Analysis of Economic and Labour Environment in South Wollo

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Lead Researcher/Team leader: Giacomo Pettenati (PhD), University of Turin (Italy) Authors:

AmareLead Researcher/Team Mitiku (PhD), Assistant leader: professor, Giacomo WolloPettenati University, (PhD), University Working partnerof Turin for (Italy) CIFA EshetuAuthors: Seid (PhD), Assistant professor, Wollo University, Working partner for CIFA KibromAmare Mitiku Adino, (Ph (PhD),D), Assistant Individual professor, consultant Wollo University, Working partner for CIFA LamessaEshetu Seid Abdisa (PhD), (PhD), Assistant Individual professor, consult Wolloant University, Working partner for CIFA WoderyeleshKibrom Adino, Yeshiwas, (PhD), Individual Individual consultant consultant BisratLamessa Kassahun, Abdisa (PhD), Individual Individual consultant consult ant Coordination:Woderyelesh Yeshiwas, Individual consultant BisratSeid Ebrahim Kassahun,-SINCE Individual Amhara consultant Lot 2 Project Manager, CIFA Onlus

Coordination:Abyot Desalegn -SINCE Amhara Lot 2 Economic Analyst, CIFA Onlus Seid Ebrahim-SINCE Amhara Lot 2 Project Manager, CIFA Onlus Abyot Desalegn-SINCE Amhara Lot 2 Economic Analyst, CIFA Onlus

September 2019

1 September 2019

Table of contents

1. INTRODUCTION ...... 5

1.1. THE PROGRAMME ...... 5 1.2. SUMMARY OF FINDINGS OF THE INCEPTION PHASE ASSESSMENT REPORT ...... 5

2. SINCE PROGRAMME IMPLEMENTATION IN AMHARA REGION ...... 6

2.1. THE RESEARCH AREA ...... 7 2.2. THE RESEARCH STRUCTURE ...... 7 2.3. METHODOLOGY ...... 9 2.4. THE RESEARCH GROUP ...... 10

3. SOCIAL DEVELOPMENT OF SOUTH WOLLO: AN OVERVIEW ...... 10

3.1. DEMOGRAPHY ...... 11 3.2. HEALTH ...... 14 3.3. WATER ...... 16 3.4. INFRASTRUCTURE DEVELOPMENT ...... 16 3.5. EDUCATION ...... 18

4. SOUTH WOLLO ECONOMY: AN OVERVIEW ...... 22

4.1. AGRICULTURE ...... 22 4.2. MANUFACTURING ...... 25

5. VALUE CHAIN ANALYSIS ...... 31

5.1. METHODOLOGY ...... 31 5.2. AGRI-FOOD VALUE CHAIN IN SOUTH WOLLO ...... 31 5.2.1 METHODOLOGY ...... 32 5.2.1 COMMON INPUTS ...... 35 5.2.2 PROCESSING OF AGRI-FOOD FROM FARM PRODUCT UP TO MANUFACTURED CONSUMER GOODS ...... 35 5.2.3 ENABLERS OF THE CHAIN ACTORS ...... 47 5.2.4 SWOT ANALYSIS OF THE VALUE CHAIN ...... 47 5.2.5 CONCLUSION AND RECOMMENDATION ...... 48 5.3 METAL WORKS VALUE CHAIN IN SOUTH WOLLO ...... 49 5.3.1 VALUE CHAINS ANALYSIS ...... 50 5.3.2 SWOT ANALYSIS...... 64 5.3.3 CONCLUSION AND RECOMMENDATIONS ...... 64 5.4 TEXTILE AND GARMENTS VALUE CHAIN ...... 66 5.4.1 INTRODUCTION ...... 66 5.4.2 SECTOR ANALYSIS ...... 67 5.4.3 FINANCIAL SOURCES FOR BUSINESS START-UP ...... 71 5.4.4 PRODUCTION CAPACITY ...... 72

5.4.5 INPUTS ...... 73 5.4.6 THE PRODUCTION PROCESS ...... 75 5.4.7 ENABLERS OF THE VALUE CHAIN ...... 78 5.4.8 LINKAGES AND VALUE CHAIN GOVERNANCE ...... 79 5.4.9 CONCLUSION AND RECOMMENDATIONS ...... 80 5.5 CONSTRUCTIONS SECTOR ...... 83 5.5.1 INTRODUCTION ...... 83 5.5.2 MAJOR INPUTS AND OUTPUTS ...... 83 5.5.3 MAJOR ACTORS AND STAKEHOLDERS ...... 83 5.5.4 PUBLIC INSTITUTIONS ACTIONS AND INITIATIVES ...... 84 5.5.5 WORKING CONDITIONS AND WORKERS’ SKILLS ...... 84 5.5.6 SWOT ...... 84 5.5.7 CONCLUSIONS AND RECOMMENDATIONS...... 86 5.6 SALARIES BY SECTOR AND SCALE OF OPERATION ...... 86

6 INDUSTRIAL PARKS ...... 90

6.1 INTRODUCTION ...... 90 6.2 HISTORY OF INDUSTRIAL PARKS IN ETHIOPIA...... 90 6.3 INSTITUTIONAL FRAMEWORK AND POLICIES ...... 91 6.4 KOMBOLCHA INDUSTRIAL PARK (KIP) ...... 92 6.4.1 CURRENT STATUS OF RESIDENT ENTERPRISES ...... 94 6.4.2 STAKEHOLDERS AND THEIR ACTIVITIES IN KIP ...... 95 6.4.3 VALUE CHAINS AND LINKAGES INSIDE AND TO THE LOCAL ECONOMY ...... 96 6.4.4 CONTRIBUTIONS FROM KIP TO LOCAL ECONOMY ...... 97 6.4.5 CONSTRAINTS AND CHALLENGES ...... 98 6.4.6 RECOMMENDATIONS ...... 98

7 PUBLIC PRIVATE PARTNERSHIP ...... 100

7.1 INTRODUCTION ...... 100 7.2 PUBLIC-PRIVATE PARTNERSHIP IN ETHIOPIA ...... 100 7.3 PPP IN SOUTH WOLLO ZONE ...... 102 7.3.1 PUBLIC PERSPECTIVE ...... 103 7.3.2 PRIVATE PERSPECTIVE ...... 104 7.3.3 PPP IN TVET ...... 105 7.3.4 THE ROLE OF SINCE AMHARA LOT 2 PROJECT ...... 107 7.4 CONCLUSION AND RECOMMENDATIONS ...... 108

8 LABOUR AND EMPLOYMENT POLICY FRAMEWORK ...... 110

8.1 NATIONAL EMPLOYMENT POLICY AND STRATEGY OF ETHIOPIA ...... 110 8.2 THE LEGAL FRAMEWORK ON LABOUR ...... 113 8.2.1 LABOUR RIGHT ...... 113 8.2.2 LABOUR REGULATION ...... 113 8.3 LABOUR FORCE AND EMPLOYMENT/UNEMPLOYMENT TREND ...... 115 8.4 WORKING CONDITIONS IN SOUTH WOLLO MANUFACTURING SECTOR ...... 116

8.4.1 DECENT WORKING TIME AND WAGE ...... 117 8.4.2 TRAINING AND CAREER IMPROVEMENT OPPORTUNITIES ...... 119 8.5 APPRENTICESHIP AND COOPERATIVE EDUCATION ...... 120 8.6 OCCUPATIONAL SAFETY AND HEALTH AND EMPLOYMENT INJURIES ...... 120 8.7 WORKING CONDITIONS IN TVETS ...... 124 8.8 DECENT WORK AND GENDER ...... 125 8.9 CONCLUSION AND RECOMMENDATIONS ...... 127 8.9.1 RECOMMENDATIONS ...... 127

9. TVET AND LABOUR EMPLOYMENT SYSTEM IN SOUTH WOLLO ...... 128

9.1 BACKGROUND TO ETHIOPIAN TECHNICAL AND VOCATIONAL EDUCATION SYSTEM ...... 128 9.2 VARIETIES OF TVET MODALITIES IN ETHIOPIA ...... 129 9.2.1 NON-FORMAL TVET ...... 129 9.2.2 INFORMAL-TVET ...... 129 9.2.3 FORMAL TVET-SYSTEMS ...... 129 9.3 RESEARCH METHODS ...... 131 9.4 GOVERNANCE OF TVET-SECTOR IN SOUTH-WOLLO ...... 131 9.5 ACCESS TO AND QUALITY OF TVET IN SOUTH WOLLO ...... 132 9.6 PERSPECTIVES FROM POTENTIAL EMPLOYERS OF TVET GRADUATES ...... 135 9.7 SOCIETAL-VALUES OF TVET IN SOUTH-WOLLO COMMUNITY ...... 136 9.8 TVET AND PRIVATE SECTOR PARTNERSHIP ...... 137 9.9 CASE STUDY: HOPE-TVET-CENTER ...... 138 9.10 TWO STRATEGIC ASSETS OF TVET-SECTOR IN SOUTH-WOLLO: FINANCIAL AND SOCIAL CAPITALS ...... 140 9.10.1 ACCESS TO CREDIT (FINANCIAL CAPITAL) ...... 140 9.10.2 ACCESS TO SOCIAL-CAPITAL (TRUST & SOCIAL-TIES) ...... 141 9.11 CONCLUDING-REMARKS ...... 142 9.11.1 RECOMMENDATIONS ...... 143

10. FINAL REMARKS ...... 145

REFERENCES ...... 151

APPENDIX 1: DATA COLLECTION TOOL – PPP ...... 154

APPENDIX 2: LIST OF PARTICIPANTS – PPP INTERVIEWS ...... 155

APPENDIX 3: OUTPUTS OF FOCUS DISCUSSIONS ON SOUTH WOLLO ASSETS ...... 156

1. Introduction

1.1. The Programme The European Union Trust Fund (EUTF), and particularly EUTF for Africa, aims to foster stability and contribute to better migration management, by addressing the root causes of migration itself and displaced persons in Africa. One of the fields of activities of the Fund is the implementation of economic development projects addressing skills gaps, and improving employability through vocational training, and supporting job creation and self-employment opportunities with a focus on strengthening micro, small and medium size enterprises (MSMEs). Within this framework, the SINCE (Stemming Irregular Migration in Northern and Central Ethiopia) Programme, which is managed by the Embassy of Italy in Addis Ababa, aims at reducing irregular migration and its negative impacts; fostering a more inclusive economic environment across some regions of Ethiopia; and creating a more conducive environment for returnees. The intervention assumes that the creation of productive value chains, access to economic stability, and the improvement prospects reduce the risk of irregular migration. In particular, SINCE intends to enhance the living conditions of potential migrants and returnees through on-the-job training and capacity development of the target population in woredas and regions, particularly in rural towns and urban areas in Northern and Central Ethiopia, most affected by immigration. In general, the overall objective of SINCE is to contribute to the reduction of irregular migration from Northern and Central Ethiopia by improving the living conditions of the most vulnerable population, including potential migrants and returnees, with specific focus on youth and women. In detailed terms, the specific objective of the programme is to establish inclusive economic programs that create employment opportunities for potential migrants, returnees and refugees, especially women and youths, in the most migration prone regions of Ethiopia (Addis Ababa, Amhara, Oromia, SNNPR, and Tigray) by strengthening the capacities of Technical, Vocational Education and Training (TVET) providers and promoting public private partnerships (PPPs) in strategic economic clusters. 1.2. Summary of Findings of the Inception Phase Assessment Report At the end of the Inception Phase of the programme, a report has been produced jointly by UNIDO and ILO with the objectives to: 1) define specific areas of intervention; 2) identify sectors and value chain segments; 3) define programme results to achieve the specific objective; and 4) suggest possible activities to be undertaken by implementing partners. The report on the findings of the Inception Phase of the programme consisted of two main parts. The first is a socio-economic assessment conducted in selected target zones and woredas across the five selected regions (Addis Ababa City Administration, Tigray, Amhara, Oromia, and Southern Nations, Nationalities, and Peoples Region), focusing on basic demographic, social, cultural, economic, and political aspects. The aim of the socio-economic assessment was to identify the root causes for migration and to investigate the existing labour market situation, with emphasis on public employment schemes, the potentials for labour market or employment creations in the target areas. The second part includes cross-sector analysis employing a value chain approach that identified the following five main sectors as the most suitable to achieve the programme’s objectives: agribusiness, textile and garment, leather, metal works, and construction materials. These sectors have been selected following a number of criteria divided into three groups: a) alignment of each sector 5 and sub-sector with the Ethiopian governmental socio-economic development strategy and other existing initiatives; b) relevance to target groups and to the specific objective of the SINCE Pro- gramme; and c) feasibility in terms of achieving the SINCE Programme’s specific objectives. Thus, anchored in the findings of the two parts of this preliminary research and vis-a-vis the programme’s objectives, the inception phase report closes by forwarding a series of recommendations in keeping with the aims and objectives of the SINCE Programme implementation. The inception phase proposed two types of recommendations. The first is a set of policy recommendations, such as: ü Establish an effective labour market information system, to connect job seekers to employers and to link the local labour markets with national and regional economic plans; ü Enhance the local skills base as a means for increasing the employability of young people; ü Improve the productivity of micro and small enterprises and to promote TVET graduation into small and medium firms; ü Improve the governance of local youth labour market; and ü Strengthen public and private stakeholders’ participation and to support public employment services. Beside these policy recommendations, the pilot report proposed a set of pragmatic suggestions to local policy makers and stakeholders, such as: ü Provision of need based regular motivational and entrepreneurship training; ü Improve the presence of irrigated agriculture; ü Focus the process of job creation on a value chain approach; ü Improve the access of entrepreneurs to financial services; ü Establish professional career counsellors in order to support youth entrepreneurship; ü Engage non-governmental actors in changing youth attitudes toward migration; and ü Strengthen the coordination among different government bureaus in the field of labour market and training. These recommendations represented the framework for the proposed programme implementation strategy, that has been built focusing on results and activities that: ü Allow for the achievement of the SINCE objectives; ü Can be effectively implemented by partners; ü Can be related both to specific value chains and to other sectors; ü Involve TVETs, increasing their capacity to provide effective training; ü Involve selected clusters with high potential for additional employment opportunities; and ü Facilitate for the involvement of public and private stakeholders for ensuring project effectiveness and sustainability.

2. SINCE Programme Implementation in Amhara Region Following the findings of the inception phase research, the programme has been implemented with specific actions in different areas of the five regions identified as strategic. This report presents the findings of the research activities carried out within the framework of the action “Linking and

6 upscaling for employment”, Lot No. 2 (Amhara region). The partners who participated in this action are EDUKANS (Dutch NGO); CIFA Onlus (Italian NGO), Confederation of Ethiopian Trade Unions - CETU (Ethiopian non-profit organization), Development Expertise Centre - DEC (Ethiopian non-profit organization), HOPE Enterprises (Ethiopian NGO), Kidane Garment (Ethiopian profit-making organization). The research synthetized in this report is part of the A 2.1.1b activity of the implementation programme, named “Research analysis (…) to make an analysis of job creation, value chains, and local economic development”. The aim of the study, according to the programme, is to analyse the soci- oeconomic development and the value chains of the selected zones of the Amhara region in order to collect relevant data to support the programme’s following activities. 2.1. The research area The Lot 2 of the implementation phase of the SINCE Programme focuses on the Amhara region, one of the five Lots analysed during the inception phase. Amhara is one of the nine ethnic divisions of Ethiopia, homeland of the Amhara people. The total population is of about 21.000.000 (data CSA, 2017), showing a relevant increase according to the previous decade (> 22%). This demographic pressure is one of the main push factors affecting migration trends in the region. The research carried out during the inception phase highlighted some challenges of the labour market and of the value chains in the region, specifically in three zones: North Wollo, South Wollo, and Oromo Zone. Such challenges represented the starting point of the second part of the research, which was carried out during the implementation phase, as essential knowledge base for the following actions. The main challenges that have been identified about the labour market in the studied zones of Am- hara region are: ü Lack of adequate skills among young job-seekers, both in rural and urban areas; ü Lack of entrepreneurship and skill training addressed to unemployed youth; ü Socio-cultural disregard or contempt for locally available menial jobs among youth, mostly educated ones; ü Weak tendency to networking and group entrepreneurial projects; ü Predominance of temporary jobs that fail to address the problem of unemployment effectively; ü Lack of adequate information on the labour market situation; ü Difficulties in credit access for entrepreneurial projects.

2.2. The research structure Starting from the findings and the recommendations emerging from the inception phase report, a more in-depth research has been developed for the implementation phase, focusing on a specific area of the Amhara Region (the South Wollo zone) and on some specific topics considered as specifically relevant for the programme’s aims.

As Figure 1 shows, the research is structured into different chapters that explore the main issues of local social and economic development according to the programme’s activity description. Gener- ally, the research is divided into two main parts: the first explores the general socio-economic development conditions of South Wollo, analyses in detail four value chains: textile and garments, metal, agri-food, and construction (the first three with more detail) and considers the local implementation of public-private partnerships; and the second part focuses on two crucial frameworks regarding the link between jobs offer and demand: labour and employment, and TVET system.

Figure 1 - The research structure

The next two chapters focus on South Wollo’s general social and economic development, basing on statistical quantitative data (mostly obtained from South Wollo Plan Commission and Central Statistics Authority and Dessie City Administration) and qualitative production of primary data, mostly based on the active involvement of local public officers (focus groups) and local experts (interviews). In the analysis of the economic dimension, specific focus is given to the four strategic sectors of textile and garments, metal works, construction, and agri-food processing. The Fifth and Sixth chapters explore four value chains that are considered (by the inception phase conclusions and by a preliminary analysis of the researchers’ group) as strategic for the area: textile and garment, agribusiness, metal works and constructions. The first, the third, and the fourth are suggested as strategic sub-sectors for South Wollo by the SINCE inception phase, while the agri-food processing value chain has been added to the analysis because it has been identified as also being strategic and promising by preliminary key informants interviews and by the process or research design of the international team of researchers that carried it out. The choice is driven by its high potential for youth and women employment, stressed by the inception phase research, and for the possibility to plan local value chains, connecting agriculture production, raw material processing and finished products trade. Textile and garments, metal works, and agri-food value chains are analysed with a high level of detail. The three analyses, although have followed a common, general

8 methodology, have a specific in-depth analysis respectively, mainly owing to the particular focus that each researcher of this interdisciplinary team has provided to it. At the same time, each analysis is composed of a general analysis of the sector in the region, a value chain mapping, description of the main inputs of the analysis of the production process; a reflection on the actors of the system and final considerations, highlighting strengths, weaknesses, opportunities and threats of each sector (SWOT analysis), finally followed by some policy recommendations related to the applied nature of this research. A specific attention is paid to the differences between small, medium and large firms. The construction sector value chain has been investigated using a different methodology and was mostly based on key informant interviews (KII). Chapter 7 describes the role of the Kombolcha Industrial Park, local expression of the national policies on industrial parks in local economic and employment dynamics, mostly highlighting its opportunities and its current threats in terms of jobs creation. The Eighth chapter focuses on the local implementation of private-public partnerships, one of the most relevant recent innovations in Ethi- opian economic development policies. Chapter 9 explores the labour and employment policy framework at different scales, from national and regional strategies, to local implementations at zonal scale. The tenth chapter finally focuses on the Technical and Vocational Education and Train- ing (TVET) system at the local scale, highlighting its links with the local labour demand and offer. As mentioned before, the aim of this research was to collect data that might produce useful recommendations aiming at addressing future projects and policies to the real challenges of the programme area in terms of socio-economic development and labour issues. Therefore, each chapter of this report – as well as the report itself with the final conclusive chapter - is closed by an analysis of the strengths and weaknesses of the chapter topic and by forwarding some policy recommendations. 2.3. Methodology The research adopted a multi-method methodology, combining primary and secondary, qualitative and quantitative data. The specific methodology of each analysed topic is described respectively at the beginning of each chapter. The main sources and data collection methods were: - Secondary data: o Scientific and “grey” literature review on social and economic development and value chains analysis; o Existing databases and reports on South Wollo social development, collected from various sources, such as the Ethiopian Government Central Statistics Agency (CSA), South Wollo Plan Commission, and Dessie City Administration; and o Policy documents, legislations, strategies and plans analysis

- Primary data: o Key Informants Interviews (KII): The research employed key informant interview as a major tool to obtain the required data. It used open-ended and semi-structured interview methods, involving more than 40 informants, among local public officers, private companies’ owners and workers, and other experts.

o Focus Group Discussions (FGD): As additional primary source of data, the study used focus groups, notably involving the public officers, mostly from labour and employment and TVET offices participated in the SINCE training sessions. o Observation: The study also used direct observation to investigate the functioning of firms participating in the analysed value chains and hosted in Kombolcha Industrial Park. o Sharing of first findings with stakeholders: The first draft of this report has been shared with the local actors and stakeholders in a validation workshop that was organized in Dessie on July 30th 2019. The feedback collected during the workshop oriented the final version of the research report.

2.4. The research group The research has been carried out by an international and interdisciplinary team of researchers (i.e. economist, planners, geographers, sociologists, and development experts), with the active involvement of the Wollo University (College of Business and Economics) and the University of Turin (De- partment of Cultures, Politics and Society).

3. Social development of South Wollo: an overview

South Wollo is one of the 11 zones in the Amhara region of Ethiopia. It acquired its name from the former province of Wollo. South Wollo is bordered by Semien Shewa and Oromia region on the south, by West Gojjam on the west, by Afar region on the northeast, and by Oromia special zone and Argoba special woreda on the east. Its highest point is mount Amba Ferit, which has a height of 3824 meters above sea level. Figure 2 shows the position of the Zone in the Ethiopian geography.

Figure 2 - South Wollo zone in Ethiopian geography 10

3.1. Demography According to the most recent data, South Wollo has an estimated total population of 3.087.132 (Central Statistics Agency, 2017), showing a clear growth from the 2007 Census (> 22%) and more than 36% over the 1994 census. Figure 3 shows the demographic evolution of South Wollo zone from 2011 to 2017. The percentage of male and female from the total population is approximately equal and it has been the same throughout the period under consideration. The neat gap between urban and rural population remains also generally stable during the analysed time, with a low decrease of urban population in recent years, showing a counter-trend in respect to Ethiopian and African dynamics. Demography in South Wollo is characterized by a clear difference between rural areas – largely prevalent – and urban areas, around the cities of Dessie1 and Kombolcha. (Population status and trends in the zone, including population distribution among South Wollo woredas, rural share, and population variation between 2007 census and 2017 projections are presented in Table 1 further below). As can be inferred from the following, subsequent maps, urban areas, where 15% of the total population currently live in, are characterized by a higher demographic growth (almost >30% in Dessie town). Compared to the rest of Amhara region and to the country in general, South Wollo is distinguished by a dramatically lower growth rate of population, i.e. +6.7%, compared to +22% of the region and +52% of the whole country. Share of the rural population (85%) is higher than the Amhara region data (82.5%) and that of the national data (79.7%), highlighting the still rural predominant economy and society of the zone. And except for the still limited urban areas that are characterized by high growth rates.

Figure 3 - Demographic trends in South Wollo Source: South Wollo Plan Commission

1 From the administrative perspective, Dessie Town is formally not part of South Wollo zone, even if it is totally part of it from the social and economic point of view. In this report it will be specified if data and analysis include also Dessie Town area. 11

Table 1 - Demography of South Wollo (CSA 2007 and projections 2017)

Woreda POP_20172 (m) POP_2017 (f) POP_2017 (t) % Rural POP POP_2007 Pop Var.2007/2017 Mekdela 81458 86349 167807 94% 163214 3,8% Tenta 96927 100409 197336 92% 190204 3,7% Kutaber 55944 57188 113132 92% 109156 3,7% Ambasel 72196 72068 144264 93% 138584 4,0% Tehuledere 72903 71957 144860 82% 134871 2,9% Werebabu 60054 60026 120080 90% 114236 4,9% Kalu 114515 112206 226721 84% 213597 3,8% Albuko 45186 45982 91168 93% 88254 3,2% Dessie Zuria 89091 93073 182164 100% 180386 1,0% Legambo 95644 99323 194967 93% 188780 4,2% Sayint 84436 86273 170709 94% 165862 2,9% Debresina 93159 94756 187915 92% 181864 3,3% Kelela 80409 81824 162233 92% 157289 3,1% Jama 74340 75770 150110 93% 145870 2,9% Were Ilu 66094 66866 132960 84% 124966 6,1% Wegidi 78074 80823 158897 95% 154684 2,7% Kombolcha 66689 66395 133084 23% 97657 26,6% Dessie Town 121177 123952 245129 14% 172908 29,5% Mehal Saynt 41741 43091 84832 100% 84007 1,0% Legahida 38732 40032 78764 95% 76801 2,5% Total 1528769 1558363 3087132 85% 2883190 6,7%

2 Central Statistics Agency projection 12

Figure 4 - Population distribution in South Wollo

Source: CSA 2013, est. 2017

Figure 5 - Variation of population between 2007 and 2017

Source: CSA, 2013, est. 2017

Figure 6 - Share of rural population in South Wollo woredas In terms of age, as can be seen in Figure 7 below, majority (around 55%) of the population in the area is between 15 and 64 years of age, showing a low age-dependency rate (81%) in 2017.

1.800.000 60,00% 1.600.000 50,00% 1.400.000 1.200.000 40,00% 1.000.000 30,00% 800.000 600.000 20,00% 400.000 10,00% 200.000 0 0,00% 0-14 15-64 ≥65 0-14+≥65

Population Percentage

Figure 7 - Population age structure in South Wollo, by %, 2017

3.2. Health Currently, there are about 12 hospitals, 128 health centres, and 523 healthcare service points in the South Wollo Zone. This is a major improvement which shows an increment in the health coverage of the zone from 93.8% in 2011/12 to about 99.7% in 2017/18. The number of hospitals in the zone has increased from only 3 hospitals in 2010/11 to about 12 hospitals in 2017/18. This a growth rate of 300% in a less than a decade. This translates into a rise in a health service coverage from 92% in 2011/12 to about 99.7% in 2017/18. The figures below describe the health service coverage in the zone and the total number

14 of hospitals, health centres and healthcare service points in the period between 2010/11 to 2017/18.

Figure 8 – Distribution of major health facilities in South Wollo as at 2018

600 102

500 100 98 400 96 300

cares 94 200 92 Coverage (%) 100 90

Number of Hospitals, Health 0 88 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Hospital Health Center Healthcare Coverage

Figure 9 - Health Service coverage in South Wollo Zone

However, notwithstanding the significant increase in the number of health care institutions, there is still a significant gap in the health service in the Zone compared to the size of populations. For instance, there is only one referral hospital in the zone which serves a population of close to 3 million. At the same time, the health post - to - population ratio in South Wollo is about 1:5736 in 2018 while the national figure during 2013 was 1:5630, showing insignificant change in the five years’ period (Figure 9).

3.3. Water Water accessibility is one of the social development indicators that have an implication on health and other related socio-economic elements. The data from South Wollo zone indicate that in the last eight year from 2011 to 2018, water coverage for rural districts has improved from about 40% to more than 70%. There could be a number of factors that explain this significant increase in water coverage of rural areas compared to urban. One possible factor could be a pro-poor and pro-rural development strategy that the government of Ethiopia has been following over the last three decades and international development assistances that mainly target the rural poor. On the contrary, the water coverage in urban areas of South Wollo zone has not shown a significant improvement over the period considered. The problem of water coverage in urban areas of Ethiopia in general and South Wollo Zone in particular might be exacerbated by high migration of people from rural to urban areas. Even though the government is making an investment to improve the urban water coverage, it is still much lower that might be due to high number of populations flowing in by rural-urban migration (Figure 10).

100 90 80 70 60 50 40 Coverage (%) 30 20 10 0 2011 2012 2013 2014 2015 2016 2017 2018 Urban 67,59 94 91,11 88,89 59 62,6 67,97 67,17 Rural 45,62 51,42 58,97 69,97 51 64,7 72,12 77 Total 48,05 56,1 62,52 72,83 55 63,65 70,05 76,52

Urban Rural Total

Figure 10 - Trends in clean water coverage in rural and urban areas, by years Source: Own elaboration based on South Wollo Plan Commission Data

3.4. Infrastructure Development Road construction plays a significant role in realizing economic development and investment expansion. In Ethiopia too, in line to the Agricultural led industrialization development policy of the country, road transport has an important role in transporting inputs to the farm area and farm outputs to the market and industrial areas for further process.

The Amhara regional road network is well structured, especially if compared to other Ethiopian regions. The main highways connecting the region to the center of the country are the Addis Ababa-Asseb road passing through Dessie and the Addis Ababa–Adwa road, passing through Gondar. According to the Amhara Regional State investment guide, the region has been viewed to have over 2000 km of asphalt roads connecting all major towns.

In 2015/16, majority of the woredas in Amhara region were connected to the major road network. In general, the total length of all-weather rural roads under Ethiopian Road Au- thority (ERA) and Rural Authority (RA) of the region, is about 11,036.74 km.

In 2015/16, the total road length in South Wollo zone was measured at about 3256.65 km, of which 1700 km. is administered by the federal and regional governments and the remaining 1556.4 administered by the woredas. Dessie, the capital city of South Wollo zone, is located on Ethiopian Highway 23. The zone has a 632 km length road in total with an area of 17,674.69 square km in 2008/2009. During the same year, the road density of South Wollo zone is about 36 square km (per thousand). It was in 2015/16 that the total road length in the zone increased to 3256.65 km, and this has improved the road density of the Zone to 190.75 square km.

In the South Wollo zone there are 236 kms of asphalt and 712 kms of gravel roads that facilitate the overall socio-economic interactions within the zone, reaching every district. As can be seen from the Table below, only very few woredas are connected with asphalt road in the zone. However, almost all of them are connected with all-weather gravel roads.

Table 2 – South Wollo roads network From To Asphalt Gravel Total Dessie Zuria Kutaber 0 22 22 Dessie Zuria Wera’elu 0 50 50 Sayint Legambo 0 39 39 M/Sayint Legambo 0 38 38 Tenta W/Tena 0 113 113 Dessie Zuria Albico 0 34 34 Dessie Zuria Legambo 109 0 109 Wogidi Legambo 0 36 36 Legambo Borena 82 0 82 Tehuledere Ambasel 0 50 50 Legambo Kelela 0 57 57 Tehuledere Bistima 0 17 17 Dessie Zuria Kalu 45 0 45 Jama Wore’elu 0 30 30 Wore’elu W/Amba 0 40 40 Tenta Masha 0 44 44 Kuta ber Delanta 0 76 76 Kalu Argoba 0 36 36 Worebabo Kalu 0 30 30 Total 236 712 948 Source: Own Computation based on data from South Wollo Plan Commission

3 The Ethiopian Highway 2 is a highway that connects the capital Addis Ababa with Mekelle, as well as with Wukro, Adigrat, Axum, Shire, and Humera. Ethiopian Highway 2 has a length of 974 kilometers. 17

The proper level of road network is assessed by road density as measured by road length per 1,000 persons or by road length per 1,000 km2. In this section, the road density of South Wollo is compared to the road density of other zones in the region using a data from the annual statistical bulletin of the region. Thus, as compared to other zones in the region, the road density of South Wollo is lower (62.8), only surpassing South Gondar, North Gondar, and Waghemera zones, as shown in Figure 11, but a little above the regional average, which is 60.3 %.

A Railway connecting Addis Ababa with Mekele, Shire, and then to Humera, which is currently under construction, also passes through the South Wollo zone. Once its construction is completed, this railway will connect the South Wollo zone with the center of the country, Addis Ababa, and the Tigray region. The Awash-Weldiya railway station is the nearest station to Kombolcha town, which will serve the as a transit spot once the construction is completed. This will have a huge impact in improving service in trade and attracting investment to the area. Further, South Wollo zone is also home to the Kombolcha airport, which connects the region with Addis Ababa (Ethiopian Airlines flights twice a day).

Figure 11 - Road density per zone in Amhara region.

3.5. Education In Ethiopia, the overall goal of the education sector is to produce or supply qualified, trained workforce equipped with the necessary skills at all levels so as to support the national development agenda. Over the last two decades, access to all levels of the education system has increased at a rapid rate in line with sharp increases in the number of teachers, schools, and institutions. In keeping with national progresses with respect to educational indicators, Amhara region in general and South Wollo zone in particular, also had registered rapid progresses, especially in improving access to education. Some of the components and figures related to the education sector are briefly discussed below. The below figure indicates the current South Wollo number of students enrolled in primary, secondary and preparatory schools in the zone.

600000 524784 500000

400000

300000 268548 256236

200000

100000 65643 32464 31408 7649 4777 11498 0 Male Female Total Male Female Total Male Female Total # of primary students (1-8) # of secondary students (9-10) # of preparatory Students (11-12)

Figure 12 - Number of primary, secondary, and preparatory students, by sex 2018.

The above figure indicates that there are significant differences in numbers, especially between primary and secondary students. The observed difference here implies that many students were unable to pass from primary to secondary education in the zone.

An attempt was made to examine the progresses made in terms of gender parity over the period of 2010/11 – 2017/18. The data in this regard indicate that girls’ participation in primary education has been close to 50% in primary education over the considered period of time. However, girls’ share in secondary education has been lower in some periods (2011/12 – to- 2014/15) and has even gotten worse in preparatory classes. This finding implies that girls must have found it relatively difficult to pass to secondary and preparatory schools. The participation of girls in primary, secondary, and preparatory education is provided in the figure below. 60

0 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Primary School(1-8) Secondary School (9-10) Preparatory School (11-12)

Figure 13 - Share of female students in primary, secondary and preparatory education, by year

According to UNESCO, Gross Intake rate is defined as the total number of new entrants in Grade 1 of primary education, regardless of age, expressed as a percentage of the population at the official primary school entrance age. Whereas, Net Intake is defined as total number of students of official primary school entrance age who are enrolled in primary education, expressed as a percentage of the population of the same age. It is the equiva- lent of the Age-specific enrolment rate of official primary entrance age (www.unesco.org). The below table depicts apparent and net intake rates in South Wollo zone.

Table 3 - Primary intake rate of students (2010/11 – 2017/18), by sex

Apparent Intake (%) Net Intake (%) Year Male Female Total Male Female Total 2010/11 127.4 109.3 118.3 103.1 91.5 97.3 2011/12 109.9 97.9 103.9 97 87.6 92.3 2012/13 132.3 129.2 130.8 115.9 115.7 115.8 2013/14 167.7 157.8 162.2 100.1 99.7 99.9 2014/15 115.2 111 113.2 100 100 100 2015/16 112.8 110.2 111.5 86.3 85.2 85.8 2016/17 82.9 82.1 82.5 76.2 76.4 76.3 2017/18 78.5 75.8 77 72.2 70.5 71.1 Source: South Wollo Zone Education Bureau

The national targets for gross and net intakes rates are 100% and 80%, respectively. The above table indicates that intake rates have been at higher levels between 2010/11- 2014/15. However, as the data reveals, there have been a steadily decreasing trend in the past three (3) years, from 2015/16 to 2017/18. We can also observe that there are figures that don’t seem real, as per the definition of the terms. For instance, in some periods (2010/11 and 2012/13) net intake rates are registered at a rate higher than 100%. As per the information that we have obtained from South Wollo Education Bureau, these unre- alistic figures are due to miscalculations of the number of school age children. According to our information, since the estimation of the children has always been done based on the 2007 national census, the estimated number may have been underestimated in some periods in the past. Just likewise, in some periods, the number of children may also have been overestimated. According to our sources, no formal study was conducted that aimed to assess the factors that caused the observed changes in the intake rates in the zone. The number of schools has been increasing over the period under consideration. Accord- ing to the South Wollo Education Bureau, there were a total of 1318 (1230 primary, 63 secondary, and 25 preparatory) schools in the zone in 2017/18. The figure below presents the number of primary, secondary, and preparatory schools over the period 2010/11 to 2017/18.

