Pestle Analysis of Eritrea & Overall Analysis of Animal Production Industry STM -I

Submitted to: Prof. Anshuman Tripathy

Name Subhranshu S. Panda Roll U112053 Section A

Xavier Institute of Management, Bhubaneswar

PESTLE ANALYSIS: ERITREA

Political
Eritrea got its independence from Ethiopia in the year 1993, but the relations among the two countries remain unfriendly. President Isaias Afwerki has ruled without elections since 1993, and the ongoing conflict with Ethiopia means elections are unlikely. Judicial independence is very limited; journalists and others have been held without trial for speaking against the government. In the recent years, Eritrea has moved assertively to reduce its reliance on external assistance. Eritrea has a single party presidential republic framework. Here, President is the head of state and government. Its a single-party state, led by the People's Front for Democracy and Justice. The popularly-elected National Assembly having 150 seats was formed in 1993 just after independence, and elected the current president, Isaias Afewerki. General elections have not been held after that, i.e., after its official rise to power in 1993. They are governed under the constitution of 1993. Independent local sources of political information on the countrys domestic politics are limited; in September 2001 the government closed down all of the nation's privately owned print media, and outspoken and blunt critics of the government have been arrested and held without trial. The U.S. State Department in 2004 declared Eritrea a Country of Particular Concern (CPC) for its suspected record of religious persecution. The impact of the border war with Ethiopia, and continued army mobilization, has contributed to the lack of a skilled workforce. The present government includes judicial, legislative and executive bodies. Growth is expected to accelerate in 2012/13 thanks to a resumption of port activities and foreign direct investment (FDI). The country conducts prudent macroeconomic policies and pursues the structural reforms agreed with the International Monetary Fund (IMF). These are a few political factors that affect the country as a whole: Rule of law: The rule of law remains fragile and uneven, undermined by a weak and inefficient judicial system. In fact the protection of property rights is also poor. The government has a long history of seizing houses, businesses, and other private property without proper notice, explanation, or compensation. Pervasive corruption continues to undermine efforts to improve the foundations of economic freedom. Limited Government: The top income and corporate tax rates are roughly 30 percent. The overall tax burden is estimated to be pretty high, although taxation is erratic and badly administered. Government spending amounts to 38.9 percent of total domestic output. The deficit has been constantly high at over 16.2 percent of GDP, and public debt amounts to more than 130 percent of total domestic income. Regulatory Efficiency: Procedures for establishing and running a business are opaque but costly. Published regulations are outdated, and the required minimum capital for launching a business is over twice the annual average income. Labor regulations are not enforced effectively, and the underdeveloped labor market doesnt match skills with needs. Monetary stability is weak, and inflationary pressures continue. Open Markets: Eritreas trade freedom remains severely restricted by prohibitive tariff and non-tariff barriers. The government-controlled economy is not much attractive to foreign investment. Largescale projects have to be approved by the appropriate Office of the President. The financial system remains very underdeveloped. All banks are majorly owned by the government, and the participation of private sector in the system is constrained.

Foreign Relations: External issues include an undemarcated border with the Sudan, a war with Yemen over the Hanish Islands (1996), and a recent border conflict with Ethiopia. Also, the government prefers private-sector investment to official aid programs and declines foreign aid; therefore its relations with aid-dispensing nations and international institutions have often been difficult. Social Development policies: There is a clear policy commitment on the part of GoSE to reduce gender-based inequalities. Much of this can be attributed to the historical involvement of women in the liberation struggle of the EPLF and their continued representation by the National Union of Eritrean Women (NUEW), founded in 1979, and represented throughout the country. Promoting Youth Employment: In its eorts to promote youth employment, the government has launched an unparalleled plan to develop institutions of higher learning throughout the country. This initiative is followed up by policies that ensure that the skills being generated match labor market demands. Until 2003, Asmara University was the countrys sole institution of higher education. Since then seven new institutions focusing on technology, health sciences and medicine, agriculture, marine sciences, business and economics and arts and social sciences have been created. Building capacities: The government has engaged PricewaterhouseCoopers to help build capacity in various areas, but focusing mainly on the Ministry of Finance, and the Auditor Generals Oce. Private audit rms are being trained in the areas of accounting, auditing, public procurement and information technology to enhance their skills and to enable them to operate more eciently and effectively.

