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Integrated Value Chain Analysis
 

Integrated Value Chain Analysis

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    Integrated Value Chain Analysis Integrated Value Chain Analysis Presentation Transcript

    • An Overview of the Integrated Value Chain Analysis™ Of Selected Strategic Sectors The Government of Ethiopia and The World Bank Group Addis Ababa, Ethiopia 23 May 2006 Presented by Global Development Solutions, LLC™ www.GDS-LLC.com
      • Sectors Presented
      • Cut Flowers (Roses)
      • Cotton-to-Garments (Polo Shirt)
      • Skins-to-Leather Shoe
      • Housing/Road Construction
    • Value Chain Analysis for Cut Flowers (Roses)
    • Market Opportunities and Characteristics
      • Fierce Competition with downward price trends
      • Stricter breeders’ rights as well as environmental and social codes of conduct increasingly important
      • In some countries, such as the UK, increased importance of supermarket (direct sales) distribution channels
      Cut Flowers Roses Ethiopian Exports (Roses): $10 million (2005) Global Demand (Cut flowers/buds) $12.3 billion (2005)
    • Key Findings from the Value Chain Analysis
      • Farming with self propagated material or in hydroponics media both provides superior cost competitiveness via reduced plant material cost and higher yields
      Cut Flowers Roses US$255,683/ha US$0.155/stem 1.65 mil stems/ha US$294,190/ha US$0.150/stem 2.1 mil stems/ha
      • Insufficient coverage of cargo flights exacerbates the already high portion of transportation and marketing cost in the total farm to market value chain
      Farming 24.1% Post-Harvest Handling 1.5% Transport & Marketing 74.4% Farm-to-Market Value Chain for Hydroponics-Grown Roses Farm-to-Market Value Chain for Soil-Grown Roses Farming 24.8% Post-Harvest Handling 1.7% Transport & Marketing 73.5%
    • Cut Flowers Roses
    • Cut Flowers Roses Source: Global Development Solutions, LLC TM Flower Producer Imported Inputs Cut Flower Supply Chain for Ethiopia Local Inputs Imported Input Traders Export Market Dutch Auctions Cargo Export Market Other Passenger Cargo 2/3 1/3 Freight Forwarding Services Cold Storage On-site inspection and customs (MoA, Customs Inspectors) Refrigerated Truck Airport Airlines (EA, KLM, Lufthansa)
    • Cut Flowers Roses Hydroponics vs. Soil Production
    • Cut Flowers Roses Benchmarking Key Characteristics of Rose Production in Ethiopia
    • Key Constraints and Challenges Cut Flowers Roses
      • Poor clearinghouse services
      • Undeveloped network of supporting service providers, especially in the area of insurance and freight forwarding/clearing
      • Nonexistent research and development, at business and public sector level
      • Increased diversification away from direct sales towards Dutch Auctions
    • Actions/Way Forward
      • Increase usage of hydroponics growing medium
      • Increase self-propagation of plant material
      • Increase usage of support services rather than do all marketing by themselves
      • Do not entirely diversify away from direct sales
      Firm Level Industry Level
      • Establish Codes of Conduct
      • Create captive cost-minimizing supply chain structures for fertilizer and other inputs
      • Create industry level linkages with the support industries such as insurance and freight forwarding
      • Create partnerships with the public sector to intensify research and development
      Cut Flowers Roses
    • Actions/Way Forward
      • Establish a working system of breeders’ right protection with eventual membership in the UPOV - gain observer’s status in UPOV as an intermediary step;
      • Establish clearing house facilities at airport and increase cargo freight fleet by Ethiopian Airlines; and
      • Increase spending in research and development.
      Public Sector Cut Flowers Roses
    • Value Chain Analysis for Cotton-to-Garments
    • Market Opportunities and Characteristics Cotton to Garments Polo Shirt Ethiopian Exports (Textiles/Garments): $3.6 million (2005) Global Demand: $183 billion (2005) China: 60% of US Market AGOA: 1.3 billion sme (only 11.7% quota filled)
      • Multiple fashion trends in one season, mass customization and shortened lead times
      • Increased leverage and market power of large retailers who can and do downward price pressures on suppliers
      • Quota removal has removed competitiveness from suppliers relying on quota preferences for market access
      • AGOA window of opportunity narrowing: proliferation of AGOA-type preferential treatment on the part of the USA extended to many countries.