1400

1200

1000

800

600

400

200

0 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Primary (1-8) Secondary (9-10) preparatory (11-12)

Figure 14 - Number of schools in South Wollo, by year and school level

Regarding pupil to teacher and pupil to class room ratios, it was learned that, on average, both ratios have declined over the period, indicating that higher number of teachers and class rooms were made available in the zone. However, the improvement in pupil-classroom ratio did not follow a smooth path. Instead, there were periods of progress followed by reversals that need to be further investigated to identify as to why pupil to class room ratio has increased in some years, such as in 2017/18, and decreased in others. The figure below shows pupil to teacher and pupil to class room ratios over the period 2010/11 to 2017/18.

0 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Pupil-teacher ratio Pupil-Classroom ratio

Figure 15 - Pupil-teacher and Pupil-class room ratios

4. South Wollo Economy: An Overview

The main economic activities in the South Wollo zone are agriculture, manufacturing, and service sector. Agriculture, which also includes livestock production, is the main source of income for the community in the zone. Like in other parts of Ethiopian highlands, the major farming system in the zone is mixed farming system. Small percentage of the community also get income from labour wage, petty trade, weaving, and local drink trading. The discussions of economic activities in the South Wollo zone in this section are based on the data obtained from South Wollo Agriculture and Investment Bureau, and mainly focusses on agriculture and industrial sector following the objectives of the programme. 4.1. Agriculture Agriculture is the region’s economic mainstay and a main source of life for majority of the population, as is the case with the rest of the country. The total agricultural production in the zone during 2010/11 was 9,848,816 quintals. In the same year, total cultivated land in the zone was about 779,483 hectares. As the data shows, the total agricultural production has increased by 173 % from 2010/11 to 2016/17. This may show an improved agricultural farm practice in the zone. The trend in total agricultural production and the corresponding cultivated land in the zone is given in Figure .

900000 30000000 800000 25000000 700000 600000 20000000 500000 15000000 400000 300000 10000000 200000 Cultivated land (Hectares) 5000000 Total production (Quintals) 100000 0 0 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Cultivated land Total Production

Figure 16 - Total cultivated land and agricultural production in South Wollo

During the 2017/18 production season, agricultural production had significantly dropped. This could be attributed to farmers’ lack of access to improved agricultural inputs in the required amount and the appropriate time. The amount of improved agricultural seed distributed to farmers shows a sharp decline during 2017/18. This could be a factor for a significant decline in the agriculture production during the same production season. There is an observed difference between the planned, and actual amount of improved seed distributed to the farmers. The main reason indicated for not meeting the plan is lack of

22 supply and delays in distributions. Relatively better improved seeds were distributed to the farmers during the preceding year, i.e. 2015/16 to 2016/17 (Figure 17).

50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Planned supply distributed

Figure 17: Supply of improved seed in South Wollo Zone, 2010/11-2017/18

The table and figures below show the amount of cultivated land and the annual yield for the main crop types in the zone (cereals, oilseeds and pulses), showing a trend to the increase of agriculture productivity in the area and the prevalent role of agricultural production in the southern part of South Wollo, as well as suggesting potentials for the development of local agribusiness value chains, as discussed in the next chapters.

Table 4 - Total production trends of main crops in South Wollo woredas (except Dessie town)

Year 2010/11 2015/16 2016/17 Woreda land (H) Yield (Quintal) land (H) Yield/Q land (Hec.) Yield/Q Albiko 15128 225251 14716 330485 15132 441036 Ambasel 14360 263076 14213 233752 14895 337485 Argoba 5839 77157 6930 32288 6930 124240 Borena 39780 648002 39156 512352 39780 893141 Delanta 18315 182304 19987.25 195624.6 19329 526167 Dessie Zuria 24757 333878 24690 436167 25413 833496 Kalu 24734 375461 22542 314758 23072 530733 kelala 32180 460465 30984 203710 32111 8114404 Kombolcha 4797 76778 3003 27774 2833 82571

Kutaber 10761 246656 11924 124287 10761 323149 Jama 42299 967451 38870 677762 40838 1452821 Legambo 22996 206020 265665 314021 23229 435236 Lega hida 20699 185814 19174.18 189433.1 22025 415482 M/Seyint 13987 235725 13772.7 115274.6 13788 175062 Mekdala 27015 225711 20183 414339 20778 450405 Seyint 21280 236761 20468 429226 20834 501256 Tewulederi 16133 334537 15180 318753 16658 864810 Tenta 29678 406849 23138 249097 23787 494998 Wegdi 320248 459650 29584.35 571802.3 30248 919847 Wara Babu 15627 20659 13932 68113.3 13980 292448 Wara Ilu 26690 3220146 23907.75 413882.7 28058 638053

Cultivated land by crop type Yield by crop type 500000 14000000 400000 12000000 10000000 300000 8000000 200000 6000000 4000000 100000 2000000 0 0

2010/11 2011/10 2012/132013/014 2014/152015/016 2016/17 2017/18 2010/112011/102012/132013/0142014/152015/0162016/172017/18

Creals Pulses Total Cereals Pulses Oilseeds Total

Figure 18 - Cultivated land by main crop type (ha) Figure 19 - Yield by main crop (quintal)

Figure 20 - Cultivated land per woreda

4.2. Manufacturing Manufacturing is a fundamental sector for South Wollo, as witnessed by the number of active firms; its strategic role for the future development of the area can further be evinced from the presence of the Kombolcha Industrial Park, whose functioning will be discussed in detail in chapter 7. The number of industrial firms and the jobs created by these industries from 2011 to 2018, as illustrated in the Figure 21 below, highlights the positive correlation between the number of firms and the number of jobs, and the constant growth in the number of firms since 2016.

10 1500 8 6 1000 4 500 2 0 0 2011 2012 2013 2014 2015 2016 2017 2018 Number of establishments 1 1 1 4 3 8 3 4 Job created 42 7 90 82 106 1393 315 228

Number of establishments Job created

Figure 21 - Number of establishments and jobs in South Wollo Although the number of industries and the job created have been increasing till 2016, more industrial establishments and job opportunities were created during 2016. From 2106 to 2017, both the number of establishment and jobs created in the Zone has shown a clear decline. This could have possibly caused by the political instability in the zone as well as throughout the country. Investors lose the confidence to invest their money where there is no stable and good business environment, including political environment. But the number of establishment and jobs created started to revive during 2018. Even though a number of factors could explain it, this could also be attributed to the relatively better political environment in the country, including the South Wollo zone. It would have been more informative if the data were disaggregated by size and sector in which the firm operates. This could have helped to understand where more jobs were created and to inform policy makers for future direction. However, the kind of data we obtained from South Wollo Zone Plan Commission did not allow to make this analysis. Figure 22 shows the number of industries by their type and size. As can be seen from the figure, majority of industrial establishments in the Zone are small scale in size. Sector wise, about 59% of industrial establishments in the same zone are operating in the metal and metal related sectors.

300

250

200

150

100

0 Small Medium Large Total Agroprocessing 76 10 5 91 Textile and Leather 95 1 4 100 Metals 253 12 9 274

Agroprocessing Textile and Leather Metals

Figure 22 – Number firms by sector and scale

In exploring the geographical distribution of economic activities, it must be considered that a significant number of companies are based in Dessie, which is also the main political, social, and economic hub of South Wollo. After Dessie, the higher concentration of firms (especially for medium and large size enterprises) in the rest of the region is, obviously, in Kombolcha, followed by the Legambo, Jama, Tenta, and Tehuledere (Hayk) woredas. Table 5 - Distribution of firms in the three strategic sectors, by category & scale.

Agro-processing 76 424 Small Textile 95 Metal 253 Total 424 Medium Agro-processing 10 23 Textile 1 Metal 12 Total 23 Big Agro-processing 5 18 Textile 4 Metal 9 Total 18 Total Agro-processing 91 465 Textile 100 Metal 274 Total 465

The above table shows the number of small, Medium and large enterprises in South Wollo. The figures below also present the number and location of firms of different sizes in the zone.

Figure 23- Distribution of small firms of the three strategic sectors

Figure 24 - Distribution of medium firms of the three strategic sectors

Figure 25 - Distribution of large firms in the three strategic sectors

In order to enrich the data collection with some bottom-up information and to be able to provide a more informative analysis of the economic, social and human assets of the area, we organized two focus groups (mostly local public officers who were participating in a training program organized by CIFA Onlus). The discussion focused on the assets mapping for South Wollo zone to get an overall picture of the zone. The participants were a group of public officials from bureaus of Social and Labour Affairs, Technical and Vocational Training centers, Youth, Women, and Children, finance and other offices who have very intimate knowledge of the overall socio-economic status of the zone. From these two focus groups, we were able to draft an asset map (Table 66). Based on the information generated from the discussions, the zone can be characterized as having a huge, active labour force, with relatively educated human power in soft skill areas. However, insufficient availability of skilled human power is one of the challenges in the zone. On the other side, the zone has good potential (strengths) in terms of rich natural resources of water and lakes that can be used as prime sources of water bottling, irrigation expansion, and attractive opportunities for fruit production and processing.

Table 6 - South Wollo main assets as discussed in the focus groups Assets Strengths/Opportunity Weakness Human capital - Having huge labour force, notably of - Insufficient skilled labour forces productive age - Skilled labour is migrating to big cities - Relatively having educated human perfor better income sonnel compared to adjacent areas Social capital - Having good social cohesion and col- - Limitations in exploiting the opportu- laboration through traditional mecha- nities and social capital nism, reciprocity - Respect for each other Natural capital - Rich water potential - Unsustainable use of natural re- - Rich potentials of minerals, including sources; oil - Low level of awareness with regard to - Natural mountains good for tourism the economic benefit of natural re- and hiking sources - Lakes - Limited efforts in processing fruits - Irrigation potentials Physical capital - Compared to the past, relatively good - Still, accessibility of infrastructures is road infrastructure at a nascent stage - Initiatives to set up the railway - Poor quality of roads - Inaccessibility of infrastructure to people of different type of disabilities

Financial assets - Expansion of public and private banks - Highly bureaucratic financial proce- - Allocations of government budget dures - Presences of loan providing institutions - Higher interest rate of loan providers; - Limited allocations of government budget

Concerning the physical asset that mainly deals with the exiting infrastructures, the results of the group discussions showed a unanimous agreement with the above statistical data in which, though there is good effort from the government side to further extend/improve existing road infrastructure, still, accessibilities and road qualities are outstanding issues that require attention. With regard to the financial asset of the zone, the expansion of public and private banks has been viewed as one of the opportunities of the area. As well, the expansion of loan providing institutions was seen to be as a strong side of the financial assets of the zone. However, rigid and complex bureaucratic financial procedures of governmental organizations, as well as high interest rates of loan proving institutions were pointed out as weaknesses or setbacks that require remedial action.

5. Value Chain Analysis

5.1. Methodology The general methodology used for this part of the research is based on the value chain analysis approach, which is adapted to suit sector’s specificities. A value chain can be defined as the full range of activities which are required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final customers, and final disposal after use. The chain actors who actually trans- act a particular product as it moves through the value chain include input (e.g. raw materials suppliers), traders, processors, transporters, wholesalers, retailers, and final consumers (Figure 26).

Figure 26 - Simple value chain model (Kaplinski Morris, 2000)

In reality, value chains are more complex than this. For instance, the input and output chains can include more than one channel and these channels can also supply more than one final market. A comprehensive mapping, therefore, should describe interacting and competing channels and the variety of final markets into which these connect. Value chain maps provide an easy way to understand the processes and pathways to production and sale by illustrating, in a simple form, the complexities of an industry sector and its value chain. They are particularly useful for analysing and researching value chains to determine how they are performing or how they can be improved or refined.

5.2. Agri-food value chain in South Wollo

The agri-food value chain is the network of key actors involved in growing, processing, and selling food and beverages, along the whole value chain, from farm to fork. This

31 includes (1) growers (farmers) that grow and trade food raw materials; (2) processors, that process, manufacture, and market food products, such as flour bread and soft drinks; (3) distributors, including wholesalers and retailers, that market and sell food; (4) consumers that shop, purchase, and consume food and beverages; (5) governmental and non- governmental organizations (NGOs) that enable and regulate the entire food value chain actors from producer to consumer (Deloitte Network, 2013). The agri-food value chain analysis of South Wollo encompasses input suppliers as farmer traders or middle men, food processing companies, and final industrial product traders as wholesalers and/or retailers, all of whom strive to satisfy the varying demands of the consumers. The dataset from the nine enterprises - from small and medium-sized enterprises (SMEs) to large companies - was included for the analysis. Accordingly, the agri-food value chain is found to be the most important type of industry in Dessie city and South Wollo Zone. Recognizing this fact, the city and zonal governments gave especial emphasis for it, whereby nearly 90 industries have been established and in operation in this particular area of agri-food processing. These industries provided employment opportunities for more than 2,218 individuals.

5.2.1 Methodology The value chain framework emerges as a key aspect in the analysis of the drivers of business success and value creation, and thus the VCs of twelve enterprises were analysed and are discussed in this research work. The analysis has begun from the inputs required in the production process for an entity and then, the outputs of the same entity, which will, in turn, serve as the input for the next entity till the final consumers. Hence, this research attempts to describe the different scales and types of enterprises in the aspect of the value chain, which is a common essence for the enterprises included.

The enterprises were selected based on labour intensity by calculating the labour to capital ratio, and the most labour-intensive enterprises were included from each scale (small, medium, and large). In addition, the total number of enterprises in each scale has been used as a parameter to decide on how many enterprises to be chosen from Kombolcha and Dessie. Lastly, three enterprises from each scale have been selected, where all the three medium enterprises were from Dessie, the large-scale enterprises were from Kom- bolcha (2) and Dessie (1). The reverse proportional selection was made from Dessie (1) and Kombolcha (2) in the case of small-scale enterprises. Preceding this, first-hand information was collected using in-depth structured interview of the managers or owner-managers of the enterprises, accompanied by personal observation. The total numbers of interviewees were thirteen. Some of the industries’ managers were calling their operational managers for getting supplementary information about the production process and marketing.

Table 7 - Actual and potential employment and production capacities of selected agri-food manufacturers

Type of No of employees Units company4 M F Total Location

Actual production Potential ment Employ- Potential Production Capacityper annum annum per ProductType Averageprice Annual Revenue Birr in AF1(s) 13 2 15 15 18,109,440 1,080,000 100g Bread 2.50 2,700,000 Dessie bread AF2(s) 45 45 68 3,600 2,160 Chili Spices 6500 7,020,000,000 Dessie quintal powder AF3(s) 4 1 5 5 1,123,200 449,280 100g Bread 2.50 1,123,200 Kombol- bread cha

AF4(m) 12 12 36 1,123,200 673,920 200g Bread 6 6,480,000 Dessie bread AF5(m) 17 4 21 63 1,440,000 360,000l/ Litter Edible 56 60,480,000 Dessie y oil AF6(m) 62 30 82 246 388,800 97,200q/y Flour Wheat 1970 2,127,600,000 Dessie quintal flour AF7(l) 233 36 269 269 864,000 864,000q/ Grain Grain na Kombol- y quintal packag- cha ing AF8(l) 64 8 72 176 295,200 144,000q/ Flour Wheat 1920 2,073,600,000 Kombol- y quintal Flour cha

AF9(l) 198 56 254 508 17,640,000 10,080,00 packs Soft 155 167,400,000 Dessie 5 0 drinks

As shown in Table 7 above, the constantly increasing demand for agri-food products has triggered changes throughout the food industry, and led to greater opportunities for product differentiation and the potential to add value to raw commodities. To keep with the competitive actors of this demanding world, the extent of adding value matters. In this study, we are mainly concerned with the analysis of the value chain in the agri-food industries ranging from small to large enterprises. The distribution of agro-processing companies of the three scales in both towns is presented below (Table 8). The sample enterprises of agri-food companies included in this study are three (3) from each category (small, medium, and large).

4 According to the programme rules, we will substitute the names of the analyzed companies with anonymous codes. 5 In packs of 0.5l, 1l and 1.5l. 33

Table 8 - Industrial Population and sample enterprises in Kombolcha and Dessie

Dessie Kombolcha Total Sam- Sam- ples ples Dessie Kom- bolcha

Small 21 6 27 2 1

Medium 20 0 20 3 0

Large 4 7 11 1 2

Total 45 13 58 6 3

58 9

The actors of the value chain do have their own contribution and profit shares. Agri-food industries are nowadays becoming the bright spots in the world economies (KPMG Inter- national Cooperative, 2013). VCA process of mapping materials and information flows and relationships can cover a range of products. Material flow mapping may even be possible on an industry basis. The figure below illustrates the major actors and their functions along the chain of agri-food industries. Major attention is given to the actors from industrial input suppliers.

Figure 27- Value chain mapping for general agri-food industries

5.2.1 Common Inputs Machines Albeit the fact that the type of technology is different for different categories and scales of agri-food industries, it is a given fact that each of them use machines for their production process. Examples are: mixing and baking machines in bakeries; separating, washing, drying, milling machines in the case of flour factories; milling and filtrating machines in edible oil industries; water treating, compounding, filling and packing machines in the case of soft drink industries. Labour power Agri-food processing industries and the actors along the chain are naturally presumed to be labour intensive. Luckily, the interviewed entrepreneurs asserted that both skilled and unskilled labourers are available in the local market around Dessie and Kombolcha. How- ever, they do not hire to the extent of full employment due to their under-capacity production resulting from serious shortage of inputs, liquidity (US$) and recurrent outage of power. Some industrialists complained that workers have skill gaps, and most importantly, poor work attitude that the enterprises think should be solved by Wollo Uni- versity and NGOs. Utilities Among the most indispensable inputs sought for the effectiveness of agro processing industries are power and water services. Even though, the water supply in the zone was sound, recurrent power outage is found to be a thorny problem for the industrialists. Ma- chines might be burnt or damaged and yeasted mixtures could be wasted if there is frequent outage and fluctuation of power supply. Raw materials Agri-food industries use agricultural outputs as inputs in their production process. Except for the soft drink industry, all the others get their raw materials either directly from farmer traders or from other intermediaries, like middlemen traders, in the domestic economy. However, even in the domestic economy, most of the raw materials are transported from distant places, such as Arsi, Bale, Gojam, and Gondar, which might have relative cost implications. In the case of the soft drink industry, almost all raw materials, except water, electricity and labour, are imported from abroad.

5.2.2 Processing of Agri-food from Farm Product up to Manufactured Consumer Goods

5.2.2.1 Small Enterprises In this category, three (3) small enterprises were selected and included in the study. Two of them are bakeries and the remaining one is a spice and chili producer.

PRODUCTION PROCESS The production processes of baking include flour purchasing and storing, mixing (flour, salt, yeast and improver), leavening, baking and commercialization. These bakeries produce two types of products, 200g and 100g breads. The bakeries obtain their main raw material, wheat flour, from two sources: government subsidy and private purchase from

35 the conventional market. However, the government subsidy is relatively skewed towards the small enterprises owned by young entrepreneurs. Most of the analysed bakeries com- plain that the government subsidy in terms of wheat flour is burdened with various problems. According to the interviewees, especial treatment is given for those who have political affiliation, and even for them, the amount of flour is not enough to reach the machine’s production capacity. The other serious bottleneck in this sub-sector is the existence of tight regulatory system that does not allow the enterprises to purchase flour from the private market and sell the same gram of bread at existing market price. Restriction is also made on the gram of bread to be produced. As it was explained by the members, the city government subsidized them with 77quintal of wheat flour that serves only for ten days of production capacity of their modern baking machine. Due to this subsidy, the enterprise is subjected to serious government regulation to sell the 200g loaf of bread at birr 2.30 while a loaf of same gram of bread is sold at birr 6.00 by the non-subsidized and non- regulated investors of bakery centres. Furthermore, the non-subsidized and non-regulated (free market competitive firms) are able to reduce the gram of bread down to 100g, but this is strictly forbidden for the subsidized enterprises. Even if these subsidized enterprises purchase wheat flour from the market at higher costs, they are not allowed to sell loaf of 200g bread at the going market prices of 6.00 birr. this goes to show that government subsidies come with strings attached and are not that much attractive to the small- scale bakery enterprises. The spice and chili cooperative, although has just hired 15 more employees, but still suf- fers from market problems. This is mainly due to its inabilities in participating successfully in public procurement bids because of the firm’s micro-scale status, its limited financial capacity, and of corruption. It was also learnt that the enterprise has recently lost more than half (38/68) of its founding members due to lack of sufficient earnings. Lately, the company has been selected to be the sole supplier of chili for Wollo University student’s cafeteria, by offering a special discount for students (i.e. 76 birrs per kg) while selling the same amount at 100 birrs in their retail outlets. This shows that such measures could resolve one of the main challenges of the small-scale enterprises, marketing problem (Fig.28). The production process of spice and chili passes through purchasing the raw pepper from either the farmers on cash or from the traders on credit, then picking out and chip- ping/pruning (Kintesa) of the best peppercorns and ingredients, salting (7 birr/kg) with adding of other spices, such as Korerima (Aframomum melegueta) (240birr/kg), Arefa Kerefa (Cinnamon) (160birr/kg), Kemun (Cumin) (185birr/kg), Zikakibe (200birr/kg), white cumin/ Trachyspermum ammi (Nech Azmud) (85birr/kg), ginger (Zingible) (80 birr/kg), Red onion (21birr/kg), garlic (60birr/kg), Azmarino (65birr/kg), Kundoberbere (60birr/kg) and Abish (fenugreek) (40birr/kg). A quintal of pepper is purchased for 600 birrs, which demands also 5kgs of the mixed spices per quintal of pepper/chili pepper. Once they are all mixed together, the mixture is taken to the mill to produce the chili powder/flour. The actual production of the cooperative is 6-8 quintals per day, with a maximum of 10 quintals tops.

Distributors Consumers Actors Input Sup- Output Processors pliers

@P-Site

Subsidized Con- sump- flour tion Functions Bakeries Bread @shop Private Pur- chase By orders Figure 28 - Production process of Bakeries Source: Key informant Interview, 2019

PRICE SETTING AND MARKETING One part of the small bakeries industry is regulated by government subsidies and con- trolled price system, while the other part follows free market rules. Generally, the 200g bread is produced in compliance with the government standard and sold for 2.30 - 2.50 birr per unit (loaf of bread) in the case of government sponsored enterprises. However, since the amount of subsidized flour is quite smaller than the baking machines’ capacity, the enterprises purchase flour from the market at a higher price (1,960 – 2,200 birrs per quintal) to produce and sell 100gm breads for 2.50-2.70 birr per unit. The situation is different with those bakeries with limited government subsidy (less than ten quintals of flour per month), which are free to decide on the weight of the bread they sell and distribute it at the market price (200g of bread at 6 birrs per unit).

Table 9 - Average Prices of Small enterprises (in birr)

Enterprises (with Codes) and their wholesalers’ Retailers’ Consumers Main product

AF1 (Bread) 2.30 birr/200g 2.50/200g 2.7/100g

AF3 (Bread) 6 birr/200g 2.50/100g same

AF2 (Chili) 65 birr/kg 80/kg 100/kg

As portrayed above, the 200g loaf of bread is sold for 2.30 and 6 birrs, respectively, by the regulated and non-regulated bakeries. In the case of chili and spice producers, since they are not regulated by the government, prices are determined based on the market situa- tions at a time.

ORGANIZATIONAL STRUCTURES/CHARTS Clear organizational structures are key tools to learn about the role of individuals in both the formal and informal organizations. Whatever organizational form is followed, formal channels must be developed so that each individual has a clear description of the

37 authority, responsibility, and accountability necessary for the work to proceed. Authority is all about the power granted to individuals (possibly by their position) so that they can make final decisions. Responsibility is the obligation incumbent on individuals in their roles in the formal organization to effectively perform assignments (Kerner, 2009). In the context of this study or the most common organizational structures of small enterprises is typified by six main elements, though the nomenclature may differ from one enterprise to another (Table 10 & Fig. 28)

Table 10- Organizational structures and staffing in sample small enterprises

Main product Man- Secre- Pro- Account- Control- Seller ager tary ducer ant ling and Auditing

AF1 (Bread) ü ü ü ü ü

AF3 (Bread) ü ü ü

AF2 (Chili) ü ü ü ü ü

Manager Control and Audit

Cashier Accountant Secretary Vice Manager

Figure 29 - Organizational structure of small enterprises

KEY FACTORS The analysis of small enterprises in the case of agro-food sector highlighted some key factors or inputs to be taken into account: 1) Formation of Cluster (Association) for the bakery enterprises will enable them to employ the checks and balances system to ensure fairness and stop corruption, as they suggested. It has been observed that the private, non- or less subsidized bakeries purchase the flour from kebeles at subsidized prices and sell it outright for a higher price by changing the package or the labels or marks on the sack. They acquire a quintal of wheat flour for 796.26 birr from the kebele officials and sell it at 1900-2000 birrs per quintal. This translates into a profit margin of more than100%, and they know well that they would not be able to gain this much if they produce a 200g bread and sell it at a predetermined fixed price of 2.30 birr. Hence, to control such illegal acts, the formation of clusters of the bakery enterprises is indispensable.

2) Either full subsidization or full privatization. Because of subsidization, cooperative enterprises are obliged to sell bread at the price set by the law in1991G.C. (2.30 birr per 200g), but the others are free to increase the sales price up to 6.00 birr per 100g., according to the market fluctuations. This creates a disparity in the competition of these companies on the market, due also to the fact that subsidized companies are not provided with flour enough to fulfil the maximum capacity of their machines. 3) Power outage has to be given attention. Especially for the bakery enterprises, if the power is not there by the time the dough is yeasted, the entire resource will be wasted. Ensuring uninterrupted power supply appears then to be crucial to support small companies in this sector. 4) Sustainable credit Service. Some of the enterprises are not working at their full capacity due to lack of finance. Once they tied up because of the previous credit, they could not find potential lenders to expand their production capacity.

5.2.2.2 Medium industries

DESCRIPTION Similar to the small enterprises, three medium enterprises (bakery, oil processor, and wheat factory), all of which are located in Dessie city were included in the study (Table 11). The bakery enterprise has similar experience with the small bakeries, despite some especial characteristics that are worth describing. The bakery enterprise has employed twelve male labourers but it is working quite below its capacity due to its obsolete baking machines. However, the product the machine produces since a smaller amount is being produced, is still liked for maintaining the freshness and quality of the product, avoiding long storage time after baking. They are still stuck with this old fuel wood consuming machine for the fact that the modern bakery machines would not produce bread as tasty as the old machine does. The machine consumes 3-meter cube of fuelwood per day, which is cost- lier; however, despite this, they still rely on it and prefer to use it. The maximum amount of wheat flour used per day is 10 quintals purchased at 2000 birr per quintal. The bakery center told us that it has started to produce 30 quintals of flour per day on its own small factory but was forced to shut it down this year due to the unprecedented escalation of price of wheat (1800 birr per quintal to produce 2000 birrs flour per quintal). Wollo Bakery was the only bakery in South Wollo which sold three loaves of bread for ten cents in the earlier period. It is so well known that the demand for its products come also from outside the city of Dessie. AF5 oil factory is the second medium enterprise included in the study. The enterprise has a total of 11 employees (seven males and four females) but has the potential to hire 36 labourers if the two currently unused machines were operative. We have learnt that the two machines have become out of use due to lack of inputs and recurrent power outage. The actual production capacity of the enterprise is 1000 litres per day (12 hours) though it does have the potential to produce as much as 3000 litters per day. The low level of actual production is attributed to shortage of very important inputs or oil seeds, such as (noog), sunflower (soof) and groundnut (Lewz), olives, peanuts, and safflowers. These inputs or raw materials are purchased from rural traders, such as farmers’ associations

around Sekota, Gondar, and Kutaber. The enterprise buys 1quintal of Soof, Noog and groundnut at 1400birr, 2800birr and 2500birr, respectively, from the aforementioned market places. Table 11 - Actual and Potential Number of Employees and Production Capacities of Me- dium Enterprises S/No Enterprise by codes Actual Em- Potential Actual Pro- Potential Pro- ployees Employees duction duction

1 AF4 (bakery) 12m 36m 1872/200g 3120/200g

2 AF5 (Food Oil Enterprise) 21(4f,17m) 36 1000liter 3000liter

3 AF6 (Flour Factory) 92(30,62) saturated 270q/day 1080q/day

AF6 wheat flour factory is the third medium enterprise analysed in this study. It is located near to St. Gabriel Church, Dessie City. It has 92 employees, including casual workers, 62 of the total are males. The factory is currently producing quite below its capacity (10%- 25%) of 1080 quintals of wheat per day, due to the serious shortage of raw material (wheat) and the increasing number of competitors in the area. The factory procures wheat from farmer traders at 1400 birr per quintal and sells the flour for 1970 birr per quintal to the bakery centres or to the individual households.

PRODUCTION PROCESS The production processes of AF5 encompasses activities of separating the useful from the non-useful seeds (sieving) and then roasting, followed by milling and then filtering the oil from the by-products where each of the purified products are going to be packaged and prepared for sale. The main products of the production process are 0.5l, 1l, 3l, and 5l. The process is depicted in the following map, which also shows the possible lists of functions and the linkages among the actors of the functions/chains from the land to the mouth in this case. According to the KII responses, the researchers identified four core functions: input supply, processing, wholesaling/retailing, and consumption.

Input Actors Output Processor Distributors Consumers Suppliers

@PSite Separationof Filtration Packaging InputsPur- useful from from useful Roasting Food Milling chase waste Functions service

@Arada

shop center

Figure 30 - VCA process of edible oil production

The main phases of the production processes of the wheat flour factory are: storing the purchased wheat, cleaning it from the non-useful parts, washing, drying, re-storing for ten days, uncovering or removing the outer layer (fitega), crashing, and milling. After this, the flour can be packed and stored before being distributed to customers. The flour factory produces and packs its products in four different sizes of 50kg, 25kg, 10kg, and 5kg packages (Fig. 31).

Actors Input Sup- Output Processors Distributors Consumers pliers

@S Wa hel Households shi Un Crashing f Wheat Cle Functions Sto ng co and Ter Purchase rag an- & ver a e Milling Sho ing Dry ing Bakeries p ing

Figure 31 - VCA process of flour production

AF5 adds value on the inputs purchased from farmers’ associations and distributes to customers at its shopping centre around Arada and at its own production site. As usual, the retailing and the wholesale prices are different even at the factory site. They retail the above sizes of products at 29,58,174 and 300 birrs, respectively, but the wholesaling prices are a bit lower at 28,56,162 and 270 birrs, respectively. The enterprise extracts 23- 25 litres of oil from a quintal of safflower, 25-28 litres of oil from a quintal of Noog (olives), and 23-35 litres of oil from one quintal of peanuts. Fagulo is the by-product of such oil factory where one quintal is sold for 800birr.

Table 12 - Average Prices of Medium enterprises products (in birr) S/No Main product wholesalers Retailers Consumers

1 AF4 6.00/200g 7/200g 7/200g 12/370g 13/370g 13/370g 2 AF5 28/0.5l 29/0.5l 29/0.5l 56/1l 58/1l 58/1l 162/3l 174/3l 174/3l 270/5l 300/5l 300/5l 3 AF6 930/50/kg 1000 1000 495/25kg 510 510 220/10kg 230 230 100/5kg 120 120

ORGANIZATIONAL CHARTS/STRUCTURES The organizational arrangement or formation of medium companies is obviously more complex than that of small ones, even if some roles are merged also in this case (Table 13).

Table 13 - Organizational structures and staffing in sample small enterprises Main product Man- Secre- Produc- Account- Quality fi- Sales ager tary tion ant Control and nance Auditing

AF4 ü ü ü

AF5l ü ü ü ü

AF6 ü ü ü ü ü

KEY FACTORS 1) Raw Material Supply. Almost all of the medium scale enterprises are suffering from short supply of raw material or main input which has seriously affected the life of their enterprises and the lives of their employees too. For the larger part, they transport these inputs from relatively distant locations, like Gondar, Gojam, and Sekota. 2) Power. All of the enterprises in this group seek power very badly. Their due dependence on power for the production process demands the uninterrupted supply of power to be effective and efficient. 3) Credit. Some of the enterprises are not working at their full capacity due to lack of finance. Once they tied up with the previous credit, they couldn’t find potential lenders to expand their production capacity.

5.2.2.3 Large Agri-food Industries

DESCRIPTION Kombolcha is well known for its hosting diverse manufacturing enterprises. Three large industries were sampled to study the value chain analysis. Two of these large enterprises (AF8 and AF7) are from Kombolcha and one (AF9) is from Dessie. AF8 flour factory is currently consuming 400 quintals of wheat per day though its actual capacity is 820 quintals. Factors responsible for the under-capacity production of the firm are recurrent power outage and serious shortage of its main input. The wheat is purchased from Borena and Bale, and sometimes from Arsi of Oromia region. The farmers around Wollo do not engage in massive production of the desired (Durum) wheat, either due to lack of awareness or due to some other reasons. The government’s subsidized wheat is only 5% of the total required amount. The factory purchases wheat mainly from farmer traders at 1400 birr per quintal and sells flour at 1970 birr per quintal to the bakery centers or to individual households.

AF7 is engaged in cleaning and packing of various grains and cereals and exporting them in different sizes to different countries. The industry is currently cleaning 2400quintals of cereals, such as Shimbra (chick pea), Boloqe (haricop bean) and oil seeds of the types peanut, sesame and Gibto (lupin). These inputs are purchased from SNNP, Gojam, Gondar, Kemissie, and S/Wollo. However, there are detrimental factors in this regard. For example, the poor packaging, poor quality and/or mixed items of inputs are to be mentioned.

AF9 soft drink industry is engaged mainly in producing carbonated soft drinks for worldwide-distribution of international corporations and water bottled in different sizes of 0.5l, 1l, and 1.5l lit. Carbon dioxide (Co2), filter sheet, activated carbon, preform (plastic bottles of different size),cups are the primary imported inputs whereas water and sugar are the primary local inputs. The imported secondary inputs include label, shrink, glue, water treatment chemicals, such as calcium, caustic soda (CIP) for cleaning, citric acid, and water additive chemicals. Common salt is the secondary local input usually used in the production of soft drinks. The company has focused on plastic bottle packaging leaving use of glass bottle to others for known and unknown reasons. The potential production capacity of the machine is 15,000 of 0.5l 17,000 of 1l, 17,000 of 1.5l (water or soft drink) per day (i.e. 24 hours). The actual (current) production capacity (8000l/day of 0.5l) is less than the potential (10,000l/ day6 of 1l). (Table 14). Factors responsible for the under-capacity production are, again, recurrent power outage, serious shortages of foreign currency (esp. USD) needed to import inputs, and monopoly of supply of local inputs by few.