Economic
Eritrea is heavily dependent on economic growth as a means of lifting the majority out of poverty. In the short-term, the new governments emphasis has been on recovery and rehabilitation through injecting cash into the economy. In the long term, the goal is the creation of modern, technologically advanced and internationally competitive economy within the next two decades. After experiencing growth rates of 8.7% in 2011 and 7.5% in 2012, Eritreas economy is expected to maintain a growth rate of 8.5 percent in 2013, according to the Economist Intelligence Unit. The EIU says growth outlook for 2013 will be driven mainly by higher agriculture output, increased development activities and Nevsun Resources raising production forecast for the Bisha mine, especially after Eritrea gained access to Sudan's recently built gold refinery plant. The country has a GDP (PPP) of US$ 4.397 billion (2006 estimate). GDP composition by sector is: Agriculture- 11%, Industry-34% and Services-55%.The inflation has been consistently high at 12.7% in 2010, 13.3% in 2011 and 12.3% in 2012. Poverty remains among the biggest problems the country is facing. Around half of the population lives below the poverty line. Differentiated access to social services is reflected in regional variations in social indicators, which show an urban bias and a bias towards the highlands. Agriculture employs about 80 percent of the population in Eritrea, and the remaining 20 percent are employed in industry and services. The GDP per capita at nominal value was $475 in 2011. The official currency is the Eritrean nakfa (ERN). As of January 1, 2005, the government set the foreign exchange rate at US$1=ERN15. Eritrea does not publish a budget, making its fiscal condition difficult to assess. Current expenditures continue to exceed budgeted spending, especially in defense and other discretionary

expenditures and debt is unsustainably high. According to the CIA World Factbook, the Eritrean Government has revenues of $715.2 million, and outlays of $1.021 billion. Foreign economic relations are encouraging, especially with China, Germany, South Korea, Italy and South Africa. In 2011, Eritrea imported goods worth US$899.9 million, including machinery, petroleum products, food, and manufactured goods. Eritreas main suppliers were Brazil, China, Egypt, India, Italy, Germany, Saudi Arabia, South Africa, and South Africa. In 2011 exports from Eritrea were valued at US$415.4 million, and the bulks were food, livestock, small manufactures, sorghum, and textiles. The major markets for Eritrean goods were China, Egypt, Italy, Saudi Arabia, Sudan, and the UK. However, poor relations with neighboring countries have had a profoundly negative impact on the economy. Foreign investment is hindered by government regulations that seek to protect domestic industries from foreign competition and by a generally unfavorable investment climate. Major foreign investors in Eritrea include South Korea, China, Germany, South Africa, and Italy, as well as the World Bank. In future, the threat of famine and food insecurity; the discovery of substantial mineral deposits in parts of the country; the large foreign investment into their exploitation; and the relationship of the country with the international community will determine the growth of the economy.

Social
Demographics: Eritrean society is ethnically heterogeneous with nine recognized ethnic groups, most of whom speak languages from the Semitic branch of the Afro-Asiatic language family. The population (2012 estimate) is around 6 million, majority of which live in the capital city Asmara. The Tigrinya people make up about 55% and Tigre people make up about 30% of the population. According to CIA World Factbook, statistics reveal the following age structure; 014 years: 42.9%, 1564 years: 53.5% and 65 years and over: 3.6%. The average life expectancy at birth is 68.8 years. The sex ratio is 0.99 male(s)/female. Health: Significant improvements have been made in this regard. Life expectancy at birth has increased, mortality rates have dropped drastically and health infrastructure has been expanded. Immunisation and child nutrition has been tackled by working closely with schools in a multi-sectoral approach; the number of children vaccinated against measles almost doubled in seven years, from 40.7% to 78.5% and the underweight prevalence among children decreased by 12% in 1995 2002. However, there are many challenges to be faced like less number of physicians, malaria and tuberculosis being major causes of deaths and high HIV prevalence. Per capita expenditure on health is also low. Nutrition: Food security is a major issue. The country suffers from chronic food production deficit. This is due to low and erratic rainfall, declining soil fertility and insufficient capital for investment. Thus, domestic food production is not able to meet the demand. Education: In the education sector, the government has initiated an ambitious programme of expanding higher education institutions as well as vocational training. There are around 238,000 students in the primary, middle, and secondary levels of education. There are 824 schools in Eritrea and two universities (the University of Asmara and the Institute of Science and Technology) as well as other smaller colleges and technical schools. Education in Eritrea is officially compulsory between seven and 13 years of age. However, the education infrastructure is inadequate to meet current needs. Skill shortages are present at various levels of the education system. Illiteracy estimates for

