“Made in Ethiopia Automotive”: Seemingly momentous approach for import substitution

 BY HIZKEL HAILU

Producers who are creating more capacity for the industrial sector as well as the national economy are incredibly increasing their engagement in high production capacity through entering industrial parks found at various areas of Ethiopia. Along these lines, they are providing products to the foreign market and are earning foreign currency for the country.

A company called “ELauto Engineering” is among the others that has recently joined these industrial parks. This factory started its operation in the Dire Dawa Industrial Park, which was established as a Free Trade Zone (FTZ) of Dire Dawa. The FTZ was inaugurated last month by Prime Minister Abiy Ahmed (PhD).

According to the data obtained from the company, it has a car assembly plant in Dukem, Eastern Industry Zone in addition to the recently inaugurated one. It has been two years since this factory started assembling cars. So far, it has also been able to assemble about one thousand cars. The company’s factory, which was recently completed and is now operational in the Dire Dawa Free Trade Zone, will also assemble small vehicles for home and office use.

According to Bekele Abebe, Chief Executive Officer of ELauto Engineering and Trading PLC, the company carries out small automotive assembly activities. Understanding that the assembled vehicles are of paramount importance in changing the appearance of cities and creating more jobs, the government of Ethiopia has allowed the import of auto spare parts required for the factory in duty-free.

The “ ELauto Engineering” factory, which started working in Dire Dawa, will assemble partially dismantled cars, with a total investment capital of 700 million ETB. The first phase of the factory has a total investment capital that worth 400 million ETB including the cost of the inputs (vehicles) and operation and labor coast.

The factory will create job opportunity for 80 people per shift in the first phase. When production begins at full capacity and the entire logistics chain is integrated and operational, it will create permanent employment opportunities for 300 workers. In addition to this, through the vehicles produced by the factory, it will create more job opportunities for people who buy vehicles, drivers, mechanics, suppliers and distributors of spare parts and related professionals,” he said.

Noting that the plant has the capacity to assemble 35 vehicles per day currently in three shifts, he underlined that the company plans to produce three thousand cars over a period of four to five months the first phase. Moreover, he said that the factory will start its production at full capacity within one year, adding he said the factory has a plan to be internationally competent vehicles’ assembler.

As to the CEO, the company has an expansion project in conjunction with the current factory which is functional. Mentioning that three working areas are needed for welding, painting and anti-rust coating in order to be able to assemble fully disassembled cars instead of partially disassembled, he explained that it is necessary to complete the expansion project.

Bekele further revealed that the factory is planning to produce Made in Ethiopia vehicles that will increase the value chain in the coming five years.

The ELauto Engineering car assembly plant will operate in the Dire Dawa FTZ, which was inaugurated a couple of weeks ago. Indeed, establishing a free trade zone has a significant role for reducing the trade sector problems and increasing investment flows. Free trade zones are therefore, places where production and logistics activities are integrated and carried out in an efficient manner in creating favorable conditions for investment growth.

Undoubtedly, a free trade zone is an alternative that increases investment; helps to create new job opportunities; and reduces bureaucratic procedures. This zone is also defined as an area of trade and investment where there are no trade barriers and less tax. The legal procedures applied in free trade zones are non-existent and provide relative freedom compared to those applied in other areas.

The car assembly plant is expected to benefit from the free trade zone as it is located in the Dire Dawa Free Trade Zone, which is expected to bring the above benefits. Bekele remarked, adding that the presence of the factory in the free trade zone will benefit them to increase their product and productivity. According to him, the free trade zone will help to shift the production of semi-dismantled cars to fully dismantled vehicles.

“As the vehicles we produce are proxy products, it helps us to save foreign exchange. It will also play an important role in providing vehicles to the domestic market with reduced logistics costs. In many African countries, there are not many factories that produce vehicles, so this golden opportunity will also create an opportunity to export products from Ethiopia. This creates additional potential for foreign exchange earnings. An agreement has been signed with the government to export part of the factory’s products,” he stated.

It is true that coordination and cooperation of stakeholders is looked-for to make the investment sector effective. In this regard, company’s CEO accentuated that there are institutions that have helped ELauto Engineering Factory in their alleyway in making the Dire Dawa’s project real. He also explained that the Dire Dawa city administration has given them a lot of support since the last two years, when the company was preparing to start work on Dire Dawa; he said; “They are helping us in fulfilling inputs which are essential to produce vehicles completely.”

According to him, the value-added chain has its own mechanism for producing and marketing automotive manufactured in Ethiopia. In order to be certified as Made in Ethiopia, it is necessary to meet the standards of the Metal Industry Development Institute. ELauto Engineering Company will also pay attention to how much the value addition (desired level) should be in order to achieve the plan to produce and market vehicles produced in Ethiopia, he accentuated.

Additionally, the factory has a capacity of assembling 9000 vehicles in a year, according to Industrial Parks Development Corporation (IPDC). The factory’s first manufacturing shade, which was constructed at an investment of 400 million Birr was inaugurated at the presence of Sandokan Debebe, CEO of IPDC, Kedir Jewar, Mayor of Dire Dawa City Administration and other officials of IPDC and the administration.

According to Sandokan, the inauguration of the plant shows the effort to diversify manufacturing factories areas of engagement. He added: “The supports, which have been provided to the plant, will be continuous during the production stage. Similar projects should be strengthened in other parts of the country as part of the journey to make our country prosperous,” he noted.

Kedir Jewar for his part said that the city administration is ready and highly committed to support investors in the sector. He further stated that the city administration will provide all the necessary supports to investors who will carry out such projects in the future. The factory has a capacity to assemble 20 cars a day.

Meanwhile, being thankful for the Ethiopian government to help them among the FTZ beneficiaries, Founder and President of ELauto Engineering and Trading PLC Tokucha Alemayehu extended his gratitude to City’s administration for its investment supports.

He said that the Ethiopian Investment Commission, Metal Industry Development Institute and Industrial Parks Development Corporation have also helped them in setting up production standards and providing necessary support to the company.

Ethiopia is a country with potential in the manufacturing sector. The country has productive capacity, natural location, legal framework and other good opportunities and enabling conditions that contribute positively to the development of the sector, despite some challenges. Dire Dawa Free Trade Zone can be mentioned as one of the solution implemented to alleviate the problems of the sector. The free trade zone will greatly contribute to creating new and extensive job opportunities, producing proxy products, increasing knowledge transfer, and reducing logistics costs for local products.

This can significantly change national logistics competitiveness and help streamline the country’s import and export trade system. The benefits and opportunities created by the system will play a major role in reducing production costs and stabilizing inflation. All these benefits are directly or indirectly significant for increasing domestic and foreign direct investment coupled with the overall national economic growth, officials remarked.

The Ethiopian Herald September 6/2022