Table 14 . Actual and Potential Number of Employees and Production Capacities of large industries

S/No Enterprise Actual No. of Em- Potential No. Actual Pro- Potential Pro- ployees of Employees duction duction

1 AF8 74(66m,8f) 156 400q/day 820q/day

2 AF7 269(233m,36f) 2400q/day

3 AF9 254(198m, 56f) 15,000-0.5l 10,000 0.5l 8000l

17,000-ll

PRODUCTION PROCESS The production processes of flour in large factories is similar to that of the medium ones, and hence, the production process of AF8 flour factory involves storing the purchased wheat, which then is cleaned from non-useful items and then washed, dried, restored for ten days till it totally loses its moisture or dries up, and then separating the skin (fitega), and lastly crashing and milling follow to distribute to its customers at its outlets or at the customers’ destination - be it in Afar or Mekelle, or at any city or town of Amhara region by using its own transport means. The enterprise produces four different packs of 50kg, 25kg, 10kg, and 5kgs, to be sold at 1920 and 805 birr per quintal, respectively, for the private and subsidized flour. The owner and the manager are both in agreement on the

6 24 hours. 43

fact that a quintal of wheat is only 73% of flour while the remaining is left as a by-product to be used for animal feed.

Input Sup- Distributors Semi-Final Actors Output Processors pliers users

BakeryCenters Drying & Washing Afar Packaging Uncovering

Cl Crashing Storage eaning Func- Wheat Pur- and Mill- Amhara tions chase ing

Mekelle

Figure 32 - Production process of Wheat flour

AF7’s production processes include storing the purchased cereals and oil seeds, which then are cleaned from non-useful items, and then followed by packaging putting in stor- ages. The factory produces two different packs of 50kg and 25kg to be sold at international markets exported through Djibouti. The output does not have sufficient domestic demand, except for purposes of seed and by-products for animal feed. A quintal of input generates only 65-70% of qualified outputs. In addition, the input suppliers do not use new sacks for packaging, and due to this improper packaging, the enterprise incurred losses.

AF9 has its own production process that passes through purchasing of inputs of both imported and local ones and simultaneously conducting biological, physical, and chemical analysis on water that could be used as input, and lastly, mixing of the proper proportions of ingredients and water to produce carbonated soft drinks and water packs of different sizes.

Actors Input Sup- Output Processors Distributors Consumers pliers

Compounding ingredients Compounding Other con- Carbonating products products Carbonating sumers

• Inputs Products Filling Treating Water

• Concen- (Gr Functions

trated avity) Packaging Distributing chemicals

Agents • Sugar

Hotels

Figure 33 - Production process of AF9

PRICE SETTING AND MARKETING AF8 flour factory purchases a quintal of wheat from Bale, Arsi, and Borena Farmer Traders at 1400 birr per quintal and produces flour to be sold at 1920 birr per quintal. In fact, the factory has also been subsidized by the government to the extent of not more than 5%. The subsidized flour is sold for 805 birr per quintal. The factory sells its products to Tigray, Afar, and Amhara regions, by transporting the product to the demanding cities and towns using its own means of transportation.

AF7 does not have domestic demand except for seed purpose. Thus, nearly the entire market for AF7 is foreign market. It purchases different varieties of grains and oil seeds, separates the useful from the non-useful, and also avoids the mixed grains to have only one type of each product as we have observed in the production process section (Fig.33). The various sizes of outputs are then transported to Djibouti port for exporting. The manager of the industry was not willing to give us information on the price or its setting.

The final products of AF9 could not be retailed directly, but rather are sold to the agents at 155birr per pack (12pcs of 0.5l). The agent then sells to the retailers at a price of 176.04 birr per pack of the same size. The table below summarizes input and output prices of the above-mentioned enterprises. Table 15 - Average Prices of Large Industries S/No Company Input price wholesalers Retailers Consumers

1 AF8 (Flour Factory) 1400/q 1920/q 1960/q 2000

550/q 805/q

2 AF7 (Cereals)

3 AF9 (Soft Drinks) 12.92/0.5l 14.67/0.5l 20/0.sl

General Manager

Security Production Finance & HR Manager Finished Goods

Quality Control Warehouse Purchase Technique and Sales Drivers Medical

Figure 34 - Production process of AF7

ORGANIZATIONAL STRUCTURES As can be seen from the figure below, the organizational structures of large – scale industries in the zone are more complex than is the case with the other two scales.

Actors Input Suppli- Distributors Farmers & Output Processors ers Oil producers Cleaning (Gravity) Cleaning Storage in cycle in Storage Packaging production production • Sesame Storing Functions Exporting Foreign • Olives Market

• Peanut • Safflowers

Domestic Market

Figure 35 - Organizational Structures of the large industries

KEY FACTORS 1) Raw Material. Like medium agri-food enterprises, large enterprises are also suffering from short supply of raw materials either due to lack liquidity into USD and/or seasonal production nature of farm outputs. This directly and entirely affects the competitiveness and even threatens the very existence of the industries and the lives of their employees too. Some of them reduce their shift of production from three to one during the non-autumn seasons which, inevitably, compels them to fire nearly two-third of their employees.

2) Power. All of the enterprises in this group badly suffer from power shortage/absence. Their due dependence on power for the production process demands the uninterrupted supply of power for the enterprises to be fully functional, and more effective and efficient. 3) Credit. The complex credit procedure of the Development Bank of Ethiopia de- prived them from accessing government owned financial institution loans. Those large enterprises demanding loans are all obliged to approach the private commercial banks to access credit even at much higher rate of interest. 5.2.3 Enablers of the Chain Actors The small agri-food enterprises are getting relatively better government supports in terms of inputs, credits, and training, though not sufficiently. For instance, Muslim entrepreneurs claim that interest-free loans are not available in the local economy. Large industries are also thankful for the investment offices of South Wollo Zone, Dessie city, and Kombolcha towns for assigning investment land when needed. More or less, the Ethiopian Electric Power Authority (now renamed, Electric Utilities) and Water and Sewerage Ser- vice are to be appreciated. Potentially, Wollo University and NGOs in the zone ought to be enablers that must work with the industries through providing soft trainings. The De- velopment Bank of Ethiopia (DBE), as an enabler, has to simplify its complex loan provision procedures so that the industries can enjoy the service. The Agriculture and Rural Devel- opment Bureau has to strengthen production of agricultural output on mechanized bases, particularly in some Wollo areas, such as Borena and Jama, so as to lessen the transport cost incurred in transporting from Arsi and Bale. Last but not least, Revenue Authority and ECX are the main enablers of the exporting industries. The former has smoothened the exporting processes while the latter is the effective supplier of selected agricultural outputs. National Bank of Ethiopia is the indirect enabler of the industries in assigning liquidity of US$ for input importation. 5.2.4 SWOT Analysis of the Value Chain Strength Weakness

• Good quality of raw material • High labour turnover • Credit from wholesalers to small enterprises • Inability to achieve full production capacity • Subsidized inputs supply for some products • Low number of jobs created • Good attention to sustainability • Poor scale economies and poor collaboration among actors of • Updated production machines the same value chain • Internal control of the marketing phase • Poor attractiveness for potential employees • Ownership of the means of transport • Few local suppliers

Opportunities Threats/ Constraints/Challenges

• Potential for creation of a local wheat-flour- • Increasing cost of inputs bakery value chain • Uncertainty in the supply of raw materials • Improvements in the business environment • Dependence of some companies on imported inputs • Good level of credit access • Low-skilled potential employees • Potential collaboration with local research, • Shortage of foreign currency for investments training and cooperation actors (e.g. Wollo • Poor knowledge of public officers about the sector university, NGOs) • Strong government regulation • Growing local demand • Difficult access to interest-free credit • Uncertainty and outages of power supply

5.2.5 Conclusion and recommendation The findings revealed that there are four conventional steps along the value chain link of agri-food, namely input supply, production, distribution, and consumption. The respective actors are farmer traders or middle men/women, manufacturers, wholesalers or retailers, and the final consumers. Most of the enterprises purchase their main various inputs from distant domestic markets, like Bale and Arsi for wheat, and Gondar and Gojam for oil seeds. The overall result entails that the enterprises were generally not able to produce at their full capacity due to various reasons such as lack of sufficient subsidies (small and medium), lack of working capital (all), poor market linkages (AF2), serious government regulations (bread and flour), poor work attitude of the workers (large-scale), lack of skills and knowledge of the workers (large), recurrent power outage (all), serious input shortage (all), lack of liquidity in US$(large) and rising cost of inputs (all). In a nut- shell, nearly all the industries assessed are producing below half of their production capacity due to either one or more of the above reasons. The organizational structures of small and medium agri-food enterprises appear to be simpler than the large industries. Even though the risk/hazard of working in large industries is relatively severe or higher, only one single industry (AF9) has [emergency]medical component as an organ. General Manager or owner manager, production manager, finance head, and sales and purchasing heads are the common organizational elements that all the large industries have. Among the factors that affect the performance of the value creators are enablers. Ena- blers are of different type for different value chain actors in the agri-food industries including: infrastructure service providers such as power, water, land, communication, loan service providers, higher institutions, training and research institutes, suppliers, demand- ers, middlemen/women, etc. Albeit the fact that these organizations are, presumably, doing their share, it is not satisfactory enough to enhance the performance of the value adding actors. In fact, some of them even create barriers to impair or weaken the effectiveness and efficiency of the actors. Thus, to withstand the challenges, soft skill and attitude-related trainings have to be provided to the industrial employees so that they will be able to be effective in carrying out their industry assignments properly and can also develop a sense of ownership. Aware- ness has to be created to the surrounding farmers to produce the desired qualities and quantities of inputs, like wheat and oil seeds, for the manufacturing enterprises. Conspic- uous consumption of liquidity in US$ has to be reduced with the plan to shift the [available] foreign currency to the purchase of spare parts, intermediate inputs and technologies, including other importable factors of production. In addition, the government subsidy must be augmented to the extent that it meets at least the most immediate demands of the concerned enterprises, together with putting in place of effective regulation, or total deregulation so that competitive market will flourish where the winners will be re- warded. The infrastructural services, such as power, water, communication and loan provisions, have to be improved, as they are crucial factors for the agri-food industries in Kombolcha and Dessie.

5.3 Metal Works Value Chain in South Wollo In transforming the agriculture-dependent nature of developing countries’ economy, the metal sector has strong contribution to support the growth of either the construction or the manufacturing sector, which are both metal and steel dependent. In many countries, the metal industry sector is one of the growing industries that plays a key role in evolving agriculture led economies towards industry and service-led economies. In Ethiopia, the metal and construction industries have big impact on the GDP of the country by creating value chains with other sub sectors, such as cement industries and small-scale enterprises. For instance, from 2005/7 to 2010/11 (first years of the Growth and Transformation Plan I), the annual average growth rate of Gross Value Production (GVP) of the metal sector was about 27.1% (FDRE, 2013)7. The distribution of firms operating in wood and metal works in the South Wollo Zone is illustrated in Figure 35. According to the South Wollo Zone Industry bureau, there are about 10 large firms, 38 medium scale and 308 small scale industries operating in this field. As shown in Figure 37, the wood and metal sub-sector is mainly dominated by fragmented and small-scale industries that account for about 86% of the total firms in the subsector, while the medium and large-scale industries account for 3% and 11 %, respectively. The existence of large number of fragmented small-scale industries in the zone implies the need for specific efforts, aiming at up-scaling small businesses or supporting the creation of networks in order to enhance the employment and economic contribution of this sector in the region. In order to properly understand the economic role of this sector, it is necessary to mention that, according to the classification of industries by the Bureau of Trade and Investment of South Wollo Zone, other related sub-sectors, such chemicals, construction, wood and furniture. The number of enterprises in each of these sub-sectors by their size is given below (Fig. 36). Again, as can be seen from Figure 36, the business is dominated by small scale enterprises, except for the chemical industry in which there are no small-scale enterprises.

0 Metal works Chemicals Construction Woods and Furniture

Large Meduim Small

Figure 36- Metal Industry by sub-sector and size Source: Zonal industry profile, 2018

7 FDRE Ministry of Industry (2013). Ethiopian Industrial Development Strategic Plan (2013-2025), Addis Ab- aba 49

10 400 350 9 38 300 250 12 200 1 308 150 253 3 100 26 11 50 55 86 0 Kombolcha Dessie town Total Percentage Small scale Medium scale Large scale

Figure 37 - Geographical distribution of Metal Industries, by Size. Source: Zonal industry profile, 2018

The number of workers permanently employed in the metal sector by large firms is around 1200 (66% male and 34% female), and an additional 235 temporary workers. Medium and small-scale businesses in study area employ a total of 576 and 895 permanent workers, respectively (Fig. 38). The share of female employees is not as significant, nor growing, as is the case with, for instance, the textile and garment sector.

3000

2500

2000

1500

1000

500

0 Male Female Kombolcha Dessie Total

small Medium Large

Figure 38 - Permanent Employees in the Metal Sector, by size and Location Source: Zonal industry profile, 2018

5.3.1 Value chains analysis The sampling procedure for value chain analysis followed a two-stages stratification. In the first stage, three sectors were identified following the objectives of the SINCE

Programme. These are textiles and garment, agri-food, and metal sectors. In the second stage, three enterprises were selected from each of the small, medium, and large industries of the three sectors. For instance, from the metal sub-sector, three (3) enterprises from each size (small, medium and large) were selected, making a total of 9 enterprises included in the sample for this sector. The ultimate enterprises were selected based on the number of permanent full-time workers in the industry, the amount of initial capital, and the year the enterprise was established. Additionally, one wholesaler and one retailer in Dessie Arada market area were interviewed. 5.3.1.1 Small Enterprises. Of the three small-scale enterprises selected for the purpose of this study in the metal industry, one was from Kombolcha town and two were from Dessie. These enterprises were chosen according to their relative employment size, starting year of operation, and their initial capital. The firms’ characteristics, their value chain from input supply to final marketing are discussed in this section. M1 M1 is a small-scale private enterprise located in Kombolcha. The enterprise started production in 2005 with 7 workers, of which 6 were men and 1 a woman. The source of capital for the enterprise establishment was from personal savings of the owner. The enterprise has a plan to borrow from a bank to expand its operation in the future.

PRODUCTION AND MARKETING The enterprise produces different types of cook stoves, known as Rocket stove, Mirt stove, Small stove, Energy Saving stove, normal stove, and a bread baker. With the current size of workers, the enterprise has the following production capacity: Table 16 - Type of products and annual production capacity of M1

Types of stove Production capacity in a year Rocket stove 100 Mirt Stove 300 Energy saving stove 200 Small Stove 300 Bread baker 10 Normal stove 10

In monetary value, the enterprise has an estimated annual turnover of 800,000 birr. How- ever, if the firm fully utilizes it capacity, it can employ up to 20 workers and reach an annual turnover of 2,400,00 birr. The main inputs for the M1 enterprise include clay, metals sheets, resisters, etc. Some of these inputs are obtained from nearby towns (Kombolcha) while others are brought from

Addis Ababa. Using these inputs, the enterprise produces the following outputs. The unit cost and selling prices for the major products of the enterprise are given below (Table 17).

Table 17 - Unit Production Cost and Selling prices (M1)

Type of Stove Cost selling price Unit margin8 Normal stove 1500 1600 100 Energy saving stove 200 1400 200 Small stove 180 200 20 Rocket stove 2000 2500 500 Baking stove 25000 27000 2000

The main buyers of the products are households, government organizations, and cooperatives. The enterprise sells its product at its own production site. There is no separate sales shop.

STAKEHOLDERS The owners of the company (M1) mentioned that it has strong connection with German Agency for International Cooperation (GIZ). They get support from GIZ shed financing and technical training every six months. Even though very weak, the enterprise has also connection with government’s Technical and Vocational Enterprise Development (TVED), and the enterprise mentioned that there has been no government support provided so far. Customers have the right to choose from the stoves and to comment on the quality of the products. In this regard, the enterprise gives a 3-months warranty period for every product and will give a replacement for any product found faulty or damaged within this time. The enterprise has also good network with its input suppliers.

VALUE CHAIN DIAGRAM The value chain of the enterprise is very short. This is because the enterprise sells its products directly and right on its production site.

8 All monetary figures are in local currency, Birr 52

Figure 39 - Value chain diagram for M1 metal work

M2 M2 metal work is a small-scale enterprise located in Dessie town. The enterprise was established in 2013 and currently has 3 workers. The main source of capital for the enterprise was own capital. The enterprise produces three types of stoves, namely: single cooktop, double cooktop, and triple cooktop stoves.

PRODUCTION AND MARKETING The main inputs path for this enterprise is similar to that of M1. The enterprise mainly gets the inputs it needs locally, from building materials shop in Dessie, and other items like clay, from Addis Ababa. Currently, the enterprise has the production capacity of 360 stoves of each type per year. This is the current production capacity without considering the market demand. However, the enterprise has the concern that even though it can produce this number of stoves, there has been low market demand in recent time. The enterprise (M2) has mentioned lack of market for its products. The enterprise has the employment potential of 6 workers. With these workers, the enterprise has the potential to double its annual production from 360 stoves of each type to more than 720 stoves of each type per year. The main customers of the enterprise are households, hotel owners, and business owners. The enterprise sells its product at its production site and has no separate selling shop. The cost of producing each stove and the selling prices for these same stoves are given below (Table 18).

Table 18 - Unit Production Cost and Selling Price (M2) Type of stove Production cost/in birr Selling price/unit Margin Single cooktop stove 250-300 400 125 Double cooktop 500-600 800 250 stove Triple cooktop stove 800-900 1100 250

STAKEHOLDER The enterprise mentioned that it has no links either with government or non-government organizations. It has also no horizontal linkage with other similar enterprises in the same area.

VALUE CHAIN DIAGRAM Like other small-scale enterprises, M2 gets inputs from a nearby market (Kombolcha) and Addis Ababa. These inputs include clay, metal sheets, and resisters. Using these inputs, the enterprise produces single, double, and triple cooktop stoves (Figure 40).

Figure 40 - Value Chain Diagram for M2

M3 This is a small-scale metal work which started operation in 2013 with own capital. Cur- rently, this metal work enterprise has two workers. The enterprise has the employment potential of five workers.

PRODUCTION AND MARKETING The main inputs for the enterprise include tubular, electric wire, resister, breaker, metal sheet, and aluminium sheet. Some of these inputs are obtained from Addis Ababa while others are obtained from nearby towns, including Dessie. The main products of the enterprise include bread and injera backing machines as well as different size stoves, and small size chairs and tables. Like other small-scale enterprises in the area, it was difficult to get marketing information of the firm. This is mainly due to the poor bookkeeping culture of these enterprises. It was possible, however, to have simple estimation of the cost and selling price of the products of the enterprise based on the information obtained during the survey. For instance, to produce a cooking stove of specific model, the firm spends about 200 birrs for electric wire, breaker, small metal, and clay material. The selling price for such type of stove is usually between 250-280 birr. The enterprises usually do not consider their labour cost in calculating the price for their products. Thus, based on the above input cost and selling price, the profit margin can be estimated to be between 25-40%. In terms of percentage point, this profit margin may seem large. However, this is not a significant profit margin because the enterprise does not consider their labour cost in determining the price for their products. For the dual cooktop stove, the selling price is from 400-420 birr and the input cost, as per the firm’s estimation, is about 300 birrs, again not counting in the labour costs (Table19).

Table 19 - Unit Production Cost and selling price (M3)

Type of stove Production cost/in Selling price/unit Margin birr Single stove 200 250-280 50-80 Double stove 300 400-420 100-120 Triple stove 600 800-850 200-250

The enterprise has no separate selling shop and sells its products on the production site, which has very little space to begin with.

STAKEHOLDERS The information obtained from the enterprise indicates that there is no stakeholder that gives M3 either technical or financial assistance. The enterprise mentioned that they could benefit a lot from technical assistance given in the form training regarding their production and marketing strategies; it was learnt that there has been no formal training given for the enterprise. The production of the enterprise is not supported by modern technologies and it can be seen as an example of subsistence economy.

VALUE CHAIN DIAGRAM The value chain diagram of M3 is given in the figure below. There is no difference in the value chain diagram of small-scale enterprises considered in this study. They use different metal sheets and used metals to produce their products. Once they produced, the enterprises sell their produce right there, on the production site.

Figure 41 - Value chain diagram for M3

Stove production at M3

5.3.1.2 Medium enterprises

M4 M4 is a medium size metal firm which was established in 2016 with an initial and current capital of 1, 600, 000 birr and 3, 300, 000, respectively. Currently, this firm has 6 permanent employees.

PRODUCTION AND MARKETING The main inputs for this firm are sheet metal, tubular, electrode, different sizes wires and paints. Using these inputs, the enterprise produces different size doors, metal beds, wid- ows, and small lockers. Like the small-scale enterprises discussed above, this medium scale firm has no separate selling shop or space. (The value chain diagram for the firm is illustrated in the figure further below). The firm sells its products at the production site. The main problem that was raised by the firm was lack of selling space or shop for its products. We have also observed during our visit that the firm was not located in a convenient or visible area where customers could easily find it. This was the main challenge that the firm has raised as a constraint to its performance.

STAKEHOLDERS This firm is located in a shade which was provided by the government and based on performance of the firm for a period of five years. However, since the firm got this production site only for a limited period, the owner is in constant fear that the government may ask the firm to leave the place at the end the fifth year. Value Chain Diagram: Like the small enterprises’, this medium-scale enterprise also has short value chain. The value chain ranges from input supply, either from the nearby towns or Addis Ababa, to production and selling of the products on site, as shown in the following Figure.

Figure 42 - Value Chain Diagram for M4

M5 M5 is a medium scale enterprise and started its operation in 2016. The enterprise has currently 3 workers, all of whom are males. The firm started its operation with own capital and it has a maximum employment capacity of 5 employees.

PRODUCTION AND MARKETING The main products of the firm include doors, windows, and metal beds. Due to the nature the products that the firm is producing, it is difficult to estimate the annual production capacity of the firm. This is mainly because the firm produces based on the orders it re- ceives from customers. Since different customers have different preferences, the firm manufactures according to the specific order of each customer, which made it difficult to get important marketing information However, it was possible to come up with some estimates for specific products of the firm. For instance, according to the information from the enterprise, it costs about 3800 birrs to produce a door while its selling price is about 4500. The firm produces different beds of sizes. For example, a bed with a width of 120cm costs about 4000 birrs to produce and can be sold for around 5000 birrs. The main customers of the firm are households and government offices. M5 has no separate selling area or shop for its products, and so like those firms discussed above, it sells its products at the production site.

STAKEHOLDERS Like M4 metal works, this firm is also located in the shade provided by the government for a period of five years, and the firm is expected to leave the area at the end of the period. The main problem that the enterprise has raised during our visit to the area is lack of selling shop or space. As well, since the production site is not in plain sight or visible to potential customers, it makes it difficult for the enterprise to promote their produces. The enterprise has also raised lack of training on adoption of modern technologies and marketing of their produces.

VALUE CHAIN DIAGRAM. The value chain diagram for this enterprise (Fig.43) is not different from the value chain diagrams of enterprises discussed above.

Figure 43 - Value Chain Diagram for M5

5.3.1.3 Large Firms

M6 (Kombolcha Production Center) M6 is one of the governmental development firms. The Kombolcha production center has started its operation in 2016 with the government fund as well as loans from the Ethi- opian Development Bank. Currently the enterprise has a total of 91 employees, of which 13.18 % of them are females. When the company operates with full capacity, it has the employment potential of 353 workers. The firm has four main well established workshops. These are fabrication workshop, machinery workshop, welding workshop, and assembly workshop.

PRODUCTION AND MARKETING The major input for the firm is metal, which is mainly acquired from domestic metal suppliers, and sometimes directly imported from China. The main raw materials include different sizes round bars, metal sheets, plates, bronze, stainless steel, brass, square bar, angle iron, U-channel, aluminium, electrode, slitting, and carbide cutter, as well as other major inputs of metal production. Currently, the firm has started the production of plastic recycling machinery, circular saw machine, wood panel, spare parts, construction materials like scaffolding, and stone grinding machinery. However, these are only the initial productions under its current actual production. The firm has also already approved the foundry plant that helps to covert and recycle metal through iron melting machine.

Production at M6

The firm follows a standard pricing method for its products. The selling price for this firm is set based on the principle of adding up all costs, such as labour cost, all input costs required for the production, and finally adding 15% - 20% profit margin to determine the final selling price.

The firm has a marketing department at its production site. The main customers of the firm are government development agencies, Amhara Water Works, private organizations and firms in industrial parks. These customers directly visit the marketing department of the firm at the production site to place their order. As an instance, some of the products ordered by the customers, together with their respective estimated selling prices, are presented below in Table 20.

Table 20 - Current orders by different clusters and the estimated price for each

Plastic recycling machine 5, 000,000 ETB

Circular saw machine 17 Machines each to be sold at a price of 65, 000

Wood panel 85, 000 ETB

Spare parts 565, 000 ETB

Stone grinding machinery 450, 000 ETB

STAKEHOLDERS According to the interview we carried out with officials of the M6 enterprise (the Kombol- cha production center), the firm has collaboration with Wollo University, Kombolcha Pol- ytechnic college, Kombolcha College of Agriculture and small and medium enterprises. As shown in the table below, the enterprise, though is at the nascent stage, has moderate linkage with actors in the metal sector. Relatively, the firm has better linkage with polytechnic and vocational colleges in processing and design, which was rated as ‘moderate’ and ‘strong’, respectively. Similarly, the linkage with small and medium enterprises is moderate in planning, processing, and design that could help them in sharing technology, skill and experiences. Table 21 – The M6 actors’ linkage

List stakeholders Planning Processing Design Marketing Financial and distribution Wollo University V/weak Weak weak weak V/weak Technical and Vo- weak Strong moder- weak weak cational training ate centers Small and Me- moderate Moderate moder- v/weak v/weak dium Enterprise ate Kombolcha col- weak Moderate weak moderate Moderate lege of agriculture

From an in-depth interview, it was also noted that the M6 enterprise has a good initiative of outsourcing some metal work activities to successful small and medium enterprises found in Kombolcha and Dessie. Such linkage between large scale firms and small/medium scale firms is a good lesson/experience for small/medium size firms to update themselves in accordance with technological changes in the metal sector.

However, the overall horizontal and vertical linkages of the firm is found to be weak, mainly because the firm is at its nascent stage.

VALUE CHAIN DIAGRAM The value chain of the M6 is not significantly different from the value chain diagram of small and medium scale enterprises discussed above. However, this firm has better value compared to these firms. The input supplies of the firm are not limited to local market, it also imports directly from China. The value chain diagram for this firm is summarized in Figure 44 below.

Figure 44 - Value Chain Diagram for M6

M7 M7 is one of the large industries located in Kombolcha. According to the data obtained from the zonal trade and industry bureau, M7 was founded in 1996 with initial capital of 32, 000, 000 birr and begun its operation in 1998. The Kombolcha plant lays in the land area of 60, 000 square meter. M7 has a production potential of more than 21, 000 tons of different metal and steel products, such as different binding wires, fencing wires, nets, water tankers, wire nails, and different steel products. Our attempt to have an in-depth interview with semi-structured interview guide has not been successful due to bureaucratic hassle and requirement of permission from head- quarters. Thus, our analysis here is entirely based on the available brochures, website data and some reflections obtained from the Kombolcha plant officer. Currently, according to the firm’s official website, there are around 100 employees working in M7. From this total, nearly 55 % of them have attained grade 12 and below, indicating the larger share of low skill employees in the firm. However, it was also noted that the firm also has technical school graduates, first and second-degree, and diploma holders.

PRODUCTION AND MARKETING Currently, the firm manufactures different products, such as steel poles, building steel structures, power transmission and communication towers, fuel and water tanks (horizontal or vertical), cargo bodies, agricultural trailers and trailed tanks, canopies, refuse containers, and other customized engineered products.

The domestic value chain, as shown in the diagram below, is very short. Compared to value chain diagram of large firms in the metal sector, we have observed that M7 has relatively longer value chain. M7 has wholesalers at different towns of the country (such as Dessie, Gondar, Adama, Debremarkos, and Bahir Dar). M7 is a well-organized and experienced firm in the metal sector. It has well-functioning marketing outlets as compared to other metal works firms in South Wollo Zone. Apart from above mentioned wholesalers, the firm also distributes its products through channels at Gurd Shola (ELFORA Compound), Mexico, and Mekanisa as well as on the factory premises in Kombolcha and Akaki. There is also preparation underway to export products to Djibouti.

VALUE CHAIN DIAGRAM M7 has relatively a well-established value chain from input to production and final distribution. Notably, M7 has wholesalers in different towns of the country as well as retailers. They have also their own selling shops. M8 M8 is a private limited company which started operation in 2015. The company is located in Kombolcha Industrial Park and specializes in car assembly. The company’s source of finance is own capital and formal credit obtained from Development Bank of Ethiopia. During its inception, the company had 117 workers. However, currently the firm has only 35 workers, of which 4 are females and 31 males. The firm has been forced to reduce its workers due to low market demand for its product. The firm has the potential to employ 230 workers when the plant fully utilizes its capacity. The current plant production capacity is 120 cars per year. However, if the plant fully utilizes its capacity, the plant has the capacity to produce 240 cars per year. The information obtained from the plant manager shows that, to produce one car, it needs around four days with the current technology and labour skill the company has.

PRODUCTION AND MARKETING The firm has specialized in assembly of different types of car, main ones are high speed trailers, low bed trailers, cargo and car bodies, underground tanker for fuel station, water tanker, fuel tanker and steel structure The main inputs for the firm include metal sheet, axel, and frame. These inputs are directly imported from China and Dubai. According to the information we got from the plant manager, there are no local inputs that that firm uses. Since the firm has started its operation very recently, we couldn’t get the market related information from the plant. However, the plant manager gave us a general pricing mechanism that the firm is following, which is a simple mark-up of input cost, plus material cost, plus labour cost, and a15-20% profit margin.

Figure 45 - Value Chain Diagram for M7

The firm has no separate marketing area, and so customers buy directly at the production site.

STAKEHOLDERS he firm has collaborations with TVET and is also a member of TVET board in the area. Government has provided a production site for the firm. However, the firm has mentioned poor power supply and lack of internet access as the main constraints to doing their business. Due to lack of access to internet service, the plant has no website.

VALUE CHAIN DIAGRAM Figure 46 below describes the M8 company value chain.

Figure 46 - Value Chain Diagram for M8

5.3.2 SWOT analysis

Strength Weakness Opportunity Threats

• Strong experi- • Poor production di- • Density of small-scale • Still low purchasing power ence in stove versity (products firms and potential for in the region production variety) clustering • Shortage of foreign cur- • Well organized • Limited number of • Rural electrification rency for investments structure, espe- domestic suppliers and market expansion • Uncertainty of supply be- cially in medium • Low quality of raw • Expansion of TVET in cause of political unrest and large firms material this sector • Low reputation of Ethio- • Limited finance (for • Public premises pian products on domes- small and medium (sheds) as production tic and international mar- size firms) infrastructure ket • Traditional metal col- • Expansion of construction lection system (ku- sector for potential col- ralew) laboration

5.3.3 Conclusion and recommendations The value chain analysis presented above for metal works enterprises is based on case studies and observations made during the interview. Even if some of the companies are part of supralocal (sometimes global) value chains, we mainly focused on the domestic value chain, specifically, in South Wollo Zone. The inputs suppliers for all these firms are local traders and shops in nearby towns, Addis Ababa metal and related accessories suppliers, and also from consumers who sell used metal utilities to the local small scale and medium scale firms. However, the large firms (not all) directly import metal inputs from abroad (mainly China and Dubai). Once the important inputs are obtained, each company processes the raw materials and produces different products. Small scale and medium scale firms primarily produce finished products for housing construction, such as windows, doors, etc. Some of the analyzed companies also produce other types of products, such as stoves, baking machines, and other home utilities. On the other hand, the large scale metal firms like M7, M6 and M8 are producing high value metal products, such as water tanker, different cars’ components, cargo bodies, shades, construction materials, like metal sheets, different machines (plastic recycling, stone grinding, agricultural processing machineries, such as maize thresher, fodder maker), and so on. The marketing and distribution organization is varied. All small and medium scale metal firms sell their products on the production site. They have no separate sales area or shop to display their products, large firms, such as M6 and M8 included, mainly because these firms started their operation very recently. On the other hand, M7 has a well established marketing roots from input to production and final distribution. Notably, M7 has wholesalers in different towns of the country as well as retails. They have also their own sales shops.

The metal sector is one of the growing industries. In countries like Ethiopia where there is observed economic growth and urbanization, the demand for metal and metal product is significantly increasing. Accordingly, an attempt has been made to assess the value chain of this sector in South Wollo Zone by using case studies from large, medium and small-scale metal firms. In our assessment the metal sector has been found to be largely dominated with small-scale metal works in fragmented manner and have similar capacity and produce homogeneous product. Almost all have the same products such as different sizes stoves, baking stove, small chairs, and table. Due to this fact the competition among firms in these categories to upgrade and improve the marketability of their product is very limited. However, though the large-scale firms in the metal sector accounted for very small proportion, the prospects of these sector have been found to be promising in terms of addressing the growing demands of metal works and in hosting the growing labour supply in the zone as well. Comparatively, male are the dominant employees in the sector than in other sectors like the textile industry. Calculating the gross margin has been found to be challenging due the special nature of the metal sector in which the firms are producing different varieties of products in combination with different inputs. At the same time, due to lack of bookkeeping and accounting system among the small and medium scale firms, it is difficult to exactly determine the input costs and selling prices of commodities in different times. However, for large scale firms we found that 15-20 % of profit margin assumed by the firm in setting the final price for their products. In conclusion, the metal value chain in the study area is one of the shortest one in which almost all the medium and small-scale industries are producing and selling at the production site with very short flows and connection with value chain actors. Only M7 shows relatively well-established production and marketing channels from input, processing, marketing and distribution. But still, the sector has a potential to grow. The following policy recommendations are suggested based on the results obtained: • Improving the capacity of small and medium size firms in terms of product upgrading, marketing and book-keeping and accounting practice; • Providing continuous technical training specially for small scale firms; • Further clustering of small-scale firms must be put in place so that the problem of fragmentation can be circumvented, and the benefits of clustering can be attained; • Reducing the importing procedures and time-consuming custom requirements; • Linking small and medium scale firms with large firms. This will enhance the productivity of small and medium scale firms. It will also facilitate for the skill and technology transfers among these firms; • Generally, there have been an understanding that economic activities in the country has showed ‘stagnation’, and this has demotivated the metal sector in the current market. Thus, maintaining national stability and security must be the prime task for regional and federal government so that trust and confidences can be built.

5.4 Textile and garments value chain

5.4.1 Introduction Textile and Apparel production is seen as an important catalyst for developing countries’ industrialization. It has played an important role as a springboard for economic development and, due to its low fixed costs and labour-intensive manufacturing, it is often considered as a starter industry for countries seeking to industrialize (Gereff et al., 2011).

