Ethiopian Jazz is considered one of Ethiopia’s greatest innovations, and is arguably the country’s most recognisable music genre. “Ethio-jazz” suffered a near death in the 1970s but was revived from the early 1990s when Ethiopia became a democracy following the ousting of the communist military government.
Using a clearly loose analogy, Ethiopia’s sugar industry today – whilst not near-death - is in a sorry state; so can the industry be revived to become the Ethiopian Jazz of the sugar world?
The Ethiopian Sugar Corporation (ESC), a government owned entity, plans to privatise ten partially completed sugar mills and three older mills that are operating in some capacity. The move to offload the mills to private investors may not be easy. Whilst the government sets about valuing the mills and conducting all other due diligence to undertake the privatisation process -including the form and mode to engage foreign investors and the local private sector in a competitive tender process - will potential investors be attracted to an industry established with great ambition but which has been compromised by a centralised approach and apparent ongoing mismanagement? Can both foreign and local investors achieve for Ethiopia’s sugar sector something akin to that unique and famous fusion of traditional Ethiopian music with jazz, Afro-funk, soul, and Latin rhythms?
To better understand the challenge and the opportunity for Ethiopia’s sugar industry to revive and flourish, a short description of the present day industry is called-for.
The sorry state of Ethiopian sugar
In 2010, the Ethiopian government formed the state-owned ESC and started an ambitious plan to construct 10 new sugar mills at a cost of more than USD 2 bln. Much of the funding came from India’s EXIM Bank. The ESC’s ambition is shown in the below graphic (described in 2018): to become a world-competitive sugar industry producing 4.6 mln tonnes of sugar sometime after 2020. This is a huge jump from the industry’s 2017-18 performance of around 600 thousand tonnes production which remained insufficient to meet domestic consumption of some 100 thousand tonnes higher. Even allowing for considerable consumption growth over future years, the ambitions clearly included exporting significant volumes to neighbouring deficit countries and markets further afield.
Today, even while the ambition remains, the ESC is in financial crisis with none of their ten mills fully completed and commissioned. The ESC’s construction program suffered chronic delays and over expenditure, reportedly due to corruption and mismanagement within the chosen contractor - the Ethiopian Metal & Engineering Corporation (MetEC), which is the army’s business branch.
Looking at the below table - released by the ESC mid-2018 - Ethiopia’s sugar mills have 51,000 tonnes cane/day (TCD) of fully operational capacity, producing only 600,000 tonnes of sugar annually. Some assessments suggest up to 25,500 TCD capacity, whilst “operational”, is mostly idle due to a lack of sugarcane. Furthermore, as can be imputed from the table around 24,000 TCD is still under construction at the operational mills. Then there is a massive 96,000 TCD capacity under various stages of development (or not).
The Ethio-jazz of the sugar world?
The government has already issued a Request for Information encompassing some 15 preliminary requests for potential investors. From the provided information, the government hopes to know how many investors prefer to buy the whole assets of the Corporation, or whether their interest is to partake in a partial joint venture with the government, or whether some investors might request to have contract agreement modalities for investment. Reportedly, all options are on the table and the government will consider plausible interests of any kind.
In this brief article issues like ensuring adequate cane supply for the privatised mills - will local farmers be given the opportunity to supply cane on a smallholder/outgrower basis? – have not been touched upon. Nor has the possible number of sugar projects under construction that may be scrapped after an objective economic/technical evaluation. Finally, how radically different might the government’s sugar policy be going forward? Could for instance, the ESC be radically re-tuned to be the sole trading and export agency with a mandate to buy sugar and ethanol from the privatised industry?
Can Ethiopia’s sugar industry be revived to become the Ethio-jazz of world sugar? Most critically, in addition to all the engineering, technical and financial assessments, potential investors will need to understand and form bottom lines concerning prospective growth and pricing in each of 6 key revenue streams. These include the domestic sugar market, export sugar markets (regional and further afield), the domestic ethanol market, regional ethanol markets, the domestic electricity market and the domestic molasses market. In short, to mimic the success of Ethiopian Jazz, potential investors will have to succeed in fusing a considerable array of “melodies and rhythms” in making their assessment of any investment in Ethiopia’s sugar industry.