Eritrea range from around 40% to 70%. Barriers to education in Eritrea include traditional taboos, school fees and the opportunity costs of low-income households. Religion and Culture: The two dominant religions are Christianity and Islam. It is also a multi-cultural land. Most influence seen in Asmara is from Italy. There is a merging of Italian colonial influence with the traditional Tigrinya lifestyle. Traditional Eritrean dress is quite varied. Football and cycling are the most popular sports in Eritrea. American and Bollywood movies are in high demand in the Eritrean region. Domestic films are produced by government and independent studios with revenue from ticket sales typically covering the production costs. Gender Issues: Problems relating to gender inequality exist. Eritrean women, particularly in rural areas, continue to operate in a socio-cultural framework which is inimical to gender equality. Even among the better educated, prejudice remains. Urban women appear to have significantly fewer job opportunities than do men and remain under-represented in the civil service.

Technological
The Government has developed an Information Communication Technology (ICT) policy framework. There is a telecommunication policy which states that every citizen has the right to communication service be it fixed, mobile or Internet service at a fair and affordable price. The main objectives of the policy are: Develop free, responsible and credible mass media, promote democracy and strengthen national unity Raise public awareness, spread national educational programmes. Promotion of regional peace and national cooperation with neighboring countries.

The Eritrean Technical Exchange Project (ETEP) founded Eritrea's electronic mail system in 1995, made practical by careful choices of technology adapted to the particular conditions in the country. For the next five years the email system grew dramatically, providing low-cost efficient email service until the Internet arrived in Eritrea in the year 2000. Eritrea also has a policy on Science and Technology, to create a modern, technologically advanced and internationally competitive economy. The setbacks are: The prolonged effects of the 1998 border conflict Priorities given to institutional and human capacity development as essential elements for robust technological implementation Educational reform process being undertaken in national education system.

Despite the setbacks, progress has been made in this sector. Heavy expenditure is being made in existing and new research centers. One major achievement is the implementation of Biogas technology in agriculture, either for generating electricity or as a fertilizer. Thus, farmers have been able to reap green benefits, gain higher efficiency and also reduce greenhouse gas emissions. Also, the Eritrean Technical Exchange Project (ETEP) has participated in pilot studies and provided technical and financial resources to the Eritrean Department of Energy to develop high efficiency cooking stoves. With ETEP seed money, the program has introduced efficient stoves, which significantly conserve fuel. A current major project of ETEP is to develop an information system focusing on climate and resources.

Environmental
Eritrea faces environmental issues such as continued deforestation, soil erosion, desertification, overgrazing, and significant land loss as a result of the presence of hundreds of thousands of land mines. Significant strides towards sustainability and environmental recovery have been made by the Government of Eritrea. The Government has embarked on a program to reforest Eritrea (which in 1900 was 30% forested land, in spite of heavy logging) and prevent wood from being used as a fuel source. In addition to its terrestrial responsibilities, the government with the assistance of the UN Development Program has enacted a Coastal Marine and Island Biodiversity Conservation Project which is designed to protect the entire coastal zone of Eritrea. This project is the first of its kind in scope and magnitude in the world. This program is meant to create a sustainable environment for coming generations. Following are a few statistics: Total renewable water resources account for 6.3 cu km. The Terrestrial protected areas (% of total surface area) in Eritrea were reported at 4.26 %. The CO2 emissions (kt) were reported at 414.37 in 2008. Per capita gross energy consumption in Eritrea is about 3000 kW-hr/year with commercial energy consumption (petroleum products and electricity) being less than 1000 kW-hr/year/person.

