in

the context of Ethi opia (where aericulture is the ma in economic activity,

market is lirlited and mine r a l prospectine 1S at a very l ow stage of develop-

ment), the appropria t e current po licy appears t v be that of strengthening

the existing sm3ll-scale basic and enBi neering works and es t ablish ing new
 - 116 -

cnes, until the pre-c cndit iuns f ur large sc~ le pr oduct ion are fulfi lled.
This is the prope r appro ach for the effec tive pr omoti on
of the devel oF-
ment of this sub-s ector .

With regar d t o the role of the me tal sub-s ect or in diff

erent s ocio-
econo mic settin es, its contr ibutio n to the entir e indus
try is the highe st
of all sub-s ectors of the indus trial secto r in tern s of
produ ction (in
all types of econo mies) , employment (with the excep tion
of devel op ed
marke t econo mies) , and expor t earnin gs (in indus triall y
devel op ed
coun tries) . Sever al count ries' exper ience s have also shown that, the

sub-s ector is the major contr ibuto r to the growt h in the

value added
share of heavy manu factur ing. Its annua l gr owth rates is found to be
the highe st in em;>loyru'!n t compnred t o other sub-s ectors
"here as, the
annua l growt h rate is relati vely i mpres sive c. in terms of
produ ction in
both centr ally plann ed (10.8%) and develo p ing nt:.l rkcc econo
mies (12.7%)
(Tabl es 4,5,6 ,7, and 8).

However, the contr ibuti on of the metal sub-s ecter in terms

of Gover n-
ment reven ue through indir ect t:1xes is the least in the
indus try total
compa red t o other sub-s ector s for &1 1 count ries consi dered
in this study ,
where as the degre e of contr ibuti on thr ough the net opera
ting surplu s
varie d acros s activ ities and count ries. In s om(;! count ries the share s of
metal lurgy in bo th the indus try tetal , and total fur the
economy were
posit ive where as, it was negat ive in other count ries (Tabl
es 9 and 10).

In the case of Ethio pia, the study of the struc ture has
indic ated
that, the sub-s ect or is heavi ly conce ntrate d in a small
number of locati ons
and in the hands of the priva te indiv idual s. In terms of l ocat i on, in
1983/! l4 G.C. Shoa alone had 63 perce nt of the estab lishm
ents, 63.6 perce nt
of persons emplo yed, and more than 84 perce nt of value
added . The rest
of the contr ibuti ons were made by Eritr ea AdIT~nistrative Regio n ' (Tabl es
 - 117 -

11 and 12) . Th is pa tte rn of dis trib uti un

has bee n l a r ge ly det erm ined
by
two obv iou s f ac.:. t o rs, n:"'.Lie
l y c c nce ntr ati on c, f
the. m0 rke t anJ th e ava ila
bi-
lit y of inf ras tru c tur e in the
two are as not f ound in oth er
par ts of the
cou ntr y. Th is dis tri bu ti on
pat t ern has the ref ore sig nif
ica ntl y add ed
to the reg ion al imb ala nce
of indust ria l dev elo pment
in the co unt ry.
In term s of number of est abl
ishmen ts, the lar ger pro por
tio n was
pri vat ely owned. As not ed
in the tex t in 1933 /84 G.C .
pri va tel y owned
me tal est abl ish me nts con sti
tut ed 51. 6 per cen t, wh ere as
the pub lic sec tor
owned 43 .4 per cen t. HOI.eve r,
in t e rms of a nU1~ber of em plo
yee s, gro ss
vnl ue of pro duc tion, vnl ue
add ed and net book val ue of
fix ed ass e ts,
the bul k of the sub -se cto r was
pub lic ly owned. Pu bli c sec
tor con sti tut ed
ove r 90 per cen t fc·r the las
t thr ee item s nnd 87 per cen
t f or the number
of em plo yee s (Ta bl e 13) . It
is a lso not ed thn t, in Eth iop
in, at pre sen t,
the pub lic sec tor is exp and
ing (Ta ble 14) .

The stu dy of the r ole of the

me tal sub -se cto r in the Eth
iop ian
economy, in term s of con trib
uti on s t o val ue of pro duc tio
n, val ue add ed,
employment nnd income gen era
tio n and Government rev enu e
ind ica tes tha t
the sub -se cto r in the Eth iop
ian economy is at an ear ly st
age of dev e l op-
me nt compa red t o dev e l opment
of the ind ust ry in dif fer en
t eco nom ies of
the wor ld. Alt hough the po
ten tia l rol e of the sub -se cto
r is imp ort an t
in the Eth iop ian economy. it
is sti ll by far l owe r tha n the
r ole of the
sub -se cto r in dif fer ent econom
i c set tin ns. Th is im pli es,
tha t the re is
gre at po ten tia l for thi s sub
-se cte r to dev e lop and fur the
r pla y an
imp ort an t ro le in the econom
y uf the cou ntr y.
The lin kag e eff ect s wit hin
the sub -se cto r and dif fer ent
sec tor s of
the eco nomy can be me asu red
by the ex ten t t o wh ich the sub
-se cto r pur cha ses
dO Gle stic ally pr odu ced inp ut
and pro duc es inp uts for oth er
sec tor s.
 _. 118 -

If we obs ,"rv e the i nt" rna l s

tru ctu r e of the sub-se cto r,
imp ort bas ed
inu ust rie s Wi::re d~minc.!lt v7it hin the sub -se cto r bo th
in the number of
es tablishr.~2n ts 2ntl v~lue .:~JL.CG i.e ., 76. 2 nntI 88 .5 per c e
nt res pec tiv ely .
Th is was f o1101<ou by dom est ic
f"r est res our ces bas eJ inJ "st
rie s. It
is als " obs erv ed th.c. t the imp
ort depen~ence of the Na tio nal
He tal Hro ks
Co rpo rat ion is the hig hes t of
the oth er cor p or a tio ns of the
ind ust ria l
sec t or as no ted in the tex
t.

If we loo k nt the t ota l snl es

of me tal produc ts to dif fer en
t
sec tor s, it is po ssi ble t o eva
lua te the str eng th of the rel
ati on shi p.
In 198 6/8 7 G.C. the his hes t
rel ati on shi p was wit h the con
str uct ion
sec tor (.,i th 58 per cen t of sal
es) f oll o\o/ed by agr icu ltu re
(wi th 13. 8
per cen t of sal es) and con sum
ptio n scc tur (wi th 28. 2 per cen
t of sal es)
(Ta ble 25) .

In ter'lS of the lin kag e eff ect

s bot h '-li thi n the sub -se cto r
and the
sub -se cto r wit h oth er sec t ors
" f the eco nomy, the nvn il ab le
evi den ce
show-eu tha t the f ore wa rd lin
ka ~e eff ect of the
sub -se cto r is str ong er
anJ i mpo rta nt wh ere as the bac
kward lin kag e eff ect is weak,
dem<:!miing
f or app rop ria te pol icy me asu
res t o be tak en suc h as pro duc
tio n of inp ut s
by the dcm est ic ac tiv iti es .