      • Chinese temporarily withdrawal from knit shirt and cotton trouser market, key segment of African apparel exporters
    • Cotton to Garments Polo Shirt
    • Cotton to Garments Polo Shirt Diagram XXX: Value Chain for Exported Polo Shirt, Private Firm, Ethiopia
    • Cotton to Garments Polo Shirt Key Findings from the Value Chain Analysis : An Example of Polo Shirt Production
      • Lack of transparent cost accounting (SOE)
      • Poor labor skills
      • Excise duty on fabrics hamper competitiveness
      • High cotton fabric waste (SOE)
    • Poor Labor Productivity Cotton to Garments Polo Shirt
    • Cotton to Garments Polo Shirt
    • Cotton to Garments Polo Shirt Room for Improving Lint-to-Yarn Conversion Ratio
    • Cotton to Garments Polo Shirt High Cost of Ginning
    • Cotton to Garments Polo Shirt Irrigation – Key to Competitive Cotton Production
    • Cotton to Garments Polo Shirt Need for Improving Farming Practice
    • Key Constraints and Challenges
      • Poor training know-how and non-existent institutional support in the area of skills improvement;
      • Counterproductive Government taxation in the form of VAT and excise duty;
      • Inefficient and wasteful public textile companies unable to supply sufficient quality and quantity of fabric for garment exporters;
      • Cotton lint production dominated by large scale companies with no access to irrigation (private companies) and thus have low cotton yields; and
      • Large scale farms with access to irrigation (mostly SOEs) are challenged by an overburdened administrative overhead cost structure.
      Cotton to Garments Polo Shirt
    • Actions/Way Forward – Garments and Textiles
      • Improve productivity training; and
      • Reduce waste on the part of SOEs both at fabric and textile level.
      Firm Level Industry Level
      • Create research and training centers; and
      • Pool resources for marketing efforts abroad.
      • Privatize textile assets;
      • Remove or reduce excise duty on textiles; and
      • Expedite VAT refunds.
      Public Sector Cotton to Garments Polo Shirt
    • Actions/Way Forward – Cotton
      • Improve farm management and remove OH redundancies at both farms and ginneries;
      • Invest in seed production; and
      • Maintain high GOT levels.
      Firm Level Industry Level
      • Develop market linkage mechanisms to help link the most productive farms (usually irrigated farms) with the most efficient ginners
      Public Sector
      • Extend the irrigation network;
      • Establish and enforce rules for chemical usage at farm level;
      • Increase spending on cotton research; and
      • Stimulate seed sector.
      Cotton to Garments Polo Shirt
    • Value Chain Analysis for Skins-to-Leather Shoes
    • Market Opportunities and Characteristics Leather Shoes Fresh Sheepskin Production Africa (Total): 154,285 MT (8.6% of World Production) Ethiopia: 10,0800 MT Ethiopia’s Export of Dried Salted Skins: 2,888 MT (73.2% of African exports) (6.6% of Global exports)
    • Leather Shoes Raw Sheepskin Supply Chain in Ethiopia: High Waste and Damage
    • Leather Shoes Declining Share of Grade 1-3 and 4 Skins Poor Quality of Skins
    • Leather Shoes High Cost of Wet Blue Production
    • Leather Shoes High Opportunity Cost of Ekek
    • Market Opportunities and Characteristics for Leather Shoes Leather Shoes EU Demand for Shoes: €61.8 billion Sourcing from Developing Countries: 24% - 53% Italy (Largest EU Consumer): 395.3 million pairs/year Ethiopian Production Formal Sector: 1.9 million pairs/year Informal Sector: 3.5 million pairs/year
      • Low capacity to respond to international orders both in quantity and time;
      • Poor finishing due to lack of skilled labor and appropriate technology;
      • Slow responsiveness to change shoe models;
      • High production costs; and
      • Lack of marketing skills.
    • Key Findings from the Value Chain Analysis Leather Shoes
      • High cost of raw material (Birr 79.77/pair)
      • High wastage of material during cutting (15%)
      • High cost of material for lasting and finishing (27.6% of shoe manufacturing)
    • Leather Shoes Poor Labor Productivity High Assembly Costs
    • Key Constraints and Challenges
      • Raw sheepskin
      • Ekek attack(almost 80%of sheepskin from highland Ethiopia) ;
      • Unorganized supply chain in raw sheepskin;
      • Per piece pricing does not reward quality;
      • Poor slaughtering and post slaughter handling; and
      • Low awareness for quality of sheepskin along the entire supply chain.
