Ethiopia procures cooking oil worth $70 m from golden africa company in djibouti to stabilize market


January 4, 2023

A stockpile of cooking oil allegedly seized by local authorities from a suspected hoarder in Sululta town on 08 March 2022. Picture: Addis Abeba City Government Press Office

Addis Abeba – Ethiopia’s Ministry of Finance announced that it has purchased more than 43,37,412 liters of palm cooking oil from the Golden Africa Company in Djibouti in order to provide the public edible oil at affordable prices.

According to the Ministry of Finance, Ethiopian Trading Businesses Corporation and Ethiopian Industrial Inputs Development Enterprise signed the procurement contract, with the Ministry of Finance providing the guarantee for a total amount of US$69,894, 440 for the purchase to the Commercial Bank of Ethiopia.

The payment for purchase will be done within one year. In a letter the Ministry of Finance sent to the Ethiopian Trading Businesses Corporation and Ethiopian Industrial Inputs Development Enterprise it has set the selling prices cap for consumers in the capital Addis Abeba and outside the capital.

Accordingly, the selling price in Addis Abeba ETB314 per three liters; ETB510 for five liters; and ETB2003 for 20 liters of cooking oil.

Regarding places outside of Addis Abeba, considering the distance, the transport service fee will be 60 cents per quintal/per one km, the Ministry said, adding that a direction has been put in place for the Ministry of Trade and Regional Integration to allocate distribution quotas to the regional and city administrations and notify the Ethiopian Trading Businesses Corporation and Ethiopian Industrial Inputs Development Enterprise accordingly.

n 2019, Golden Africa Company, headed by the Yemeni Fouad Hayel Saeed, was planning to set up edible oil processing plant in Ethiopia, which never came to pass.

Inputs for edible oil production was among the prioritized lists included on 01 December 2021 directive issued by the Central Bank of Ethiopia for banks to provide foreign currency in order to stabilize the local market.

However, the prices for edible oil continued to experience sharp increase with a pack of five liters edible oil reaching as high as ETB1000 at retail stores in March last year, up from ETB600 in a span of one week. Addis Abeba city Mayor Adanech Abiebie issued a statement on 07 March 2022 warning traders to refrain from hoarding and unreasonable increases in prices.

Source: Addis Standard

Odd the WFP has not used the Djibouti corridor for any grain delivery to Ethiopia so far relying on Berbera so far.

1 Like

How Ethiopia’s Failure to Develop Edible Oil Supply Chains is Leaving Factories — and Consumers — High and Dry

Ethiopia’s domestic edible oil processing industry has ground to a halt over the past year, severely disrupting local supply of cooking oil across the country. Major factories that once produced over a million liters of oil per day have been forced to cease operations for months at a time due to a perfect storm of challenges. An investigation by Birr Metrics unravels the depth of the crisis crippling two giants of the sector – WA Oil Factory and Shemu Edible Oil Factory – and what it means for Ethiopia’s goals of self-sufficiency.

The Uphill Battle of Ethiopia’s Edible Oil Refining Industry

Running edible oil refineries in Ethiopia requires navigating the challenges required to keep the production lines running is a constant effort. Their remote location presents logistical difficulties right from the start. As a landlocked country, securing reliable sources of raw materials like palm and soybean oils is no easy feat.

These imported inputs must travel over vast distances, passing through Djibouti ports and moving inland via the region’s strained road networks. Transportation costs inevitably inflate the price paid to suppliers. By the time stocks arrive at warehouses, expenses have already cut significantly into margins. According to industry estimates, delivery tariffs add a minimum 20 percent to orders—a major disadvantage against global competitors.

Operating the refinery comes with its own expenditures as well. Similar to other industrial facilities, keeping equipment running requires stable electricity. Unfortunately, frequent blackouts pose constant risks of halting delicate refining processes mid-batch. While backups like generators minimize downtime, fuel costs to power them add up quickly. Rising utility rates compound the costs year after year, further tightening the squeezing profitability.

