By Monte Achenbach, Chief of Party, TRANSFORM WASH Ethiopia
The ultimate goal of building WASH markets is to achieve ever expanding, self-sustaining household access to, and demand for, new products and services. If done successfully, most customers should be able to afford a range of products designed to meet their specific needs in improving their facilities and preventing the spread of disease. But market facilitation takes time, patience, and tenacity. Nothing exemplifies this more than PSI Ethiopia’s three-year experience, through the USAID Transform WASH project, introducing the plastic toilet slab to the Ethiopian market. It started with typical testing and readying the market for the product, but in the end, it was about building the confidence of the manufacturer to navigate Ethiopia’s complex business climate.
Plastic latrine slabs are consumer and business friendly. They are lightweight, and thus easy and inexpensive to transport even to distant rural areas. They are durable, attractive, simple to install in new or retrofitted latrines, and easily cleaned. Fitted with an attached lid and swivel hinge, they can be kept covered when not in use such that the toilet stays fresh, and disease-spreading flies are kept out. Finally, they don’t require water to flush, an advantage in water-stressed areas.
So, what held the product back for so long? 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 and low margins. This is the case in the easiest of markets, let alone a challenging one like Ethiopia.
USAID Transform WASH (T/WASH), which launched in January 2017, sought to remove these barriers in partnership with the Silafrica corporation, an East African business that had 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. Silafrica also has operations in Ethiopia and, with the encouragement of T/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:
- Market intelligence to understand market potential and viability.
- An initial import of 1,500 units to test the market.
- Support for establishing a supply chain and business and consumer demand.
Silafrica also put skin in the game by agreeing to utilize existing molds required for plastics manufacturing from its plant in Kenya. Molds for these kinds of products typically cost somewhere in the range of US $25,000-$50,000. 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, which compounds the barriers to sanitation market development.
To assess the market, T/WASH built on years of work to establish a supply chain for sanitation products and services in the largest regions of Ethiopia. Our business development teams had cultivated 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.
T/WASH also drew on previous market assessments in all these areas, where we had been 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 T/WASH to put together viable sales projections for Silafrica.
Importing the 1,500 units for test marketing became difficult, however, due to import challenges like high customs duties, other taxes and fees, and transportation costs, which, added up, put the cost of the product far beyond the reach of most households. With the support of USAID and the Ethiopian Federal Ministry of Health, T/WASH was able to import the products duty free, thus making the import feasible and the retail price closer to the level estimated through local manufacturing. Under a strict commercial environment, such test marketing would have been extremely expensive and risky for any business, which highlights the potential value of donors investing in market facilitation.
For the test marketing, T/WASH 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 (US$23) to cover all costs, including transportation. But this price proved too high, and the product barely moved, even with demand creation activities. T/WASH then supported retailers in adjusting the consumer price to 450-500 Ethiopian Birr (US$18), even closer to Silafrica’s price estimate for a locally manufactured product, and the 1,500 sold out in two months.
At this point, Silafrica expressed willingness to commit to importing the molds and begin production of plastic slabs in Ethiopia. However, the import and initial production run took longer than expected as both were complicated by the difficulty obtaining enough foreign currency. The limits on obtaining foreign currency, as mentioned earlier, are a well-known market barrier in Ethiopia to efficient business operations and growth.
As these difficulties played out, Silafrica asked for more assurances to guarantee their investment. They requested updated sales projections as well as actual distributer orders. As sufficient demand had been established through the test marketing, T/WASH was able to collect enough initial orders for Silafrica to justify a production plan. Finally, in June 2020, the slab molds arrived from Nairobi to Addis Ababa, and Silafrica began readying their facility to manufacture the first 5,000-10,000 units.
But one final issue nearly derailed the production. Silafrica was denied its application for duty-free import of the molds by the Ethiopian Investment Commission (EIC) because of a regulation requiring a company to have 50 permanent Ethiopian nationals on its staff to qualify; Silafrica had just over 40. As such, a $46,000 duty was assessed. Silafrica appealed the decision, but in the end, they were forced to pay. Unfortunately, this will result in a higher per unit cost for buyers.
Silafrica decided to continue, though, in part because they can “regrind” plastic to produce the slabs, which involves repurposing waste from other product manufacturing. This means all input materials are available locally, reducing the need for foreign currency. Also, any broken product can be recovered and recycled, and the final product maintains nearly the same strength and appearance of those 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!