The sec ond foc us of thi s stu

dy was t o ana lys e fac t ors inf
lue nci ng
pro du cti vit y of me tal f ac t ori
es ad~inistered by the Na tio
nal Me tal Works
Co rpo rat ion . It is fou nd tha
t the sub -se cto r is org ani z ed
int o thr ee
hie rar chi cal ly str uct ure d lev
els of management. The se are
the Hi nis try
of Ind ust ry , th~ Na tio nal Me
tal Works Co rpo rat ion and the
pla nts . Sev era l
com mit tee s ex ist at eac h lev
el ess en tia lly for rev iewinG
and dis eus sin e
pro ble ms tha n for c!e cis ion mak
ing . De cis ion s rel eva nt to
pro duc tio n are
made at sti ll highe r lev els
(i. e. at the lev el of ONCCP
and Co unc il of
Mi nis ter s).
 - ll~ -

\>li th r e ::;ur ci t o the fac tor

s inf lue nci nG the pr CJdu cti
vit y o f the me t a l
sub -s e ctu r, a s e t ,:.)f ec ono
mic anJ nl ln-e con om ic fac t
ors ha s bee n con sid ere d.
It i s f ound tha t s~ve r al
fa c tor s ser iou s ly im~i1i r
the p r i..~ du ctiv ity o f
e nt " r ~· ris es .
Howeve r, it is a l s o obs erv ed
thn t dif f e r ent r r ob l ems hav e
aff ect ed pr od uct ivi ty t o dif
fer ent deG r ee s in dif fer en t
ent er pri ses and
);;r oup s of ent erp ris es. The
ref or e , the po lic y !!l2aSU res
req uir ed t o cor rec t
the sit ua tio ns in the var i ous
ent erp ris es !!lust ne ces sar ily
var y .
The em pir i ca l fin Jin gs of the
stu dy showed s eve ral maj or pr
obl em
fac t ors (a ttr i bu t e,} t o par tic
ula r cau s es and rea son s) tha
t imp air ed
pro du cti vit y of the !!let:!l s
ub- sec tor . The [;lost connnon
and the str on ees t
fac t ors wh ich l ower pro duc
tiv ity ar e li ste d be l ow .

i) The us e of l ess tha n hi eh qu

ali ty rnu mC! ter ial s;
ii) the t ype s of .)r edu cti on prt 'ce
ss ado pte d by some ent er pri ses
;
iii ) th·. fre que nt mach ine and equ
ip!!lc nt :,r enkdOlm wh ich is
acc 0IJ pan ied by the abs enc e
of tiLee ly re;c ai r ;
iv) t he proLlcL'l re l ~tel! t o ent e rpr ise s W'or kil lr: les
s thu n ful l
cap aci ty;

v) t he compl e t e or Vw rti al c1
0s ure of e nt e rpr ise s;
vi) the d iff i cul ty of mnkin g qu
ick sh ift of som~ ent e rpr ise s t o
pr odu ce ~rod uct s a cc u r(ii n ~
t o ma r ke t demand ;
vii ) t he pro ble m o f hir inf; new emp
l oye es a t the r i Ght tim e t o
fil l
ope n vac anc i es ;

vii i ) the fin anc ial sho rta ees ;

ix) the hi Gh dep endenc e on imr ort

eu inp uts and ris ins cos ts ;
x) poo r man aeemenc cel a ti ons h ip
be twe en the cor por a ti on anJ
pla nts ,
de l ay in the fl ow of in ~ u rrr.a
ti o n , and l ack of usi
ne alt ern at ive
cha nne ls of sa l e by pli mt s
in time s of exc ess ive st(; cks
of pro duc ts ;
 - 120 -

xi) the aosen ce of appro priate incen tiv e system tohich refle
cts the
perfor mance of indiv idual twrke rs and the adopt ion of quant
ity
of produ ction (the fulfil ment of plan targe t) as the measu
re
of enter prise s 1 perfor mance ;

xii) the share of organ ized forma l group s of too much of the
time
of worke rs and the proble ms resul ting from overa ll Gover
nment
polic ies relat ing to incen tive, price , finan cial and produ
ction;
xiii) proble ms assoc iated with the facto ries use of Government

distr ibutio n outle ts;an d

xiv) the con-a vai.la bility of funds and organ izatio nal units
for
marke t and develo pment resea rch at facto ry level .

5.2. Reco~endations

SQ(;}e of the r e cumm endati ons which foll al! emana te

from the findin gs
of the study where a s the rest we re propo sed by the enterp
ris es thems elves.
The follow i ng two groups of po licy re commendations e re
rnRdc perta ining
t o the appro priate stra t er,y f or the devel opmen t of the
sub-s ector , and
the impr oveme nt of the facto r use effici ency of the sub-s
eeter .

A. Strate gy f or the Devel opmen t of the Sub-s ector.

1. In the cont ext of Ethiop ia (where .:!f,ri cultu re is the main

economic
activ ity, narke t is limite d, and miner al prosp ectine is
at a very
loto stae e of devel opmen t), the <lppr o;: ri a te curre nt po licy
appea rs
to be that of streng theni ng the exis tint; small -scale basic
and
ent;in eerin t; works and estnb lishin e new ones which have
Hore link
with agric ultur al and const ructi on materi~ls secto rs.
 - 121 -

2. Te reduc e the concentrati on of the sub-sector in a small number of

l oca tions in the future p1annine of meta l project, appropriate

regional deve l opment e l ements shcu1d be introduc ed as the criteria

for pr oject app r ai sal.

3. The metal sub-sector has weak backward linkage ef fe ct. This is

becaus e of t he insufficient level of producti on of inputs f or the

sub-sector by domestic activities. This has l ed the sub-sector

t o be hi ghly import dependent. Therefor e, t o reduce the import

dependence of the sub-s ec t or si gnificant emphasis should be made

to augumen t and diversify productive activities aiming t o produce

inputs for the sub- sector.

B. Improvement of the Fac t or Use Efficiency of the Sub-Sector

The me tal sub-s~ctor is one of the smallest sub-sectors in the

Ethiopian economy. Thi s sub-s ect or t o deve l op and play its expected

r ole is one of a stage Jy stage, l ong t erm consideration. In the

priority of the long term developmen t pl an, emphasi s should be given

to progressively improve and make the industry mor e profitable. For

example , issues such as replacement of ugeins machinery, prcduction of

spare parts, training of highly qualifi ed personnel, and increa sing the

range of products, a lthoubh very imp ortant t o improve the performance

of the sub-sector, can not be r ea lised in the short period of time, as

they are the maj or constraints of the economy as a whole.

Therefor e , here under attempt is made to recommend the most practical

ones in the short run period t o reduce financial shortaees' to improve

product i on process; to remove frequent machine and equipment breakdown;

to remove complete and p " ~ti a l closure of enterprises, and to improve

employment proc e dure and mana ~ ~=~ nt.