Legal
The legal system is a civil law system borrowed from Ethiopia's adaptation of the Napoleonic Code. The judiciary operates independently of both the legislative and executive bodies, with a court system that extends from the village through to the regional and national levels. The structure has three tiers, the local community courts, the regional courts and the national High Court. There are a total of 683 community courts across the country with the number of magistrates totaling to 2,049. The community courts work on the basis of the area, the local rules and customs. If a dispute cannot be resolved in the community courts it can be appealed to the next level of judicial administration, the regional courts, and then if necessary, the national High Court. However, the judiciary suffers from lack of resources and training. The new constitution promulgated in 1997 provides for democratic freedoms, like free speech, free association and free assembly.

SECTORAL ANALYSIS
This section examines the relevant external and internal factors affecting the sector.

Pestle Analysis of Animal Production A. Country: Ireland Political: 1. WTO: There are strong reservations about the current WTO agriculture proposals and, in particular, the potential impact of these proposals on the Irish beef sector. As a sensitive product, it has estimated that there would be a 9% decline in Irish cattle prices; with the value of Irish beef output falling by 120m, or 8%, per year. Furthermore, a 23% reduction in tariffs, under sensitive product designation, would see imports of beef into the EU increasing by 30%. In the alternative scenario where beef is not designated as sensitive, the 70% cut in tariffs would result in Irish beef prices falling by over 28% by 2017, with an annual fall in beef output of 380m per annum. 2. Existing Supports: The removal of the link between subsidies and production has resulted in more market and profitability focused enterprises with a simultaneous decline in dairy cow numbers. This resulted in a fall in beef output and a widening of the EU beef deficit. In addition, the EU is committed to abolishing export refunds by 2013. Economic: 1. General Economic Climate Recent years have seen significant fluctuations in commodity prices particularly dairy, beef and some cereals. Rising population levels, improved standards of living and changing dietary patterns, particularly in Asia, are all contributing to increased food demand. 2. Threat from lower cost producers outside the EU Given the scale of operation and low production costs, South American beef production poses a very real threat to Irish producers. Recent developments (production cutbacks, export restrictions etc.) combined with future income growth, particularly in Brazil, are likely to diminish that threat somewhat. 3. Producer Profitability It is estimated that only one fifth of the countrys beef farms are economically viable, when the value of family labor and capital invested in livestock and machinery is considered. The beef farmers reliance on decoupled payments and other subsidies remains high with many operating at a market loss. 4. Processing Sector The Irish beef processing sector comprises 30 major slaughtering facilities and 220 low-volume slaughterhouses. These plants handle a combined throughput of approximately 1.6 million cattle per annum. Social: 1. Demographics Specialist beef production is the dominant type of farming, accounting for 68,300 farms in 2007. The average farm size of these beef farms is 27.5 hectares, which is lower than the 32.3 hectare average for all farms. In addition, the scattered nature of most holdings contributes to extra costs and poorer utilization of modern management practices. 2. Changing Enterprises A freeing-up of the dairy quota regime could entice some younger beef producers, on good land, to opt for dairy production. However, this is unlikely to any great extent in

a quota environment, while access to capital is likely to prove problematic in a post-quota environment. Afforestation, on the other hand, could be a viable alternative on more marginal land. 3. Requirement for Young Beef Farmers The farming lifestyle, with demanding hours and low margins, has resulted in full-time beef farming being unattractive to many younger people. For viability, the industry needs to attract young, trained farmers who will drive change and technological development. However, the price and availability of land, to purchase or rent, and the current age profile amongst farmers are both threats to future viability. Technological: 1. Technological Improvements The significant differences in beef enterprise gross margins between the upper and lower quartiles highlight the productivity issues that face the sector. There is a growing need to promote knowledge transfer and ensure earlier and widespread adoption of proven technologies by farmers. Potential technological advances in areas such as grassland breeding, management and utilization, animal breeding, animal health and feeding and cost control are needed in order to identify new and better animal production practices. 2. Beef Carcass Classification There are currently discussions taking place in the industry on the introduction of a new pricing grid to reward farmers for producing quality beef that the market wants. This will give a more precise indication of the value of a carcass than the current system which uses only main classes. Environmental: Climate Change: It has been agreed that the EU target will increase to a reduction of 30% in the event of an international agreement on Climate Change and Energy Security being reached in Copenhagen in December 2009. These targets present particular difficulties for the Irish agricultural sector as, uniquely among EU countries, emissions from the sector account for a very high proportion of total emissions (26.8% of total Irish emissions in 2007 against a EU27 average of 9%). Legal: The Beef Labeling Regulations apply to fresh, frozen and minced beef, with the information relating to the produce, applied to or attached to individual pieces of meat or to their packaging material. Where beef is not wrapped, the information is required to be provided in a written and visible form to the consumer at point of sale. This was an important development for consumers and provides assurance about the origin and the quality as well as the safety of the product.

