Published on: 19/10/2020
The ultimate goal of building WASH markets is to achieve ever expanding, self-sustaining household access to and demand for new products and services. Most customers should be able to afford a range of products that suit their particular needs in improving their facilities and preventing the spread of disease. Market facilitation is what USAID Transform WASH is all about, but it takes time, patience, and tenacity. Nothing exemplifies this more than our nearly three-year experience introducing the plastic toilet slab to the Ethiopian market. It started out with typical testing and readying the market for the product, but in the end, it was about building the confidence of the manufacturer to jump over hurdles thrown in their path by Ethiopia's business climate.
Plastic latrine slabs serve several key purposes for household customers. They are lightweight, thus easy and relatively inexpensive to transport even to distant rural areas. They are durable, attractive, simple to install in new or retrofitted latrines, and easy to keep clean. Fitted with an attached lid and swivel hinge, they can be kept covered when not in use, thus the toilet stays fresh, and disease-spreading flies and other insects are kept out. Finally, they don't require water to flush, which is an advantage in water-stressed areas.
It's a typical market development conundrum. First, you need the product itself, one that no one has heard of let alone planned to buy. And second, you need a manufacturer and other market players willing to take risks and invest in this product with no demand. This is the case in the easiest of markets, let alone a challenging one like Ethiopia (more on that later).
Ideally, the product would be manufactured locally to reduce costs and minimize the price to consumers such that demand will grow quickly and produce a healthy return for all businesses in the supply chain (the definition of a successful business model). But, as I mentioned, establishment of local manufacturing by any interested business requires significant investment and appetite for risk. One way to prove the viability of the product would be to import a number of units and test the market. However, high customs duties, other taxes and fees, and transportation costs dramatically increase the retail price, which could kill the product before it's born. Considering these risks, an importer has to be interested in introducing the product but also have access to enough foreign currency to purchase and import a shipment – on top of everything, a very difficult, if not impossible, ask.
In the case of the plastic latrine slab, the product and manufacturer do exist. The Silafrica corporation, an East African business, has been manufacturing slabs in neighboring Kenya since 2016. The original product design process was led and funded by the World Bank's Water and Sanitation Program (WSP) in collaboration with the US-based user-centered design firm, Ideo, with refinements completed by Silafrica itself, one of two manufacturers selected to produce the slabs (the second dropped out before getting started). Silafrica also has operations in Ethiopia and, with the encouragement of Transform WASH, was willing to consider manufacturing the product here. But Silafrica needed a few things first, which it didn't have the resources to acquire on its own:
1. Sales projections to understand market potential and viability;
2. An initial import of 1,500 units to test the market;
3. Support for establishing a supply chain and business and consumer demand.
Plastics manufacturing requires molds to be manufactured first, and the capacity to produce these molds does not yet exist in the country, so they would have to be procured from abroad and imported. Molds for these kinds of products typically cost somewhere in the range of US $25,000-50,000. On the positive side, Ethiopia has established favorable tax arrangements for import of materials for local manufacturing (or so we thought), but Silafrica would incur shipping costs and would need to secure enough scarce foreign currency to buy the molds. Unfortunately, the government does not extend preferential treatment to this category of foreign currency request.
To make things somewhat easier, Silafrica made an internal decision, which took some time to reach, to import existing molds from their plant in Kenya. Of course, this was subject to obtaining enough foreign currency for an intra-company purchase – in addition to the support that they had requested from Transform WASH. First, as mentioned above, they wanted our help to assess the market. Within a year and a half of the launch of T/WASH, we had established operations throughout the largest regions of the country. Our business development teams in the field had established partnerships with businesses large and small, from regional distributors to retailers, local construction companies to sole proprietors, such as masons, all of whom committed to attaining the skills and materials required to offer new, innovative sanitation products and installation services.
