Tariff protection for wire rod aggrieves wire processors
A group of wire processing factories has written an official letter of complaint to the Office of the Prime Minister recently following a case that involved a tariff protection regime put in place to protect wire rod manufacturers, most important ingredient to wire processing (nail manufacturing) plants, and a purported plan to support one wire rode manufacturer in Ethiopia.
The case dates back to two years when the protection regime was first introduced to the economy. According to the complaints that are voiced by nail manufacturers, the tariff protection regime offered undue benefits to only one firm which has been supplying the markets for three years.
And it was two years ago, that the group of wire processing factories started to echo their objection against the protection regime. However, discontented with the response of the relevant government agency, processors have now decided to take the matter to the Office of the Prime Minister by writing a formal letter of complaint alleging unfair treatment and abuse of the privilege.
Traditionally, wire rod products were commodities which were fully imported from foreign markets. Following the establishment of Steely RMI, a locally-owned steel manufacturer, which was able to set up a wire rod plant producing 5.5mm to 6mm steel products mostly used to make fastens or steel nails, primary input for wire processing factories, the government has decided to discourage the consumption of its imported equivalent and protect the infant industry.
Hence, the Ministry of Finance and Economic Cooperation (MoFC), then the Ministry of Finance and Economic Development (MoFED), introduced a 20 percent duty tax on every import of wire rod to Ethiopia. Previously, the rate levied on the product was as low as five percent, making imports to be priced reasonably.
This measure pushed the wire processing plants to voice their grievances against the protection and the purported beneficiary Steely RMI. According to the complaints submitted to the PM’s office, a group of wire processing factories have boldly claimed that the ministry (MoFED) intentionally instigated situations to support market dominance of a single factory. In addition to that, Steely RMI has a sister company—Asmen PLC—which dominates 65 percent of the wire processing business (nail production in Ethiopia).
Hence, the factories argued that the tariff protection has benefited only the sister company that is in the business of nail manufacturing. However, they claimed that it largely affects the industry, the letters read.
The factories go as far as claiming that the sister companies have secured the setup to exclusively set prices and exercise virtual monopoly in the market. This has forced many to shut down plants and others exist under threat of foreclosure, they alleged. However, as to which of the factories are closed and which are threatened via foreclosure notices, the letters says nothing.
The overall dispute rests on the issue that the ministry has knowingly allowed a single company to enjoy protective tariff and monopolize the wire processing sector via its sister company.
However, these claims have been downplayed both by the government and Steely RMI. According to Ahmed Abitew, Minister of Industry, the tariff protection is granted to whoever locally manufactures raw materials, and refutes the outcries against market monopoly. Ahmed said that there could be no argument against offering a tariff protection to wire rod manufacturers.
Initially, a committee set up by the Ministry of Finance and Economic Cooperation conducted a survey whether protective tariff should be provided for Steely RMI. The survey conclusions were positive for the traffic protection. The processing plants negated the survey finding and strongly pushed the ministry not to implement the protection.
In the initial letter exchanges, MoI backed wire processors noting that the factories have raised legitimate concerns. Along the way, a number of consultative studies and meetings have persuaded the ministry to reconsider its stance. Ahmed argued that the findings of those consultations found out that the protection regimes were legitimate and that the protection is essential.
The 65 percent market share Asmen PLC holds in the nail manufacturing market, however, would call for more regulatory oversight as to how the two companies interact with one another, Ahmed explained.
Fitte Beleke, corporate communications directorate director at the Ethiopian Metals Industry Development Institute (MIDI), told The Reporter that the protective tariff has been introduced after evaluating the capacity of the local factory which currently supplies 120,000 tons of wire rods per year against the 60,000 tons imported. He said that the government has not banned the importation of wire rods yet made it more expensive for importers.
In addition, Fitte mentioned that there are four investment projects which are on the pipeline to join the wire rod manufacturing business. Out of the four newly developing projects, C&E Brothers is one which is closing in to finalize building a factory that manufactures wire rod. Mekele, Adama and Bishoftu towns are along the way to host the additional factories, Fitte said. Haji Ibssa, corporate communications directorate director at the Ministry of Finance and Economic Cooperation, said that the ministry does not want to reflect on the matter as the processing factories have taken the case to the Prime Minister’s office. Attempts of The Reporter were unsuccessful to have the Prime Minister’s office reflect over the issue.
Attempts made by The Reporter to include views from wire processing factories bore no fruit. However, company heads of Steely RMI defended their position saying that they have no monopoly power and have caused no trouble to processing factories.
Tefera Lemma, general manager of policy and operations at Steely RMI said that for more than 18 years Asmen PLC was controlling some 80 percent of the wire processing and nail producing business in Ethiopia. He said Steely RMI has been in the industry only for the past three years. He said it is up to the government to decide either ways in the economy and the decision of providing a protective tariff.