B. Country: United Kingdom (UK) Political: 1. Climate Change: The 2008 Climate Change Act requires GHG emissions of 80% by 2050. This will lead to greater competitiveness via higher efficiency will boost profits and reduce GHG emissions per unit of production. But it is unlikely it will reduce by 80% in the long run. 2. Global Food security: Global prices have risen and global demand for food is not being met by the slower growth in supply. In short run, farmers will benefit from price rise. Thus, the government needs to increase competitiveness and productivity in order to increase profitability and support food security.

3. Land use tradeoffs between different policy initiatives: There in increasing pressure on land use; for food, fuel, biodiversity, recreation etc. The concept of Sustainable Intensification may be able to provide dual economic and environmental benefits from increasing the efficiency with which production systems are managed and natural resources are valued. 4. International Trade: In the absence of a multilateral trade deal, bilateral trade agreements will continue to influence global trade flows in the short to medium term. Also, as per the Mercosur talks, it will be of serious threat to EU beef producers as Argentina and Brazil may look for greater European access. Economic: 1. Economic Recovery: The current difficult financial situation within the UK has two main affects on agriculture. The primary one is the value of sterling relative to the euro and dollar, and secondly the reduction of funding available to support agriculture e.g. through R&D, etc. Although the lower exchange rate has a positive impact, there will be a significant reduction in R&D spending as well to support the whole sector. 2. Input costs remain high: Producers/growers and processors in all sectors face increasing input costs, such as energy, fertilizers, animal feed, etc. These are not likely to fall because the price of oil, gas and mined minerals will continue to increase due to demand, and potentially reducing supply. 3. Labor and Skill Shortages: Restriction on immigration has caused some problems supply chains and with an ageing workforce there is increasing concern within the industry. Attracting young people with entrepreneurial skills into farming and agricultural supply chains is necessary. 4. Better Export opportunities: The world population is growing and getting wealthier. With increased wealth there is a dietary transition which results in more consumption of animal protein and less consumption of traditional staple foods. This results in global competition for plant-derived protein as animal feed but also provides an export market opportunity. Social: 1. Mainstream diet change: General messages towards encouraging people to eat a healthy and sustainable diet are moving towards encouraging eating less meat and dairy and more fruit and vegetables through a balanced plate approach. 2. Protein Feed Sources from non EU sources: There is an increased concern on the fact that EU imports significant amounts of vegetable protein for animal feed and there is increasing scrutiny of the sustainability of the systems of production employed in South America. 3. Mixed messages about farming: On one hand, consumers tend to be supportive of farmers but, there continues to be a lack of trust, confusion and skepticism by some consumers over large herds/farms, modern disease and pest control, TB control, GHG emissions etc. Also, this is not seen as a viable or high status activity. Technological: 1. Lack of applied R&D and KT: There is a need for technical research and knowledge exchange/transfer to maintain competitiveness and to respond to the need to reduce GHG emissions as well as minimize waste, increase resource use efficiency and counter threats from pathogens and parasites of livestock and diseases.