We had already done market assessments in all of these areas and were building demand for new sanitation products through marketing support for our business partners and market-focused WASH communication by government health extension workers. This broad platform enabled us to put together for Silafrica a projection of sales volumes across our areas of operation. Also, in response to their third request, we could offer them connections to supply chains and the local business partnerships that we had established for other products and services that T/WASH had been introducing to the market.
Silafrica's second request proved to be the most difficult. We ruled out commercial importation of the first 1,500 units due to the import challenges described earlier, which would have involved insurmountable business risk and establishment of a consumer price far out of reach of most target households. With the support of USAID and the Ethiopian Federal Ministry of Health, T/WASH was able to import the products duty free to allow us to test the market free of the usual market pressure to earn some profit. Thus, the retail price could come in somewhat close to the level estimated through local manufacturing.
The T/WASH team sold the plastic slabs to regional distributors, who in turn sold them to hardware retailers in select districts of the country. The initial consumer price was set at 700 Ethiopian birr (ETB, or approximately US $23) to cover all costs, including transportation. Frustratingly, at this first price, the product barely moved, even with demand-creation activities. As Silafrica's price estimate for locally manufactured product was between 450-500 ETB, we lowered the price to 550 ETB ($18), and they sold out in two months.
Sufficiently satisfied with test market performance, Silafrica was ready to commit to importing the molds and beginning production of plastic slabs in Ethiopia. They hoped to produce up to 10,000 units per month to start. But the strict rationing of foreign currency in the country stymied their commitment for months. Silafrica was barely able to acquire enough currency to keep their core business afloat, let alone invest in importing the molds for a risky venture.
As time went by, Silafrica asked for more assurances that their investment would be worth it. They requested not only updated projections (by this point, T/WASH had scaled up to all eight regions of the country), but they wanted actual distributor orders, as well. Fortunately, demand had been established through the successful test market, so T/WASH was able to collect orders to Silafrica's satisfaction, enough to justify the initial production plan. Finally, in June 2020, the slab molds arrived from Nairobi to Addis Ababa, and Silafrica began readying their newly built production facility to manufacture the first batch of 5,000-10,000 units.
But there was a final glitch. Silafrica had applied to the Ethiopian Investment Commission (EIC) for duty-free import of the molds. But the application was rejected because of a regulation that requires a company to have 50 permanent Ethiopian nationals on its staff to qualify; Silafrica has just over 40. Upon import, a duty of about $46,000 was assessed on the molds. Silafrica appealed the decision, but in the end the appeal was rejected, and they were forced to pay. Sadly, the loser will be customers, who will end up paying the duty as Silafrica recovers the expense through a higher product price. In the end, while the government's objective of increasing employment is a worthy one, promoting overall local business growth is more likely to generate jobs than requiring a minimum number of employees when they're not needed.
In a last bit of good news, Silafrica informed us that they've decided to use what they call "regrind" plastic to produce the slabs, which involves repurposing waste from other product manufacturing processes. This means that no additional foreign currency will be needed as all inputs will be locally produced, and in addition to repurposing of manufacturing waste, any broken product can be recovered from the market and recycled, as well. Yet the product features nearly the same strength and appearance as that produced with "virgin" plastic.
Production has begun, and we'll know soon how the market performs. But if the enthusiasm of our business development team, district health offices, and business partners is any indication, the product is poised for an outstanding commercial launch in Ethiopia. Stay tuned!
About Transform WASH
USAID Transform WASH aims to improve water, sanitation and hygiene (WASH) outcomes in Ethiopia by increasing market access to and sustained use of a broader spectrum of affordable WASH products and services, with a substantial focus on sanitation.
Transform WASH achieves this by transforming the market for low-cost quality WASH products and services: stimulating demand at the community level, strengthening supply chains, and improving the enabling environment for a vibrant private market.
USAID Transform WASH is a USAID-funded activity implemented by PSI in collaboration with SNV, Plan International, and IRC WASH. The consortium is working closely with government agencies, including the Ministry of Health, the Ministry of Water, Irrigation and Electricity, the One WASH National Program, and regional and sub-regional governments.
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