The textile and apparel industry provides employment for tens of millions of workers, mostly in developing countries (Stotz and Kane, 2015). According to the World Trade Or- ganization (2016), the global value of textiles and apparel exports totalled USD291 billion and USD445 billion, respectively, in 2015. The textile and apparel value chain has been global since the 1970s and the geography of apparel production and trade has been highly dynamic. The Multi-fibre Arrangement - a set of preferential quotas intended to regulate the industry and protect certain economies from low-cost imports - was phased out by 2005 when the World Trade Organization (WTO)’s Agreement on Textiles and Clothing (ATC) was implemented. This triggered a global realignment of apparel production, and private firms had to restructure to adjust to this new environment (Gereff et al., 2011).

Demand for African textiles and garments is increasing globally, and African patterns are gaining recognition as truly fashionable and iconic pieces. International fashion houses are integrating more and more African influences in their latest collections. International textile manufacturers are turning to Africa as a new source of labour – and – as a growing consumer market. Some African countries (Ethiopia, South Africa, Mauritius, Madagascar and North African countries) are clearly and quickly taking on a greater role in the global fashion value chain. The industrialization of the production process could allow these countries to take real advantage of it, mainly if raw materials export, vulnerable to market volatility, and second-hand clothes import, will be substituted by the export of finished fashion products (Moungar and Gregorio, 2018).

Since 2010, foreign directed investments (FDI) into Ethiopia have grown at an average rate of nearly 50 percent per year, reaching $2.2 billion in 2015. Ethiopia has attracted FDI in commercial agriculture, manufacturing, leather, and textiles sectors. Textile and garment firms—mostly contract manufacturers—from India, Bangladesh, China, and Turkey, seeking alternative production bases for export to the European Union and North America, have announced investments in Ethiopia (UNCTAD, 2016).

The sector is part of the governments Growth and Transformation Plan (GTP) which started in 2010/2011 to transform the nation from an agriculture-dominated economy into a manufacturing economy with aspirations to become a middle-income nation in 2025, and launched the Textile Industry Development Institute to help supplement and develop the necessary human capital. To this end, policymakers undertook a series of initiatives to support the development of a solid textile and apparel industry, including steps to attract key investors to this sector (World Bank group, 2015).

Mechanized textile and garment industry in Ethiopia has more than 78 years of history (Dire Dawa Textile and Augusta Garment). The industry had been growing sluggishly until 1991, when there were only 19 Textile and Garment factories in the country. As a result of the free market economic policy and favourable industrial policy declaration in 1991, Textile and Garment industry started to grow significantly and now there are over 250 active factories in Ethiopia (Ethiopian Textile Industry Development Institute, 2018). Ac- cording to the strategy, the textile industry has been ranked first of the core industries and given prior attention because of the following reasons:

1. The worldwide market for textile industry products is always available, next to food commodities. 2. The industry uses more labour which is abundantly available at low cost in the country. 3. The industry utilizes cotton as its main input so that it can create a conducive opportunity for agricultural development on which the country’s economy is dependent (value chain). 4. The industry can easily create high forward and backward linkages, mainly with the agriculture sector which, in turn, creates more income for farmers/investors. 5. The textile industry, in the long run, is believed to initiate the establishment of chemical and other inputs (supplementary industry) which are now imported.

Ethiopia has emerged as one of the major garments producing and exporting nations of the world. Garment making is a labour-intensive industry and most of the employment goes to women. It brings foreign exchange to the country through exports. With the objective of generating USD 30 billion in export revenue from the textile apparel and accessories (TA&A) sector by 2030, the country is investing in industrial parks to accelerate textile production and the country’s productivity as well as developing a heavy industry that will allow its full industrialization by 2025 (Gregorio and Yeboah, 2019).

Nevertheless, African countries - including Ethiopia - face some relevant challenges linked to the textile and garment industry. These include a weak business environment; low-level infrastructures and too low salaries, that obstacle the creation of a stable workforce in the medium-long term. There is an urgent need for Africa to rapidly industrialize and add value to its production. The textile and clothing industry are dominated by small and medium-size enterprises, which have the potential to create decent jobs - skilled and unskilled - for millions of Africans, especially women and youth (Ibid).

5.4.2 Sector analysis

The textile and garment industry9 in Dessie and Kombolcha is dominated by small size enterprises (23), which have the potential to create decent jobs - skilled and unskilled -

9The classification of enterprises into small, medium and large scale depends on a number of variables such as level of employment, capital investment, production capacity, level of technology and subsector. 67 especially women and youth. The only large textile (TG1 and TG2) and garment (TG3) enterprises are found in Kombolcha industry zone. Table 22 - Distribution of textile and garment companies, by size & number.

Textile and garment

Categories Dessie Kombolcha Total

Small 15 8 23

Medium 2 0 2

Large 0 4 4

Total 17 12 29

Source: Dessie town and South Wollo Zone Investment Office, 2019

In terms of property, the eight enterprises analyzed in this study, selected in order to guarantee the inclusion of businesses of different sizes in the sample, are totally privately owned and no public-private partnerships have been included. The only active large textile and garment company (TG2) is owned by foreign (60% share by Chinese) and domestic (the remaining 40% share) private owners, and none of them are entirely owned by foreign private investors.

Table 23 - Ownership type of Textile and garment enterprises

Small Medium Large

Location Ownership type count Count count

Dessie Foreign

Domestic 2 2

both

Kombolcha Foreign

Domestic 1 2

both 1

Total Foreign

Domestic 3 2 2

both 1

For instance, based on the level of employment textile and garment enterprises can be categorized into Small (5-9), medium (10-49) and large (>49). 68

Table 24 - List of sampled companies

S/no Enterprise name Location Size

1 TG1 Kombolcha Large

2 TG2 Kombolcha Large

3 TG3 Kombolcha Large

4 TG4 Dessie Medium

5 TG5 Dessie Medium

6 TG6 Dessie Small

7 TG7 Dessie Small

8 TG8 Kombolcha Small

Regarding the business’ lifetime, the average operation time of the analysed enterprises is 4.33, 6.5 and 13.67 years for small, medium, and large textile and garment enterprises, respectively. The medium enterprises are the result of an upscale process of small ones, while large companies were established at a different scale since the beginning. The small and medium textile and garment enterprises have got working premises at a highly subsidized rent in the form of G+4 buildings (in Dessie) and sheds (in Kombolcha) made from iron sheets which permit enterprises to share public resources and allow the provision of common support services. According to the Micro and Small Enterprises De- velopment Agency (2011), the maximum time limit small scale enterprises can stay in the cluster (in the spaces provided by the town investment office, in collaboration with the micro and small enterprises office) is 5 years. After this period, those enterprises that have been able to grow into medium-size enterprises will be provided another working space at industrial zones. On the other hand, enterprises that do not grow into medium-sized enterprises will be excluded from the cluster, but other supports like provision of finance, training, information and market linkages will continue for another 2 years. The data below reveals that the sampled small-scale enterprises period of stay in the cluster is nearly over (they had less than four months at the time of this study). The fate of small enterprises after 5 years is a major issue, whether they will be able to grow in to medium and be provided with another working space at industrial zones or be excluded from the cluster.

Table 25 - Local factories/ average years of operation

Textile and garment Enterprise size

Location Small Medium Large

Dessie 4.50 6.50 .

Kombolcha 4.00 . 13.67

Average 4.33 6.50 13.67

Results of the survey reveal that both male and women are engaged in the production of textile and garment products. The 8 analyzed textile and garment enterprises create 2210 jobs. Most importantly, out of the 2210 job opportunities created, 48.73% are female workers, confirming the significant prevalence of female workforce in this sector. Textile and garment making is a labour-intensive industry. Five small and medium scale textile and garment enterprises are able to create 69 jobs whereas three large textile and garment enterprises account for 2141 jobs. This implies that large textile and garment enterprises are relatively labour intensive and do not need highly educated workers.

Table 26 - Number of jobs created and to be created Textile & garment Enterprise size Total Location Description Small Medium Large

Dessie Actual employed 15 49 . 64

Number of females employed 7 32 . 39

Number of males employed 8 17 . 25

Additional employment capacity 11 155 . 166

Kombolcha Actual employed 5 . 2141 2146

Number of females employed 1 . 1037 1038

Number of males employed 4 . 1104 1108

Additional employment capacity 3 . . 3

Total Actual employed 20 49 2141 2210

Number of females employed 8 32 1037 1077

Number of males employed 12 17 1104 1133

Additional employment capacity 14 155 . 169

The organization structure of the analyzed enterprises shows clear differences related to the companies’ size. Large textile and garment enterprises have managers on the top and human resource management, marketing and supply, production and technique, quality assurance and finance departments under it. TG2 industry’s manager is in China, the vice Marketing and Finance Manager is in Addis Ababa, and the Human Resource, Production, and Deputy Manager are found in Kombolcha. Medium size enterprises have managers (the owner), finance/cashier, and a salesperson. In one of these enterprises, the cashier/finance person is the owner’s wife. They do not have their own offices and was difficult to identify who is the manager, as well as the finance and salespersons. According to the results of KIIs, some small-scale businesses have an organizational structure in which general managers (owners) do the administration and marketing/sales

70 works together. Moreover, production and technique are under the control of the manager. Others have manager, finance/cashier/sales person and secretary as a structure. Again, like that of the medium enterprises, the structure is not visible for visitors. Almost all small and medium scale companies are personally managed by their owners, unlike the large enterprises. The main reason given for not having a professional manager is that the owners want to have full control over the day-to-day operations of their businesses since they are dependent on them for survival. Unlike the small and medium enterprises, the large textile and garment enterprises trust others enough to allow a salaried professional manager to manage their business. All the enterprises included in the study are entirely managed by male managers, revealing a gender equality issue.

5.4.3 Financial sources for business start-up

Table 27 - Financial sources of the enterprises for business start-up

Small Medium Large

Location Financial source Count Count count

Dessie own 1

formal 1 1

both 1

Kombolcha own 1

formal 1

both 1 1

Total own 1 1

formal 1 1 1

both 1 1 1

About one-third of the sampled small and large scale textile and garment enterprises started their business with either their own savings or a combination of savings and private volunteer support. The same fraction from the same enterprises and half of the medium enterprises indicated that they started out the business with a loan plus their savings. One of the small weaving and garment enterprises disclosed that it started the business by borrowing from a private volunteer supporter, with interest-free loan, and invested in sewing and weaving machines and raw materials. Microfinance institutions predominantly provide microcredit to small and medium scale enterprises while banks service large enterprises. Small and medium-sized enterprises are currently excluded from the banking sector credit due to their size (too small to be served by banks) and their inability to meet excessive collateral requirements. The research showed that all small and medium textile and garment enterprises have a working capital problem. It is extremely expensive (and also very difficult to get credit) to 71 buy new equipment, spare parts, and large purchase of raw materials due to this working capital constraint and banks’ reluctance to grant credit. Therefore, lack of capital has had a considerable impact on their competitiveness, in terms of adoption of latest technology, improvement of the quality of products, increase of production capacity to meet the demand of textile and garment requirements.

Location Small Medium Large

Dessie 45.24 16.25 .

Kombolcha 16.67 . 63.29

Average 35.71 16.25 63.29

Table 28 - Financial sources of the enterprises for business start-up

5.4.4 Production capacity The textile and garment industries are operating below their capacity due to several factors, such as breakdown and shortage of power, shortage of inputs both from domestic and foreign markets, lack of spare parts, machinery damages, lack of market, low labour productivity, low working capital, and the high cost of credit. The research indicated that the average capacity utilization for small, medium and large industries is 35.7%, 16.25%, and 63.29%, respectively. Due to the shortage of inputs (manpower and raw materials), finance shortage to purchase spare parts and raw materials, high power demanding old machines, fluctuation of product demand, out of the 19 machines owned by small scale enterprises only seven are working. One of the medium enterprises told us that out of the five old machines he owned, only one is working owing to power shortage and frequent machine breakage. Out of the eight production lines of the TG3 factory, for instance, only three are operational, because of budget shortage, shortage of input, lack of skilled manpower, and os- cillation of demand for its garment products.

The following map (Figure 47) presents the various actors of the chain, their linkages, and all operations of the chain from the supply of inputs to consumption. Based on the KII result (2019), the study identified six value chain functions: input supply, production/processing, wholesaling, retailing, exporting, and consumption. Each function has its own specific actors, supporters, and enablers.

Figure 47 - Textile and garments value chain

5.4.5 Inputs As any complex industry, textile and garments industries rely on a variety of inputs. First, labour power. Despite the availability of workforce in the region, there is a lack of the necessary skills and training to do the required jobs. Moreover, employees show to have a poor working habit and there is high turnover after getting the required training and experience. There is a huge demand for skilled and unskilled workers, especially in manufacturing areas of spinning, weaving, processing, and garments in small, medium, and large textile and garment enterprises. A second problematic group of inputs is related to power supply. The power supply is unstable in the study area and forced large enterprises to have and use their own generators, even though the cost of power is relatively cheaper. Coal is also used as a source of power by TG2. Large textile and garment enterprises use more water for washing machines and clothes relative to medium and small one. According to the respondents, the raw materials that the factories use are purchased from local markets and imports. The sources of local inputs are local ginners, whose role is to transform raw cotton into lint cotton by removing the seeds. Concerning bigger enterprises, the inputs which are purchased from local markets are lint cotton, cotton fabrics, nylon fabrics, acrylic yarn, cotton yarn, woollen, sewing threads, and packing materials. On the other side, the main imported raw materials are lint cotton, buttons, threads, zippers, labels, polyester, synthetic fabrics, nylon, dyestuff, and chemicals.

Small scale weavers buy the inputs (polyester yarn, cotton yarn, acrylic yarn, coloured threads, etc.) required for the production of traditional clothes from Addis Ababa wholesalers in bulk and a small amount from Dessie raw material suppliers. These inputs are produced by TG1 but the yarn color and thickness produced by textile and fabric factories in Addis Ababa is their preference. Prices for the raw materials increase and fluctuate from time to time. Regarding purchasing of required inputs for producing traditional weaving products, weavers indicated that appropriate linkage for buying required inputs is not yet created. The other small-scale garment enterprise uses TG1 product (yarn cotton) as an input to make fabric product and even the old machine that has been used by this enterprise is purchased from this company. This shows a certain degree of integration of companies belonging to this sector in the local economy. One of the medium scale garment enterprises is entirely using the products (polyester yarn, cotton yarn, and acrylic yarn) and old machines of TG1 to produce cultural clothes. The other medium enterprise is using raw materials such as fabric, button, threads, sticker, zipper, etc. purchased from Addis Ababa wholesalers to make suits and uniforms. TG2 is getting the entire inputs (chemicals and yarn) from China through online input management technology to produce polyester whereas TG1 and TG3 use both locally purchased and imported raw materials. TG3 purchase fabric from an importer and TG1 and accessories like button, zipper, threads, size label and chemicals from importers to produce garment products. TG1 uses lint cotton that is purchased from domestic ginneries to produce cotton yarn and fabric. The interviewed personnel of the company pointed out that the raw cotton harvested by various farmers makes its way to ginneries either directly by the commercial cotton farmers (in Afar region) or through local collectors in North Gondar. The ginners that supply lint cotton to TG1 are located in Gondar (Genda Wuha) and Afar region and link the cotton sector with the textile factory. The share of local lint cotton alone is 65% in the total raw material consumption of the textile factory. Sometimes the ginners do not supply enough and quality lint to meet mill demand. The share company may be forced to import lint cotton in order to overcome this deficit. Even if it is over, the bonded warehouse center established by government-private partnership outside the Djibouti port speeded up the distribution of chemicals and dyestuff and facilitated for TG1 in getting these inputs which are not easily accessed in the local market. The problems encountered by textile and garment industries during the purchase of raw materials locally are lack of raw materials, the high cost of inputs, low quality, and the problem with reliability. The problems encountered by the industries during fully or partially importing raw materials are high costs of inputs, delay in clearing goods through customs, and dollar shortage to import the required inputs. The main reasons for the high dependency on imported raw materials are the unavailability of quality and sufficient raw materials in the local market from local suppliers.

5.4.6 The Production Process

Figure 48 - Textile and garments production process

This paragraph describes the different steps of the textile and garments production process, providing examples from the analyzed companies in South Wollo. Domestically produced lint cotton is the major raw material consumed by TG1. The lint fibre is spun into yarn, which is then woven into cotton fabric by TG1. The cotton fabric is then dyed, printed, and finished into home textile and garment products by the textile and garment factories. Only TG1 is engaged in vertically integrated activities, meaning that it is engaged in the production of cotton yarns, cotton fabrics, and home textiles (like bed sheets, towels, carpets, curtains, etc.). The other sampled garment factories are not engaged in textile making.

Blow Room: A series of machines are set together for the cleaning, mixing (in case of blends) and the opening of fiber. This is collectively known as Blow room. Carding: In this process, the fibers are cleaned, straightened and intermingled. The output of this is process is a continuous web form of fiber called sliver. Drawing: This process is known as drafting. In which the sliver is thinned down or drafted into thin- ner slivers. Roving: In this process, the sliver is drafted more with a very little amount of twist insertion. The output is known as Roving. Box 1: Steps of the textile and garments production process

In other words, textile and garment production is not typically integrated within one garment factory in the study area. Spinning is the process in which the lint cotton is converted into cotton yarn. The spinning process in TG1 has two segments depending on the staple length of the lint cotton. Cotton quality strongly depends on the length of the fibres. The standardized cotton fibre classification refers to the so- called staple length. Generally, there are four typical staple measures that characterize the quality of the fibres in a way that the longer the staple the better the quality. The lowest quality refers to “short” fibre lengths < 25 mm, followed by “medium” lengths between 25-30 mm, “long” fibres at 30 – 35 mm and the so-called “extra-long” fibres at >35 mm (Textile Exchange, 2017). The staple length of the cotton from the Gondar area is less than 25mm, which is categorized as short fibre whereas the stable length from Afar is above 25mm.

5.4.6.1 Weaving and finishing (from cotton yarn to cotton fabric) A good example of this process is provided by the production line of the TG1, where fabric is vastly manufactured by two methods (weaving and knitting) in order to make bolts of fabric and dyeing and finishing to create smooth fabric. In the following step, the resulting yarn is wound on big rollers and treated with starch in order to make it more resistant for the weaving process. Immediately after the fabric is manufactured via looming process, it is raw and not yet ready to be made into fabric goods. At this stage, the cloth is sometimes called ‘grey goods’ and it needs further refine- ment. Textile finishing means some process which applies to textile materials before bleaching or after coloration to increase the different properties of textile materials. But those processes apply on textile materials before cutting and sewing the materials to making garments, household and other products. The aim of textiles finishing is to render textile goods fit for their purpose or end- use (Fig.49).

Yarn Preparation Creeling Warping Sizing

Drawing Looming Inspecting gray cloth Dyeing and Finishing Figure 49 - Weaving and finishing process in Kombolcha Textile Share Company. Source: KII, 2019.

TG3 produces jeans trousers, jeans jackets, and shirts from the finished fabric supplied by a fabric importer and TG1. Making finished products in TG3 involves designing, fabric cutting, fabric sewing and trimming, buttonholing, washing, drying, ironing and packaging processes. TG2, finally, is producing polyester using yarn imported from China. The processes followed are weaving, dyeing, printing, setting machine, finishing, and then packing.

5.4.6.2 Distribution, price, and consumption Textile and garment products are distributed and sold through a network of wholesalers, sub-dealers, and retailers and enterprise’s wholesale and retail outlets. 76

TG2 supplies 70% of the polyester to local market via an agent (wholesaler) located in Addis Ababa and the remaining 30% is exported to Iran and Pakistan through sub-dealers. Its final products come back to Kombolcha and Dessie markets through retailers.

TG1 distributes its products to the local market through wholesalers located in Kombolcha (1), Mekele (1), Dessie (1), Bahir Dar (1) and Addis Ababa (4), and exports to Italy (bed sheet and pillow- cases), China (yarn) and Netherland (towels). Retailers (shops) buy textile products from wholesalers and sell to the final consumers. Moreover, the company has a retail shop around the main gate to easily reach consumers.

TG3 has its own wholesale and retail shops to supply the garment products. Boutiques directly purchase the garment products from the wholesale shop and consumers purchase the products from the wholesale and retail shops of the company. The retail shop is located just to the right side of the retail shop of TG1.

Table 29 - Price structure of large textile and garment industries Main product wholesalers Retailers Consumers Export price

TG1 (Bed sheet) 409.04 440 550 332.45

TG3 (Jeans Trouser) 277 293.62 400 Not exported

TG2 (Polyester) 33-40 birr/yarn in NA10 NA Secured Addis Ababa

The average price that TG1 has assigned per bed sheet to its wholesalers is 409.04 ETB, including VAT. Wholesalers then transfer same product to the retailers at an average disposal price of 440 ETB, still including VAT. Consumers can purchase the item at a mean price of 550 ETB per unit. From this analysis, one can understand how retailers are the main beneficiaries of the chain. One of the problems underpinned from the above analysis is also the double levying of VAT on the same product, which is basically wrong and even causes inflation. Almost all of the interviewed small and medium textile and garment enterprises sell their products exclusively to the domestic market. Only one medium garment enterprise, engaged in the production of cultural cloths, serves both domestic and international markets. One of the medium scale garment enterprises makes custom garments (suits and uniforms) for individual clients and government organizations (schools and university graduates) and sell the products in its shop located around Piassa neighbourhood in Dessie. The cultural cloth weaver medium enterprise has its own selling premise where it can display its products and sell to the final customers and receive individual based orders. It also sells the cloth to the international market – Europe and Canada.

10 Retail and consumer price information is not available for TG2 due to the agent’s location is in Addis Ababa. The export price of TG2 is secured. 77

Table 30 - Price structure of medium garment industries Main product Individual clients Export

Suit 1800 birr Not exported

Netela (shawl) 120 birr 50 Euro

Two of the small-scale cultural weaving and garment producers sell their products (decorated bed- spreads, sofa wear, carpets, curtains, scarves, shawls, pillow covers, etc.) to local users/consumers at their retail shop (located around Arada-dessie), production sites (found in Buambuawuha-dessie) and sometimes distribute the product to different retailers situated in Addis Ababa markets. The other small-scale weaver (located in Kombolcha town) sells its product (cotton fabric) to a retailer located in Kombolcha town and sometimes to customers at the production site. In general, small enterprises that mostly produce ceremonial clothes are price takers as compared to the medium ones’ and they tend to sell the weaving products just immediately after produced for whatever price comes from the traders and consumers. This is because they lack [reserve] finance to purchase raw materials for the next production, pay to their labourers, and pay shed rent. Table 31 - Price structure of small textile and garment industries Main product Retailer Individual clients/retailing Fabric 26.66 birr per meter 40 birr per meter

Cultural cloth Bed spread = 800 birrs, curtain = 400 birr, Gabi = 700 birr

5.4.7 Enablers of the Value Chain According to the majority of the respondents, the role of government agencies at this time in order to facilitate the textile and garment industry is quite good compared to previous times. However, the efforts made by the government, in fact, are not sufficient enough to bring about a significant impact on increasing the competitiveness of the enterprises, especially small and medium scale enterprises. Thus, government support for small and medium enterprises is very limited than what it should have been as the sector is of the strategic importance to the country. Business support services (One-Stop-Services) that have been provided through government structures are inadequate and have little impact on small and medium enterprise growth due to a lack of incentives to innovate and enhance the level of support. As a result, service provision remains sluggish and bureaucratic. Microfinance institutions have the role of loan provision, saving service, awareness creation on saving, consultation to the enterprises. But, the existing cost of borrowing money is very high which makes it difficult for small and medium scale enterprises to get the necessary working capital. In addition, the formalities for loan approvals, requirements for collaterals and other documentation are also intense. The office of industry and trade is supporting the textile and garment enterprises through trade licensing, investment licensing, and supporting transformed enterprises from SMEs to medium and large-scale industry. Micro and small enterprises development office has been providing them with workplaces (sheds) and other support services (facilitating access to finance, business registration, training, etc.). The 78 small textile and garment enterprises are receiving training from TVET centers in design, machine operation, business management, and work approach. Wollo University, finally, is also playing a role in giving entrepreneur and leadership training for small scale enterprise owners free of cost.

5.4.8 Linkages and Value Chain Governance

There are no strong horizontal linkages among the key actors of the chain in terms of planning, processing, design, marketing, and finance. However, there are some instances where small scale weavers borrow inputs from each other, share technical manpower, exchange information and purchase raw materials in bulk from Addis Ababa. TG3 shares boiler and water treatment machine from TG1. It also shares raw materials and technicians from Kidane Garment (not one of sampled in the study). As observed from their response, small enterprises do not establish any vertical and horizontal business link with the medium enterprises in the study area. Moreover, there is no horizontal network established among small and large as well as in the middle of medium and large textile and garment enterprises. Large input suppliers and product wholesalers dominate the value chain by holding large quantities of inputs and final products in their storage facilities until the market price inflates to a rate that suits them. Most of the small-scale textile and garment producers are selling their products without waiting for the better price due to the absence of alternative income. Even if the cost of production gets much higher as input price increases, the small scale enterprises cannot easily increase their selling price because they have very limited market access (low demand). Therefore, there is no structured pricing system for all the inputs and finished products. Based on the key informant interviews and factory visits, the following analysis summarizes strengths, weaknesses, opportunities, and threats within the textile and garment value chain in the study areas. Strengths and weaknesses address the internal factors governing the sub-sector, while opportunities and threats/challenges refer to external factors in the business environment.

Table 32 - Textile and garment value chain SWOT Analysis Strengths Weaknesses v Attitude to creatively solve input v Dependence on imported raw materials and poor quality of the local one problems: e.g. arranging lending base v Only control on raw materials supply and prices input supply for small enterprises v Poor quality, high cost & unreliability of local inputs relative to imported. v Ownership of latest machines and v Distance of suppliers (mostly located in Addis Ababa) equipment to produce quality prod- v Reluctance to import and supply recent garment inputs (fabric) ucts (bigger firms) v Unable to produce with full capacity due to internal and external factors v Working towards good quality v High employees turnover due to low wage payment v Ownership of retail and wholesale v Poor working habit of workers with limited industry skills and knowledge spaces v Finished products low quality and consequent poor competitiveness on v Participation in exhibitions to pro- international markets. mote products v Poor competitiveness on foreign markets (except for bigger companies) v As a priority sector of the country, v Limited productivity of small and medium enterprises, due to outdated government offices at different levels machines support the sector and quite good v Poor market information and marketing strategies compared to previous times v Not sufficiently supporting enabling services v Attention to sustainability (by-prod- v Government officials do not have the necessary knowledge on the sub- ucts re-use and proper collection, wa- sector ter treatment, greening efforts) v Specialization of small and medium firms on traditional clothing. Opportunities Threats/ Constraints/Challenges v Local environment offers good po- v Increasing cost of raw materials due to external factors tential for the development of a local v Unavailability of sufficient and reliable inputs suppliers in the local mar- organic cotton value chain ket v Increase of the local inputs share, due v Shortage and frequent power interruption to domestic yarn and fabric produc- v Low quality product due to the inability to access the latest technologies ers increasing number v No possibility of getting interest free borrowings for Muslim entrepre- v Increasing domestic market/demand neurs v Priority is given to the textile and gar- v Lack of skilled and semi-skilled labour force, due to the mismatch be- ment sector through attractive incen- tween the skills of the graduates and the industry requirements, espe- tives from the government cially for bigger firms. v Strong clothes culture identity v High labour turnover due to low payment and poor working condition v Availability of easily trainable labour v Low and decreasing market demand for traditional clothing. force and skilled labour in the sector v Low employees’ attachment to the company and performance fluctua- is increasing rapidly as a result of fast- tion growing education and training insti- v Unable to produce with full capacity leads to high cost of production and tutions in textile technology high price v Proximity to port and other new v Low collaboration with chain actors transport assets. v High cost of production and then unable to compete even with domestic producers (e.g. located in Addis Ababa) v Weak public support in facilitating product and input marketing for small and medium enterprises.

5.4.9 Conclusion and Recommendations

The major causes for low productivity in textile and garments enterprises emanate from their internal weaknesses, due to factors like the low skill of the operators, old machinery and equipment, poor facilities, more idle time, and poor handling of materials. Therefore, enterprises should improve their internal capabilities to be competitive in local and international markets. The effect of external factors in promoting the growth and competitiveness of enterprises such as conducive business environment, good governance, incentives, and infrastructure (soft and hard) facilities should

80 not be forgotten. If the internal and external capabilities of the textile and garment enterprises improve, they can utilize their full capacity of production and, as a result, they will create more job opportunities. Lack of skilled workforce and poor working habit are other areas of concern which need to be addressed to enhance the competitiveness of the overall textile and garment industry. Skill training on technological development, product development and sharing of experience on changing the attitude of the working force towards business is very essential. As observed during the research, the workforce is not accustomed to industrial work, and poor industry skill and knowledge are a serious concern. Universities and TVET centers should be prioritized as a source of human capital and innovation. The government is expected to link the existing centers with the industry and institutions should improve their quality in line with the industry needs. To this end, universities and TVET centers should update their course and training curriculum regulatory as per industry requirements. Moreover, establishing new training programs and arranging knowledge exchange programs with international colleges in order to cope up with the trends of the international market is fundamental. The enterprises give pre-job training for up to 3 months to match the workers with the job requirement by incurring costs (during the pre-job training, enterprises divert raw materials and machine from the regular production of products and pay a wage for the trainers) and the government should directly support the training program in terms of finance and professions. The high rate of employee turnover is a significant constraint in the textile and garment industry. One of its main causes is too low wages. It is difficult especially for small and medium enterprises to offer higher wages than they already do. On the other hand, it is almost impossible for employees to cover the relatively high cost of living with the current wage rate paid by textile and garment enterprises. As a result, many workers often leave factory work for a slightly higher paying work in the construction and services sectors. For firms to reduce turnover, keep labour costs down and develop a capacity to produce to the standards of the international market. A clear structure for salaries and promotion ladders is likely to be especially important in order to retain workers in the manufacturing sector. Almost half of the textile and garment workforce is female and textile and garment sector is considered as a very important employment opportunity for female workers in Ethiopia. Therefore, particular attention to female workers and the gender dimensions of working conditions is logical. The efforts of the enterprises should be empowered by gender equity in workforce participation through protecting fundamental rights at work and catalysing women’s empowerment. Access to capital was perceived by all small and medium textile and garment enterprises as the main challenge that could potentially limit the scale and speed of their growth. Especially, small scale enterprises are living on subsistence economy and that is the reason why many of them leave the business and the remaining also want to run away from the business if the working capital problem is not solved. The lack of capital is constraining small and medium textile and garment enterprises to adopt the latest technology and forced them to use outdated technology. With increasingly advanced technology, the industry will work faster, produce more, manage resources more efficiently, and ultimately will be able to optimize its income. Thus, providing subsidized loans (low- interest rate) is strongly recommended for upgrading machinery or installing new machinery, purchase of raw materials and spare parts.

In the meantime, undeveloped vertical and horizontal linkage among the value chain actors is seen as a challenge for the sub-sector. Especially, small enterprises are not linked vertically as well as horizontally with medium sizes nor horizontally integrated with large enterprises. Opportunities should be created by governmental and non-governmental organizations for the enterprises engaged in the sub-sector to work together for capacity building, value addition, creating a strong network and platform for solving their common problems and challenges in the value chain. Low prices for their products that is determined by traders and customers is another burning issue for the small-scale enterprises. Linking them with medium and big companies and assisting them to participate in government purchases and bid invitations is vital. This could be done through giving training, initiating and organizing dialogues among enterprises on the advantages of collaboration. Moreover, regularly organizing domestic products exhibition is expected from concerned government offices to create market opportunities for their products. Serious scarcity of local raw materials, low quality, and rising prices due to less capacity of local firms to meet the quality and quantity requirements of the sub-sector are found to be a bottleneck for the sub-sector. Moreover, the great dependence of the sub-sector on imported raw materials was also being experienced by the enterprises during the survey. These call for a concerted effort both by the government and other stakeholders to seek ways and means of improving the capacity of local input suppliers, initiating textile raw material centres that focus on domestic product, designing price control mechanisms and quality improvement programs, and thus reducing the out- flow of the scarce foreign currency. For raw materials, machinery, equipment, and spare parts that could not be supplied by domestic producers, the government should promote strong market linkage with foreign suppliers. Shortage of foreign currency to import raw materials, spare parts, and new machinery is another challenge facing the sub-sector actors, thus, the government should alleviate this problem by relax- ing the foreign exchange controls and giving priority to the sub-sector. Reducing bureaucracy and corrupt practices in government service sectors in order to facilitate the competitiveness of enterprises is indispensable. Power failure and fluctuations are getting worse and hence continue hindering sufficient and consistent power supply to enterprises. A reliable and consistent power supply should be available through modernizing the power distribution system and upgrading the capacity of the power sta- tions in both towns. In addition, to avoid the problem of power interruptions there should be an alternative source of energies. Enterprises should explore alternative products to diversify their areas of production, income sources and better job opportunities using the untapped cultural clothes varieties opportunity in the study area. Enterprises should continue in their effort of protecting the environment by applying the latest machines, efficient utilization of resources, and reducing electricity, water, and coal consumption.

5.5 Constructions sector

5.5.1 Introduction Construction sector is a leading sector in the Ethiopian economy, both in terms of contribution to economic growth and in employment generation, as well as a priority sector, according to the GTP II, stressing the significant role of housing and road development. The sector has high potential for youth and women employment, even if statistics are not totally reliable, because of the big share of informal economy in this sector. This value chain analysis is based on data and information collected through a number of in-depth semi-structured interviews to selected key informants from private firms and public institutions. A concise overview on the main characteristics of this value chain is presented here, followed by a SWOT analysis and conclusions and policy recommendations, as in the previous chapters. 5.5.2 Major inputs and outputs The major inputs for the construction value chain include: - Construction- stones - Sand - Metal - Cement - Electric materials - Wood - Finishing material - Pipes - Machineries, such as Mixer, vibrator, and compactor. Most of necessary inputs are purchased locally, but some materials or components are not available in South Wollo and have to be obtained from Addis Ababa or other parts of Ethiopia. Regarding outputs, the responses from KIIs indicate that different buildings, including constructed houses and buildings, dams and bridges, as well as construction machineries are the major outputs of the sector. 5.5.3 Major actors and stakeholders The main actors of the value chain include: - Clients (both public and private) - Consultants - Contractors - Sub-contractors - Input/material suppliers Some of the stakeholders are zone and city administrations, Inland Revenue authorities, Justice office, Amhara Design and Supervisions office, etc.

The results of the interviews indicate that there are close linkages among different actors in the construction value chain. Particularly, we identified that there is a very strong relationship between contractors, consultants, and clients.

5.5.4 Public institutions actions and initiatives Differently from other value chains, public actors play a central role in the construction sector, because public works represent a relevant share of the market and because of the strict relationship between this sector and public regulations, such as city plans, building permits system, etc. The public institutions that we interviewed pointed out their main tasks, which include: - Control construction projects in every construction site; - Conduct quality controls on inputs and machineries; - Inspect whether construction projects are being built as per the law and regulations; - Inspect the legal status, license, and grades of contractors; - Provide licenses to contractors and follow-up their renewals; and - Mediate construction related issues that may arise among different actors and stakeholders For these reasons, the construction sector is a privileged field of action for public- private partnerships (PPP).

