Flourishing Furniture


Furniture business becomes lucrative following construction boom



The construction boom, which has hit Ethiopia over the past 5 years, has led to the increased demand for furniture. According to the Addis Abeba City Administration's Small & Micro Enterprises Development Agency there are now 3,000 companies involved in the sector, including SMEs. Competition between imported furniture and locally manufactured goods is high and this is putting pressure on many of the actors in the sector. This is compounded further by issues such as high taxation, poor logistics and power outages, reports FASIKA TADESSE, FORTUNE STAFF WRITER


Dereje Gerefa (MD) was mainly engaged in medical consultancy and promotional works before he started observing the high demand for furniture products. He wanted to join the sector and so conducted sector and market research for two years. This was enough to show him how profitable it could be.

He then went on to establish Subi Furniture with a capital of six million Br, after importing machinery from China and Indonesia. Since November, Subi has become one of the 78 Large & Medium Scale Furniture Manufacturing Industries in Addis Abeba; there are 290 similar businesses in the country, according to a data from Ethiopian Chamber of Commerce & Sectoral Association (ECCSA). The Addis Abeba City Administration’s Small & Micro Enterprises Development Agency gives a figure of 3,000, including the SMEs, but the Agency is conducting another count to identify updated data because many others have joined and some have left the sector.

Subi started manufacturing in January 2014 with 38 workers, targeting its competition against imported furniture, such as couches, chairs, beds, dining tables, cupboards, kitchen cabinets, doors  and executive furniture.

Some, like Subi and other local manufacturers, and major importers of furniture products, such as Waryt Mulutila International Plc, Deluxe Furniture and Techno Style Plc, are competing in the market for the supply of the country’s growing demand for furniture products.

“My observation started during my stay in China for promotional work,”  Dereje said. “I got an opportunity to observe the Chinese furniture industry.”

Those in China manufacture at a low cost within a shorter period of time, but those items are imported to Ethiopia at a high cost. This was where he drew his encouragement from to join the sector.

The construction boom in the country, including universities by the government, which has flourished over the last five years, is the major push factor for the high demand of furniture, he says.

The last five years has been a period where the demand for furniture has been followed by many newcomers into the sector, says Tihetena Legesse, general manager of Waryt.

“I can be a witness to the increasing number of the furniture shops,” said Tihetena.

Waryt, a family business established in 1990, manufactures, imports and distributes indoor and outdoor furniture in Ethiopia. It is also preparing to replace its imports with its own products, Tihitena says.

According to Tihetena, the competition among the manufacturers and the importers of furniture products is getting tougher and this forces them to use different strategies to sustain their success in the market.

Managers of Deluxe Furniture, another importer of furniture products, has seen an increasing demand for furniture products every year since the company was established and became functional in 2002 with 135 workers

In Kenya, the sector contributes approximately five percent to the country’s GDP and it is estimated that over 30,000 people are currently employed indirectly and more than 14,000 directly in this sector, with many working in the SMEs. In Ethiopia, the production of household and office furniture is heavily dependent on the import of semi-processed goods and raw materials.

Furniture are movable objects intended to support various human activities, such as sitting and sleeping, as well as for work purpose. It can be a product of design and is considered a form of decorative art.

Waryt imports three types of furniture products: Medium Density Fiberboard (MDF) – an engineered wood product made by breaking down hardwood or softwood residuals into wood fibre, imported  from China; Particle Board – an engineered wood product from Turkey manufactured from wood chips and a synthetic resin or other suitable binder by being pressed and extruded and Rubber wood from Malaysia.

But Subi use locally manufactured MDF and laminated wasted wood products using its laminator machine. They manufacture tables, chairs, cupboards, beds, coaches, kitchen cabinets, doors, windows and shelves

Deluxee import High Pressure Laminates (HPL) and MDF furniture from China, Malaysia, Indonesia, Turkey and Italy and imports high quality furniture from Italy. It imports and supplies to the market relatively lower price products from Malaysia.

Despite the design and quality of the furniture, the companies compete in price. For instance, an imported couch has a high price of 120,000 Br and a low price of 25,000 Br. Locally manufactured couches are available in the market at a high price of 36,000 Br and low price of 10,000 Br.

While the quality and type of furniture could vary, Subi has beds that sell for 7,000 to 17,000 Br; while at Waryt, imported beds are available for as little as 14,000 Br and as high as 84,000Br. Dining tables at Subi sell for 2,000 to 7,000 Br, while at Waryt, prices range from 15,000 to 38,000 Br.

The imported products have a price difference from the locally produced products – almost half the price, keeping the raw materials of the products in mind. The importers survey the exaggerated prices sometimes happen because of the heavy taxes imposed to import the products to the country.

Subi is competing in the market with the imported products by importing the latest wood work machinry to manufacture unique designs, decreasing the profit margin by up to 20pc and manufacturing in mass. Likewise, Deluxee uses after sales services, such as providing guarantees, free delivery and maintenance services for the customers, in order to be more attractive.

Even if the furniture market is flourishing, several obstacles are being faced. These include the high turnover of workers as the main challenge for Waryt.

“The workers we hired after training leave to other competitive companies and this is a major headache for us”, said Tihetena.

For Deluxee, the challenge is the heavy tax on imported products, while Dereje at Subi complains about the scarcity of skilled manpower to operate the machinery, continuous  power outages and a problem of logistics causing the late delivery of raw materials it is importing from China.

At the Micro & Small enterprise level, the Addis Abeba City Administration is working to improve the quality of products at a lower price, says Wubeneh Emeru, deputy head of the Administration’s Micro & Small Enterprises Development Agency. It is arranging training for the MSEs and providing them with up to 80pc of their working capital, as well as providing machinery, he said.

The Agency established a new company, Addis Machinery Lease Company, with a capital of 955 million Br. Five million Br has alrady obtained and the Agency is working in serching a finacer for  400 million Br. Addis Machinery provides machinery to the manufacturers in two ways – through rent and through lease.  The manufacturers will be given the machinery through lease after they have made a 20pc down payment of the total price. They will then pay the remaining amount over time, according to Wubneh.

“China manufactures furniture using cheap labour at speed; we have surplus labour, so we could be like China, from where we import furniture,” said Wubneh.



By FASIKA TADESSE
FORTUNE STAFF WRITER

Published on June 22, 2014 [ Vol 15 ,No 738]


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