2. Uptake of IT/Precision Farming: There is a poor understanding and uptake of ICT performancebased measurement tools, and precision farming techniques and technology, within some sectors. With increasing growth in ICT applications used for supply chain operations there is increasing potential for producers to gain efficiencies in supply chain co-ordination. Legal: 1. Compliance: By complying with a wide range of environmental and other food regulations, producers are increasingly bearing higher costs of compliance. With growing concerns over environmental protection and food safety the EU will be continuing to focus on food hygiene/safety and animal welfare/disease regulations. 2. CAP Reforms: Several sectors continue to adjust to the post-2005 support structure and the removal of direct production subsidies. The changes to CAP will be within the context of the forthcoming wider negotiations on the EU budget framework. The need for a common market and competitiveness are key, which if not supported by CAP Reform may lead to disadvantage. Environmental: 1. Water & Waste Disposal: The sustainable use of water is a growing concern as indicated in the Water Framework Directive and will affect food production. This has greater impact on productivity than epidemic scares. 2. Climate Change: In response to climate change, sectors have implemented road maps to identify the scope and methods of reducing GHG emissions, together with other environmental impacts. The environmental impact of the biofuels industry on land use change, both direct and indirect, is highly complex. This will require a systems-based approach, better data and a need to quantify trade-offs in the way land is used.

PORTERS FIVE FORCES: ANIMAL PRODUCTION

Threat of new Entrants: Low- The capital requirements for starting up a farming enterprise are very high resulting in very few potential entrants. No Access to marketing and distribution channels for those already in the business results in utilization of undesirable channels thereby undercutting on profits. International trade restrictions also serve as an entry barrier to the industry. This results in less threat from new entrants in the commercial setup although it is easier in the communal set up. Overall the industry is profitable for those already in and presents barriers to entry for new entrants. Threat of substitute products: Low- This is the threat posed by the substitutes to the product that the farmers are presenting to the market. The substitute depends on the market in question although the product offered by the farmer is one. In the public auctions the substitutes include other livestock e.g. pigs, chicken and also wildlife. In the abattoirs it also includes imported livestock, game or importation of meat. For the consumers fish meat can be easily a substitute for cattle, sheep and goat meat. These substitutes are however not easily available and they are not necessarily better than the product in question. This makes the threat from substitutes very weak in the supply side of the supply chain. Bargaining power of customers: High- The switching costs for buyers are very low when they change from one supplier to the other due to the high numbers of suppliers. Due to the low number of processors and the

government legislation to promote value addition in the country, there is often an oversupply of livestock to the processing plant giving the abattoirs the urge to determine sale conditions. The buyers are oversupplied hence it is a buyers market. Bargaining power of suppliers: Low- There is low scope for differentiation in the supply sector and there are many individual fragmented suppliers to the markets. These fragmented suppliers only contribute small percentages of the total supply to the markets hence they do not have any bargaining powers to influence the conditions of sale. The production costs are high and the overall competition is high. Threat of Rivals: High- There are many suppliers in the market who are supplying a standardized product to the market, hence the buyers switching costs are very low. The large supplier base results in the buyers having a wide choice of sources and this puts a ceiling on the profits which the producers can realize. The threat of rivals is high and there is little scope for differentiation. These two factors increase the competition hence driving profitability down.

REFERENCES:
http://www.agriseta.co.za/ http://www.agriculture.gov.ie/ http://www.lrrd.org/lrrd16/8/ades16061.htm http://www.publish.csiro.au/?nid=72 http://www.nationsencyclopedia.com/Africa/ http://www.punchdown.org/ http://www.reegle.info/countries/eritrea-energy-profile http://www.fao.org/nr/water/aquastat/countries_regions/eritrea/index.stm http://www.nationmaster.com/country/er-eritrea/env-environment http://www.indexmundi.com/eritrea/environment_current_issues.html http://www.ruralpovertyportal.org/country/voice/tags/eritrea/eritreabiogas http://www.eritreaembassy-japan.org/data/collabo_ict.pdf http://www.the-icsee.org/projects/africa/eritrea.htm http://www.eldis.org/ http://en.wikipedia.org/wiki/Eritrea http://www.aercafrica.org/ http://www.uis.unesco.org http://www.gfmag.com/gdp-data-country-reports/277-eritrea-gdp-country-report.html http://www.economywatch.com/world_economy/eritrea/export-import.html http://www.heritage.org/index/country/eritrea http://www.state.gov/r/pa/ei/bgn/2854.htm https://www.cia.gov/library/publications/the-world-factbook/geos/er.html http://www.bbc.co.uk/news/world-africa-13349078 http://www.ahdb.org.uk http://www.defra.gov.uk/ http://www.cynulliadcymru.org/en/ http://www.fondaterra.com/extra/bioennw/dmdocuments/

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