5.5.5 Working conditions and workers’ skills The interviewees from the public institutions were very clear in stressing that the wage rates and the payments to construction sector employees and laborers are very low compared to the amount of work they assume. Regarding safety and health measures (OSH), there are a few companies that, to some extent, try to comply with safety and health procedures. However, most companies do not consider safety and health measures at work, thus exposing workers to big risks of injuries. 5.5.6 SWOT Compa- Strength Weakness Opportunities Threats nies Small - Public support, - Lack of - Some items are ade- - Some materials are as strategic knowledge quately accessible in not available locally sector; and skills in nearby areas; - Seasonal nature of - Good work at- the sector; - With the continuous the business; titude and abil- - Low level of growth of the sec- - Political instability ity to complete specializa- tor, there is a po- affects the sector; projects/task in tion; tential high demand - Price changes and time; - Limited for construction ser- volatility of the - Relative price budget and fi- vices and materials. market; competitive- nancial re- - Shortage of foreign ness sources; currencies Medium - Relatively they - Tend to en- - There is untapped - Many clients don’t have better fi- gage in a market potential; make payments in nancial and hu- number of - There is a growth time as per the man resource projects that potential if the agreements; capacity they can’t working system is - Local political situa- successfully tions;

Compa- Strength Weakness Opportunities Threats nies - They have accomplish, updated/modern- - Volatile market; (small) machin- because of ized; - Shortage of foreign eries time, skills - There is a high po- currencies. - Well-experi- and re- tential to widen its - Stiff competition; enced sources; market; - Difficult to compete - Relatively edu- - Lack of fi- in other regions of cated staff nance Ethiopia; - Always deliv- - Lack of ered the awareness agreed projects among some as per the employees; agreements - Absence of modern working system. Large - High capacity - Tend to as- - Presence of well-in- - Many suppliers in terms of ma- sume far too formed customers don’t like standard chineries and many pro- in the market; quality test proce- man-power; jects, that - Some level of assis- dures of inputs/ma- - They are finan- cannot be ac- tances from differ- terials; cially capable; complished in ent stakeholders in - Some suppliers Provide better time and with the government want to avoid taxes quality services adequate structures, such as and don’t want to and outputs quality; city administrations; sell with receipts; - They can also - Gaps in terms - Potential high de- - Low quality of some produce inputs of moderniz- mand to houses re- inputs/materials themselves ing the sys- furbishments and that are being sup- that reduces tem and ser- new buildings plied in the market; their costs; vices - Lack of adequate - Good experi- supplies of some in- enced in the puts/materials sector; - Lack of adequate assistance from some government agencies, such as justice office; - Potential and frequent dis-agreements with clients, not sufficiently faced by existing laws;

5.5.7 Conclusions and recommendations Some issues and concerns are shared by both public institutions and construction companies. The major issues in this regard include quality of inputs and outputs, failures to comply with standard tests by some actors, tendencies by some actors to evade VAT taxation, and delays by some actors in making payments. Other relevant issues are reported in the SWOT analysis above. Some recommendations aimed at enhancing the competitiveness of this value chain and its effectiveness in creating jobs can be: - Government bodies (such as trade & investment bureaus, city and zone administrations construction offices) need to have a better mechanism in terms of inspecting and controlling actors in the value chain; - Quick and efficient law enforcement by the legal authorities would also help for the success of the value chain; - Actors need to balance the number of projects they shall undertake and their capacities; - Tax authorities need to improve their working system to enforce all actors to operate as per the law; - The government shall control the volatility of inflation and the market.

5.6 Salaries by Sector and Scale of Operation

We have tried to investigate the minimum and maximum salaries that are being implemented in different companies in South Wollo. Following the same procedures that we employed for the value chain analysis, we have stratified companies by sector and scale of operation. In doing so, we have considered the four sectors (Agro-food, Metal, Textile, and Construction) and across the three scales (Small, Medium, and Large) for salary analysis. For the analysis, we selected 22 companies from Dessie and Kombolcha as per the above stratification criteria. Salary data in this regard has been collected for different groups of employees, including non-specialized workers, specialized workers, fresh TVET graduates, and experienced TVET graduates. For the purpose of identifying salary differences between men and women employees also, we have tried to collect the data classified by sex. We have identified that, in the case of non-specialized workers, some companies pay daily wages instead of monthly salaries. In this case, for the sake of comparable analysis, we have converted the earnings into monthly salary by multiplying daily rates by 22 (working days in a typical month). The findings of our assessment in this respect are discussed below.

MINIMUM SALARY First, we present the findings in terms of the minimum salaries that are being paid to the different groups of employees across the interviewed companies, presented in the figures below.

6000 5460

5000 42954324,2 3880,4 4000 3616,666667 3110,5 2695 2704 3000 2495,8 2575 2278 1833,75 2000 1704,2 1400 1280 1072 1000

0 Non-specialized workers Specialized Workers Fresh TVET Graduates Experienced TVET Grduates (Min) (Min) (Min) (Min) Average (agro-food) Average Average (Textile) Average (Metal) (Construction)

Figure 50 - Average minimum salaries, by sector

The above figure displays the average minimum salaries that are being currently applied in the interviewed companies. As can be seen in the figure, the finding is presented for each group of employees across the four sectors. The figure reveals that in most cases, on average the current minimum monthly salary is below 3000 ETB. As can be expected, specialized workers and experienced TVET graduates are earning more compared to fresh TVET graduates and non-specialized workers. In terms of sector, we can see that workers in the textile sector are paid less than in the others. With respect to salary differences in terms of gender, we have learnt from two companies in the construction sector that there are only wage differences between men and women daily workers. No salary differences between men and women have been declared by the other interviewed companies. Furthermore, we tried to assess the minimum salaries being paid to the different groups of employees by the companies’ scale of operation. Here, we attempted to identify salary differences among small, medium, and large companies. The finding in this regard is depicted in the figure below. The average minim salaries of specialized workers and experienced TVET graduates are higher across all types of companies. When we compare by their scale of operation, we can observe that large and medium companies are paying higher salaries than small enterprises do.

5000

4000

3000 2000

1000

0 Non-specialized workers Specialized Workers Fresh TVET Graduates Experienced TVET (Min) (Min) (Min) Grduates (Min) Small-Average Medium-Average Large-Average Salary Salary Salary

Figure 51 - Average minimum salaries by company size

MAXIMUM SALARY We have also assessed the maximum salary paid to the identified groups of employees. In this case, as the figure below shows, specialized workers and experienced TVET graduates are earning the highest monthly salaries. The figure also shows that there are huge salary differences between specialized and non-specialized workers, and between experienced and fresh TVET graduates. Moreo- ver, the figure reveals that in terms of maximum salaries being paid, agri-food companies are offering the least compared to the other sectors (Fig. 52). The salaries that non-specialized workers and fresh TVET graduates are earning are found to be very small considering the current living costs in the country in general and in South Wollo in particular. In this scenario, one can imply that if the unemployed youth and semi-trained individuals are to be attracted to the formal sector, the salary structures of many companies need to be re-considered.

14000

12000

10000

8000

6000

4000

2000

0 Non-specialized workers Specialized Workers Fresh TVET Graduates Experienced TVET Grduates (Max) (Max) (Max) (Max) Agro-food Metal Textile Construction

Figure 52 - Average maximum salaries by sector

Similarly, we have tried to compare the maximum salaries being offered by different companies with their scale of operation. Here, across the three types of companies, we can see that specialized workers are earning the highest amount, followed by experienced TVET graduates. Whereas, non-specialized workers and fresh TVET graduates are being paid very small amount of salaries across all types of companies. The figure also shows that large and medium companies are paying higher amounts of salary than small enterprises. The result is summarized below in Figure 53.

14000 12000 10000 8000 6000 4000 2000 0 Non-specialized Specialized Workers Fresh TVET Graduates Experienced TVET workers (Max) (Max) Grduates (Max) (Max) Small Medium Large

Figure 53 - Average of maximum salaries by company size

Overall, based on the above analysis, we can see that non-specialized workers and fresh TVET graduates are earning very small salaries that are hardly sufficient for daily subsistence. In relative terms, we found that specialized workers and experienced TVET graduates earn significantly higher salaries across the different sectors and types of companies. We can imply here that if the unemployed youth and fresh TVET graduates are to be attracted to wage employment opportunities in the formal sector in the area, the payment structures of many companies need to be re-considered. This action may need the involvement of different actors and stakeholders, including government organizations, policy makers, private companies, civil society organizations, and NGOs. Sector-wise, we identified that the textile and construction sectors pay the least and largest amounts of salaries, respectively. From, gender perspective, apart from daily wages in two construction companies, no salary differences were identified between men and women employees.

6 Industrial Parks

6.1 Introduction The information reported in this chapter is drawn from a literature review and semi-structured interviews as well as direct observations at the Kombolcha Industrial Park. Some of the points of discussions with the park manager and IPDC experts include, but are not limited to, profile of the park, contributions of the park, profile of resident enterprises, governance and management aspects of the park, incentive packages, and supportive services provided to the residents, achievements so far as well as challenges facing the industrial park. We also spoke with park resident enterprises’ concerned bodies for an insight into the current state of the enterprises, their satisfaction with IPDC and other main OSS services delivered and the constraints/challenges faced to date. 6.2 History of Industrial Parks in Ethiopia The idea of industrial park development is based on several principles, which most of all include the allocation of specialized infrastructures in selected areas with the aim of decreasing costs connected to building infrastructures, and furthermore, the capability of a country to attract new investors, which would eliminate social and ecological impacts caused by industrial production. The concept of industrial park is similar to that of industrial district, production zone or production cluster. In addition, English economic literature uses terms such as industrial estate, trading estate, factory estate, or employment areas (Keppl, 2002). According to Ethiopian industrial park proclamation, the term "industrial park" is defined as “an area with distinct boundary designated by the appropriate organ to develop comprehensive, integrated, multiple or selected functions of industries, based on a planned fulfilment of infrastructures and various services such as road, electric power and water, one-stop shop and have special incentive schemes, with a broad view to achieve planned and systematic, development of industries, mit- igation of impacts of pollution on the environment and human being and development of the urban centers, and includes special economic zones, technology parks, export processing zones, agro-processing zones, free trade zones and the like designated by the Investment Board” (Federal Legisla- tive, 2015) The lion’s share of Ethiopia’s economy goes to agriculture, which accounted in 2014–2015, for about 38.8 percent of the Gross Domestic Product (GDP), 90 percent of the foreign currency earnings and 85 percent of employment. In the same fiscal year, the industrial sector, which mainly comprises Small and Medium Enterprises (SMEs), accounted for about 15.2 percent of the GDP. The service sector comprising social services, trade and real estate, among others, accounted for about 46 percent of the GDP (IPDC, 2015). It is largely agreed that countries should reduce their dependency on the agricultural sector and strengthen industrial sectors for sustainable economic prosperity and poverty reduction. The term industrial park is currently very much used in Ethiopian economic policies, stressing the idea that it is necessary to concentrate resources into one single place to see a positive influence on effective use of resources, infrastructures and increase employment rate and productivity. Among the aims of the establishment of industrial parks there is the progress of the region where it is created, benefiting from its potential spillovers. In Ethiopia, in order to ensure a proper management of industrial parks, the Ethiopian federal government came up with the Industrial parks proclamation no. 886/2015 which states that industrial parks can be developed by any profit-making public, public-private or private enterprises. The proclamation recognized the establishment of the

Industrial Park Development Corporation (IPDC), which is in charge of managing the development of large, medium and light industrial parks, and gave powers to the ministries of Industry and Agri- culture for the development of integrated agro-industrial parks. The same proclamation stated that this investment is open to both domestic and foreign investors. The industrial parks’ developers are entitled to develop their own industrial parks, either independently or through a public-private partnership with IPDC. With regard to large, medium and light industrial parks, IPDC is mandated to facilitate the acquisition of land and providing infrastructures (IPDC, 2015). In the Ethiopian context, industrial parks aim at promoting employment, export and foreign investment. Additional goals, such as regional and local development, encouragement of technology transfer, the creation of linkages, and industrialization strategy development have evolved through time. Future studies should provide a systematic analysis of the extent to which Ethiopia’s Industrial Parks have met these objectives. Ethiopia’s industrial parks are aimed at attracting high-quality - particularly foreign - investments in specific sectors that can contribute to export growth, enter global export markets and better inte- grate the country with the global economy. The industrial parks offer duty-free imports of capital goods, construction materials, and raw materials for the production of export commodities and vehicles and certain capital goods. Industrial parks reduce set-up time by centralizing industrial space, land, and supporting infrastructures, including a dedicated one-stop shop. Once companies start operations, “transaction costs are reduced, the creation and flow of information improves, local institutions respond more readily to cluster’s specialized needs and peer pressure and competitive pressure is more keenly felt.” (Porter, 2008). Industrial parks are preferred in Ethiopia as a gateway to foreign direct investment (FDI) because they have the advantage of lowering entry and operational costs. Currently in Ethiopia there are six active, state-owned industrial parks (Kombolcha, Hawassa, Bole Lemi – phase I, Mekelle, Jimma, Adama), other six upcoming (Dire Dawa, Kilinto, Bole Lehmi – phase II, Arerti, Debre-Birhan, Bahir Dar) parks, and other seven privately owned parks11. 6.3 Institutional framework and policies The government has restructured and repurposed three important institutions to drive investment promotion, strengthen competitiveness and catalyse the transformation of industries (Mamo and Gabriela, 2017). This institutional structure is mapped out in the figure below. First is the establishment of the Ethiopian Investment Board to serve as a policy, strategy, and oversight and approval body. The Prime Minister chairs the board, which has its members from senior ministers from key supporting agencies with direct or indirect roles in investment decision making. The board grants incentives to investors to address policy and a regulatory barriers to investment, designates new Industrial parks, and opens new investment areas to FDI. The elevation of the investment promotion agenda to the center of government represents a significant departure. In the past, FDI promotion and retention was never a central agenda in Ethiopia and was only considered as a technical issue of a government agency. The government has now adopted a new strategy of targeted investment promotion focused on the manufacturing sector and informed by a sound understanding of the sectoral landscape and dynamics. In addition, unlike in the past, investment policy is now being led by the highest level of government—the Ethiopian Investment Board chaired by the Prime Minister. Second, the government restructured and strengthened the Ethiopian Investment Commission (EIC), formerly under the Ministry of Industry, to be directly accountable to the Prime Minister and

11 http://www.investethiopia.gov.et

91 act as a one-stop shop for foreign investors. EIC’s primary objective is to attract foreign investors to strategic sectors by surpassing their needs. EIC’s initial goals are to focus on the light manufacturing sector, consistent with the government’s strategy. Perhaps uncommon to other investment promotion agencies, EIC was also given the mandate to regulate industrial park developers, operators, and enterprises. The third important, new institution is the Industrial Parks Development Corporation (IPDC). Mod- elled after Singapore’s JTC Corporation, IPDC is a state-owned profit-making enterprise in the charge of developing and operating industrial parks. It also serves as a land bank and will make land available for potential private developers. Its mandate is to develop industrial facilities with shared infrastructures and services to help enterprises reduce operating costs and improve operational efficiency. Working with private developers, IPDC is expected to develop new industrial land and space that will fuel the growth of existing industries and catalyse new ones.

Figure 54 - Ethiopia’s Investment Institutions (Source: EIC, 2015) 6.4 Kombolcha Industrial Park (KIP) The Kombolcha Industrial Park (KIP) was built by China Civil Engineering Construction Corporation (CCECC) in 2017 on an extension of 75 hectares of land. The developer and operator of the park is the Ethiopian industrial park development corporation (IPDC). The park is located 503 km from

Djibouti port, 6 km away from the Kombolcha Dry Port, and a walking distance from the Kombolcha airport. In addition, it will have a dedicated train station, on the railway connecting the north of the country (Mekelle) with Awash and the Addis Ababa-Djibouti railway. The park incorporates nine sheds in its first project phase; two are 11000 m2 and seven of them are 5500 m2 and other auxiliary buildings like clinic, police station, fire station and rental buildings.

Figure 55 - Kombolcha Industrial Park (KIP)

The park is also equipped with the necessary facilities, including, one-stop shop services to investors such as electricity, water, customs, immigration, and the like. It is expected to create 20,000 direct and indirect job opportunities when the six phases are finalized and once companies start production with their full capacity. The OSS January 2019 database shows that 1537 job opportunities have been created by the companies hosted in the KIP. According to the park’s manager, all the sheds have been transferred through rent to five foreign companies, namely Carvico Ethiopia PLC from Italy, Trybus Bridgetex Ethiopia Plc from the USA, Saytex Spinning PLC from China, Seyang textile and Pungkook Ethiopia Bag Manufacturing PLC from South Korea. All except one have already started operation in the park. Seyang is at its pre-implementation stage, and has concluded agreement with the Ethiopian Investment Commission to start production of textiles in KIP. The main reasons that the companies prefer KIP are to utilize the following advantages: Ø Well-developed infrastructure such as rail way, airport, dry port, etc. Ø A huge amount of underground water inside the industrial park, Ø Near to Djibouti port and the upcoming Asab port, Ø Stable, peace and security of the region, and Ø A welcoming and very friendly society.

6.4.1 Current status of resident enterprises 6.4.1.1 KIP1 (Vietnam) KIP1 has started operation in April 2018 and occupies four sheds (one is operational, another is used as a warehouse, and the remaining two are closed). A Korean leather-bag manufacturer is producing ladies’ leather handbags with “Made in Ethiopia’’ brand, as one of the world’s trendy products to USA, New Zealand, and Japan markets and has a plan to expand its product destination to the Euro- pean countries. The company is a subsidiary of a corporation founded over five decades ago in Seongnam, South Korea. The leather and the raw materials are imported from South Korea, China, Hong Kong, Vietnam, and other countries. The company currently hires 781 Ethiopians (around 95% of them are females) and 20 expatriates. Fifty graduates were trained in Vietnam to help install machinery and train operators. They have a plan to use domestic leather if it fulfils their standard to satisfy the specifications and conditions set out by their buyers. So, the company is not vertically and horizontally integrated among the enterprises inside and outside of the park. It is not using locally sourced raw materials (no backward linkage) and the product is entirely exported (no consumption linkage), only to use the cheap labour advantage.

Main challenges include: work culture, turnover, custom service, incomplete IPDC services, incentive packages implementation problem, sluggish service delivery from some OSS organs, and poor labour quality.

6.4.1.2 KIP2 (Italy) During the visit, the company was not willing give information and closed its door to visitors too. So, this information is organized based on the information obtained from the industry park manager. KIP2 Group is an Italy-based, giant textile, sportswear producing company. It set up its company at Kombolcha Industrial Park to produce and export synthetic fabrics in order to feed it as an input for sportswear producing sister companies in Europe. It has started operation by renting one shed and has obtained a 23.5ha of land inside the park to construct its own shed. Currently, the company is found at the pre-production stage and is giving training to 35 employees.

6.4.1.3 KIP3 (USA) KIP3 is a Texas (USA)-based menswear company that opened its factory in Kombolcha Industrial park in 2018 by renting one shed, and started producing woollen suit in February 2019 and has been expected to start exporting by the first few months of 2019 to African Countries. The interview showed that the entire material inputs and supplies used are sourced from abroad. The obstacle not to use local inputs is that local inputs are not always up to the standards expected by the producers. The company employs 470 local and 10 expatriate workforces and will employ up to 800 labours when it is operating at full capacity. The company gave soft skill training on work environment and work culture for 15 days and about the production process for three months. No backward and forward linkage is expected as far as the company is importing all the necessary inputs and is going to supply nothing to the local market. Main challenges: incomplete OSS delivery, serious power interruption, slow custom service at Djibouti, high labour turn over (up to 50 labour per month), poor work culture, etc.

6.4.1.4 KIP4 (China) KIP4 produces and exports yarn to china by using domestic cotton collected from Metema and Afar region. The company rented two sheds (one is operational and the other is used as a warehouse) and will have 3 phases at full capacity, but has been at its first phase since September 2018 (production test stage). It was observed that even the first phase is not fully operational and some machines are idle. The company is working for 24 hours with 3 shifts and has a plan to produce 200 pieces of yarn per day; but actually, it is producing 120-130 pieces of yarn per day. The company’s export schedule is twice per month. The company creates 308 jobs (49 male and 259 female) to local and 13 to expatriates and will create up to 1000 job opportunities to the locality when operational at full capacity. Due to low skill requirement of spinning, the company employees are 8-10 graders and get a wage rate of 40-105 birr per day. The company is not linked with to the enterprises inside and outside of the park. Main challenges include: poor cotton quality from domestic market, shed inconvenience for machine installation, and employee turnover (up to 15 workers per month).

6.4.2 Stakeholders and their activities in KIP - The Industrial Park Development Corporation (IPDC). As part of the one-stop-shop service pro- vider, it mainly provides water, electricity, liquid and solid waste removal, security and other necessary services to the resident companies inside the park. Specifically, IPDC in KIP performs the following activities: It has constructed the sheds and will continue to modify the buildings (sheds) that can comply with the predetermined specifications and/or the interests of the entrepreneurs. It also regulates the proper movement of people and vehicles at the gate and inside the park through assigning security forces. The proper utilization of the park space and cargo terminals is under the control of this center. In addition, the center takes care of the park and the residents inside it from any forms of accidents as well as fire incidents. Furthermore, the waste management service and maintaining cleanliness of the compound, developing common space and green areas, proper maintenance and preservation of infrastructures, signing of agreement with third parties for provision of specific services are all shouldered by this center. The center is responsible to organize and submit quarterly reports to the Investment commission regarding the discharge of the listed-out services.

- Commercial Bank of Ethiopia. It has a branch inside the park to render the following services to the resident companies and their employees: ü Bank permit. ü Cash withdrawal from and cash deposit to saving and current account. ü Local money transfer. ü Foreign remittance payment. ü Foreign currency exchange. and ü CPO payment and issues.

- Customs Commission. Some of the services given by Customs in KIP are: ü Import and export clearance; ü Duty free and temporary importation; ü Apply customs procedure on export; and ü Transit services.

- Ethiopian Shipping and Logistics Services Enterprise: It does:

ü Render coastal and international marine and inland water transport services; ü Render freight forwarding agency, multimodal transport, shipping agency and air agency services; ü provide the services of stevedore, shore-handling, dry-port, warehousing and other logistics services; ü Provide container terminal services; ü Engage in the development, management and operation of ports; ü Establish and run human resources development and training center in the fields of maritime profession; ü Study the country’s import and export trade demand and thereby develop technological capacity in order to render maritime and transit transport services; and ü Engage in other related activities conducive to the achievement of its objectives.

- Ethiopian Electric Utility ü Identify power fluctuation problems and provide continues and sustainable power supply to the park.

- Immigration ü Issuance and renewal of visa; ü Issuance and renewal of residence permit.

- Labour and Social affairs ü Handling complaints and resolving disputes or creating conducive condition for resolution of disputes, follows up on the safety and health of workers in relation to work and so on.

- Environment Protection Agency ü For approval of environmental impact assessment studies and issuance of certificate.

- Ethio-Telecom. Even if it is not represented in OSS front, it organizes a group of experts and makes ready for KIP. It has the power and duties to: ü Specify technical standards and procedures for the provision of telecommunication services; ü Ensure that telecommunication services conform to the specified standards of quality; ü Regulate tariffs relating to basic telecommunication services; ü License and supervise operators of telecommunication services; ü Regulate types of telecommunication equipment which may be connected to a telecommunication system; ü Authorize and supervise the use of frequencies.

- Ministry of Industry and Textile Industry Development Institute

6.4.3 Value chains and linkages inside and to the local economy None of the companies, except KIP4, build backward linkages to the local economy. Local raw material suppliers are not benefited from the park. Since Ethiopian export-oriented strategy prohibits foreign companies inside the park to supply to the local/domestic markets, they sale their products to international markets and has the implications that forward and consumption linkages (their products could not be used by domestic producers as an input and domestic consumers are not

96 reaping the benefit by consuming their products) are absent not only in the study area/local economy but also to the domestic economy as a whole.

6.4.4 Contributions from KIP to local economy 6.4.4.1 Employment creation Kombolcha and its surrounding areas are sources of illegal migration, particularly to the Middle East countries. For this reason, the park could be the one and the foremost options to increase employment opportunity and tackle the illegal migration. The four foreign companies inside the park have created jobs for more than 1,500 youth and a hope to create more than 20,000 jobs. The jobs creation in the park has been considerable, especially for women, and contributes significantly to women empowerment. Children of peasants, whose land has been expropriated for building the park, are getting training and are given priority to work in the industrial park. 6.4.4.2 Spatial development Besides unleashing job opportunities to the town and its surroundings, the industrial park is contributing and will further speed up the economic growth of Kombolcha and the nearby towns. Those people employed in the park earn an income and spend it within the locality for transport services, house rent, food and non-food items, etc. The park manager reported that more than 2 million ETB flows to the town from their spending on the mentioned goods and services since the park has started operation. Directly or indirectly, this spending on public and private goods and services in the locality by the park employees gives benefit for the business entities and residents in the locality and widens the economic base of the locality. Hence, the service delivery of the public and private sectors gets a new drive as the park is creating new demands in the area of transportation, housing, health, education, and finance. 6.4.4.3 Export earnings The first week report (March 2019) indicated that2.3 million USD has been generated from those foreign companies which have already started exporting. 6.4.4.4 Tax revenue. The city administration revenue office is collecting income tax from the employees of the park. But, the enterprises are enjoying the tax holidays, which is part of the incentive package. 6.4.4.5 Technology and skill transfer. Most of the employees in the park did not complete high school and only went as far as 10th grade, but they have received training through employers abroad and in the work place. Besides the training offered, employees have gained different experiences and skills from their working environment as they work with foreigners. With regard to technology transfer, employees are getting a chance to be familiar with new technologies and latest machineries that the inside factories are using. This indicates that the technology and skill transfer objective of establishing industrial parks in Ethiopia is to some extent fruitful in Kombolcha Industry Park. The companies operating in the park are in- ternationally known for better quality products, and it is a much better place for employees to enhance their skill, knowledge, and attitude towards good working culture in the manufacturing sector. The park is also an appropriate place for college and university students to link the theory that they learnt in the classroom with the reality on the ground. According to the EIC manager of Kombolcha branch, the park sheds are fully transferred to foreign companies though more than half of the sheds are not fully utilized. Only four out of nine sheds

97 are used for production purpose while the rest are used for warehousing. So far, five foreign companies rented sheds in the park but only four of them have started operation. The service providing sectors have made a good start to create conducive business environment to the resident enterprises. A key role is played by the labour unit establishment. The primary function of this unit is to identify the labour demand of the enterprises and then to attempt to provide the required type and quantity of labour. With regard to employment opportunity, priority is given to household members of peasants whose land is expropriated. The center under the EIC management is also used to provide and continues to provide pre-employment and on-job training for the low skilled workers. Good enough to say, more than 90% of the job opportunity is created for females though it has been argued that females were selected for the reason that they are less objectionable for low salaries and other conditions. In addition, motivating and briefing the employees to be stable and reduce the turnover, pushing and motivating the enterprises to start and produce at their full capacity and good progress in OSS service delivery are all among the achievements. 6.4.5 Constraints and challenges The most problematic challenges that are reported (up to March 2019) by foreign companies and the park manager are: • The companies inside the park are not fully operational (Some sheds are closed and some others are used for warehouse purpose); • High labour turnover, due to low wages, high standards requirements and poor workers’ attachment to companies; • Employees’ and local environment’s poor industrial culture, due to low level of previous industrialization; • Low availability of skilled/suitable workforce; • Universities and TVET institutions are not synchronized with the needs of the industry; • No housing facility for workers inside the park; • Incapability of most Ethiopian firms to produce under export driven IPD policy of Ethiopia, that would guarantee their access to the park; • Drinking water is not available inside the park; • Some degree of employer-employee disagreement; • Serious problem of by-product disposal; • Some OSS organs (like Telecommunication and Ministry of Industry) are absent in the park; • No linkage among firms inside and to the local firms; • Inflation, housing problem, transport problem in Kombolcha town; and • Logistic and custom clearance problems in Djibouti.

6.4.6 Recommendations Ø Training on time management, industrial norms and work culture has to be given to workers. Ø The employment opportunities created in the park are demanding mostly low skill as the expatriates control jobs that require high skill. So, high skill employment opportunities should be created for local employees to speed up the skill and technology transfer goal. Ø The enterprises in the park have neutral side effects on investment climate outside the park (“neutral spill-overs”). Encourage park enterprises to work jointly with Ethiopian counterparts located outside the park to achieve technology transfer and spill-over effect goal. Ø There should be a room for local firms to participate in the park through enhancing the local firms' capacity (production, productivity and quality) to compete and benefit from the linkage.

Ø All enterprises, except one, in the park are using imported raw materials. It is therefore, essential to design a mechanism to encourage park enterprises to use domestic resources as inputs via enhancing the quality of domestic input standards. The government should consider requirements such as local content in input/product or exports. Ø The Park should provide accommodation facilities for the employees working in the park. More- over, the government should invest on housing facilities (like apartments) near to the industrial park. Ø Improve the security, safety, and benefits of the employees to minimize the high turnover. Ø Cost sharing of training and skills development programs of the enterprises has to be there. Ø Universities and TVET institutions curriculum should be synchronized with the needs of the industry (Demand driven training and teaching from TVET and university) to solve the qualified and suitable workforce shortage of the manufacturing sector. Ø Extended collaboration between the Industrial park and the vocational and university is critical. Ø The park should transform its service delivery and convey nonstop service instead of one stop service (OSS). Ø The current 8 hours OSS should be extended to 24 hours. Ø Capacity building training for OSS staff members from university and experienced experts in the field. Ø The park should exert ultimate efforts to implement the incentive packages as per the scheme. Ø The OSS organs that are not functional should be represented and start their service delivery. Ø By-product disposal problem should be considered by NGOs and city administration officials. Ø The park should improve and realize the sufficient supply of drinking water to employees. Ø Logistic and custom clearance problems should be solved in consultation with Djibouti counterparts.

7 Public Private Partnership 7.1 Introduction Public private partnership is not a new phenomenon. The formal discussion in the academic and development discourse began during the 1970s. Economic history has witnessed that the economic depression that happened between 1929 and early 1939 has questioned the trust developed on the classical liberal economic thoughts. In response, the Keynesian economic thought that brings the role of government on employment creation and public service delivery had took the argument. Since then, however, the public service delivery and infrastructural development has been seen to be the major burden to public expenditures that call the private sector to be part of the development initiatives of the country. At the same time, inefficiencies of the public service are argued to be the driving forces for bringing the private sector in the delivery of services in areas where they can make a difference. Presently, according to the UNDP (2015), about 134 developing countries have been engaged in public private partnership for infrastructure projects per se. As a result, the traditional approach that entirely left public service provision and infrastructural development to the government has been questioned to let the private sector play its part in such huge investment costs. On the other hand, the growing role that private actors play in providing public services and addressing national economies, as pillar of the neoliberal approach that became prevalent in many countries since the 1980s, is largely criticized, as driver of inequalities and social exclusion. In this chapter an attempt has been made to briefly review the public-private partnership practices in Ethiopia and some case studies in South Wollo Zone, notably in Dessie and Kombolcha, based on key informant interviews, observations, and desk review.

7.2 Public-private partnership in Ethiopia Ethiopia had started free market strategy after the demise of the socialist Derg regime. Notably, 1991 has been seen as the turning point from entire public dominance to private sector participation (Admassu, 2017). These days, public private partnerships (PPP) are argued to be a very important new business strategy for developing countries like Ethiopia to exploit the synergies of the two parties. According to Asubonteng, (2011), Public-Private Partnership (hereafter PPP) in Ethiopia has been contextualized as a positive synergy between the public and private sectors, including the civil society, to exploit the benefits of efficiency, innovation and budget constraints. However, researchers and international organizations are advocating for flexible definition to the concept of PPP that can be easily applicable to different contexts and areas investment partnership between the public and private sectors (Byiers, et al., 2016). Recently, the article by Saheb et al., (2018) have analyzed the existing PPP context, reading it at the strategic, operational and contextual level. According to the authors, at strategic level the presence of positive political stance and consideration in strategic plans of the country (like GTP) to involve the private and the civil society and at operational level, though some proclamations such as investment proclamation, privatization of public enterprises have said nothing on PPP, the Ethiopian Fed- eral Government Procurement and Property Administration Proclamation No.649/2009 has been seen to articulate PPP. Moreover, the recent proclamation No. 1076/2018, called, “a proclamation to provide for the PPP’’ is found to be the other enabler of PPP at operational level. At the same time, huge public demand for infrastructure, ongoing ambitious grand development projects are supposed to be driving forces for PPP at contextual level.

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Under its Growth and Transformation Plan (GTP), the private sector is considered as the central player of the economic activities and viewed as an engine of economic growth and the major contributor in investment (MoFED, 2013). In connection to this, the assessment of the GTPI’s two-years evaluation has showed that in 2010/11 and in 2011/12 about 4734 and 3341 both domestic and foreign investors got license for project implementation in different sectors (Ibid). The prime purpose of Ethiopia’s recently endorsed proclamation (Proclamation No. 1076/2018) stated as following: 1. To create a favourable framework for promoting and facilitating the implementation of privately financed projects to support Ethiopian economic growth; 2. To enhance transparency, fairness, Value for Money12, efficiency and long-term sustainability; 3. To improve quality of Public Service Activity; and 4. To maintain macroeconomic stability by reducing growth in public debt.

However, it should be noted that though not to the level where it is practiced elsewhere, the firs PPPs had begun before the approval of the proclamation. For instance, the rental contractual agreement between the Addis Ababa City Administration and Addis Ababa Chamber of Commerce and Sectoral Association for the public Exhibition Center and Marketing Development enterprise in No- vember 10, 2005 has been seen as first public-private partnership in its type (AACCSA, 2015, cited in Hafte, 2017). On the other hand, cognizant of the poor nature of the public service delivery, the recent initiation to have a unified billing system (UBS) that brings together the dispersed, time and energy consuming service delivery and payment systems of water, electricity, landline phone payments into unified system can be mentioned as good beginning (Mesfine, 2012; Hafte, 2017). In some studies, in Ethiopia, some successful initiatives are observed in the health sector. For instance (MoH, HEPCAPS2 Project, 2015) the contracting partnerships between government and private non-profit health facilities operated by the Ethiopian Catholic Church development office. Spe- cifically, in Amhara region, partnership between Vision Maternity Care and Bahir Dar Health Center have been engaged in public private partnership in which the Bahir Dar health center outsourced some maternity services to non-profiting private organizations, such as Caesarian Delivery and to enhance the quality of antenatal care. According to this study, it is noted that the health service has increased exponentially in terms of users of the delivery service. At the same time, in the health sector in different regional health bureaus the partnership with non-profit private health centers is encouraging. Similarly, recently in Amhara region, according to the Africa news website13, lifesaving medical oxygen production has been seen as one of the notable initiatives that demonstrated the public private partnership effect of the health sector (Africa news, 2019, April). The source also further articulated that two oxygen plants constructed at Felege Hiwot and Dessie Referral Hospitals were mentioned as novel examples of public private partnership in the region.