Even after produce is finished, getting bottled oils onto retail shelves brings another layer of difficulty. Reaching customers demands navigating Ethiopia’s underdeveloped transport networks to carry products to far-flung populations across uneven terrain. Delays often compromise quality and reliability, damaging reputation with both vendors and consumers—a loss not easily regained in this competitive space.

To add insult to injury, imported edible oils continue flooding markets at subsidized costs well below what local refineries can offer while remaining viable. Although petitions advocate for tariff concessions to level the playing field, policymakers have been slow to introduce meaningful incentives. The imbalance contributes to an already difficult operating climate, where slightest missteps can determine survival or shutdown.

On the supply side, dependence on domestic oilseed output introduces further uncertainties. Unpredictable harvests and price swings incentivize outgrowers to redirect stocks elsewhere when conditions aren’t ideal. Sourcing replacements on short notice drives up procurement prices, eroding whatever margins were projected. More stable agriculture systems like contract management and insurance could benefit both farmers and refiners.

Even with competent management, sheer structural barriers seem almost insurmountable at times. Yet walking away would signify abandonment not only of company investments but of national goals toward self-sufficiency as well. With patience and open collaboration between private and public sectors, experts argue many challenges could potentially be overcome or minimized through targeted policy reforms. For now, the uphill battle of Ethiopia’s edible oil refining continues.

The Halted Giant: Inside WA Oil Factory’s Production Standstill

Situated in Debremarkos town in the Amhara region, WA Oil Factory tells a troubling story. As Ethiopia’s largest edible oil processing plant, with a daily production capacity of 1.3 million liters, WA requires an enormous annual budget of 203.6 million dollars. Nearly two-thirds of this budget, 131 million dollars, is needed solely for the import of crude palm oil, the essential raw material for producing refined cooking oil. Another 53 million dollars is required to import necessary chemicals and 19 million dollars for packaging materials, all of which must be sourced internationally.

Yet despite this staggering capital requirement of over 5.2 billion Ethiopian birr to construct the state-of-the-art facility, WA has not produced a single liter of oil in at least the past six months due to being unable to access sufficient foreign currency to import vital inputs. According to employees, managers, and government officials who spoke on condition of anonymity, WA has only been able to bring in one shipment of raw materials since commencing operations in June 2021.

The lack of hard currency import has brought the entire idling facility, equipped with the latest industrial technologies, to a standstill. Sources indicate the difficulty lies with WA’s owner, renowned local investor Worku Aytenew, who has reportedly been abroad and unable to secure the necessary foreign funds due to the country’s foreign exchange restrictions and shortages. Without the imported crude palm oil, chemicals, and packaging, over one thousand potential jobs have been lost and millions in revenues forgone at the silent factory.

WA’s plight shows just how dependent Ethiopia’s edible oil industry has become on foreign supplies and currency, leaving even the largest industrial projects perilously exposed to volatility in global commodity markets during periods of foreign currency scarcity at home. The halted factory serves as a potent symbol of the structural vulnerabilities still facing Ethiopia’s fledgling manufacturing sector.

Tax Troubles Ground Shemu Edible Oils

The crisis engulfing Shemu Edible Oil Manufacturing Share Company paints an equally grim picture. Owned by the mammoth Shemu Group conglomerate with interests in agriculture, logistics and more, Shemu has also halted oil production for close to seven months.

However, unlike WA’s raw material import woes, Shemu’s stoppage stems from a tax dispute with authorities that has brought its diverse group operations to a standstill and kept nearly 1,500 employees out of work. Sources reveal that while Shemu has ceased refining operations, around 900 employees of its 1,500 total continue receiving salaries every two to three months without coming into the deserted factory premises amid ongoing arbitration with tax collectors.

Last year, Shemu requested 325 million dollars in external financing to import crude palm oil for local processing but could only access a dismal 5.4 percent of this crucial requirement. According to the State Minister of Industry, Shemu’s troubles originated after tax authorities unexpectedly demanded a colossal 1.9 billion birr in back taxes from the Shemu Group for prior years. Facing this unanticipated tax burden that dwarfed its cash reserves, Shemu had no choice but to temporarily pause production.

