Ethiopia: Power and cement crunch solutions questioned

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After the sharp effects of the global economic downturn on the Ethiopian economy, the new crisis to hit the eastern African country has forced the government to impose a suspension of activities on all cement producing companies. This comes as the country faces one of the harshest electric power shortages yet. Some experts argue that the decision to import cement to buffer the supply crunch could be a wrong move.

The alarming decline of water levels in hydroelectric dams across the country as well as the growing demand and limited supply of power, from the state owned Electric Power Corporation (EEPCo), have compelled the Ethiopian government to implement some dire measures, which include an order — announced Monday — to shut down all cement producing factories, as they struggle to retain the remaining power generating capacity of the dams.

To make up for a possible supply crunch in the construction sector, the government has announced its decision to import two million quintals of cement from Pakistan and Yemen in the next two months.

Whilst the private sector has been given the permission to import cement through the franco valuta system, the Ethiopian government has been importing over 200 000 quintals of cement per month for the past 18 months. The current local production stands at an estimated 1.9 million quintals per annum, largely insufficient for the recent surge in demand from both the private and public sectors. It must be recalled that the Ethiopian government has embarked on an ambitious 150 kilometre long Gilgel Gibe III hydroelectric dam to deal with the county’s frequent power shortages – the dam when completed in 2012 will become one of the word’s tallest hydroelectric dams standing at 240 meters high.

Despite measures taken by the government to safeguard an uninterrupted supply of cement, however, the high demand and scarcity have contributed to soaring prices.

“Although the interruption of power supplies to cement factories is one of the government’s last options, — to make sure the country does not face a complete blackout — the measure will, undoubtedly, further harm the country’s economy,” says an economist from the Ethiopian Economists Association. According to him, the government’s “decision to import cement despite the deteriorating foreign currency reserve is a risky move that could empty the foreign reserve coffers”.

Ethiopia’s current foreign reserve is estimated at $850 million. Analysts claim data from the central bank indicate that the amount can only cater for weeks of essential imports.

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