12 "Value for Money" means that the undertaking of a Public Service Activity of the Contracting Authority by a Private Party under a Public Private Partnership results in a net benefit accruing to that Contracting Authority or consumer defined in terms of cost, price, quality, quantity, timeliness of implementation and other factors which influence the determination of the best economic value compared to other options of delivering this Public Service Activity or use of government property. (the Proclamation No. 1076/2018: pp 10239) 13 More information can be accessed from this link https://www.africanews.com/2019/04/05/ground-breaking-public-private-partnership-brings-lifesaving-medical-oxygen-to-hospitals-across-the-amhara-region-of-ethiopia/

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According to UNDP’s (2015) assessment, generally Ethiopia has good potential to put in place the public private partnership initiatives in different sectors. Notably, the health sector, energy, tourism, telecommunication and education sector can be main areas of partnership due to the huge investment demand of these sectors. The public private partnership also has been viewed as an important lubricant to maintain the sustainable contribution of the tourism sector to the overall economy of the country. In connection to this some studies were reviewed to locate where public private partnership is fruitful in the tourism sector. For instance, some studies conducted in North Western part of the country, particularly in Gondar, Lalibela and the Lake Tana that are the main tourist destinations in Amhara region, showed lower performance in terms of the public and private sector partnership to boost the synergy of the two parties. Mainly, in the hotel sector there are some sorts of collaboration beginnings for guiding the standardization of service deliveries and grading (Yetnayet and Getaneh, 2018). However, well integrated and communicated practices are still highly demanded between the government sector and tour operators, tour guides, car rentals and other private actors that are involved the overall chain of the tourism sector. Some studies in Ethiopia also pronounced the importance of public-private partnership in the Edu- cation sector. The public private partnership in the sector argued to reinforce the sector in terms of experience and expertise, resources, financial and research and innovation sharing between the two actors. However, the existing practice in the sector is very low due to the short-term profit-oriented nature of the private sector, absence of shared national vision and lack of commitment in the public education sector (Ayenachew, 2010). However, to improve the quality of education and improve human resource in the education sector; a coordinated effort between the public and the private has been seen promising (UNDP, 2015). In Ethiopia studies on Public-private partnership are still limited. This could be due to that fact that the governance structure of PPP in the country is quite recent. According to Teshome (2015), the main driving forces for the implementation of the public private partnership in Ethiopia are summarized as existence of workable public-private partnership laws, presence of committed public agency for its’ implementation as well as government guarantee for private sector. The first factor, the existence of workable laws, is highly relevant as they strongly determine the choice of private sector where they can involve as partner with the public sector. For instance, the proclamation mentioned above under Article 4/2 cannot allow the private sector to engage in oil, mines and minerals though these tasks are very capital intensive that require the role private finance for public expenditure. The integration of the public-private partnership framework developed at national level to regional and zonal level is still not well established. For instance, our assessment at zonal level has revealed that through there are traditional efforts to view the private sector as part and parcel of the development initiatives of the public sector; there are no formal attempts to clearly identify the areas where the private sector can play its role on the bases of the national proclamations.

7.3 PPP in South Wollo Zone In this study an attempt has been made to assess the existing level of public-private partnership in South Wollo zone, with a field research based on key informant interviews (See the KII questions in Appendix 1) and stakeholder focus groups. The main interviewed firms and offices are also presented in table 33 in the appendix. At the same time, a desk review has been made to complement the results of these study.

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Most of the 8 public officials interviewed (from zonal Urban Development Housing Construction Bureau, education bureau, labour and social affairs bureau, Technical Vocational and Enterprise De- velopment) responded that, as a public organization they have initiated consultative meetings with the private sector as a first step towards concretized public private partnership in selected areas. This study acknowledges that initiations at the public sector side are the foundation to crystalize the areas where the two parties could anchor their partnership. However, it should be also noted that undertaking such a meeting cannot guarantee the successful implementation of public-private partnership. Following the above question, in this assessment public officials were also asked to rate the level of public private collaboration at planning, implementation and evaluation of the regular functions of government works. In connection to this, public officers’ response on the level of collaboration (1= Very weak, 2= Weak, 3= Moderate, 4= Strong and 5= Very strong) with the private sector at planning, implementation and evaluation is presented below in Figure 46. The figure shows that the level of collaboration between the public and private sector is close to ‘weak’ in terms of working together from the initial planning up to the final evaluation. However, it should also be noted that for the construction sector, consultants, contractors and housing cooperatives were mentioned; for the education sector private schools, colleges and universities; for social and labour affairs microfinance, hotels, factories, CIFA, and lift were mentioned as close partners for the interviewed public organizations.

2,25 2,5 1,95 2 1,58 1,5 1 0,5 0 Planning Implementaion Evaluation

Figure 56 - Level of public-private collaboration

At the same time, as indicated in the proclamation, the construction sector appears to be a strategic sector for public-private partnership in this area. In line with this, we explored more into this topic, with two in-depth interviews, held with the zonal manager of the urban development housing construction and with the project head of the South Wollo zone Amhara Housing construction enterprise. 7.3.1 Public perspective According to the findings from the two in-depth interviews, it is clear that there is strong relationships between the urban development housing construction and private actors, such as contractors, construction consultants, Unions (Tabor and Erikum) as well as housing cooperatives. From the public perspective, behind the still low level of public private partnership in the area, there are three fields of reasons. Firstly, from the public sector side, preference for lower bidder is found to discourage experienced contractors and detach themselves from public projects, like construction. Stated differently, the

103 bidders with least cost are short listed for identifying the project winners. This discouraged the experienced private contractors as it may compromise quality which, in turn, affects the brand of the private construction sector. Secondly, the zonal level authorities have lower power to approve project contracts with the private sector. Thus, the low level of power which is linked with a top-down approach on major projects, can also be viewed as the obstacle to see successful public private partnership at zonal level. How- ever, it should be also noted that at regional level there are some sorts of initiatives to bring the private sector into the public domain. Thirdly, we also found that the proclamation is not well communicated to all the government structure from federal to zonal and district level. Due to this fact, there are no strong efforts at mainstreaming the PPP institutional provision into the structure of the public offices in the zone, including urban housing construction development. 7.3.2 Private perspective According to the chairperson of South Wollo Zone Contractors Association, interviewed from the private sector side, the root factor for poor public-private partnership on the construction sector is lack of good governance that manifested in terms of low level of accountability and responsibility in the construction sector. Specifically, the bidding system that gives preference for the lowest bidder has been found to discourage the private sector to fully engage in the public construction works. Moreover, our intensive interview with the head of the Amhara housing construction in South Wollo, Dessie town has provided us with relevant information on how their organization is dealing with the private sector. According to our discussion, the organization has allocated 15 % for private sectors to take their part in the housing construction projects they conduct in the region. For this construction firm, the following were mentioned as the main partners: - Small and micro enterprises (mostly associations of the unemployed graduates); - Different level contractors from level 7-9; - Medium size metal works; - Sanitary works; and - Finishing partners (ceramic works, door and window workers, electric works).

The implementation of public private partnership in this firm is usually based on official announce- ment for outsourcing the housing construction activities identified by the project. Though all private sectors are eligible to apply for the call, the firm has 7 % preferential support and CPO requirements will be granted by the government for small and micro enterprise organized in the construction sector. Such preferential support for small and micro enterprises, though justified for brining unemployed graduates into the labour market, the private sector in the construction sector are also viewed it as a discouraging attempt that isolated the strong private sector from the construction sector. Accord- ing to private sector (Contractors’ association), such special provisions for small and micro construction firms is the main source for construction delays as they have low level of experience, as well as push factors for private capital to move away from the construction sector. We have asked the head of Amhara Housing Construction project about the main private partners in their projects. We were informed that though they are large in number since the project’s establishment in the last 32 months were mentioned that the project still continues to work in partnership

104 with different private partners for different supplies, like sanitary works, window and door works, ceramic works and electric works. With regard to the authority level for implementation of public private partnership, the head also informed us they have the authority to outsource and mobilize projects up to 100, 000, 000 birr and for projects above the mentioned amount the regional office will make the final decision. This can be seen as positive contributor to engage the private sector with very low level of bureaucratic procedures. In our assessment of the public private partnership in South Wollo Zone, one typical case can be presented in the metal sector. The partnership is between the Amhara Metal Industry Enterprise and private medium size metal works (PPP1 and PPP2) are contracted in some metal works (mainly machinery works). According to official of the Amhara Metal Industry Enterprise, the organization is contracting some metal works to PPP1 and PPP2 and to other small and micro enterprises in the metal sector. As per the interview results from the South Wollo Education Bureau official, we noticed the presence of good public and private partnership. The government will entirely focus on curriculum development, supervision, and monitoring. While the private sector entirely takes the responsibility of construction of schools and fulfilling the required facilities. In similar vein, the Technical Voca- tional and Enterprise Development bureau also can be mentioned as one of the offices that have close linkage with private training institutions. Additional to our interview results, the researchers considered the regular training organized by CIFA as an opportunity through which different public officials can be accessed at once. The participants were asked to discuss on the existing bottlenecks for effective implementation of public private partnership at zonal level. The main points mentioned as bottlenecks are listed as follows: - Top-down approaches in which the zonal and district level partnership initiatives in different sector can’t be effective as they have limited autonomy for major projects like (the construction of roads, school, urban housing and water projects); - Almost virtually, all mega projects are run by the federal government; - Lack of good governance and rent seeking behaviour; - Bureaucratic procedures that may discourage the private sector; - From the private sector side low level of capital and knowledge, notably domestic investors; - Lack of corporate business responsibility from the private sector side. The following points were also forwarded as an opportunity for public private partnership: - Investment incentives for private sector (land provision); - Relatively good infrastructure access, like road, airport, railway transportation; that can stimu- late the private sector to take part in development projects of the government.

7.3.3 PPP in TVET In addition to the overall PPP arrangements that have been discussed above, we tried to study the TVET sector in greater detail. For this particular assessment, we have interviewed key informants from Technical Vocational Enterprise Development (TVED) offices and TVET centers. The results of the interviews are briefly discussed below.

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We asked the selected officials about the areas of partnership with the private sector. Their responses indicate that PPP is experimented in TVET, for what concerns cooperative education with private companies and enterprises. The companies are selected from different sectors in the zone, so that trainees from different fields can be assigned to a relevant industry. The key informants were also asked about their partnerships with private TVET institutions. In this case, we learned that there are currently no PPP arrangements with private TVETs in the zone. For the cooperative education/training, the two parties (TVETs and private companies) have agreements that outline the duties and responsibilities of each. Accordingly, TVET institutions are responsible to provide theoretical training and conduct evaluation on their lessons. Whereas, private companies are expected to undertake practical training to the assigned students and conduct their own evaluations, and report the outcomes to the TVET institutions. Problems that may arise in the cooperative training will be communicated between both parties and solutions will be sought jointly. Within the context of cooperative education, we have asked the key informants to explain the significance of the arrangement as per their perspectives and experiences so far. In this sense, we identified some important remarks, as listed below: • Trainees are getting opportunities to practice different machineries that are not available in the TVET institutions; • Trainees get real workplace experiences that enable them to grasp both technical and soft skills related to their respective fields of training; • Job opportunities and linkages are being realized in the process; • The arrangement is more cost-effective than providing all trainings by TVET institutions. The interviewees were also asked to rank their level of collaboration with private sector (i.e. companies) at different stages of the program (from panning to evaluation) with respect to cooperative education. Here, we asked the respondents to rate their collaborations with the private sector as: very week=1, weak=2, moderate=3, strong=4, and very strong=5. The findings of the interviews in this regard are presented in the figure below.

5 4,5 4 3,5 3 2,5 2 1,5 1 0,5 0 Level of Collaboration (1-5)

planning implementation evaluation

Figure 57 - Level of PPP collaboration in the TVET sector

The above figure indicates the average level of collaboration between TVETs and private companies in cooperative education. The findings show that there is a high level of collaboration between the

106 public sector (TVED and TVET) and the private companies at implementation and evaluation stages, whereas the engagement of the private sector at planning stage is found to be lower than moderate. As mentioned above, PPP in TVET aspect has been operational in the context of cooperative training. The interviewees also informed us that they view cooperative training as the most important partnership area to serve the core purposes of their respective organizations. They think that both producing skilled man-power and job creation to the graduates can be made more effective through a strong PPP with private companies. In this connection, we also tried to assess potential sectors of partnership from the point of view of the officials. According to our informants, focus areas in this regard are manufacturing, construction, urban agriculture, and hotels and tourism. These sectors are viewed as potential areas for cooperative education because they are considered as having high growth prospects and high capacity to accommodate (and recruit) large number of TVET trainees. Furthermore, the selected key informants were asked about the important factors that they consider for collaboration between public and private actors in the context of cooperative training. The most relevant factors declared are: • Availability of machineries, resources, and tools in the private sector actors; • Availability of skilled manpower in relevant fields of study; • Companies’ readiness to allot sufficient time with the assigned students/trainees; and • Companies’ willingness to let students use their machineries and resources. In addition to issues about PPP arrangements in South Wollo in general, here we have considered the challenges that are being faced by private and public actors from the context of cooperative education. In this regard, the challenges identified include: • There are sufficient cases that trainees do not receive practical sessions as appropriately as possible; • Lack of readiness from companies to receive assigned trainees; • Inadequate time being allotted by the private companies to train and follow-up assigned students; • Lack of willingness from the side of private companies to allow trainees use their machineries, particularly for costly ones, for fear of damages; • Lack of sufficient theoretical training by the TVET centers; • A good number of trainees are found to lack required manners and behaviours to work with private companies.

7.3.4 The role of SINCE Amhara Lot 2 project The study revealed the still weak level of implementation of the PPP approach in the South Wollo economic and institutional environment. The SINCE Amhara Lot 2 project can be mentioned in this regard. SINCE Amhara Lot 2 project is putting in strong efforts in strengthening the PPP platform in the area and in improving the capacities of the Public and Private sectors to bring them together for common advantages of both parties. Within the project activities, a PPP platform is being created in Textile and garment, Metal, and Construction sectors, with the crucial role of CIFA ONLUS and Edukans, as main actors in the consortium in facilitating and organizing the platforms.

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In the five SINCE Amhara lot 2 implementation partner woredas, PPP platforms are being created. In line with the platforms, both the public and private sectors produced PPP protocol to: implement their common agendas; strengthen public private partnership; and use them as cooperative agreements between public and private sectors. In the PPP protocol, the two parties, private and public, have shared roles and responsibilities, where the TVED office is assigned as chairperson and the TVET College as general secretary. Some of the public and private sectors are also selected as members of the PPP platform in the protocol. As per the protocol, the two parties agreed to come together at a quarterly basis. The table below shows the role and responsibilities of the members of these platforms. Table 33- Organizational chart of the PPP platforms

S.No. Name of the organization Responsibility Remark 1. Woreda TVET Office Representative Chairperson Public Sector 2. TVET/Poly technique college Secretary Public Sector 3. Labour and Social Affairs office Member Public sector 4. Textile and Garment SME representative Member Private sector 5. Metal Work SME representative Member Private Sector 6. Construction SME representative Member Private Sector 7 NGOs working in the thematic area Member NGO

More specifically, sector-specific market linkage PPP platforms are established in South Wollo zone with the support of the SINCE Amhara Lot 2 project. They are forms of PPP platforms where SMEs and companies who are working in the same value chains create a platform for cooperation and collaboration with the public actors. Currently, the establishment of such platforms involves two value chains: textile and garment and metal and construction. The objective of establishing such sector specific market linkage platforms is to strengthen the PPP and the networks between sectors that are working in similar value chain, and to identify key challenges and opportunities regarding the market linkage so as to implement mitigating actions. Moreover, the sector specific market linkage platforms were established in order to improve the opportunities of various jobs in the sector for unemployed youth, women, and returnees who have basic skills and vocational trainings in these specific value chains. 7.4 Conclusion and recommendations PPP has become an alternative development strategy to exploit the synergy of the two actors in the economy of developing countries. In connection to this, the Ethiopian government is showing political will and commitment to bring the private sector into economic activities and investment expansions. Though far from the achievements of public-private partnership experienced elsewhere, current practices in the unified billing system and the public and private collaboration in the health sector are encouraging. Currently, the government has endorsed proclamations to enable the successful implementation of public private partnership and to guide where public private partnership can be implemented. How- ever, the proclamation seems to focus more on the infrastructure, and little considers other sectors,

108 such as health, agriculture, service sector, tourism, energy and mining, that require huge public expenditure and efficiency in service deliveries. Similarly, though the federal government has ratified the proclamation for the implementation of public private partnership, still, its reach to the regional and zonal public sectors and its overall communication is very limited. However, there are also some success initiatives in some regional health sectors and their partnership with private non-profit health centers. Yet, according to the assessment of this study in South Wollo Zone, overall, the level of public private partnership has been found to be very low, despite the public sector’s own traditional approaches to engage the private sector in some meetings. The authority to implement PPP, is entirely given to the regional government. As a result, the current implementation of public private partnership at zonal level is very limited. However, it should be also noted that both the federal and regional governments have showed promising initiatives in different sectors for the implementation of public private partnership (e.g. the partnership between a local metal works company and Amhara Housing contraction). As a way forward, for effective implementation of the public private partnership in different sectors, such as the construction, metal works, education, tourism and other infrastructural developments, the following recommendations can be proposed. Firstly, the proclamations have to be revised in a way to accommodate broad based sectors, such as the mining, mineral, tourism, telecommunication, and other public service areas besides the construction sector. Simultaneously, the proclamation has to be well communicated to the lower tier of the governmental structure to facilitate its effective implementation at different level. Secondly, good governance is still highly important to enable healthy competitive market for the private sector so that it can be good partner of the public sector. This can circumvent the low level of transparency and corruption in the construction and other sectors. Thirdly, the bidding approach has to be revised from lower bidder approach per se to multiple criteria that can consider experience, labour employment capacity, and better capacity in the areas of partnership. Finally, more detail studies in the area of public private partnership have to be conducted to specifically pinpoint the areas where public and private sectors can collaborate in win-win situation while delivering the needed service to the public and at the same time maintaining the benefits to the private sector.

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8 Labour and Employment policy framework

8.1 National Employment Policy and Strategy of Ethiopia Ever since the ruling party took power in 1991 from the Socialist Derg regime, the Ethiopian government has implemented different development policies and reforms over the years. The EPRDF-led government first focused on liberalizing the economy through market reforms and privatization. Thus, in 1992, the government adopted an Agricultural Development-led Industrialization (ADLI) strategy with a focus on the productivity growth of small farm households and labour-intensive industrialization (Mulat, Fantu and Tadele, 2006).

In 1995 the government implemented another development policy: The National Development Pol- icy and The Five Year Development Plan (1995-1999). The next major development policy adopted by Ethiopian government was the Poverty Reduction Strategy and the Second Five Year Develop- ment Plan (2000-2004). Job creation has been one of the eight strategies towards meeting the Mil- lennium Development Goals (MDGs) based on the Five Year Development Plan, PASDEP, i.e. Plan for Accelerated and Sustained Development to End Poverty (The National Development of Ethiopia Economics Essay, 2018).

In this regard, Ethiopia’s National Employment Policy and Strategy (NEPS) has three main objectives: A) Enhancing social welfare, B) Accelerating economic growth, C) Achieving political stability.

Work is the cornerstone of all the three objectives. Promoting productive employment and decent working condition is necessary to pursue social welfare and equity, proper utilization of a country’s labour force for accelerating and sustaining growth and development, as well as for achieving political stability by reducing and avoiding potential political and civil unrest that could be created as a result of a mass unemployed population (NEPS, 2009).

Therefore, with the aim to improve employment and poverty outcome in the country, the policy framework addresses the issues of labour demand, labour supply, labour market institutions, and other cross-cutting issues. According to the NEPS, the employment policy framework is designed with four dimensions in the pursuit of employment generation as a goal: 1) Demand side, which is the first dimension in the policy framework of job creation, states the economy’s ability to create jobs for various skill categories. Thus, based on the policy action, the demand side dimension generates employment by accelerating private sector development for employment generation and ensuring effective and efficient public sector employment. 2) The second dimension in the policy framework is Supply side of job creation, i.e. whether or not the skill level of available pool of persons match with the type of skill the economy requires. Accordingly, the supply side dimension generates employment by improving and raising labour productivity. 3) Labour market institutions in the governance of labour market relations and labour market services. This is the third dimension in the policy framework, and the policy action to generate employment in this dimension includes improving labour administration by strengthening labour market institutions.

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4) The last and fourth dimension addresses Cross-cutting issues in the labour market in order to generate employment. Some of the cross-cutting policy action areas of labour market include protecting the rights of migrant workers, arresting rural-urban migration, mainstreaming gender and youth in employment generation, protection of children against child labour, and environmental protection and resource conservation.

Therefore, within these four main focus areas in the policy framework, job creation is mainly addressed in two dimensions, i.e. the Demand Side - by accelerating private sector development and ensuring effective and efficient public sector employment, and the Supply Side - by improving and raising labour productivity.

Accordingly, the 2009 policy plans to address job creation and employment generation through private sector development and by implementing focused programs on small and medium enterprise development supported by TVET, and also in terms of promoting self-employment and entrepreneurship in urban and semi-urban areas (NEPS, 2009).

Hence, the private sector development for job creation has two main strategies: 1) Accelerating productive employment in the formal private sector by supporting private investments in employment-intensive manufacturing sector and enhancing its competitiveness (e.g. textile, leather, agro-processing, and chemical), promote the labour-intensive private construction sector, develop tourism-based small and medium sized enterprises, and expand the export of labour-intensive manufacturing and processed products. 2) Promoting self-employment and supporting the informal economy by increasing the productivity of the informal sector and micro/small-enterprises to ensure the creation of decent work for vulnerable groups, mainly women and youth, who are engaged in the sector. This goes a long way in supporting the informal sector and/or micro and small enterprises (MSEs), Technical and Vocational Education and Training (TVET), the Micro and Small Scale Enter- prise Development Program and the promotion of Micro-Finance Institutions (MFIs).

Similarly, on improving labour productivity (via the supply side), the policy aims to increase agricultural labour productivity and raising productivity of non-farm private and informal sector through strategies like skill development, access to working premises, access to finance, and ensuring decent working conditions.

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Table 34 - Policy and strategy for demand side and supply side of employment generation. Source: National Employment Policy and Strategy, MoLSA, 2009 Dimensions Policy Action Areas Strategies 1. Accelerating private sector devel- i) Accelerating productive employment in the formal opment for employment generation private sector:-

- Support private investment in the employment-intensive manufacturing sector and enhance its competitiveness - Promote the labour-intensive private construction sector

- Develop tourism-based small and medium sized enterprises -Expand the export of labour-intensive manufactured and processed products Demand Side - Mobilizing and supporting the diaspora ii) Promoting Self-employment and Support the Infor- mal Economy

iii) Supporting Universal and Compulsory Education on Entrepreneurship

2.Ensuring effective and efficient i)Promote labour intensive infrastructure develop-

public sector employment ment ii)Improve the effectiveness and relevance of on-going public work programs ii)Fill existing critical human resource gaps

i) Raising Agricultural Labour Productivity Supply Side Improving and raising labour ii) Raising Productivity of the Non-farm Private and In- productivity formal Sector through:-

• Skill development • Access to working premises • Access to finance • Establishment of associations • Ensuring decent working conditions Employment Policy and Strategy Framework

Moreover, the 2009 National Employment Policy and Strategy addresses women and youth employment in the framework under the dimension of cross-cutting issues. Thus, the framework strategies for women-focused employment mainstreaming include: • Enforcing affirmative actions in such a way that a specified proportion of beneficiaries of mainstream programs and projects are women; • Coordinating efforts to encourage institutions to target women as beneficiaries of skill and business development programs as well as schemes aimed at improving access to resources; • Encouraging gender-friendly appropriate technology to reduce the drudgery of women's domestic and economic activity and enhance their productivity and incomes and as a result their income earning capacities; and • Facilitating the establishment of child-care centers for young working mothers.

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Likewise, the strategies on youth-focused employment in the framework are: • Improving the quality of education and Technical and Vocational Education and Training (TVETs); • Further enhance the implementation of the on-going youth package in a more structured manner; • Supporting the creation of quality jobs in the formal and informal sectors; • Fostering entrepreneurship and empowerment of youth, and • Facilitating youth entry into business and promoting additional youth employment intensive initiatives that enhance youth mobility and employment. The National Employment policy and strategy is implemented by different ministries and bodies of the government both at federal and regional level. Ministry of Labour and Social Affairs (MoLSA) at federal level and its counterpart Bureau of Labour and Social Affairs (BoLSA) at regional states coordinate and monitor the policy implementation all over the country.

8.2 The Legal Framework on Labour 8.2.1 Labour Right Labour right in the Ethiopian constitution is discussed under the fundamental “Rights and Free- doms” section in Chapter Three. The Constitution provides different principles on labour rights, such as Article 16. The rights of the security of the person; Article 18(2) the prohibition against inhuman treatment and the abolishment of slavery and servitude, and Article 18 (3) and (4) the prohibition of forced and compulsory labour. Moreover, Articles 35 (7) and 42 (1d) of the constitution state the right of women to equal employment, promotion, pay, and transfer of pension entitlements. While the right to maternity leave and prenatal leave with full pay is included in Article 35 (4a and b).

“Rights of labour” is more specifically addressed on Article (42), which reads as: “Factory and service sector employees, peasants, agricultural workers, other rural workers, government employees below a certain level of responsibility and the nature of whose employment so requires, shall have the right to form association for the purpose of improving their economic and employment conditions. This right includes the right to form trade, union and other associations, and to negotiate with their employers and other organization affecting their interest”.

In addition, Article 42 (1 b) states the right to reasonable limitation of working hours, to rest, to paid leave and to healthy and safe working environment.

8.2.2 Labour Regulation The labour law of Ethiopia dates back five decades and the first formal labour law, “Labour Relations Proclamation No. 210/1963”, was established in 1963. It recognized the rights of associations of employers and workers by setting up a system of collective bargaining and the settlement of trade disputes via “The Labour Relation Board” (ILO, 2004).

The most recent labour proclamation is the Labour Proclamation No. 377/2003. This proclamation mainly addresses the following issues:

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• Employment Security (Article 13): Employees are at liberty to terminate the job with or without any cause, provided that they produce prior notice. • Working Hours (Article 61 (1)): Normal hours of work shall not exceed eight hours a day or 48 hours a week. • Overtime Work (Articles 66 &67): Overtime work is in principle prohibited. It is only in cases where exceptional circumstances expressly stated by law have occurred that overtime work is allowed. Overtime may be worked whenever the employer cannot be expected to resort to other measures and only where there is accident, actual or threatened, or force majeure or urgent work or substitution of absent workers assigned on work that runs continuously without interruption. • Annual Leave (Article 77): Provides 14 working days as an initial leave duration for the first year of service, and one additional working day for every additional year of service with no maximum limit. Nevertheless, additional annual leave with pay, for workers engaged in a work which is particularly arduous or the condition in which it is done is unhealthy, may be fixed in a collective agreement. • Safe and Health Working Conditions (Article 92) states the employer is required to provide safety equipment and train how and when to make use of them. Moreover, Article 93 of the Proclamation states that the employee has also a corresponding duty to make use of the protective tools appropriately. • Employment Injures (Article 95, 2): Employment injuries could be occupational accident or occupational disease which are outlined in Article 97; the employee may incur occupational accident, organic injury or functional disorder, like while carrying out the employer’s order at a place and time of work and while at the place of work before or after his work or during tea or lunch breaks.

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8.3 Labour Force and Employment/Unemployment Trend According to the 2014 National Labour Force Survey, activity rate was 79.8 at national level (aged ten years and above). Among all region in Ethiopia, the highest active population was registered in Amhara region (82.2%) and the lowest (61.3%) was reported for Addis Ababa. Whereas, at country level, rate of active population in rural area is higher than urban areas, with 81% and 63.8 %, respectively (NLFS, 2014). Moreover, the same labour force survey shows that the employment - to - population ratio in 2013 was 76.2%, and when disaggregated by sex, men are more employed than women, with 82.7 % to 69.8% (Fig. 58).

Figure 58 - Employment to population ratio by sex from 1999-2013

Figure 59 - Employed population by major sectors (Share in percentage) Source: CSA, 2014

In addition, with regard to employment in major industries, periodical analysis of the survey indicated that while agriculture still holds the biggest share, employment in the sector has declined

115 from 80.2% in 2005 to 72.7% in 2013. Meanwhile, sectors like service and industry have shown an increase (Fig. 59).

It is also important to see the change in unemployment trend over the years. According to the survey result, at national level unemployment rate has declined from 8.1% in 1999 to 4.5 % in 2013, with more unemployed people found in urban areas than in rural areas (NLFS, 2014) (Fig. 60).

Figure 60 - Unemployment rate, by education attainment and sex at country level. Source: CSA, 2014

As Figure 60 shows, when education attainment among the total unemployed people is factored in, those who attained preparatory education were found to have the highest unemployment rate with 24%, and based on sex classifications, women are found to be more unemployed than men in all education attainment categories.

In conclusion, in 2013, about 80% of the population was active to participate in the production of goods and services in Ethiopia, and sectors like service and industry have started to slightly absorb the labour force even though agriculture held (and still holds) the lion’s share particularly in rural areas. With regard to unemployment vis-à-vis area and sex, there are more unemployed people in urban areas than in rural areas and women are more unemployed than men, regardless of their education level, while people who attained preparatory education have the highest unemployment rate among the unemployed.

8.4 Working Conditions in South Wollo Manufacturing Sector Working conditions is the general working environment in a particular company, including the safety and wellbeing of workers. Ali et al. (2013), indicate that the business dictionary defines the term working condition as “a working environment and all existing circumstance affecting labour in the work place which includes working hours, legal aspects and workload and organizational climate”. Managing proper working conditions in companies help ensure not only the safety and wellbeing of the workers but it also increases productivity and protects the company’s competitive advantage (Trespalacios et al., 2016). Thus, working condition in manufacturing industries needs extra considerations in order to achieve the anticipated objective. However, this is not always the case especially in least developed countries like Ethiopia. Trespalacios et al. (2016) noted that there is lack of understanding regarding working conditions’ impact in low and middle-income countries. At international level efforts have been made to make sure decent work is created for all globally. As a result,

116 decent work is included in the Sustainable Development Goals (SDGs). Goal 8 of SDGs plans to attain full and productive employment, and decent work, for all women and men by 2030 in achieving peace and prosperity for all. Decent income, safe working environment, and reliability of employment are stated as some of the indicators for decent work (Meger, Smith and Guijt, 2018).

Ethiopia has incorporated all SDGs in the country’s development policy and strategies. Moreover, many of working conditions issues are addressed in Ethiopian Labour Proclamation no. 377/2003. Based on this, issues like working hours, wage, on-job training, employment injures and occupational safety, and health measures as well as gender issues are discussed in the following sections to see to what extent these conditions are met in the study area in line with the legal framework. To gather the relevant data, mainly in-depth interview and focus group discussion were used. In- depth interview was used to collect data from local government officials, particularly from South Wollo zone’ s Labour and Social Affairs Office and company managers while FGDs were conducted with employees of selected firms in Kombolcha and Dessie cities. Moreover, secondary data, like annual reports, were used as additional data. 8.4.1 Decent Working Time and Wage The Ethiopian labour proclamation No. 377/2003 states that normal working time should not exceed 8 hours a day. Accordingly, the data collected both from company managers and employees indicate that normal working hour is eight hours a day in all sampled manufacturing companies. According to M6 company, production coordinator and production workers’ working hours in the company is implemented based on the Ethiopian law. One focus group discussion participant stated working hour did not exceed eight hours a day in the company and said the following; “All of us here working in the production process work eight hours a day. We start work at 8:00am in the morning and leave for launch at 12:00pm. In the afternoon we start at 1:30pm and finish at 5:30pm. The working hour is applied for weekdays from Mon- day to Friday but on Saturdays we work half a day so we work from 8:00am to 12:00pm. Sunday is our day-off”. Similarly, employees and Finance and Logistics Manager of KIP3 company, a suit manufacturing company which is found inside Kombolcha Industrial Park, indicated that they work eight hours per day. Another company that is found inside the industrial park is KIP4. This company manufactures and exports yarn to China. During an in-depth interview, two production workers in this company stated that they work eight hours a day but they work in shifts so there are three shifts: morning, afternoon, and night shifts. Although working hours between the shifts are the same, wages differ from shifts to shift. A Carding Machine Operator explains this saying, “When we work in the morning shift, we get the normal rate, 40 birr per day, but for the 4:00pm shift we get an additional 10 birr, and for the night shift there is an additional 15 birr”. Therefore, data collected from both companies’ managements and employees via focus group discussion and in-depth interview show that there is, overall, decent working time in the sampled manufacturing companies in South Wollo zone. However, the most repetitive issue that emerged during data collection from both workers and management was the volume of work during this normal working hour. Employees that participated in FGD and in-depth interviews stated that although they have never worked more than eight hours per day, the amount of work they had to undertake during the normal working hours has been the most challenging thing so far. This is especially found to be the case for foreign-owned

117 manufacturing companies that are located inside the Kombolcha Industrial Park. In fact, for production workers in the park, this seems to be the leading cause for high turnover, along with low wage. Both the management and workers seem to agree with this. A production worker in KIP4 yarn manufacturing company stated the following: “The amount of work we do is backbreaking. We stand for hours doing a lot of activities which require a lot of energy so by the time I get home, I go straight to my bed because I would be too exhausted to do anything else. In addition to that, we do not even have an off-day. We work from Sunday to Sunday. And the fact that I am doing all these work for a little money has negatively affected me a lot both psychologically and physically”. Moreover, a finance and logistic manager at KIP3 suit manufacturing company indicated, “up to 50 production workers leave their job in the company per month”. He stated that there is high turnover in the economic zone in general and the main reason especially in their company is workload. He said: “Many of them have hard time in handling the pressure the job brings and most of the time, production workers site workload as the main reason for leaving their job in the company although working conditions in our company are relatively better”. A lean leader and a production supervisor in this company also agreed with this statement as both indicated heavy workload is one of the reasons that push employees to look for another job outside of the company. However, all the interviewed employees indicated that they are not forced to work overtime. Although there are times where they work overtime with pay and usually in peak production periods, none of them cited forced labour. Employees in the sampled companies also remarked that they [workers] can take tea break and bathroom break anytime and do not need a permit to do so. Conceivably, in the sampled manufacturing companies the most important issues with regard to working conditions are found to be wage and workload. All employees utterly agreed that the money they earn working as production workers is very little and not enough to lead a decent life in today’s economy. The collected data indicates that manufacturing companies mostly pay from 1100 birr to 2000 birr per month, which indicates diverse payment rates from company to company for semi-skilled and unskilled workers. Moreover, LE1 company (building sector) pays 70 birr per day for unskilled workers and 200 birr per day for skilled workers, and Huda Real State pays 75 birr per day for unskilled and 190 birr per day for skilled workers. Meanwhile, in M6 company, entry level wage is 3000-4000 birr for first degree holders. This is because the company is public-owned and all employees get paid based on the government salary scale. According to the interviewed labour inspectors in South Wollo Labour and Social Affairs office, the main reason for high turnover in manufacturing sector in the zone is low wage. During the in-depth interview one of them said: “From what I observe and what production workers told me the payment in manufacturing sector is not enough to lead their life and further support their family so they leave their job looking for better payment, or worse, migrate to another country with hope to build a better future for themselves and their family; but often they do not find things as they expected them to be, especially if they decided to migrate to foreign countries”.