The dispute shows how Ethiopia’s often inconsistent and non-transparent tax environment remains a major constraint for even the largest domestic firms attempting to substitute costly imports. For Shemu, clearing its tax arrears now takes precedence while its factory grounds lie fallow and citizens lack a major source of cooking oil supply.

Industry-Wide Disruptions

Sadly, the crises at WA Oil and Shemu factories are far from isolated cases within Ethiopia’s edible oil sector. Other major processors across the country share similarly bleak experiences in recent months.

Hamaressa Edible Oil and Phibela, owned by pioneer edible oil investor Belayneh Kinde, have both reportedly struggled obtaining foreign currency and raw materials essential to maintain operations. Last year, five of Ethiopia’s largest edible oil factories - Phibela, Hamaressa, Shemu, Al-Impex and Gifti Foods - collectively requested 930 million dollars in working capital support from the government to import crude oil and function at just 40 percent of their total capacities.

Shockingly, according to internal documents obtained by Birr Metrics through Freedom of Information requests, the National Bank of Ethiopia only approved a paltry 50.3 million dollars or just 5.4 percent of this amount. With such lackluster public financial backing amid general foreign exchange shortages, it is unsurprising that facilities have had little choice but to implement temporary shutdowns leaving the population short on cooking supplies.

The suspension of local oil refining and bottling across multiple companies hints at systemic constraints dogging the sector rather than isolated management issues specific to any one actor. The synchronized troubles signal broader fragilities in Ethiopia’s policy environment for import-dependent industries.

Ethiopia’s Edible Oil Industry: Reliance on Imports

While Ethiopia has favorable growing conditions and diverse oilseed varieties, its edible oil industry relies heavily on imports to meet domestic demand. According to a 2018 industry mapping study by the Food, Beverage and Pharmaceutical Industry Development Institute of Ethiopia (FBPIDI), over 90 percent of edible oil consumed in the country is imported. Palm oil from Indonesia and Malaysia makes up the bulk of imports, with smaller amounts coming from other vegetable oils. Only a small fraction, estimated at less than 10 percent, is sourced from local production.

This heavy import dependence exists despite Ethiopia’s suitable agro-ecological zones for cultivating various oilseeds. Crops like niger seed, sesame, rapeseed, soybean, groundnuts and sunflower are grown. Niger seed accounts for over a quarter of total oilseed area and production nationally. However, average national yields for most oilseeds remain low at around one tonne per hectare compared to global averages. Post-harvest losses are also high due to lack of adequate storage and processing infrastructure. As a result, domestic supply falls far short of satisfying local edible oil demand.

On the processing side, the FBPIDI study mapped 227 edible oil factories across major regions. However, operational capacity was severely underutilized, with 87 percent of factories working at 50 percent capacity or below. Key constraints included limited availability of raw materials and intermittent electricity cuts. Only a small fraction of local oilseed production enters the commercial market, with most consumed on farms or sold informally. Efforts to promote outgrower schemes and contract farming have had mixed success in boosting supplies.

Lack of scale has also prevented factories from adopting advanced refining technologies. The majority rely on basic mechanical pressing which yields lower volumes of lower quality oil compared to solvent extraction used globally. Few have the technical capacity for full refining using processes like bleaching and deodorization. As a result, domestically produced oils command only a small market share.

Imports have come to dominate edible oil supply over the years. In response, the government is implementing various policies to develop the local industry. The central bank reserves a portion of foreign exchange for procuring agricultural inputs including oilseeds. New standards provide clarity on product quality. However, fulfilling fast-growing demand through local means faces complex challenges.

When import costs spike due to global market fluctuations, as seen recently, it exposes consumers to higher prices. In March 2022, pack prices in Addis Ababa peaked over 70 percent higher than normal levels. To address this, the Ministry of Finance inked a 70 million dollars contract importing over 43,000 liters of palm oil from Djibouti for sale at subsidized rates.