 - 122 -

1. The s earch for re1iabl~ suppl y of raw rn<.ter ia ls, introd ucti on of
plann ed maint enanc e, impro vemnn t of int er-org aniz a tiona l

finan cia l descip line, revis ion of proc11!mation l G3 /79 and

of
incen tive polic y to reduc e finan cial short ates.

2. The types of produ ction proce sses adopt ed in some enter prise
s
shoul d be alt ered by rearra ngem ent of machi nes in order
to allow
one opera tor t o perfor m two or more short opera tions, and
to
reduc e the distan ce betwe en machi nes.

3. To minim ize machi ne breakd own, it i s recornm.1nded to give

traini ng
to the wJrk force to enhan ce thei r compe tence in using machi
nes,
introd uce indiv idual and group incen tive schems to rewar
d dilig ent
opera tors indiv idual ly and in group , stren gthen _shop fl oor
super -
visi o~ to ensur e that every worke r handl es machi nes with appro
priate
care, and pract ice preve ntive maint enanc e ..

4. To pr ,~vent compl ete or part ial cl osure of enter prise s the f ollow ing
are recomwended : remov ing lnarke t def icienc y by curbin g
the comp etitio n
of Jega l1y impor ted and amuggled sub stitu tes. This is parti cular ly
tru ~ for the si ckles , pip e , hous ehold u ~en si1s , and tracto r assem bly
plant s; removing shorta ge of raw mater ials, this being more

appli cable t o sheet metal facto ry and iron and steel found
ry; and
reduc ing secur ity proble ms, thi s is pa rticu larly relev ant
to
facto ries loca t ed in Asmar a.
 - :23 ..

5. To improve and strencthen the employment pr ocedure and management

the followin!; are sug[:t!sted: r educing the length of employment

process; DUlkins soJ.aries and wuses attractive; greater decentraliza-

tion and delesation of al'tl:o:o:ity t o 10\,e r leve ls so that plant

management can take certain operational decisions; improvement

of the manp-gement relationship between the corporation and plants,

the flow or information; allowing en t erprises to use alternative

channels ~f sale in time of excessive stocks of products; reducing

the shar e of organized formal g:>:oups of the time of workers; and

the inst i.tution of the function of market a:ld development research

at the factory level.

 - 124 -

Appendix I

Empirical Study of F ~ ctors Determin" Productivity Situation of Kotebe

Metal Tools Factory

The empirical findings reported in the preceeding section depend

entirely on the perception of respondents, those responsible for the

day-to-day operation of public enterprises of the metal sub-sector of

Ethiopian industry. The question arises whether those results can be

corroborated by objective measurement and econometric analyses.

An attempt has therefore been made to (a) explore the problems

that can be encount ered (b) suggest hypotheses that should be enter-

tained, should such a project be undertaken in the future.

The exercise consists of regressing the output of one of the

factories' covered by the study, namely the Kotebe Metal Tools Factory,

on the mor e important variables affecting productivity as reported by

survey respondents. These include labour supply and utilization,

capital shortage , raw material availability, energy supply and plant

maintenance capability.

An attempt was made to fit linear, per-capita and double log

functional relations between the factory's output and the following

variables at 1983 prices for the quarters of the period 1981 to 1988:

L - Labour

K = Capital
R = Raw Materials

01 = Production Workers

02 = Professional and Technical Workers

E = Energy
 - 125 -

Xl ~
Bottle necks in Raw 11ateri a1s

X ~
Bott lenec ks in Spare Parts
2
X3 ~
Bottle necks in Misce llaneo us Input s

X ~
Bottl eneck s in ~fu chine Breakdown.
4

All possi ble consi derat ions in selec tion a~ong those varia bles gave
rise to a subst antia l multi collin earity proble m includ ing
the one with
the best possi ble fit (R2 ~ 0.61, F ~ 3.234 ) repor ted in Table 42.
The model used as indic ated in the introd uctor y part of
this work
is in the form of

y ~ BIL + B2K + B3 R + B4 0 l + B 0 + B6E + Bll + BSX2

5 2 + BgX3 + B X +U ... 1
IO 4
B , B , ••• , B are param eters estim ated and U stand s
1 2 IO for the
random distur bance term.
LGV..t. ....

O2 Xl X X3 X
L K R °1 E 2 4
Year/ Quart er Y
st 230,5 51. 2 80 27 28,04 4 0 0 0 255
1 565,3 62.76 152 7,602 ,000
nd 429,3 27.05 79 28 53,56 6 143 0 0 0
2 939,5 29.14 151 7,602 ,000
rd 409,3 36.95 80 28 33,56 6 171 0 0 125
1981 3 750,5 29.14 153 ' 7,602 ,000
4th 278,5 41.3 81 29 30,04 4 156 0 0 480
576,3 42.76 154 7,602 ,000

st 534,1 15.48 80 28 61,72 8.8 0 0 490 255

1 4!l8 ,289.5 157 6,573 ,000
nd 801,1 73.22 79 28 76,61 8.1 0 250 385 140
2 722,4 39.25 156 6,573 ,000
" I'd 6,573 ,000 811,0 73.32 81 28 78,608.~ 0 0 410 80
19 82 J 731,4 59.25 158
4t h 524,2 15.58 80 28 41,73 8.7 0 0 0 20
499,3 09.5 157 6,573 ,000

1st 281,0 88.4 81 28 35,14 6 0 63 0 274.8 5

529,0 53.08 159 7,620 ,000
nd 432,6 23.2 83 23 52, 888 0 0 0 191.2
2 803,5 79.62 162 7,620 ,000
rd 441,6 23.3 82 28 51, 849 0 0 0 246.0 5
3 783,5 79.62 161 7.620 ,000
1983 252.4 5
4th 7.620 ,000 280,0 88.5 81 28 36,34 7 0 0 0
529,0 53.08 159
st 252,9 02.18 71 30 22,23 2.172 0 63 0 135.5
1 540,3 20 158 10 ,27 9, 000
nd 389,3 53.27 72 31 48,21 8.238 0 0 0 124.3
2 926,4 80 162 10,27 9,000
"rd 379,3 43.37 71 30 48,34 8.278 0 0 0 184.1
1934 J 724 , 480 160 10,27 9,000
36 42,24 2.172 0 0 0 139.6
4th 160 10,27 9,000 242/~ 17 ,08 71
560,3 20

,- - - --, .. - -- - - --
 Table 41 (Cont 'd.)