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The officer believes the high turnover in manufacturing sector in particular and youth migration in general in the area could be addressed by implementing a minimum wage in the country. Both officers also believe that if the Ethiopian government signs ILO’s minimum wage convention, the problem could be minimized, if not completely resolved. They further stated that Ethiopia not having a minimum wage rule helps employers manipulate the salary rate and made young and women unskilled/semi-skilled workers vulnerable to exploitation for a very small amount of money. One of the officers further explained this as the following: “Ethiopian government did not sign all international labour convention. One of them is minimum wage. When we look at the public employment, the government has implemented salary scales from entry level salary to highest salary scale, so the scale is clearly known but this is not the case in the private sector employment. The labour proclamation no. 377/2003 did not include minimum wage rate so employers, including foreigners, pay these workers as they like. Thus, there is a gap in the proclamation which can only be fixed by the policy, and so in this regard the law needs revision if we are going to bring positive impact via the sector in the long run”. A young lady who works as machine operator at KIP4 yarn manufacturing company agrees with this statement. She believes the government has failed them by not working to ensure that all citizens’ rights are being protected. She explains this as the following; “If our government does not care about us, why would these profit-oriented foreign companies do? It’s the government responsibility to make sure we get paid what we deserve. Yes, we need these companies to create jobs and generate hard currency but it shouldn’t be at the expense of young peoples’ labour and health. The government must work hard to make sure that workers (citizens) get decent pays as much as it’s working hard to create favourable business environment for these foreign companies. There is no way company owners would say no to minimum wage if our government put it as a law because I think the labour still will be relatively cheap”. Ethiopia does not apply international minimum wage; instead the government applied a loose minimum wage with 45 dollars per month, which makes it the lowest in Africa next to Rwanda’s minimum wage that is 98 dollars per month14. Thus, workers and labour inspectors indicated that decent wage is not available in manufacturing sector in the zone which leads to high turnover and migration among young workers. More importantly in construction companies that are found in Dessie city, employees who participated in FGD noted that they get paid in the range of 70-190 birr per day. One can see that the wage rates (especially for those earning the lesser amounts) are not enough to cover the cost of basic needs in their daily lives. Therefore, local officials and company production workers believe the application of international minimum wage can solve the problem. 8.4.2 Training and Career Improvement Opportunities Trainings are provided for all production workers when they first start working in companies. Com- panies usually give technical and soft skill trainings for their new recruits. This has been found to be the case for the manufacturing companies inside Kombolcha industrial park. The data collected from KIP3 suit manufacturing company indicate that all production workers get soft skill training.

14https://www.minimumwage.org

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According to the finance and logistics head, “the company gives 15 days training on soft skills for all new recruits before they started working in the company”. Moreover, new employees receive technical skill that can help them do their job effectively. As the company produces suits, employees mainly undergo trainings on cutting, sawing, and trimming. This is the assembly part in the textile/apparel manufacturing which needs relatively low knowledge intensity in the industry. KIP4, on the other hand, produces yarn, thus production workers received technical skills-based training on the specific tasks that they are assigned to do. The data collected from in-depth interview with production workers shows that the company provides practical training for all production workers mainly on how to operate the machines. In addition, according to the park’s operational manager, once workers are recruited, the enterprises give trainings on soft skills and safety meas- urements for their new recruits. Similarly, M6 workers and production coordinator stated that on-job training is provided to all production workers in the company. Moreover, although workers have not received training on safety issue, safety measures are generally given to the employees in written form and employees have awareness about all safety measures. Thus, the trainings workers received in the sampled manufacturing company are technical that could help them do their job efficiently and further avoid any job-related accidents. But, as far as career improvement goes, only the KIP3 suit manufacturing company employees indicated having received such training. In the in-depth interview, a lane supervisor in the company stated, “I started as a production worker and after receiving a supervisor training I became a lane supervisor within six months on job”. This implies there is an opportunity for career upgrading for production workers in the company compared to other manufacturing companies within the industrial park and outside the park as workers on those companies did not indicate having such opportunities so far. 8.5 Apprenticeship and Cooperative Education According to the information we obtained from TVED Offices and TVET institutions, there are no apprenticeship programs in South Wollo. Instead, institutions and industries work together in the form of cooperative education. Cooperative Education is a structured method of combining classroom-based education with practical work experience (https://career.gatech.edu). The original purpose of cooperative education is to enhance student learning. Nowadays, its purpose and role can be viewed as multifaceted when the complexity and various role-players are taken in to account. In South Wollo, cooperative education is being put in practice by the TVET institutions and some selected private companies from different sectors. According to the South Wollo TVED officials, the TVET institutions and private companies have a contract agreement to train students as per the 30:70 criteria, set by Ministry of Education. As per the agreement, TVET institutions undertake theoretical lessons (30%), whereas the selected companies assume the remaining practical trainings (70%) at their premises. Even with some prevalent challenges in its implementation, cooperative education is bringing considerable benefits for the different members of the platform vis-à-vis trainees, institutions, companies, and the government at all levels. 8.6 Occupational Safety and Health and Employment Injuries One of the fundamental issues raised on working conditions discussion is personal safety, hygiene and employees’ having equitable access to service, along with not having to experience

120 discrimination and harsh treatment at work place (Meger, Smith and Guijt, 2018). The government of Ethiopia addressed these working conditions on the labour proclamation No. 377/2003, Article 92. Furthermore, Ethiopia has had occupational health and safety legislative framework that dates back to the 1940s. The more recent legislation is included in the labour proclamation No. 377/2006, which has specific guidelines, rules and regulation on sector specific hazards (MoLSA, 2006). The data collected from employees, company managers and labour inspection team of South Wollo Labour and Social Affairs Bureau indicate that, in all sampled manufacturing companies, safety measures are implemented inside the companies. According to the head of South Wollo Bureau of Labour and Social Affairs, the bureau has an awareness creation program where the labour inspectors who have qualification in OSH give trainings to company’s employees and production supervi- sors on OSH and the necessary measures companies need to take in the production process. A labour inspector has explained what the bureau does in this regard as follows: “Our bureau mainly does coordination, monitoring and evaluation activities on labour inspection and OSH. Thus, we coordinate training on OSH and other capacity building activities every month like providing trainings for workers on metal, textile, chemical and physical sectors. The bureau also evaluates companies’ safety measures and working environment by conducting visits, provided pre-training analysis and taking measures. We also conduct monitoring activities to make sure whether safety tools are provided to workers and all the necessary precautions are taken during production. So, we do inspection every month and if/when there is failure, we first give oral warning, then we write a letter if companies failed to comply post-training”. Accordingly, production workers and managements of all sampled companies confirmed this during the focus group discussion and in-depth interviews. A production coordinator at M6 metal manufacturing industry indicated that the Bureau of Labour and Social Affairs gave training for their employees. Similarly, a production supervisor at KIP3 suit production stated that labour inspectors from BoLSA often visit the company to evaluate and also to deliver awareness creation session to workers. Moreover, the data collected from production workers indicated that companies provided safety tools and gave training on OSH issues for them. However, there is a gap with regard to the quality of the tools and the timely distribution of safety tools. A Cardin operator and drawer machine operator in KIP4 yarn manufacturing company said that the provision of safety tools, like face mask /mouth cover/ and eyeglass, were not timely, and the tools were also poor in quality. A Cardin machine operator explained this as follows: “The company usually provided the tools too late so by the time we get mask the damage is already done; since they don’t deliver the tools to us on time, we often do our job with old and ripped masks. Besides, although the working environment as you notice is pol- luted with noise and dusts; the company does not provide eyeglass and ear cover to us all; they only give the glass to those who work as drawer operators but the whole factory is filled with cotton dust so it affects everyone, and as a result, some of us have developed allergies” During our visit to the production place, we also observed the problem. The rooms were filled with cotton dust while in some rooms there were loud noises coming out from the machines, but the workers did not have personal protective equipment while working in the production rooms. The

121 rooms were also partitioned by plastic sheets and there were no proper partitions or doors between the production rooms. Thus, machine noises and dusts easily move from one room to the other. The air pollution particularly was visible in the rooms (see the pictures below).

Production rooms at KIP4 Yarn Manufacturing Company

In addition, KIP4 yarn manufacturing company production workers indicated that they do not have access to clean water, lunchroom (cafeteria), and lockers where they can put their personal belong- ings, including their clothes. One production worker said:

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“When we come to work in the morning, there is a room where we change to our uniforms and leave our clothes, hand bags and lunch boxes there on the floor and go to work to our spot/lane. We asked for locker before but they have not done anything yet and it’s been 11 months since we started working here”. As a result, as problems aggravated workers had a strike on one occasion. Consequently, the management and workers held a meeting with the park administration and BoLSA representatives to discuss the problems. According to the company’s Human Resource office, the strike was about transport service and that had been addressed as the company started to provide transportation to all employees. However, production workers stated that, while transportation service was one of the issues raised during the meeting, the issues regarding health and safety, which are their main requests, have not been answered. A production worker who was interviewed remarked, “after the meeting the company did nothing nor did the park administrations or Bureau of Labour and Social Affairs. I guess, no one cares for our well-being”. A labour inspector at BoLSA mentioned that the bureau was aware of the problem and they were working together with the park administration to solve these issues. She further said: “It has only been a few weeks that we started to work inside the park. It will take time to work things out. The park administration has given the bureau a desk as part of the one-stop system and we started to spend two days a week inside the park and we are working together with park management to address the issues. It is a little com- plicated because we are not completely in-charge here. We have to formally request the park administration to visit the factories and workers. Whereas, if such a thing happens in companies outside the park, it would be a different story. Outside the park, companies usually do immediately what we tell them to fix during inspection and we can directly contact company owners/managements at anytime” Although, issues observed with regard to better working condition and occupational safety and health in the KIP4 yarn manufacturing company were found to be the poorest, specifically on the implementation of safety measures and the quality of safety tools among the sampled firms, there were also issues raised with regard to the quantity of tools in M6 metal manufacturing company, where FGD participants indicated that the company provides safety shoes for production workers every six months but some believe two pair of safety shoes a year are not enough as there may be incidents where shoes could be damaged or lost. Similar concerns were raised by FGD participants on other safety tools, like hand gloves and eyeglass at Amhara Metal Manufacturing Industry. Moreover, in LE1 building enterprise, occupational safety and health measures are not applied significantly. Safety tools, like helmet and safety shoes, are not provided to construction workers, and an FGD participant in LE indicated that the enterprise had not provided these safety tools to workers. The Human Resource Officer stated that they had twice formally requested the regional management to provide budget to OSH activities, including the purchase of safety tools to construction workers in the project site, but the enterprise had not responded to their requests so far. Therefore, in order to minimize risks and on-job injuries “site workers, construction workers, including daily labourers together with project managements, clean the working area/site once a week by removing hazardous wreckages in the area”. Regardless of the gaps on quality and quantity of safety tools provided in the sampled companies, it is safe to say only a few on-job accidents have occurred with no recorded death. The data collected from production workers and managements showed that only minor injuries happened while on

123 the job. In Amhara metal manufacturing industry, injured employees get 100 % medical cover if they get treated at government hospitals and clinics. If they choose to get treatment at a private health centers, the company will cover 50 % of the medical cost. Moreover, in LE2 and LE1 building enterprises workers get full medical coverage for on-job injuries. Similarly, in the two foreign-owned companies that are found inside Kombolcha industrial park, employees get full medical care for on-job injuries. According to 2017/2018 Amhara National Regional State BoLSA employment accident statistics annual report, among the 284 undertakings 17 are found in South Wollo and Dessie area. Overall, 1,268 fatal and non-fatal employment injuries were reported in the Amhara region in the budget year and 64 injuries occurred in five companies that are found in South Wollo zone (ANRS/BoLSA, 2018). BoLSA have trained two labour inspectors on OSH and provides trainings for companies and their employees. Further, the labour inspectors coordinate and evaluate OSH implementation monthly. However, there seems to be limitation with regard to application of measurement tools, and more importantly on follow up activities.

8.7 Working Conditions in TVETs Working conditions and Organizational Health and Safety (OHS) in different organizations have been discussed in greater detail in the above sections. In this sub-section, we attempt to explore the state of decent work and OHS in TVET. In TVET colleges there are practical training sessions that must be assessed in order to have a complete overview on the work conditions and OHS policies in the project area. Technical and Vocational Enterprise Development (TVED) and TVET institutions were contacted for the interviews. They were asked about the policies adopted by the institutions regarding better working conditions (including creating safe work place, clean rest rooms/lockers, and health facilities) in the practical sessions. The results of the interviews indicate that all TVET centers apply the Kaizen Principle in their practical works across all training fields. In line with the Kaizen principle, all staff members and students in all colleges receive trainings on working conditions and OHS. Partic- ularly, all members of the TVET centers are required to take training on first-aid service. Accordingly, in time of accidents, staff and trainees should be able to provide first-aid service for anyone in need. Since they are training centers, TVET colleges do not provide insurance coverage or compensation packages to their trainees. TVET institutions are not required to make payments to the trainees for their involvement in practical training programs. There are also no work place incentives that address health, safety and wellbeing (such as, health care coverage and paid sick leave) in the institutions. Rarely, payments may be made to trainees if they work for the college’s benefit (like machine maintenance). In terms of Occupational Safety and Health conditions, according to our respondents, all TVET colleges are expected to avail the required Personal Protective Equipment (PPE) and first-aid tool across all practice room/areas in their promises. The institutions do not need to hire and assign individuals to promote and protect trainees’ health and safety. Rather they train all trainees and staff members to take protective measures and provide first-aid services whenever accidents occur. The management bodies of different centers also have an initiative to keep the place clean, provide maintenance services, make the required tools available, and make the use of protective tools man- datory in practical works.

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With respect to health and safety issues, the institutions are found to be particularly more concerned about protective measures and first aid service provisions. In line with this, the centers focus on supplying the required tools in sufficient amount and provide training to all members of the colleges who participate in practical training programs. Accordingly, first aid and PPE tools, such as gloves, helmet, goggle (for eyes), safety shoes, over-cloth, and ear protective tools are being supplied and made available for each room and place where practical training is being undertaken. However, there are issues that need to be addressed in terms of forcing trainees to use PPE tools whenever they are in the practice rooms/areas. We were told by the interviewed officials that even though trainers are strictly following safety rules, sometimes they found few students working without putting on the required protective equipment. To deal with such kinds of negligence from the trainees’ side, TVET centers may put in place a strict follow-up as well as measures so that everyone involved in the practical sessions shall wear PPEs whenever they are at work. 8.8 Decent Work and Gender According to Meger, Smith and Guijt (2018), to understand the gender aspect of decent work, it is necessary to look beyond sex disaggregation and assess the gender trend, impact, relation, and role and responsibilities at work places. The data found in the sampled manufacturing firms showed that the numbers of women working in the firms are significant. According to Kombolcha Industrial Park management, there are four enterprises in the economic zone and 92% of production workers are women. KIP3 suit manufacturing company is one of the enterprises in economic zone and the company has 470 local workforces where the majority are female. According to the firm’s finance and logistics head, his company “prefers to employ women than men because women are very attentive and patient”. Similarly, in KIP4 yarn manufacturing company there are more female workers than males. According to the firms HR manager, the company has employed 308 workers, of which 259 are women. On the other hand, according to M6 metal manufacturing industry production coordinator, among 30 production workers, five of them are female workers. Regarding the recruitment, M6 gives equal chance to all. An interviewed officer describes the company’s employment recruitment process as the following: “When there is a position we need to fill, we first put out vacancy announcements and then we evaluate the documents and CVs submitted. Next, we invite the candi- dates based on their qualifications for written examination and interview. Then, we hire the qualified person regardless of their gender”. This was also the case with the sampled firms that are found in Kombolcha and Dessie cities. How- ever, according to Kombolcha Industrial Park OSS team leader, the recruitment of workers for all four firms inside the industrial park is made by One-Stop Service (OSS), an office that is assigned to support the enterprises by Ethiopian Investment Commission. He further explains the recruitment process as the following: “Once the enterprises made a request for new hires, our office will recruit workers. During the recruitment process, priority is given to women and children of farmers who have lost their land during the construction of the industrial park. We gave soft skill and pre-job trainings for the new recruits before they start working in the firms”.

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The KIP3 finance and logistics officer, however, has some restrictions about the recruitments made by OSS. According to him, “the recruits are not qualified and they don’t have the stamina for the job. So, they often leave the job which leads to high turn-over in the company, up to 50 workers per month, and this has been a big challenge for our company”. Decent Work for Africa’s Development, a report by ILO, states that once women are employed in manufacturing firms, they face discrimination and inequality. However, the data collected from employees and managements in almost all sampled firms indicated that female workers do not face discrimination and harmful working condition in the workplace. In M6, LE1, and LE2, female workers indicated that they have not experienced any kind of discrimination or abuse in workplace. In addition, KIP3 female workers too responded that they have not experienced any kind of discrimination while on job or disavowal to promotion because they are women. Moreover, the firms’ managements also mentioned that equal opportunities are given to women in their company as long as they are qualified to do the job. Female employees also mentioned that they have clean bathrooms and lockers in the workplace and the necessary safety tools are provided to them on time. In KIP4, however, female workers indicated that they are forced to work in harmful work conditions because they are women. During an in-depth interview, a female machine operator said the following: “The management has denied us access to clean water, lunch room, and locker and more importantly safety tools. I think they are doing this because they believe since we are all women, we wouldn’t resist or stand up for ourselves. There was a guy who used to demand the management to provide us all the necessary service and because he often challenged them, they fired him for a simple work-related error”. The company’s HR officer indicated that the company only employed women who are aged 18-25 for production related jobs although she failed to mention their reason for this requirement. It is however very clear that it is unlikely for young and unskilled female workers to be assertive in protecting their rights. With regard to sexual harassment, the data collected from all female employees indicate that none of them have experienced sexual harassment in the workplace. Two female FGD participants in M6 said they have never experienced sexual harassment in the workplace. They further stated that if such a thing happened, they wouldn’t feel to keep quiet because they feel they can come forward and report the incident without any hesitation as there is a conducive environment in the work place. Similarly, female employees in the two firms inside the industrial park stated that, to their knowledge, there is no sexual harassment in their work place. A production worker in KIP4 company said: “Many of us are women here. There are no men working in the production room so the chance of that happing is almost zero but if such incident happened, I would have come forward and report to HR. I don’t believe there is a thing that would limit us not to come forward and talk freely about that kind of matter in the company”. The HR officer also agrees with the statement and confirmed there had not been a single incident in that regard in their company thus far.

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On the other hand, KIP3, the head of finance and logistics indicates that the company has zero tol- erance for sexual harassment in the work place. However, “there was one sexual harassment case that was reported in the company where a male employee verbally harassed a female employee and with consent of the female employee the matter was resolved internally”. Moreover, a male production supervisor and a female lane supervisor asserted that there is no sexual harassment in their workplace that they know of, and the management is supportive of the workers in any matter; so they believe the company would support female workers if such case happens and that they feel free to talk about any problem they may face at the work place. Overall, the data collected from the sampled firms indicated that there are no gender -based discriminations or assaults in the work place and there is a conducive working environment for female employees in this matter. 8.9 Conclusion and Recommendations In conclusion, it was confirmed that working hours in all sampled companies do not exceed 8 hours per day and employees are not forced to work overtime without pay. However, all employees in the sampled firms agree that their salaries are not enough and they do a lot of work for a little money. Further, both employees and company managers indicated that low wages, followed by heavy workload, are the main reasons for high turnover in the companies. Thus, it was recommended by all participants that Ethiopia should revise the national minimum wage. The provisions of training with regard to career improvement and knowledge transfer are found to be at an early stage in all sampled factories. Overall, the trainings provided by the companies are limited to soft skill and on-job technical trainings for production workers. Moreover, occupational safety and health measures are adopted and implemented in most of the companies, although they are not effective or up to the required standard. In one of the interviewed companies particularly, occupational health and safety measures and working environment were found to be very poor which makes workers vulnerable to various skin and eye ailments. In addition, in LE1, OSH measures are not taken at the project site and construction workers do not have the necessary personal protective gears. Fortunately, a few and minor employment injuries have been registered albeit the gaps on quality and quantity of safety tools in these sampled companies. There are no major findings on gender issues, like gender-based harassment and discrimination. Moreover, female employees are found to have equal payment and job opportunities in the sampled firms. Both South Wollo Zone and Dessie City BoLSA work under the Amhara Regional State Bureau of Labour and Social Affairs in coordinating, monitoring and evaluation on OSH activities and major labour issues; but they lack strong follow-up activities, especially in the companies where major safety and labour problems were reported. This is partly because both the Dessie city and the zones’ BoLSA are understaffed, with each office having only 2 inspectors, which makes it very difficult to cover 22 Woredas in the zone and about 2000 companies in Dessie city. Accordingly, the following recommendations are made based on discussions held with relevant stakeholders in South Wollo Zone. 8.9.1 Recommendations • Provision of strong regulation and implementation system: While Ethiopia has adopted and implemented many labour related rules and regulations, there still remains a gap with regard to minimum wages in private sector. Based on the findings of the study, a revision of the current minimum wage in the sector is essential to create a decent and stable employment. Moreover, it is suggested that the regulation of foreign-owned firms that are in the economic

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zone be done at federal level if authorities/professionals in the zone cannot have a complete and autonomous power to implement the law. As labour inspectors indicated, they face ob- stacles while doing their job from higher officials often motivated by political interest. • Implementation of OSH policy strategies: Occupational safety and health policy is designed but the policy strategies are not yet communicated. This has created challenges for inspectors during inspections of firms. • Availability of skilled manpower: There are only two OSH inspectors per zone. There are 22 woredas in South Wollo Zone and these two professionals are expected to inspect all firms in the area. Moreover, there are about 2000 companies in Dessie city area alone and only two inspectors do the inspections. Thus, the government should assign enough number of professionals for inspection. • Organizational gaps need to be filled: Companies do not have OSH units and OSH inspectors that could monitor OSH activities within the companies. There is also poor understanding on the importance of OSH measures among employers. Thus, awareness creation activities should be strengthened. Further, OSH inspectors should put emphasis on the impact of in- efficient OSH measures on companies’ productivity when they provide awareness creation and other OSH related trainings. • Further research on provision of better working condition and OSH activities vis-a-vis company’s productivity needs to be done in order to get the attention and commitment of employers in the implementation of OSH measures in their companies.

9. TVET and Labour Employment System in South Wollo

9.1 Background to Ethiopian Technical and Vocational Education system

Global experiences attest that strong Technical & Vocational education and employment system of a country plays overriding role in furnishing skills required to improve productivity, raise income levels of people, and improve access to employment opportunities of citizens (Bennell, 2005). As a distinct training system, TVET is a part of the education system that makes an individual more em- ployable as well as active participant and relevant in the socio-economic system of a country (Ste- ven, 2013, p 43). Since the imperial period, different policies have been enacted to introduce TVET in Ethiopia. As in many other African countries, it was considered as second-class education. When vocational education and training was introduced, its objective was to improve the attitudes toward skilled, manual work, and thus divert part of job-seeking young population from seeking the white-collar jobs that were increasingly in short supply (Edukans, 2012, Ethiopia TVET-mapping report). In 1970s, selected high schools were converted to comprehensive high schools where students could have both academic and vocational education. Since coming to power in 1994, the current government of Ethi- opia has made TVET an integral part of the whole education ecosystem. In the past two decades, Ethiopia has managed to build large number of new TVET institutions across all regions of country to improve the accessibility of TVET. Throughout the regions of Ethiopia, the total number of public TVET institutions has shot up from 16 to 334, while total trainee enrolment swelled dramatically, from mere 3,400 to 273,600 over fifteen years’ period, 2000 to 2016 GC (Education Development

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Road Map, 2018). Private TVET institutions of comparable number to public’s were also established, though they predominantly train workforce in ICT, commerce, and health sectors. Currently, TVET- institutions are organized under different levels: TVET centers train (Level 1 and Level 2), TVET Col- leges from Level-1 to Level - 4, and Polytechnics from Level -1 to Level-5. 9.2 Varieties of TVET modalities in Ethiopia

9.2.1 Non-formal TVET

Non-formal TVET programs are run by public, NGOs or private providers to offer employment-oriented TVET for various target groups (school leavers, unemployed citizens, people in employment, school drop outs, illiterates, people with special need, marginalized groups in the labour market and others) who do not have the access for the formal program due to various reasons. It is an organized form of training with well-defined curricula for which the content and learning aims and targets have been defined. The expansion and implementation of non-formal TVET on a broader scale and in more diversified ways is of vital importance to increase the enrolment of the labour force population in need of training in the TVET system. 9.2.2 Informal-TVET Informal TVET is a training delivery that includes all kinds of centers (that provide education and training) that are not structured and do not follow a structured curriculum or syllabus. It includes provisions, such as on-the-job training, self-learning, learning-by doing, etc. Traditional apprentice- ships in small and micro enterprises are also another presumably important informal TVET. Instead of being delivered in formal schools it is transferred from generation to generation through observation of practices from the day to day activities of the families engaged in various crafts. 9.2.3 Formal TVET-systems In more generic and technical terms, one can define formal-TVET as education and training activity that is mainly provided to lead participants as a process of acquiring skills, knowledge and understanding necessary for employment in a particular occupation. (Atchoarena & Delluc, 2011). Accord- ing to the 1994 Education and Training Policy (ETP), formal TVET is set to be offered at second cycle Secondary Level (Upper Secondary Level). In addition, the policy outlined that non-formal TVET would be given for unemployed people, including youth who failed to complete the high school education. By considering this, the government has invested significant resource to increase access to and improve the quality and relevance of formal and non-formal TVET programs. For the last two decades, the government of Ethiopia has made remarkable efforts in improving the TVET sector and changing the old existing mindset and misconceptions about artisan practices and TVET-involvement. The government also made TVET policy changes. Yet the most dependable response was the development of Ethiopian TVET strategy in 2006. According to the program document, overall objective of the TVET-strategy is “to create a competent, motivated, adaptable and innovative workforce in Ethiopia contributing to poverty reduction and social and economic development through facilitating demand-driven, high quality TVET relevant to all sectors of the economy, at all levels and to all people” (MoE, 2008, p. 12). The 2006 TVET Strategic document also outlines around 10 basic pillar points:

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- Establishment of integrated, outcome-based and decentralized TVET system for Ethiopia; - Establish a common framework for all actors and stakeholders in the TVET system; - Capacitate the institutional set-up to ensure quality management system in TVET; - Provide market based training & improve quality of TVET (both formal and non-formal) - Focus on the expansion of TVET delivery that is crucial to national development; - Encourage enterprises to take part in the TVET system and strengthening the private training provision; - Empower women and rural people through skills development and ensure equal access of women and people with special needs to TVET; - Support job creation in the economy and development of self-employment culture; - Establish sustainable financing scheme of TVET and accompany it with efficient and cost-effective delivery systems and management structures; and - Establish substantial and sustainable human resource development mechanisms, with particular emphasis for the emerging regions of all sorts to effectively manage and implement TVET in all parts of the country.

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9.3 Research Methods This formative research has utilized both primary and secondary data collection methods. A qualitative research design, using three specific research methods, i.e. key-informant interview, focus group discussion, and participant observation, was employed. Extensive desk review was also used to collect secondary data from relevant zonal and regional TVED bureaus. Key informant interview was used to collect data from zonal/regional TVED-bureau officials, factory managers, TVET-centres’ Deans/instructors and microfinance officers. Thus, a total of thirteen (13) key-informant interviews were conducted with 4 TVET Deans, (2 public, 1 private, and 1 NGO), 4 factory managers (2 in Kombolcha and 2 in Dessie), 3-TVED-bureau Officials, and 2 Micro-finance- officers from “ABUKUTE” (Amhara Credit and Saving Institution). Focus group discussion was used to collect data from TVET students from three different training centres of South-Wollo. A total of 5 independent FGDs were also conducted with TVET students: 2 in Kombolcha Polytechnic, 2 in Hope TVET College, and 1 in Woizero-Sihin TVET College. In addition to this, observation checklist was implemented in the course of all those fieldwork/ site visits to observe existing education and training facilities and physical environment of training centres.

In regard to secondary research methods and secondary data collection activity, a professional document review and secondary data collection was conducted in zonal TVED bureau, zonal Labour and Social Affairs Bureau, and “ABUKUTE” Saving and Credit Institution. 9.4 Governance of TVET-Sector in South-Wollo Existing literatures and reviewed published TVED bureau bulletins of South-Wollo showed that in Ethiopian higher education system, the Technical and vocational-training is governed in two-tier- level governing bodies. The first, upper level autonomous entity is the federal TVET-Agency which is accountable to Ministry of Education, while the second-regional higher-level governing body is regional TVET-Agency. The Federal TVET-agency prepares model curricula and issues, and directives regarding TVET implementation. As a second tier-entity, Regional TVET Agencies are delegated to implement and supervise the implementation of decisions articulated by federal TVET Agency, including overall control of every-TVET centers, at its jurisdiction. Coming to our specific study area, South Wollo-zone, the higher governing entity of TVET-sector is Amhara Regional State TVEDE (Technical and Vocational Education Development Enterprise). Thus, in our study area, the Zonal TVEDE is legally empowered to oversee all existing 13 public TVET institutions and also holds the responsibility of accrediting private or NGO-TVET-training centers (Fig. 61).

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Federal –TVET Agency

Amhara National Regional state Technical and Vocational Enterprise Development Bureau

South Wollo-zone TVED Bureau

Thirteen TVET Centers

Figure 61 - Hierarchical organizational chart of TVET-Governance in South-Wollo zone

9.5 Access to and quality of TVET in South Wollo Regarding the accessibility of TVET, this study examined two interrelated issues: the first was the overall availability of TVET-training center in South-Wollo zone, while the second was the state of access to quality education across different areas (examining the difference in quality of TVET-education across those existing thirteen training institutions across different TVET centers of urban and rural woredas). Global experiences have shown that the mere expansion of TVET institutions does not solve unemployment and low economic productivity. For an effective TVET ecosystem, TVET shall respond to the demand for skill and competencies of the labour market to create a competent, motivated and adaptable work force, capable of driving economic growth and development. Currently in South Wollo, the total number of Government-owned TVET-Centres has reached thirteen (13) in number that have quite varied intake capacity, level of infrastructure, and teaching personnel. These 13 public TVET-training centers (Fig. 62) are dispersed across different woredas of South Wollo zone and they provide varied trainings under more than eleven departments (Agricul- tural Cooperative Services, Textile and Garments, Metal work, Furniture Making, Water and Irriga- tion Construction, Surveying & spatial technology, Telecom networking, Municipality Services, Tour- ism, Hotel operation, Automotive and Electronics).

Among the thirteen institutions, three of them are located in big urban areas (Kombolcha-polytechnic, HAYIK-TVET-center, and Mekanneselam-TVET). According to the information given by both TVET students and instructors, most of the prospective trainees prefer placement in the three urban- located training centers, owing to better quality education and on-job-training opportunities from nearby manufacturing industries.

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Existing 13 TVET-Training centers and trainee intakes as of March, 2019 237

320 358 365 2271 377

561

592

1290

912

1075 1221

1175

Kombolcha Polytechnic Ajjibar Hayyik Akesta Wereilu Sayintt Wagda-Tena wegidi Masha Mekaneselam Kelela Densa Legehida

Figure 62 - Distribution of TVET-centers across different Woredas of South-Wollo

According to the data collected from South-Wollo-zonal TVED bureau (April, 2019), there are also six private TVET-centers (4 in Dessie and 2 in Kombolcha) which train local youth mainly in the areas of garment, hair & beauty-salon making, driving, and professional-cooking. Moreover, the key-informant respondents from W/ro Sihinn-TVET-college explained that in south Wollo, the quality of Technical & vocational training is characterized by higher inequalities of quality education. Rela- tively, old and highly urbanized towns’ training centers, like Kombolcha Polytechnic and Dessie- W/ro Sihin, have by far a better training facilities and trainers than others. One FGD-participant student from Kombolcha Poly-technique Center also remarked on this by saying: “I prefer Kombolcha Polytechnique center purposefully by travelling more than 150KM from my families, our woreda also have TVET-Center, but my-current additional expenses for attending this training center gives me access to better quality education and much-on job/practice opportunities in nearby factories, even after graduation potential employers have preference in employing trainees from this renowned training-center”.

TVET is an effective and efficient tool for empowerment and enabling youth and adults to escape the trap of poverty in low-income communities, expansion of responsive and quality TVET making citizens more productive, and thus contributes for improvement of societal economic stand and social-well-being via expansion of economic opportunities.

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Recently as part of improving quality, the federal TVET agency, together with regional TVET bureaus of all regional branches, reorganized the TVET-system into outcome-based framework through Oc- cupational Standards (OSs). This framework is a competency-based training which follows agreed occupational standards that are developed by both trainers in vocational training institutions and representatives of manufacturing industry or other potential employers. By drawings from experience of countries with advanced TVET systems, like Germany and Singa- pore, recent Ethiopian TVET-policy planners advocate skill training relevant to local economic development to be given at primary school levels and for school dropouts. This approach suggests that 80% of general education completers (Grade10th) should hold the middle, wider part of labour force pyramid, while the degree holders occupy the relatively smaller, top and narrower parts of the Pyr- amid (MOE, education road map, 2018). Moreover, the guiding principle of this approach also dictates that school-dropouts and peoples with special needs shall pass through some form of TVET or technical apprenticeship before joining the world of work. In South-Wollo, despite the increment in the rate of TVET enrolment, a high part of grade 10 completers who could not continue to preparatory education are not still part of TVET. According to data obtained from the abstract of the annual (2017) education statistics document of Ministry of Education, the TVET enrolment percentage share of Amhara regional state, out of the country total enrolment by the year 2017, was 24.2 %. Moreover, if one compares the regional percentage share of TVET enrolment in Ethiopia, the figure varies between highest (31.2%) in Oromia and lowest (0.5%) in Afar region. At the time of this study, across all those 13 public TVET-training centers of South Wollo there were more than ten thousand male and female regular students enrolled across eleven-different disciplines (Fig. 63). Regarding gender equity, among the total number of current total TVET enrolment within South Wollo, around 48% of them are females, which is close to the national level female TVET enrolment value of (51.9%). Especially in some particular departments, like garment and customer handling, the participation of female trainees reaches up to 90% of admissions.

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Zonal level Enrollment of TVET for the year 2018 and 2019 11 10,754

10 Migliaia 9

7 6,462

6 5,511 5,243 5 4,292 4 3,263 3,199 3 2,248 2,044 2

0 New-entry 2019 Entry 2018 Current-Total Enrollment

Male female Total

Figure 63 - Total Enrolment of TVET-trainees at South-Wollo-in current & previous year

Efforts of establishing an efficient and quality TVET-ecosystem in Ethiopia may continue to be challenged unless the perceptions held by students, parents and the general public are meaningfully addressed. It is only through the promotion of quality TVET as a key ingredient for change in local economic developments as well as national economic productivity that TVET can become attractive to trainees and other concerned private-actors. Hence, the local government of South Wollo still have much to do in promoting TVET as important area of development plans.