      • Leather
      • Overall shortage of sheepskin and under capacity operation (48%) and
      • High cost of input raw sheepskin (60% of production cost);
      • Defect of raw sheepskin (80% Ekek , 10%lack of preservation, and 10% lack of proper handling): and
      • Shortage of skilled workers.
      • Shoes
      • High cost of raw material (upper shoe leather 90% of cost);
      • Lack of skilled labor and inflexible technology to respond to market;
      • Dumping of low price and low quality shoes from China; and
      • Low capacity utilization of shoe producers (56%).
      Leather Shoes
    • Actions/Way Forward
      • Install and strengthen the finishing lines in the tanneries;
      • Conduct training of workers; and
      • Improve environmental performance.
      Firm Level Industry Level
      • Establish a quality-based pricing system for sheepskin;
      • Assist improvement and expansion of slaughter houses and raw sheepskin storage;
      • Form Public-Private Partnerships to eradicate Ekek;
      • Arrange supply of semi-finished skin to tanneries that process finished leather so that shortage is avoided and prices normalized.
      Leather Shoes
    • Actions/Way Forward (Cont’)
      • Take immediate action on ekek control and eradication;
      • Strengthen and expand extension services on skin and hide;
      • Give incentive to tanneries that process sheepskin to finished leather;
      • Strengthen LLPT1 as a center of excellence that provides training and conduct R&D to support tanneries;
      • Encourage export of meat and suppress export of live animals;
      • Encourage investment in animal husbandry farms;
      • Expand modern slaughterhouses; and
      • Expand veterinary services.
      Public Sector
    • Value Chain Analysis for Housing and Construction
    • Housing & Road Construction Housing: Profile Building Height: Ground + 6 floors Total Building Area: Multi-family apartment (24 units) 175.23 m² Site Work: 850 m² of asphalt pavement Engineering Estimates
    • Housing & Road Construction Housing Construction Value Chain Construction Phase
    • Housing & Road Construction
    • Housing & Road Construction High Cost of Input Material
    • Housing & Road Construction
    • Housing & Road Construction Low Road Density
    • Key Findings from the Value Chain Analysis (Road)
      • The bulk of the value added comes from construction of the road (90% of the total cost of road construction);
      • The highest cost of construction for base-course (constitutes 48% of road construction work );
      • Quarry rock production activity is the highest (33% of base course cost) during the base-course phase due to high cost of equipment (constitutes 49.37%)
      Housing & Road Construction
    • Housing & Road Construction High Equipment Input Requirement
    • Housing & Road Construction High Cost of Equipment Rental and Finance
    • Key Constraints and Challenges
      • Housing
      • Unavailability of adequate standards and norms;
      • Limited design checking/review and approval procedures;
      • Lack of IT know-how and training;
      • Lack of Standard Contract Documents;
      • Shortage of construction material;
      • Shortage of construction machinery;
      • Scarcity of finance and lack of management skill; and
      • Lack of Building Code.
      • Road
      • Shortage of equipment rental company and high rental cost;
      • Limited access to Finance;
      • Shortage of qualified national engineers and technicians;
      • Lengthy dispute settlement mechanism and lengthy judiciary process;
      • Bureaucratic and lengthy bid analysis practices; and
      • Absence of proper mechanism for addressing material cost escalation.
      Housing & Road Construction
    • Actions/Way Forward
      • Facilitate and provide proper training and capacity building programs to overcome the shortage of skilled human resource to deliver efficient services; and
      • Applying the use of contemporary IT software and equipment.
      Firm Level Industry Level
      • Introduce a mechanism whereby design fees reflect industry wide quality standards; and
      • Implement industry-wide Code of Conduct and certification program to ensure a quality rather than price driven project bidding process.
      Housing & Road Construction
      • Public Sector
      Actions/Way Forward (Cont.)
      • Introducing land policy reforms;
      • Creating favorable loan provisions by banks;
      • Upgrade skills of City Administrations and regional bureaus staff;
      • Reduce prevailing government ownership and control over sales and distribution of major inputs for construction materials such as cement; and
      • Implementing Building Standard Code.
    • An Overview of the Integrated Value Chain Analysis™ Of Selected Strategic Sectors The Government of Ethiopia and The World Bank Group Addis Ababa, Ethiopia 23 May 2006 Presented by Global Development Solutions, LLC™ www.GDS-LLC.com