Year/ Quart er Y L K 0 O E X X
R 1 2 Xl 2 X3 4
st 534 ,489.9
1 158 12,53 4,000 418,6 55.86 69 37 35,32 8.352 0 0 0 137.7
nd
2 1,243 ,384.8 158 12,58 4,000 628,9 83.79 69 37 52,98 2.388 0 0 0 110.3
rd
1985 3 1,843 ,384.3 160 12,58 4,000 627,9 93.78 70 37 53,99 2 .368 0 0 0 250
4th 706,6 89.9 160 12,58 4,000 417,6 45.87 70 37 34,42 8.152 0 0 0 132
st
1 1,102 ,312 167 17,89 2,000 514,2 54.38 65 50 40,48 7.244 0 0 0 496
2nd 1,567 ,813 171 17,89 2,000 781,3 81.57 65 53 60,78 3.706 0 0 0 496
rd
3 1,496 ,015 172 17 ,892,0 00 771,3 91.67 66 53
1986 60,98 0.726 0 0 0 78
4th 940 ,540 172 17 , 892 ,000 524,2 44.28 66 53 40,68 7.044 0 0 0 102
st
1 771,69 1 175 10,64 2,000 376,3 25.4 65 50 30,45 7.35 0 0 80 80
1987 nd
2 1,100 ,511 177 10,64 2,000 574,48 &.1 65 50 45,68 6.165 0 0 0 275
rd
3 950,2 73 177 10,64 2,000 564,4 98.2 62 50 46,69 6.185 0 0 0 82
4th 1,025 ,073 172 10,64 2,000 366,3 15.3 65 50 29,44 7.55 o 212 0 72
st
1 795,4 49 182 7,386 ,000 372,7 62.54 66 52 40 .747.8 o 332 0 84
nd
198il 2 713,7 87 187 7,386 ,000 539,0 58 .88 66 52 62,11 0.7 0 0 0 261
rd
3 844,5 08 189 7,386 ,000 579,2 68.80 67 54 bO,l3::!.7 0 0 0 299
 - 128 -

Table 42. Estim ated Coeff icient s of the Mode ll, Kotebe Metal Tools

Facto ry, 1981- 1988.

Slope Coeff icient Elast icity

Varia ble of the Model Coeff icient

Labou r -1157 .2 -1. 693

(-)

Capit al +0.178314 1.613

(1. 555)

Raw Mate rials -4.432 64 -1.88 3

(1.016 )
Produ ction Workers +140476.9 9.46
(-)

Profe ssion al and Techn ical Workers +218579.7 7.36

(-)

Energ y +36.3 013 1.5

(0.768 )
Bottle necks in Raw Mate rials - 2969.4 9 -0.04
(0.414 )
Bottle necys in Spare Parts -2050 .42 -0.05 4
(0.557 )
Bottle necks in misce llaneo us Input s +794.795 0.031
(0.26)
Bottle necks in Machine Breakdown -3715 .52 -0.64
(1. 60)
2
Note: 1) R = 0.61, number of obser vation = 31. F-rat io = 3.234 .
2) t-rati os in paren these s.

With due allow ance for the multi collin erity proble m the
magni tude
and sign of the coeff icien ts repor ted in Table 42 confir
m some of the
resul ts of the prece edine sectio n, sugge sting the possi ble
fruitf ulnes s
of effor ts at measu remen ts of great er scope than the one
~ttempted here.

It is worth notin g the follow ing from the findin gs.

 - 12 ~ -

1) As expec ted the slope co effici ent of capit al is posit ive

althou gh
stati stica lly si t;nific ant at 20 perce nt. The coeff ici ent of 0.178 314 on
capit al can be interp reted to mean that a 1 millio n birr
value incre ase
in capit al would lead to a 0.178 314 millio n birr value incre
ase in
outpu t. This is consi stent with the capit al shorta ee comp liant so
often repor ted by respo ndent s.

2) The slope coeff icien ts of labou r (L) and r aw ~terials (R)

are negat ive param eters but are not signi fican t even at
20 perce nt.
The negat ivity of the coeff icien ts for labou r is consi stent
with the
undere mploy ment of labou r throug h the m:ong skill mix and/o
r lack of
contr ol over hiring at the enter prise level , as repor ted
earli er.
This appea rs all the more a plaus ible inter preta tion as
pr oduct ion and
techn ical worke rs have posit ive coeff icien ts, «ith posit
ive effec ts on
produ ction, even if not si gni fican t at 40 perce nt l evel.
The negat ivity
of the raw mater ial co effici ent could be due t o overst ockin
g of mater ials
pecul iar to the plant .

3) In the case of Ener gy (E), its use and produ ction are posit
ively
relate d, since the more the use of energ y means the more
the level of
outpu t. As expec ted, the energy coeff icien t is posit ive
a1thou 3h not
signi fican t even at 40 perce nt level , possi ble due t o the
multi collin earity
proble m.

4) The negat ive value of coeff icien ts and calcu lated elast
icitie s
of the bottle neck varia bles confir ms the impor tance of
the ef fect of these
expla nator y varia bles on outpu t as repor ted in the surve
y. As expec ted,
the machi ne breakdown coeff icien t is negat ive and stati stica
lly signi fican t
at the 20 perce nt level . The coeff icien t of -3715 .52 on machi ne breakdown
 - 130 -

can be interpra t ed to mean that a unit increas e in the hours of stoppage s

due to machine br eakdown will l ~ ,ld t o a 3715. 52 units decrease in out-

put. The e l as ticity of the factor on output is (~0.64) the hiehest

compared t o the other bOLtlenecks (Table 41) . Therefore, output is

more responsive to machine breakdown as is the ca se in the general

survey study.

Also a s expect ed bot tlenecks in spare parts (X ) and raw materials

2
(Xl) have nega tive coefficient s and elasticities. However, they are not

statistically si gnif icant even at 40 percent level.

In short we are justified to expect the foll owing r esults of this

study to be conf irmed by more extensive and formal measurement:

a) Cap ital shortag e is a serious handicap t o the development of

metal industry in the country;

b) Labour underemployment through the wrong skill mix or the

wr~ng hiring contracts or the wrong pay policies, significantly

contributes to poor per fo rmanc e of existing enterprises; and

c) Poor maintenance and replacement capabilities and inefficient

raw materia l supplies negatively affect the performance of the

meta l industry in the country.

 -1' -

Appendix II

Chart I

The Ministry of Industry Or ganis at i on Structure

\ ~1inister

Internal Control Administration

Vice Minister I Vice Minister

Operation Development and
Division Planning Division

-.

f ~
Finance
Department
II I Production
Sales &
Manvowl!r
Depa:-t-
Plannine; &
Programming
I Technology
Selection
Organisation
& l1ethod
Technical !'lent Department Department Department
Department

I L;orporat i o n s I tcorporat i o n s
J
Branch (If fic es !
Source:- D.H. J. Siviter, "Financi al "'anagement and Information Systems
in Public Enterprises in E' iopia", A.A. June 1936, p.2.
 - 132 -

Chart 2

National !-letal \'Iorkers Corporation (NMWC) Organisational and Hanas;ement

Structure.

General Manager I

{ Legal Service
1 l Internal Audit r

Deputy Deputy
General Manager • General Manager
Operation Development

I Secretary
\- Secretary

I I I
Administra- Finance Product- Commer- Indust rial Project Planning
tion Depart- Depart- ion cial Engine ering Offices Project
ment ment Depart- Depart- . Department Department
ment ment
!
-

I 22 plants
Source:- National Hetal Workers Corporation.
 - 13 3-

Chart 3

Organizationa l Structure of Metal Plants

General Hanager ,

r
Administration
I
Technical Finance Connnercial
Manager Manager Manager Manacer

Clerical Clinical
(
Cashier
- -

Cost
,
General
&
First Aid Accounts Accounts
Gen. Service

I t / j I 1
Maintenance Production Quality Sales Stock Pruchasing
Control ~ontrols

Source:- National Metal Works Corpora tion.