According to our KIIs at South Wollo-TVED bureau, both TVET-leadership and providers recognize the existing serious quality problems, and hence they are about in processes of taking different mit- igation initiatives like improvement of strategic inputs, such as curriculum, quality of students, trainers, infrastructures, and encourage participation of potential private employers of TVET. 9.6 Perspectives from Potential Employers of TVET graduates Coming to the concerns and perspectives of potential TVET-graduate employers on current graduates’ performances, among the three interviewed factory-managers, two of them testified that in their companies, most of the recently employed TVET-Graduates show average technical performance and they need quite short time to learn and be fit to the production system of the firm. Interviewed factory-mangers also stated that most of their new entry TVET-graduate workers lack strategic soft skills such as communication, teamwork, planning and persuasion skills. On the other hand, a metal-nail-factory owner from Dessie-town (Kassahun-Manufacturing) also stated: “compared to previous graduates the recent TVET-Graduates have limited technical/hard skills capabilities, though they are also fast learners to acquire skills and adapt to the existing production system”.

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Despite the fact that the government prioritized industrial skill development and expansion of technical and vocational education to feed the necessary skills, the wider mismatch observed between the skill available and the skills required by manufacturing firms resulted in high figure of unemployment within TVET-graduates. Most of the research respondents opined that majority of TVET-trainers expect students to have generic skills such as input raw-materials, production process quality guidelines and varieties of production across the globe, while most of the factory managers expect and demand-specific quality production than variety, and they evaluate trainee’s performance on specific productivity outputs. The consequent situation implies that the training delivered is predominantly theory-based. Interviewed factory-Mangers at Kombolcha and Dessie implied that most of TVET students didn’t get adequate opportunity to exercise through required machinery and equipment in accordance with requirements of proposed training delivery approach (the approach dictates 70%-80% of training time for practical exercise). On the other hand, even in big training institutions like Kombolcha Polytechnic, student-machinery ratio is below the average and this in turn reduces the opportunity of trainees for practical exercise exposures. Another production supervisor from Tal-garment of Kombolcha Industry Park stated: “it has been more than five years since regional TVED bureau has begun implementing outcome-based vocational training; yet, I am concerned why the majority of the graduates are found not yet competent in the occupational assessment carried out by the Centers of Competence, it is primarily about the underperforming quality trainings”. The present globalized situation of manufacturing sector requires the use of up-to-date and adequate machinery and technological equipment for training sector’s workforce. Particularly, in such rapidly changing technological world, it is important to bring in new equipment, and make trainees familiar with it. TVET-centers are also expected to be front liners in creating technology framework that enables advancement in capabilities of technological learning and TVET-industry linkages. Find- ings from this study indicate the prevailing TVET set-up of South-Wollo is challenged by deficiencies in all these areas, which needs to be improved. 9.7 Societal-values of TVET in South-Wollo community Historically, the overall practice of artefacts and technical skills had held a relatively poor public- image in Ethiopia. Engagement in those areas was also often associated with low social status, payments, and even closed social mobility opportunities across social-ladders of the community. South Wollo community is also part of this long existing stereotypes and degrading societal consideration of people who are engaged in one of those artefact productions. Rooted in societal-value systems, those long-standing labelling and social exclusions have stood the test of time and challenged current day societal values to broader TVET-sector in many parts of Ethiopia. According to the FGD participants and key informant interviews, the South-Wollo community has undergone through a number of changes in perspectives and societal values towards TVET sector. One of the easily observed societal change is a positive change in families’ attitudes and encouragement of youth for TVET enrolment. As FGD participants indicated, factors behind these changes were two-fold: 1) observed high unemployment rate of university graduates in the recent past that has made families and youth accord lesser importance to university-level education, and 2) the

136 observed better economic reward of TVET-sector - be it in wage or self-employment opportunities, leverage significant attraction into the sector.

With regard to this point, one of the FGD-respondent says: “In the past years TVET was reserved for academically-lower performing students who were incapable of getting enough scores for university entrance. Nowadays, though TVET-entrance score requirements are still lower than the preparatory entrance requirements, significant number of students with higher grade-10 national examination results have begun to switch to TVET-than pursuing their university education”.

Another FGD-participant from Hope Vocational Training Center also remarked, “When I was initially made to attend this electricity training two years ago, I was not totally happy; my dream was attending preparatory school. But now I am thankful for not entering preparatory school; I like both the technical profession and the job opportunities I have. I am left with 4 months to graduate, [and] yet, even at this time I managed to work in two different private workshops as part-time worker and earn a minimum of four-thousand birr a month”. Finally, FGD participants indicated that still in many rural areas of South-Wollo, TVET is considered as inferior to the academically-oriented university degrees and as a training route suitable for those with poor academic abilities. That is why most trainees perceive TVET as a second choice compared to university education. This negative perception affects not only the commitment of enrolled TVET students but also affects their plans after graduation. Recruitment and deployment of mentally prepared TVET trainees is not an easy task; yet such a second option attitude can also prevent students at the lower levels from developing a positive interest in joining technical and vocational education fields and broader sectoral involvement. 9.8 TVET and Private Sector Partnership Experience from countries where TVET sector is much evolved shows that the private sector played a pivotal role in enhancing the development of the sector via-both forward and backward linkages. In South Wollo we can observe the significant contribution and link between TVET and the private sector. According to our field observation in Dessie and Kombolcha, small and micro enterprises, including most technical-skill oriented self-employment business, are found to be predominant employers of TVET graduates from its formal or informal forms15. Within the South-Wollo community, in the last few years, private actors have been serving as both the supplier and consumer of TVET-Sector. Despite the presence of huge, to-be-trained young demographic opportunities and demand for varied TVET- education, still considerable number of private TVET institutions were being involved in TVET-training delivery, especially in most populated and urbanized towns (Dessie, Kombolcha, and Mekaneselam). Yet, the involvement of those private actors in TVET of South Wollo is limited only to low-cost soft occupations and hence training delivery on the costly hard occupations is still mostly left for the government based TVET-Centers in a similar fashion to other regions of Ethiopia.

15 Formal-TVET represents the conventional 1-2 years TVET-training/graduates who pass through the full curriculum based training programs. While the informal-TVET refers to varied TVET-trainings from short-term certificates programs or even to those community level TVET-informal training participants who acquire some form of vocational skills without passing through formal curriculum based Training procedures.

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Across all regional states of Ethiopia, the government is the major financier of TVET. The federal government finance is largely used for governance of TVET sector at federal to develop strategy, capacity building programs and monitoring of the implementation of strategy. In contrast, the regional governments are largely responsible for TVET-Centers building, facilities arrangement, and trainer recruitment. At South-Wollo, in addition to regional government, both Private actors and NGOs are also involved in making investment in establishing TVET institutions as well as creating some form of job opportunities for TVET-Graduates. A few international development partners, like GIZ-of German government, have also made significant financing in provision of technical support and training facility provisions. 9.9 Case study: HOPE-TVET-Center Our field work at Dessie HOPE-TVET-Center showed that involvement of private or NGO-based TVET-actors could be one dependable source of quality TVET-delivery, especially to those remote, less accessible areas where the government made little or no TVET financing. According to the key- informants from HOPE-training Center (the School Dean), their institution managed to be one of the best TVET-providers in Dessie area though its trainee admissions are primarily aimed to its own-high school-graduates who prefer to follow TVET disciplines. Currently the center trains around two hun- dred regular students. In some circumstances, the center also accepts trainees from other than its own high school graduates, especially students from economically disadvantaged families of nearby communities. Cur- rently HOPE-training center is giving quality TVET-trainings across five departments. FGD participant students of the center also implied that in some of the training fields, like garments and automotive, HOPE has even better training facilities than the government owned colleges. According to the FGD participant students, the relatively small instructor - to - trainee ratio and better training facilities availabilities of the center enabled them to get quality education and training; they also explained that the school’s curriculum allocates sufficient amount time for practical engagements of learning-by doing. Moreover, trainees in each department are also being sent to apprenticeship programs to nearby manufacturing firms or other relevant organizations.

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Garment-trainees & facilities at HOPE-TVET-School (NGO-owned)

According to Zonal TVED bureau head, the local government of South-Wollo zone has designed an important strategy whereby TVET and MSEs could strategically cooperate. The interviewee also mentioned that such cooperation could serve as one means of reducing the observed inefficiency problems of TVET system and foster graduates’ employability. Hence in South-Wollo, TVET system is expected not only to match demands of MSEs but also encourage trainees to establish group- based MSEs as new entrepreneurs. More importantly, existing microfinance institutions are also expected to expand credit access and market opportunities for Micro and Small enterprises. Job-creation and market-linkage officer from “ABKUTE” stated that, in South-Wollo community, after the initial establishment stage of business, many MSEs of South-Wollo community often faced big-challenges in the area of production space and market constraints for business-expansion. In connection to this, the officer also mentioned the relevance and need for establishment of business clusters across varied TVET-related Micro and Small Enterprises. According to the officer, the main causes of marketing problems of South-Wollo TVET-oriented mi- croenterprises include poor-market value chains, weak vertical/horizontal production linkages and shortage of production/sales place; hence the establishment of production clusters in same geo- graphic localities could significantly help to reduce the aforementioned marketing hindrances. Through strategic linkage of TVET-oriented small-scale enterprises and regional public development plan, South Wollo governance could possibly address not only problems of start-up capital but also could solve serious marketing problems that such enterprises often face.

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9.10 Two Strategic Assets of TVET-Sector in South-Wollo: Financial and Social Capitals This paragraph reflects on issues that emerged from the research as two decisive bottlenecks to TVET-employment and productivity: access to credit (financial capital) and access to social capital. 9.10.1 Access to Credit (financial capital) Results from KIIs show that, one of the current peculiar features of South-Wollo zone is a steady- progress of young TVET-graduates’ participation in micro and small-scale manufacturing enterprises. Though wage-based employment of young TVET-graduates on small-enterprises is most common, a significant number of TVET- streamed youth choose self-employment. For such self-job creation aspirations shortage of starting capital is a foremost restraint. At the time of this research, across all woredas of South Wollo there were only three credit and saving institutions and one cooperative agency which could serve as source of credit for TVET oriented micro and small business enterprises. The most notable and strong saving and credit institution which has been aggressively working on the majority of the woredas is Amhara Saving and Credit Institution (ABIKUTE); other small credit providers are WISDOM, VISION-FUND, and PEACE (which is working only in Hayk area). In-connection to this, one FGD participant from HOPE-NGO- based TVET training center said, “Currently in our community traditional saving & credit mechanisms like “equbs” are the easy ways of ensuring cash funds for start-up capitals especially by those who don’t have any collateral assets to access interest-based credits of banks or other formal credit giv- ers”. In another FGD participant’s opinion from Garment Graduate of HOPE-TVET center: “I and my friend had contributed a monthly “equb” for almost 12 months to raise our initial capital of 12,000 birr & to buy a sewing machine, then after we managed to open our small catering business around a corner of a mall in Dessie. We still have capital constraint for expansion, yet our business is rewarding to the extent that we have long-order appointments” 9.10.1.1 Performance of Credit-Providers According to our KI from Amhara Credit and Saving Institution, for the year 2018-2019, their organization has managed to distribute a total amount of 34 million birr from revolving fund-budget within the last 12 months period. He also stated that, specifically for a group of TVET graduates who were submitting sound proposals, ABUKTE has distributed a special credit product for a total value of 8.577 million ETB. Regarding the paying-back (return) practices of the borrowers, our key informant indicated that most young-TVET- graduates are doing better in paying back payments as per the specified schedule. The main implementation challenges of TVET-Employment oriented saving and credit service provisions in South Wollo include problems of effective group-formation, limited types of credit product, and huge gaps between demand and supply of total amount of available credits. According to the loan and market-linkage officials of ABUKUTE, major criteria of TVET-graduates for accessing credit service is that graduates should establish groups. Group-based lending practice used by credit-providers as one mechanism of assuring repayment; yet from the beneficiaries’ side, this group- based approach is becoming a source of insecurity as a result of individual members’ poor performance, lack of commitment or absence of trust in sharing benefits.

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Another challenge to credit service providers of South Wollo community is limited type of credit products which are available for potential and actual service clients. Most of the product types were coming directly from the regional head office and sometimes they are incapable of addressing woreda level context-based credit-demands of communities at a grassroots level. Finally, officials of credit-service providers indicated the existing huge-gap between the total demands of credit service and available supply of credit services. For example, for the year 2018, ABKUTE alone has collected a total monetary saving value of 13 Million birr while the community members’ monetary demand of credit services exceeds 74 Million birrs. For example, our finding from a private garment school in Kombolcha shows how limited credit accesses hinders the expansion of this training and production oriented private initiatives as a small- level manufacturing sector. Currently, this center enrolled around 200 trainees and also to some extent produces shirts and trousers, yet existing financial limitation hinders both training and production expansions. Microfinance institutions are also expected to expand credit access to MSEs; the owner of the school explained that his repeated efforts to get credit access have become un- successful due to big collateral requirements from existing bank-based credit providers. Thus, absence of tailored credit-products in his area has challenged expansion of his business in spite of the huge local market demands for his garment products.

Trainee students and facilities at Tesfaye-Garment in Kombolcha

9.10.2 Access to Social-Capital (Trust & Social-Ties) Different scholars at different times have coined contextual definitions of Social Capital; yet this study adopted the definition by Fukuyama, who understood social capital as ‘The ability of people to work together for common purposes in groups and organizations’ (Fukuyama, 2000, p10). Com- munities with a diverse stock of social networks often have a stronger position to confront poverty and vulnerability (Narayan 1996) or take advantage of new opportunities (Ishim 2000). Another manifestation of strong social capital stock includes norms and values which facilitate ex- changes, lower transaction costs, reduce the cost of information, permit trade in the absence of

141 contracts, encourage responsible citizenship, and the collective management of resources (Fuku- yama 1995). This conceptualization of the role of social relationships in development endeavours represents an important departure from earlier theoretical approaches. In South Wollo, we can observe a paradoxical, two-tail status of social-capital functioning. On the normal day to day social life of the communities, one can observe the existing strong reciprocal social ties and collective actions of community members. Both at household and community level informal institutions like “Equb and Eddir”16 are well-functional upon which each community members could rely on in responding to shocks or stresses like death of family members or loss of productive assets. Yet beyond serving this role of safety-valve, the prevailing social-capital stock is serving little in local economy development productive activities. In relation to this productive role of social capital, one of FGD-participant from cooperative-training program stated: “In our town, majority of our youth have poor culture of using their social-capital for productive engagements. For-example most of TVET-graduates have initially established friend- ship based small or micro-enterprises, yet very soon most of them dissolved the business due-to disagreements and quarrels, despite the profitability of their firm”. Another participant added: “I have been working as a metal work professional for the past three years; I got firm experience through wage-employment across different construction and manufacturing firms. I also have well-skilled friends; currently I feel that it is the right time to establish our- own business, yet we don’t have the trust and individual commitment to taking loan risks. For example, in recent-past we have got credit access opportunity from south Wollo zonal TVED-agency yet none of us have a trust on group members and were unwilling to bring collaterals (housing ownership document) at least from one of our families’ property”. 9.11 Concluding-Remarks Currently in Ethiopia both the federal and regional TVET agencies are doing a number of reforms to create industry and manufacturing sector responsive TVET-Ecosystem in Ethiopia. Yet this requires a sustainable creation of competent, motivated, adaptable and innovative workforce and professional citizens who are being trained in the “ability to learn” training environments. In current South- Wollo post-secondary education system, TVET still constitutes a major part of regional education strategy that primarily aims at the development of marketable entrepreneurial skills to the existing local economy and overall societal development endeavours. Findings from this formative research and exiting sectoral reports of South-Wollo government indicate that there are substantial improvements both in expansion of TVET-centres and trainee enrolments comparably both in urban and rural woredas of South-Wollo; however, existing evidences also show the prevalence of serious training quality gaps and education quality inequalities between TVET-centres across different woredas of south Wollo. Moreover, some TVET employers of the area also mentioned that existing TVET-centres’ training mechanisms are lagging behind to respond to the actual demand of the labour market in South-Wollo manufacturing firms.

16 “Equb’’ and ‘’Eddir” are the most common informal financial institutions practiced among a bulk of Ethiopian rural/urban population for provision of credit and insurance respectively. In the case of equb, members contribute an interval based payment which will be collected and given to the most needy member on the turn by turn basis, While in the case of “Eddir”, people in same locality contribute a monthly small amount of money, part of which will be used for execution of funeral-ceremony.

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Despite the presence of a few private TVET-providers and NGO-based training institutions, South- Wollo has an underperforming private-sector involvement through all possible involvement areas of training: center construction, facility financing, or even in collaborating with existing public TVET actors, which, again, undermine the efficient development of overall TVET sector. Our key informants also indicated that there is a weak integration between TVET centres and manufacturing sector employers, including poor feedback exchange arrangements on skill demand and supply.

Most of FGD participant TVET-Trainees explained that there are promising societal and family level attitudinal and perception changes towards TVET-sector involvement since the past few-years. The relatively better employment opportunity and rewarding income benefits from TVET related job was indicated to be a major factor behind the observed progressive attitudinal change. Yet on the other hand, some FGD participant students also mentioned that in many rural woredas of South- Wollo TVET is still taken as a second level option to university level education.

Shortages of financial capitals and unproductive social-capitals were indicated to be the main challenges of TVET-sector development in south Wollo community. Respondents stated that in whole woredas of the zone, there are only three saving & credit institutions and one local-cooperative which support business expansion of TVET-oriented small and micro enterprises. Though there are well established traditional social institutions & responsive social interactions for welfare related societal demands, the community has poor social capital stocks that will be used for any productive outcome activities in the local economy of South-Wollo.

9.11.1 Recommendations Most accredited literature on the area of manufacturing-industry mention that major challenges of manufacturing sector development in sub-Saharan economies are associated with shortage of industry-skilled manpower and insigniﬁcant sectoral labour shift from agriculture to manufacturing (McMillan et al. 2014). Hence, the role of TVET in filling this skilled manpower gap and contributions in furnishing of harmonious sectoral labour shift will be immense. By recognizing this strategic purpose of TVET-sector, the local government of South Wollo shall expand its all-round support to both public and non-public TVET-institution in the region.

• At structural level, both regional TVET institutions and the manufacturing sector employers shall collaborate and improve the existing weak alignment of vocational skills training programs of TVET centres with the zonal & regional-level skilled workforce demands: existing TVET institutions are largely established in different cities of South-Wollo or in selected woredas only for the sake of access without considering their potential contribution for immediate local economic activities and youth employment opportunities.

At meso-community level structures shall evolve to the continuously expanding TVET-sector financial capital demands and horizontal and vertical integration requirements. Existing formal and informal micro-finance institutions of South-Wollo shall improve their credit-product types and credit service procedures. For instance, after successful establishment of TVET- based micro enterprises, most productive youth of South-Wollo community have encountered credit and market constraints for productivity expansions.

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The local governance shall put in place strategic legislative changes of tax incentives and financial management policies to emerging TVET-oriented micro and small manufacturing firms. For example, one manufacturing owner indicated that his small firm could afford to employ additional fresh TVET-graduates yet his suspicion of tax-increment from additional number of employees made him refrain from accepting new entry-level employment enquir- ies. • At individual level, each community member shall make an attitudinal change toward the strategic role of TVET-Sector in local economic development endeavours. Families are still expected to encourage or even push young students to take TVET as a first priority career path than taking it as a second option to university level non-vocational education. The newly graduates of TVET-sector youth of South Wollo shall also change and develop the existing weak team-work sprit and short lifespan, group-based small enterprises productivities through a careful cultivation of social trust and social capital investments practices among the youth and the wider community.

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10. Final remarks

Each chapter of this report has been designed as a short independent essay. Accordingly, each of them is closed by some final remarks and policy recommendations, suggesting actions aimed at improving the economic and socio-political issues analysed by the research, namely: textile and garment value chain, metal work value chain, agri-food processing value chain, constructions value chain, the role of the Kombolcha Industrial Park (KIP) in local economic development, public-private partnerships, and labour and employment policies and services of the TVET system. Thus, the dual aim of this final chapter is: a) to make a selection and synthesis of the main issues highlighted by each single chapter of the report; and b) to relate the findings of this research with what had emerged in the inception phase research, in order to better adapt the next implementing actions to the specific context of South Wollo. The main dimensions of this final analysis will be related to the objectives of the SINCE Pro- gramme implementation in Amhara region (Lot 2). The overall objective of the action is to reduce irregular migration by improving the living conditions of the most vulnerable population, including potential migrants and returnees, with specific focus on youth and women. This overall objective is intended to be achieved through two specific objectives: 1. to improve access of the target group to quality TVET training and (decent) employment opportunities in the Amhara region through the promotion of partnerships between private sector, public institutes, and TVETs; 2. to improve capacity of industrial clusters of companies in the textile/garment, metal, and construction sectors (we added the agri-food processing) to create additional (decent) job opportunities. This will be done by improving vertical and horizontal market linkages and strengthening management capacity of SMEs. The analysis of the four value chains that have been investigated by this research revealed some recurrent issues that are worth to be mentioned in this final chapter of synthesis. Even if value chain has its specificities that are explored in depth in the dedicated chapters, in these conclusive reflections, we will focus mostly on the transversal issues, common to most of the analysed value chains. Table 35 considers each value chain separately, commenting on the action recommended by the inception phase gaps analysis in the light of the findings of this research that focused on the South Wollo zone. Before starting these general reflections, it must be noted that most of the debated topics emerge differently according to the size of the considered enterprises. Small firms are predominant in the region and represent a fundamental asset for self-employment (entrepreneurship) and waged-employment in the region; however, they suffer from a general low entrepreneurial approach and being more exposed to the system fluctuations. Even if individually they can weakly affect the system, in terms of production and jobs creation, they represent a great, mostly unexpressed potential as clusters members, as will be discussed later, especially in areas far from main urban centres, where high majority of total firms are located.

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Medium and large firms are less in number and concentrated around the main urban areas (notably Dessie and Kombolcha), but they play a predominant role in revenues and jobs creation. Generally speaking, they have a stronger structure and broader value chains (e.g. foreign input suppliers and output markets). Getting back to the most recurrent issues that emerged from the analysis of the four value chains, we can classify them into four main groups. The first is related to inputs, representing the initial phase of the value chain. The first kind of inputs that are commonly discussed during the value chain analysis are raw materials and production components that companies buy from local producers or import from other Ethiopian regions or from other countries. The main remarks on this topic are related to the low quality of some local raw materials that affects the quality of final products; the uncertainty of provision, due to infrastructures and political unrest; and the variability of prices. The second type of input that should be mentioned is credit. Even if small firms have often access to informal credit systems (e.g. with local suppliers), the problem of access to credit for buying inputs and investing in production is commonly mentioned by entrepreneurs. For Muslim entrepreneurs the problem is bigger, because of the even harder difficulty to find interest-free credit, according to the Islamic religious precepts. Larger firms also report the shortage of foreign currency (US$) that is necessary for bigger investments and for importing inputs from abroad. The second is about labour. This topic can be addressed from two perspectives: the employers’ and the employees’, even if in order to achieve a sustainable and effective productive environment, they should aspire to converge. Employers report the average low skills of workers, despite the active TVET system in the zone and the high rate of employee turnover. On the other hand, it must be noted that wages often are not adequate to guarantee a long-term commitment of workers in the same company. This happens also in foreign companies based in the Kombolcha Industrial Park. Moreover, OHS and decent work basic requirements are rarely met completely in work environment. The third group of issues regards the role of public actors in addressing and supporting the value chains. This role is mentioned throughout the analysis stressing different aspects. The first is related to the promotion and support of clusters, that is considered as an important issue, notably for small firms, that can benefit from public provision of infrastructures – like shelters – from scale economies and from knowledge exchange with other firms. The role of the Kombolcha Industrial Parks can be considered as similar to that of smaller clusters, even if addressed to large enterprises. As we will discuss later, though, the KIP strict access rules limit the presence of Ethiopian companies. Another crucial field of action of public institutions is related to public commissions for some productions, linked to public works, especially in the construction and metal works sectors, and to public regulations, regulating the actions of economic actors with double-edged effects (like in the case of bread production regulations and flour subsidies). The recent norms on public-private-partnerships (PPP) provide a new political and regulative framework to such public-private relationships. The fourth and final group of remarks concerns the structural context where firms operate. It can be analysed from three main dimensions. The first are transport infrastructures: even if currently the infrastructures networks are still not completely adequate to the needs of the more competitive

146 companies, South Wollo’s geographical position is strategic and the infrastructure system is going to be considerably enhanced, especially considering the railways projects (connecting the North of the country to Addis Ababa and to Djibouti) and the role of the Kombolcha airport. The uncertainty of power supply is currently a crucial problem, especially for the more energy-demanding firms (e.g. using ovens). Another issue that is often mentioned is the role of the frequent political unrest in the Amhara region and in the rest of the country in affecting the inputs supply to South Wollo enterprises. As indicated earlier, Table 35 presents some comments with regard to the actions recommended by the inception phase, pertaining to the four analysed value chains. More detailed policy recommendations are also included in the chapters reporting the value chain analysis results. Table 35 - Comments on the actions recommended by the inception phase research, vis-a-vis the implementation phase research findings in South Wollo. Inception phase recommended ac- Comments after research in South Wollo Sector tions 1. Supporting access to finance and The lack of managerial skills generally affects the managerial skills for potential subcon- competitiveness of African small and medium tractors of larger companies within ex- firms. From this analysis it did not emerge as a pri- isting clusters. ority, even though we consider the bias due to the data collection methodology. 2. Supporting “flexible workshops” in Metal work sector in South Wollo is dominated terms of building capacity for business by small firms, currently scarcely cooperating development, updating of existing and proposing homogeneous products on the technical skills, entrepreneurial capa- market. Market linkages and entrepreneurial

bilities and forward market linkages capabilities in this area should be mostly addressed to promote clustering, scale economies

and cooperation. 3. Strengthening PPPs in workers’ skill TVET’s offer in preparing metal work firms’ em- development, e.g. through the estab- ployees is described as expanding in South METAL WORK METAL lishment of public-private platforms Wollo. A challenge to face is about the spill involving the main stakeholders in the overs of the TVET system to small firms, repre- sector, and by strengthening the TVETs senting the majority in this sector. The recom- in providing additional courses tailored mendation would be to promote the clustering to the needs of the private sector and collaboration of firms also about the relationships with the TVET system. 4. Legal and organizational support in This action could help in furtherly supporting the strengthening the contractual relation- creation of horizontal and vertical cooperation ships between main contractors and among firms, providing clustering with further legal sub-contractors. frameworks. 1. Developing the capacity of key agri- South Wollo has good potential for starting lo-

cultural researchers to ensure sustain- cal agri-food value chains (e.g. cereals, able and quality seed supply, and pro- oilseeds). Collaboration with local research in-

FOOD

- vision of IPPM packages for farmers. stitutions and NGOs can support these initiatives. Seed supply and IPPM packages should AGRI always take into account the environmental, social and economic sustainability of

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Inception phase recommended ac- Comments after research in South Wollo Sector tions production, that leads to a long-term better management of local resources.

2. Supporting target TVETs and provi- The education and the improvement of agri- sion of training packages for farmers, food actors is crucial to increase the competi- cooperative unions, and extension tiveness of this sector. TVETs offer and training agents. packages should provide a value chain perspective, going beyond the individual firm’s interests. 3. Facilitating sustainable linkages be- Local producers provide small agri-food farms tween farmers’ cooperative unions with raw materials, but a comprehensive and agro-industries through aware- framework of farmers’ agri-food processors ness creation, support in quality con- linkage is still missing. These initiatives could trol and certification, and trainings on contribute to establish it. business management (e.g. through inclusive business partnerships and contract farming models). 1.PPPs on skills development, e.g. This can contribute to enhance the sector’s through the establishment of public- competitiveness, even if PPPs issues do not ap- private platforms representing the pear to be as relevant as in other sectors in main stakeholders in the sector, and South Wollo. The public plays a crucial role in strengthening backward and forward the management of the Kombolcha Industrial linkages. Park, where some (foreign) large firms operate. 2. Upgrading TVETs’ human and tech- Unskilled workers and weak links with TVET nological capacity, e.g. through ToT, system are among the main internal weak- Pilot Production Centres, twinning ar- nesses affecting this sector. The establishment rangements between foreign local of stable and structured frameworks for linking stakeholders/training centers. workers training with companies’ needs could definitely be an effective way to overcame such weaknesses. 3. Twinning of medium and small en- There is no doubt that the creation of a local terprises with emerging large facto- vertically integrated chain, connecting small- ries, e.g. Ready Made Garment, and firms (sub-providers) with large firms can be a

TEXTILE AND GARMENTS AND TEXTILE production of accessories. relevant field of action for supporting this strategic sector in the region. 4.Clustering of existing medium and Such clustering could help firms to enhance small enterprises on apparel manufac- their position on local markets, providing them turing with finished products. 5. Clustering within the handloom sub- The handloom segment is well represented in sector for the local and international South Wollo. A crucial challenge in this sense is markets. how to match such production with changes in fashion, that brought traditional clothes to be worn almost exclusively for special occasions.

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Inception phase recommended ac- Comments after research in South Wollo Sector tions 1. Strengthening PPPs in workers’ skill Hollow blocks production is one of the strategic development for start-up companies sub-sectors identified for South Wollo. Estab- engaged in the production of hollow lishing PPPs aimed at supporting specialization blocks and pre-casted products, e.g. in this field can help to enhance the sector. through strengthening TVETs in providing additional courses tailored to the needs of the sector.

2. Strengthening PPPs in workers’ skill PPPs are crucial in addressing workers’ skills development for finishing work start- development programs. The research high- up companies, e.g. through strength- lighted their fundamental role also for what ening TVETs in providing additional concerns public works (commissions) and pub- courses tailored to the quality needs lic regulations on new buildings or urban ex- of the sector. pansions. CONSTRUCTION 3. Promoting access to managerial The difficulties of firms in assessing the amount skills and organizational capacities for of works that can be carried out respecting the sub-contracting firms in both con- time schedules and quality are stressed by the struction materials and finishing research as one of the weaknesses of this sec- works, e.g. through the strengthening tor. Such initiatives could effectively address of public private platforms involving this issue. TVETs and business support service providers.

As described in the introduction, according to the inception phase findings, the implementation actions: • Should allow for the achievement of the SINCE objectives; • Can be effectively implemented by partners; • Can be related both to specific value chains and to other sectors; • Should involve TVETs, increasing their capacity to provide effective training; • Should involve selected clusters with high potential for additional employment opportunities; • Should facilitate the involvement of public and private stakeholders for ensuring project effectiveness and sustainability. The inception phase paid a special attention to two fields of intervention: TVETs and clusters. The TVETs system has also been investigated in detail by this research, using different data collection techniques as fully reported in Chapter 9. The comparison between TVETs’ interventions proposed by the inception phase and TVETs’ key issues in South Wollo as revealed by the current research is presented below (Table 37).

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Table 36 - Comparison between proposed TVETs’ interventions (inception phase) and TVETs’ key issues in South Wollo Recommended TVETs interventions (incep- Key TVETs issues in South Wollo at present tion phase) - Assistance to improve the relationship with – weak interactions between TVET centres and firms in the provision of on-the-job train- manufacturing sector employers in terms of ings and subsequent employment; mutual feedbacks about skills offer and de- - Provision of support for the costs incurred mand and training offer. by the enterprises for the training on-the- -private actors (e.g. NGOs) are under-repre- job; sented and under-performing in the South - Assistance in the formulation of appropri- Wollo TVET system ate curricula that respond to the need of - social prejudice about TVET and manual work the industry for different specialization lev- (second choice after university) els (e.g. basic operators, middle manage- - concentration of TVET centres in main urban ment staff, business management, etc.); areas and poor reach out to rural areas. - Assistance to the Training of Trainers (ToTs). It may involve linkages between private and public TVETs; - Provision of support for the training costs; - Creation of awareness about availability of additional training activities. This action aims at spreading the knowledge among both workers and firms of the new training opportunities; - Provision of support for the establishment of twinning arrangements between the selected TVETs and international TVETs;

The second field of interventions proposed by the inception phase research was clustering. As already discussed, this issue frequently emerged during the present research in South Wollo and it can be considered as a priority for enhancing local firms’ competitiveness, with positive spillovers in terms of employment and job creation. Clusters can provide small and medium firms with material (shelter, shared machineries) and non-material (knowledge exchange) infrastructure that would be hard to obtain individually. Clustering can also represent the framework for establishing value chains’ local vertical and horizontal integration, aiming at fixing locally added economic value that currently is being extracted and exported (e.g. in the export-oriented textile and garments production) or not sufficiently ex- ploited (as is the case with the creation of local agri-food value chains). The interventions recommended by the inception phase are largely congruent with the South Wollo context and can support existing clusters, as well as stimulating the creation of new ones, benefiting public-private-partnerships. A special role in this sense is played in South Wollo by the Kombolcha Industrial Park, a large-scale cluster whose strengths and weaknesses are widely discussed in Chap- ter six.

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Appendix 1: Data Collection Tool – PPP

Questions for Key Informant interview for Public private partnership

Name of the Interviewer______Date of Interview______

1. Name of the Organization ______2. Position of the interviewee ______Sex______3. Work experience in public organizations ______Years 4. What are the prime purpose of your organization? 5. Can you please tell us the main stakeholders involved at achieving the prime purpose of your organization? (Rank them based on closeness) 6. Did you have took the initiative for public private partnership consultative meeting with private sector? 7. Who are the main partners for your organization? (Specifically for the construction sector)

154

8. Please list all the private organization with whom your office is working together? Rank the level of collaboration as shown in the table from 1. Very weak, 2. Weak 3. Moderate 4. Strong 5. Very strong

Name of the private organization At planning Implementation Evaluation Other type

…

3. Did you have memorandum of understanding with whom you are collaborating? 4. If “Yes” can you please tell us the areas of collaboration you came to do together? 5. Could you please explain us the PPP framework that your organization have in hand? 6. How does your organization recognize the significance of public-private partnership? 7. What are the important factors for the collaboration between the private and public sector? 8. What are the potential areas for public-private partnership in relation to your organizational purpose? 9. Did you have guidelines for evaluating the public-private partnership evaluation? 10. If “Yes” Can you please tell us the focus of these guidelines? 11. For which sector did you think that PPP is more required from the viewpoint of your understanding? 11.1 Could please tell us the reason (why) for the above reflection? 12. What are the challenges that can be explained from both the private and public sector?

Appendix 2: List of Participants – PPP Interviews

Table 37 - Interviewed officers and firms for public private partnership

Interviewee Name of Office/ Firm Ownership

Mr. Fikiremari Amhara building construction enterprise Public

am Teferi

Mr. Getachew Mesfine PPP1 Private

Mr. Birqu South Wollo zone Bureau of Urban Housing construction Public Mr. Birqu Yemata South Wollo Zone Construction association Private Anonymous Technical Vocational Département Head Public Ephrem Technical Vocational and Enterprise Development (Kallu) Public Mr. Worku A District Labour and Social Affairs (Administration) Public

Anonymous Zonal Education Bureau Public

155

Appendix 3: Outputs of focus discussions on South Wollo Assets

156

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