While a temporary relief measure, heavy dependence on imports remains risky long-term. Focus is now on advancement strategies that boost yields, encourage private sector agribusiness investment, provide technical assistance to factories for efficiency and quality upgrading, and integrate smallholders into outgrower schemes.

Success will depend on coordinated efforts across government bodies, development partners, private companies and farmers’ cooperatives. If implemented sustainably, these interventions can help strengthen food security by developing Ethiopia’s edible oil industry from farm to table.

Consequences for Self-Sufficiency

The precipitous decline of Ethiopia’s edible oil processing industry in recent months poses alarming consequences both economically and socially.

Ethiopia is highly dependent on overseas imports to meet over 80 percent of its annual cooking oil needs, representing an 800 million dollars import bill. This reliance leaves the economy hugely exposed to global supply disruptions and inflationary pressures from volatile world commodity prices. The government has prioritized boosting domestic edible oil production capacity through mega-projects like WA Oil Factory as part of its industrialization masterplan to enhance export revenues and cut import dependency.

Yet today, these ambitious factories central to import substitution ambitions sit idly by due to financial woes. In a nation already grappling with high overall food prices amid domestic supply challenges and regional conflict, the halt of local edible oil output has materially worsened household access to a cooking essential. Citizens in major cities consulted by the magazine confirmed significantly higher prices for palm oil at supermarkets in the months following factory closures.

Even agricultural producers now face difficulties accessing affordable edible oils to process various cash crops like coffee due to concentrated price increases in the downstream portion of the value chain. The shortages pose risks to food security and livelihoods should inflation persist without a solution.

Meanwhile, the forgone tax incomes and lost jobs from suspended operations further strain public coffers and living standards at a difficult economic period. The long-term costs of under-utilizing multi-billion dollar production facilities and ceding market share to imports will only accumulate over time.

Clearly, resolving the plight of Ethiopia’s edible oil sector and restoring its factories to full functioning holds profound socioeconomic importance for the country. But doing so requires tackling structural fiscal and trade barriers currently undermining national industrial development aspirations.

Policy Reforms Vital for Self-Sufficient Future

The Ministry of Industry acknowledges the severity of challenges faced across the edible oil industry and claims to be working to help tackle factories’ financial constraints and enable a return to production. It arranged 25 million dollars in temporary assistance from the World Bank specifically targeted at easing processors’ import difficulties.

Additionally, the Ministry advocates resolving Shemu’s tax disputes to enable its operations restart. However, factories require far greater and more consistent public support than piecemeal interventions to stably procure the enormous imported input volumes upon which their businesses depend.

Without comprehensive reforms, Ethiopia’s edible oil crisis risks persisting to further detriment. Industry representatives consulted by this magazine unanimously agreed that dedicated currency reserves and a streamlined tax compliance and customs environment favoring manufacturing growth represent minimum prerequisites.

The crisis in the edible oil sector exemplifies deeper structural deficiencies currently undermining Ethiopia’s industrial potential across sectors heavily reliant on foreign exchange. Processors remain overly exposed to price volatility abroad due to inadequate development of local agricultural supply chains and insufficient foreign exchange accumulated through expanding non-commodity exports.

Juggling large VAT and income tax bills without exceptions while struggling to access external finance due to foreign exchange restrictions places even viable businesses in jeopardy. If left unaddressed, constraints challenging the edible oil industry will pervade all of Ethiopia’s industrialization aspirations, from textiles to leather goods.

Resolving persistent foreign exchange shortages for imports, reforming tax incentives and improving the ease of doing business must become urgent cross-sector national priorities if Ethiopia hopes to develop self-sufficient manufacturing champions in strategic industries like edible oil processing.

The government must also explore direct interventions like buffer stock policies and price controls to safeguard citizens during potential future supply bottlenecks if short-term fixes to factory challenges prove temporary. Only through ambitious macroeconomic and policy reforms across trade, taxation and access to finance can Ethiopia transition from a consumption-based, import-reliant economy into a resilient, industrial export powerhouse able to withstand external shocks.

For now, the country’s much-awaited multi-billion-birr edible oil factories grinding to a halt serves as a potent.