 - 134 -

Appendix I II
ETHIOPIA,' S ~1ETAL INDUSTRIES PRODUCTIVITY
STUDY QUESTIONNAIRE

Ob jec tiv e

The pur pos e of thi s que stio nna

ire is to obt ain inf orm atio n wh
ich
wi ll be use d to measure the pro
du cti vit y of Eth iop ia's He tal
Ind ust ry.
The use of the inf orm ati on wi
ll be lim ite d to the academic
cir cle . There~
for e, res pon den ts are kin dly
req uis tcd to fil l in the req uir
ed inf orm ati on.
as acc ura tel y as po ssi ble . The
inf orm atio n req uir ed is for the
per iod
1975 E.C. to the pre sen t.

Ge ner al Inf orm atio n

Name and ma ilin g add res s of firm~ ______________________________

_________

Lo cat ion_____________________
______________________________
______________
Po sit ion tit le of the res pon den
t ________________________ __________________
Qu ali fic ati on of the res pon den
t (in dic ate hig hes t edu cat ion al
lev el
att ain ed)

Da tes of acc oun tin g ye arr Fro

~: ___ ___ ___ ___
____________________________
_
to ___ ___ ___ ___ ___ ___ ___ ___
___ ___ ___ ___ ___ ___ ___ ___ ___
___ ___ ______
 - 135 -

1. The natur e and quali ty of thc raw mater ials and produ ction
procc ss
employed
1.1 What level of quali ty of raw mater ials has your enter prise

been using ?

01 high quali ty
OZ medium quali ty
OJ low stand ard f l
04 not known

05

1.2 How is the arrang ement of indus trial plant s in your facto ry?
01 ' Line layou t
Ol Proce ss layou t
OJ'
04
Produ ct layou t
Flexi ble layou t
I
Pleas e enumerate brief ly the advan tages and disad vanta ges of
the
layou t appli cable in your facto ry.

(a)

(b)

(c)
Cd) ____ ____ ____ ____ ____ ____ ____ ____ ______

(e)

,
 - 13 (, -

2. The size and effi~ien~~ pl ant

2.1 Is there disru ption of produ ction proce ss due to machine and
equipment breakdown?
01 Often
02 Sometimes
03 Rare ly
j J

2.2 Is there a timel y maintenance of broke n machines?

01 Yes

01. No 1
2.3 If there is no timel y repai r of machinery what are the reaso
ns?
Pleas e rank them in order of impor tance as 01 for the most
impor tant 02 for the second and so on.

Rank
OJ. Problem of gettin g spare parts

I
02 Burea ucrati c proce dure

I
03 Lack of skille d techn icians

~ t I
04 Machinery too old to permi t quick

05
maintenance

Other (spec ify) and rank

I
! 1
2.4 To minimize the break-downs of machines what do you recomm
end?
And which one of the methods was used in your enter prise -
pleas e indic ate by aster isk (*) next to the boxes appli calbe
.
Ol· Giving traini ng to the working force to enhance their

competence in using the machine

I
 - 137-
02 introd uce indiv idual and eroup incen tive schemes to
reward dilige nt opera tors indivi dualY
and group for minimizing break-downs due to

05
negle gency .

Stren gthen shop floor super vision to ensur e that

f I
every worker handl es machines with appro priate r---~--~I
care.
-
O~ Provi de workshop facil ities to produce spare -
parts and for timel y maintenance
II
OS. Replace old equipment as rapid ly as possi ble

06. Other (spec ify)

l!L.--.J_I.
2.5 What is t~e appro ximat e rate of your capac ity utiliz ation
in
the last five years ?

Year (E-,:;) Capac ity %

1979
1978
1977
1976
1975

2.6 If your enter prise ::. been working less than full capac
ity, which of
the:o llowi ng are the prima ry cause s?
(plea se check the appro priate degre e of cause )
Prima ry Secondary Minor
C: Short age of suppl y cf
elect ricity and water ( ) { ) ( )
Frequ ent machine break-down{ { ) ( )
)
03 The failu re to develo p or
evolv e the techn ology to
produ ce spare -parts local ly { ) ( ) ( )
04 Reduction in the number of
shift s or the impo ssibil ity
of incre asing the shift s ( ) ( ) ( )
 - 13~ -
05. Poor communicatio ns in the form
of Pri ma rl Sec ond arl Minor
ma lfu nct ion ing tele pho ne sys tem
,
ine ffi cie nt po sta l ser vic es and
poo r t ran spo r tat ion
( ) ( ) (
06 . Co nst rai nts res ult ing from raw )
-
ma ter ial s sho rta ges
( ) .( ) (
07 . Delays exp eri enc ed due to unnece )
ssa ry
bUl'eaucracy (re d tap esm)
( ) ( ) ( )
08 . Short" "o ,·f specie liz ed sk ill s
( ) ( ) (
09. Co mp etit ion from leg all y imp ort )
ed
sub sti tut es
( ) ( ) (
10. Compot itio n from smuggled sub - )

s t i tut e!i
11.
( ) ( ) ( ,
Sec ta ity rea son s
( ) ( ) )
12 . l
L:lc k of mot iva tio n to work
on the
pu~: tof workers
( ) ( ) (
13 , )
Oti.er spe cif y
( ) ( ) ( )

3. 1 ""s the fac tor y experien-::ed a

comple te clo s e down one time in
":he pas t
01. Yes

3.2 .
J2. No.

If ,')5 , fer !lOW long

,
3. 3 ?le ase;, ""mmer ate t he
- - (da ys, weaks months, yea rs)
rea son s for the clo sur e of the
fac tor y.
01 ..
02 ,
03 •
.. ---.----
-~ -. --
----
----
04 . ----
---

as .
3.4 How [lan , type s of p,'o duc ts the
f act ory pr oduces? (ra nge of
produc ts)
3.5 Has the re been a change in the
typ e of pro duc ts of the fac tor
for the las t fiv e yoars? y
01 . Ye"
02 . No
3.6 . if yes , what are th e rea son s for
the change in the typ e of
p-o c.uc ts? pl eas e enumerate the
m.
01.
02 . .-
_.._- -- _._ - _._ _....-- -- ----
- ---- -
 - 139 -

03.
04.
05.
4. The suppl y of imported and domestic raw mater ials and skille
d manpower
in all job categ ories and finan ce
4.1. Is there a problem of hiring new employees at the right time
to fill an open vacancy?
01. Yes
02. No

4.2
1
If yes, what are the reaso ns? Pleas e, rank them as 1,2 etc.
in order of importance in front of the appli cable box.
Rank
01. Length of employment proce ss

02. Short age of

! f }
qua~ified candi date
t 1
03. Unatt ractiv e salar ies and wages

04. Unconducive work environment

05. Other s (spec ify) _ _ _ _ _ _ _ __

I 1
I I
4.3 How many vacan cies are there in your organ izatio n at prese
01. Less than 5
02. 5 - 10
03. 11 - 15
nt?
l
04. 16 - 20
05. 21 - 25
06. ~Iore than 26
4.4 What has been the avera ge length of time of these vacan cies?
01. Less than 1 month
02. 1 - 3 months
03. 4 - 6 months
1
04. 7 - 9 months
05. 10- 12 months
06. Over 12 months
 - 140 -

4.5 What are the reasons for prolonged vacancies? Please rank them
in order of importance as 1,2, etc. in front of the applicable
box. Rank
01. Due to shortage of personnel with the
required skill )
02. Due to the problem of obtaining release
personnel from other sectors I
03. Un attractive salaries and wages
1 )
04. Un conducive work environment
1
05. Length of employment process
t
06. Other (specify)
J
4.6 How did you manage to overcome the problems of filling
vacancies?
01. by employing partime workers

02. by ewploying temporary workers

I
03. by working overtime
04. 01 and 02
05. 01 and 03
06. 02 and 03.
4.7 Did you provide training for the workers for the last five years?
01. Yes
02. No
4.8 · If yes, what percentage of the total employees were
trained?
%

4.9 What is the proportional distribution of your technical

staff who by training are
Engineers (B.A. or above) I %

Scientists (B.A., or above)

1
 - 141 -
University trained t echnicians

On - the j ob trained technicians

r I %

1
establishment,
) %

4.10 What is the proportion of employees at your

who are?
Skilled

Unskilled
1 %

'---_-'I %
Administrative workers
'---_-JI %
Technical workers

4.11
I
Does the factory face financial
%
shortages in order to
fulfill its main objectives?
01.
02.
Yes
No J
,
4.12 If the factory has faced financial shortages, what are the
most important reasons for the problem? Please rank them in
or der of importance as 1,2,3, etc. infront of the appropriate box
Rank
01. Unreliable supply of raw materials causing
under utilization and unrecoverable costs
02. Ageing machinery and equipment frequent
breakdowns and high maintenance costs
03. Constraints related to proclamation
No.l63/79 which allowed
- annual payment of capital change 1 ]
- payment of residual surplus
- prevention of inter-factory borrowing for urgent use.
04. Failure or delay of payment for inter-factory credit
sales

05. Excessive stock of finished goods

I
and raw materials
1 1
06. Rising cost of raw materials
!
 - 142 -
07. High- cost burea ucrac y

OS. Heavy relian ce on quant ity of produ ction t

than cost of produ ction as a measure of

09.
enter prise perfor mance
Other (spec ify) and rank
I I
10.

11.

4.13
\
Does your enter prise usual ly sello n credi t?
01. Yes

4.14
02. No
Do you colle ct receiv ables on time?
t
01. Yes
02. No
4.15 If you
1
don .~ t colle ct on time what are the reaso ns?
Ranks
01. The incap acity of the organ isatio n to

02.
colle ct
The reluc tance of the debto rs to pay
t f j
03. Both of the above
I t
04. Other (spec ify)

05.
T 1

06.
r I
4.16 Pleas e fill the follow ing table

ual . Annual
Year ffil1f
a e11n Br. avera ge A/C W(t~% An~u~
ln e lest ESfim
1n erea~fd
E.C. recei vable '1. loayment on (2)
1979
1978
1977
1976
1975
 - 1·3 -
4.17 . Stock of fin i shed goods and raw mat erial s ~t year end
('000 birr)

Finish ed goods Raw mater ials

Year
Total Produ ct Year end Estim ated Year end
stock r equir ement stock
1979
1978
1977
1976
1975

4.18 If stock s have the tende ncy to incre ase overti me, what do
you think are the reaso ns? Rank
01. Of poor quali ty of produ ction

02.
,
Of high price s of produ cts

03. The low off-ta ke capac ity of distr i-

I
butio n organ isatio n

04. The low off-ta ke capac ity of consumer

I
05.
l I
06.
1 l I
07.
I I I
4.19 What are the sourc es of the raw mater ials in your enter
prise .
I
Rank
01. Foreig n

02. Domestic

03. both

4.20
r I
What is the perce ntage of the raw mater i als used in your
~
enter prise from each sourc es?
01. Foreig n
02. Domestic
t I l
r }
 - 144-
4.21 Does your enter prise face usual ly rising cost of raw mater
ials?
01. Yes

4.22
02. No
If it faced a rise in cost of raw mater ials what are the
I
reaso ns for the rise? Rank
01. Rise of price in intern ation al market

02. The proble m of trans port to move impor ted

r I
input s from the ports (keep ing impor ts at ! )
the port for exten ded perio ds) 1-(_----l_ _ _.J

03. Problems relate d to storag e facil ities

04. Other (spec ify)

I
t
05.

4.23 What is the normal react ion of the enter prise management to
r
such condi tions? Rank as 1,2,3 , etc. in order of impor tance
in front of appli cable box Rank
01. Raisin g sellin g price s of the produ cts if
demand ' condi tions permi t
02. The use of avail able subst itute raw
I l
mater ials to offse t costs .
03. Gener ating suffi cient reduc tion in other
! I
contr ollab le costs to absor b the rising
costs .
04. Other (spec ify)
I l l
{ I
05.

f
4.24. What do you recommend to improve the finan cial posit
ion of
the enter prise ? Pleas e rank as befor e. Rank
01. The replac ement of agein g machines

j l 1
 - 145 -
02. The introd uctio n of plann ed maint enanc e

J
03. To look for r e liabl e suppl y of raw
mater ials
t I
04. To improve inter- organ izatio nal finan cial

as.
disci pline .
Recl amatio n of spare parts t o r educe
I 1 1
06.
cost and train ing of perso nnol
Better use of labou r
I
f J
07. Reduc tion of labou r cost

08. Other (spec ify)

09.
I
10.

5.1 Wage and job promo tion polic y, manag eria l and admi nistra tive
systems and employee r e l ation
S. l Does the corpo ration give close atten tion to your facto ry?
01. Yes
02. No
5.2 If no, why? give reasons Rank
01. Due to the large number of the
facto ries
02. Due to the incap ac ity of the
corpo ration

03.

04.

05.

5.3 What do you sugge st to ensur e close manag erial atten tion
to the facto ry Rank
01. Arrangement of alter nativ e organ izatio n
 - 141; -
02. Unify ing the management of facto ries engaged in
simil ar lines of produ ction under the same corpo -
ratio n whose physi cal proxi mity allow s t o reduc e·
cost and the number of facto ries and save scarc e
r I f
manag erial perso nnel.
03.

04.
I
05.
1

5.4 Whose tasks are purch asing and supply of r aw mater ials
both
impor ted and local
01. The Minis try conce rned
02. The corpo ration conce rned
03. The facto ry
I
04. Other (sp ecify )
05.
5.5 Whose task is condu cting foreig n and local sales of facto
ry produ cts?
01. The Government
02. The ONCCP
03. The Minis try conce rned
04 . The corpo ration I
05. The facto ry
06. Other (spec ify)
07.
5.6 Whose t ask is ensur ing optim al utiliz ation of resou rces
in the facto ry?
01. The Government
02. The ONCCP
03. The Minis try
04. The Corpo ration
05. The Facto ry I I
06.
07.
5.7 Who appoi nts the manager?
01. The Government
02 . The ONCCP
r
 - 14'7 -

03. The ~linistry

04. The Co rpo rat ion
05. The Fac tor y
5.8 Whose aut ho rity is to pro ces
s fre sh employment?
01. The ONCCP
02. The Mi nis try
03. The Co rpo rat ion
04. The Fac tor y I
05. Oth er spe cif y
06.
5.9 If it is the ent erp ris e wh
ich pro ces s new employment what
is
the sel ect ion mechanism?
5.1 0 Is the re any sys tem of
per for ma nce eva lua tio n?
01. Yes
02. No
5.1 1 If yes , when is it used?
01. Every week
02. Every month
03. Every yea r
04. During sta ff pro mo tion
OS.
5.1 2 Do you dis clo s e the eva lua
tio n to the eva lua ted wo rke rs?
01. Yes
02. No
5.1 3 Do you use any inc ent ive
sys tem to encourage workers to
I
pro duc e more?
01. Yes
02. No
5.1 4 If yes , which inc ent ive
sys tem
01. Pie ce rat e sys tem
02. Ge ner al sal ary inc rem ent
s
03. A system of giv ing ann ual
awards
04. Bonus payments I I I
05. Oth er ben efi ts to employee
s
06. Oth er (sp eci fy)
07.
 - 148 -
S.l S Does you r ent erp ri se giv e suf
fic ien t att ent ion t o cos t acc oun
01. Yes tin g?
02. No
5.1 6 How do you me?s urc t he ent erp ris
e per for ma nce ? f I
Rank
01. By qua nti ty of produc tio n tha
t is by the
ful fill me nt of pla n tar get
02. By the cos t of pro duc ing th e
un it of
i
produc ti on
03. By meas uri ng cap aci ty uti liz ati f 1 f
on
, ,
5.1 7
04. Oth er (sp eci fy)

Is aud itin g of the books of acc

01. Yes
oun ts up to dat e in you r ent erp
ris e?
1
,
02. No
5.1 8 What i s the lev el of aut J
ho rity of the ent erp ris e for
sig nin g
check? Up t o a maximum of ___
_____~birr?
5.1 9 Whose tas k is t o sig n l
oan con tra cts wit h the Banks
and for
renew al of exi sti ng cre dit fac
ili tie s?
01. The ONCCP
02. The Mins itr y
03. The Corporat ion
04 . The En ter pri se
05 .
5.2 0 Did you exp eri enc e del ay in the
flow of inf orm ati on bot h from
ind ust ry to cor por ati on and to
the fac tor y and fac tor y to cor
and the n to ind ust ry? por ati on
01.
Yes
02. No
5.2 1 What is you r ass ess me nt
of the se del ays inv olv ed?
01. Too long
02. Moderate
03. Ac cep tab le )
 - 149 -

5.22 Are there inade quaci es in physi cal facil ities to gener ate
the
requi red data in time?
01. Yes

5.23
02. No
If there are inade qucie s in physi cal facil ities what are
I
they? Pleas e rank
Rank
01. Short age of addin g machines

02. Short age of typew riters

1
03. Short age of dupli cating machines
1

04. Poor trans port and means of communication

r I
05. Other (spec ify) and rank
I I
06.
! I
07.
I J
08.
I 1
5.24 Which of the follow ing forma l groups are organ ized at your
I I
enter prise . Pleas e indic ate by circli ng the corres pondi ng L
number
01. An organ of the workers party of Ethio pia (WPE)
02. Workers contr ol committee (WCC)
03. Revol ution ary Ethio pian Women' s Assoc iation (REIYA)
04. Revol utiona ry Ethio pia Youth Assoc iation (REYA)
05. Trade Union
06.
Other (speci fy)
5.25 In which of the group you ar e partic ipatin g as a chairm
an, or,
secre tary or execu tive member? (Plea s" ,tIl where appro priate
)
Chairman Secre tary Exec.Member
01. An organ of the work ers party of
Ethio pia (WPA)
02. Workers contr ol committee
03. REWA
04. REYA
 - 150 -

Chairman Secre tary Ex. Member

as. Trade Unions
06. Other (spec ify)
07.
08 .
5.26 Do you think that partic ipatio n in these groups takes
too
much of the time avail able for regul ar work?
01. Yes
02. No
5.27 In your opinio n do you think that the execu tive membe
T 1
rs of the
organ ized group s spent too littl e time on their regul ar work?
01. Yes
02 . No
I
5.28 Does your obser vation indic ate that there has been a
lack of
clari ty or proba bly, mis-u nders tandin g about the roles of
some
of the above organ izatio ns and those of the managers in runni
ng
enter prise opera ti ons ( i. e . the quest ion of a,utho ri ty in
manag erial tasks so to speak )?
01.
02. No
Yes
,
5.29 Which of the overa ll polic ies of the Government have
been
bot tlene cks of facto ry's opera tion? Indic ate by circli ng the
appro priate number.
01. Incen tive polic ies
02. Price polic ies
03. Finan cial polic ies
04. Produ ction polic ies
as. Frequ ent review of government polic ies (ie. the fast
chang ing of government polic ies)
06. Other (spec ify)
6. The demand press ure, the transp ort facil ities and distri butio
n system s
6.1 Which of the follow ing distri butio n outle ts used by the
facto ry?
Pleas e rank as 1,2,3 and so on in order of impor tance in front
of the appli cable box Rank
02. The retai l and whole sale organ izatio n
under the Minis try of Trade
1
 - 15'1 -

02. Indust ry's own retail outlet s

f
03. Factor y's own who l esa l e and retail out l ets
! t
04. Farm's service co-oper atives
f f
05. Private traders

06. Other (sp ec ify) and rank

I T I
r
07.
\ , I
6.2 What are some of the problems associated with using those
channels of distribution? Please \~rit e them be low under each
heading and rank them.
The retail and whol esa l e organi zation udner the Ministry of trade.
Rank
01.
I
02.

03.

04.

05.

Industry's Oloffi retail outlets

01.

02.

03.
I
04.

05.

I
 - 152 -
Facto ry's own outle ts
Rank
01.

I ]
02.

03.
,I t
I 1
04.

05.
, I

Priva te Trade rs
i f
01.
I j
02.

J 1
03.

04.

05. 1
6.3 At times , if there exist s dispa rity between the purch asingI
"

capac ity of
the distr ibuti on organ i zati ons and the pace of produ ction has
resul ted in
build ing up of stock of produ cts at facto ry level , are you
allow ed to
use other altern ative chann els of sale?
01. Yes
02. No
03.Do not know becau se this problem has not yet appea red.
6. 4 Do/Does the distri butio n organ iz ation (s) promp tly take
deliv ery
of produ cts from tho facto ry?
01. Yes
02. No
6.5 Do the organ izatio ns pay for goods on the spot?
01. Yes

6.6
02. No
Is transporta tion a proble m to curta il the timel y distri butio
I
n of
indus trial produ ction?
01. Yes
02 . No .
I 1
 - 153 -
6.7 Do you think that ther e is inade quacy of warehouse facil ities
01. Yes
02. No
6. 8 If yes, at what level
[_. ./---1
...
01. At fa ctory l evel
02 . At marke t leve l
03. Both of the above
6.9 Whose t ask is t o trans port produ cts of the facto ry to
the
marke t area?
Ol. ~linistry of transp ort
02. The Minis try of Indus try
03. The Corpo r a ti on •
I
04.The Enter prise itsel f using its fleet
OS. Other (spe cify)
6.10 Is it a one way load or do you make arrang ement to avoid
empt y . haulag.e?
01. It is one way load
02.Make arrang ement to avoid empty hau1a se?
6.11 Whose task is to set the price of produ cts per unit
01. ONCCP
02. The Mins i t ry
1
03 . The Corporati on
04 . The ent erpri se
OS.
6.12 How are the price s decid ed?
01. Based on cost of produ ction
02. Based on demand condi tions
03. Other (spec ify)
04.
I
6.13 Is revis ion made of price s usual ly depen ding on circum
stance s?
01. Yes
02. No
f
 - 154 -

6.14 Please indicate the circumstances responsible for the revision of

prices in the past.
Rank
01. The rise of the cost of raw material s
J 1
02. The rise in the cost 0f labour

03. Other (specify)

I I
,I I
04.
1
6.15 Do you export the factory's production
01 Yes
02 No J
6.16 If yes, please write the annual average va lue contribution
of exports to the total sa les for t ho l as t five years in
birr and in % of total
6.17 Do you devote any part of your annual investment expenditure
to market research and development?
01. Yes
02. No j
6.18 Please give your approximate avera[e annual expenditure for
market r0search and development of total expenditure in the
space provided.
less than 1%
6% t o 10%
------ 1%11% toto5%15%
------------ -----------
over 15%
----------

THANK YOU VERY MUCH FOR YOUR COOPERATION.

 - 155 -

ilIBLIOGAAPHY

C.S.O., Facts and Figure, " ddi s Ababa 1987.

C.S.o., k~ sults of the Survey of M~nufacturin~ Industiies, Addis Ababa,

19t13/114 .

The Great Soviet iincyclopcdia, Third "d., Colli~r Macmillan Publ1sh.as

London, (Vol. 9), 1975.

Gregory, Paul, Socialist and Non Socialist Industrialization Patterns,

A Comparative Appra1sal, 1970 .

Judet, Pierre, "The Integrat" d Development of the Iron and Steel

Indus t ry a nd Capital Goods Sectors in Developing Countries" ,

UNIDO, J une 1986.

- - -, "The World Crisis of the Iron and Steel Industry and its

Impact in the Development of the Industry in Developing Countries"

UNIDO, 19t16.

Koutsoyianllis, A., The ory of Econometrics Second Edition, the Macmillan

Press Ltd., 1977.

Kumar Mi tra, Swa pan, "Material /I,anagcment in Modern Industry", The

Economic Studies an Independently Monthly Journal of Socio-

-
Economic Out Look and Trend, Vol, 21(2) Calcutta (19Bl).

Melisachew Mesfin, "Industrialization and Tariff Protection in Ethiopia

M.Sc. Thusis Unpublished A.A.U. , May 1984.

Ministry of Industry Plan and Programme Office, "The State of the Manuf-

acturing Sector of the Ethiopian Economy after Nat ionalization",

A. A., 1986.

Minis try of I ndustry, Statistical ilulletin IV, A.A., September, 1987.

National Metal Works Corporation, Financial Statements of 1984/85 to

1986 / 87.
 - 156 -

Ndelela, Deniel B., ""rospects of lin Integrated Development of the Iron

and Steel Industry and Capital Goods: Eas t and South,.rn Afric a

Countries" , UNIDO , Vienna, Austria , June 19 86.

Nizhawan, B.K., "Global Iron and Steel Industry, Some Reflections and

Projections", UNIDu, 1986.

Pungavan S. Samarag, "Int: 2grated Development of the Steel Industry

Particularly Mini-Steel Linked to Capital Goods and Agricultural

Machine", UNIOO, 1986.

Raj Dawar, KawaI , "Unutilized Capacity in Haryana Sugar Mills" The Economic

Studies and Independent Monthly Journal of Socia-Economic Outlook

ana Trend, Vol. 22 (VI) Calcutta, 1982.

Raj Dawar, Rawal, "Determinants of Idle C an~ Crushing Capacity in Sugar

Industry of lIaryana" fhe Economic Studies, an Independent Monthly

Journal of Socia-Economic Outlook and Trend , Vol. 21(10) Calcutta,

1981.

Siviter, D.H.J., "Financial Management and Information Systems in Public

Enterprises in Ethiopia" , A.A. June 1986.

UNIDO. "Integrated Development Between the Iron and Steel and Capital

Goods Sectors: Concrete· Case Studies", June 1986.

UNIDO Secretariat : Issue Paper I, "The Iron and Steel Industry Present

Situation, Prospects and the Need for more Integrated Development

of the Iron and Steel and Capital Goods Industries" , June 1986.

UNIDO Secretariat : Issue Paper 2, "The Mastering of Technology and Develop-

ment of the Iron and Steel Industry in Developin~ Countries", June 198

UN., Industrial Statistica l Yearbook (Vol. II), 1984.

UN., Industrial Trade Statistics Yearbook (Vol.I), 1984 .

UN., International Trade Statistics Yearbook (Vol . I), 1984.

 - 157 -

UN., "The Lagos Plan of Action for the Implementation of the Monorovia

Strategy for Economic Development of Africa (Annex I)", August

1960.
UN., National Accounts Statistics : Main Aggregates and detailed Table,

19S4.
Walters, A.A., "Production and Cost Functions : An Econometric Survey"

Econometrica 31 (January-April), 1963.

Wondimneh Tilahun, "Productivity Implications of two Economic Propositions

of Ethiopian Manufacturing Enterprises" Ethiopian Journal of

Deye10Pment Research, (Vol. 1. 5-7), 1983.

World Bank, Ethiopia : Industrial Sector Review Dec. 16, 1985.

World Hank, Ethiopia Recent Economic Development and Future Prospects:

Washington D.C. May 1984.

Yeheyes Assefa, "Possibilities and Constraints of Developing Heavy .

Industries in Ethiopia ", A.A. July 1986.

 DEC L A RAT I ON

I, the undersigned declare that the thesis is my original work

and has not been present~d for a degree in any other University.

Name: Teferi Tegassa

Signature : ~e!)r.
Date : June, 1989.