The Rise Of ‘Made In Ethiopia’ – With The Backing Of Beijing

Trade & Policy

The Rise Of ‘Made In Ethiopia’ – With The Backing Of Beijing

Peter Wan is smiling from ear to ear. The 50-year-old walks past huge warehouses, where dozens of Ethiopians are busy working on spinning and thread-dyeing machines. "We are in the production test stage," he says, at the Chinese factory of JP Textile at the entrance of the industrial park of Hawassa, some 270 kilometers south of the Ethiopian capital of Addis Ababa.

Soon, the labour force will transform the thread imported from China into cloth fabric, explains Wan. Then this fabric will be shaped into "Made in Ethiopia" shirts for brands such as Calvin Klein or Tommy Hilfiger, so they can be exported to wealthy customers in Europe and the United States. This park, which was built by the Chinese in just nine months, is officially operational. But it has not yet started to export garments.

The US$ 260 million project is proof of the quick industrialisation of Ethiopia. China, its first trade partner, is leading this process: whether it's construction, transportation, or telecommunications, Beijing has invested in all sectors in this Horn of Africa country, the continent's second most populous nation with nearly a 100 million inhabitants. China has also built a new railway between Addis Ababa and Djibouti. Deprived of free access to the sea since neighboring Eritrea became independent in 1993, Ethiopia needs Djibouti, a small country through which it routes 95% of its exports. China is also betting on this area to be an important part of its "new silk roads" project.

Through the Suez Canal, transportation to Europe from Djibouti only takes a couple of days. The same goes for central Asia, through the Indian Ocean. Such ambitious plans require infrastructure to make the trade of goods easier. China is ahead in Ethiopia, where it has already built roads, a highway, and where its influence is doubtless.

All in all, the 279 Chinese companies operating in Ethiopia registered more than US$ 550 million in financial capital over the past five years. In 20 years, Chinese investments have totaled more than US$ 4 billion & are said to have created 111,000 jobs. A mainly farming country, Ethiopia wants to become the "industrial hub" of Africa. To become a middle-income country by 2025, Addis Ababa is strictly applying the second phase of its growth and development plan (GTPII) with Beijing's unfailing support.

Better than Bangladesh

For now, the manufacturing sector only represents 5% of the country's GDP. On July 8, top Ethiopian authorities and foreign investors inaugurated with great pomp the industrial park of Kombolcha, 380 kilometers north of the capital. The following day, it was the inauguration of another park, this time in Mekele, 760 kilometers north of Addis Ababa. The Chinese want to make the most of Ethiopian industries such as textile and clothing, which should soon turn the country into a new Bangladesh. "Even better than Bangladesh," says Yang Nan, the president of JP Textile.

Yang Nan knows what he's talking about. The Wuxi Jinmao Foreign Trade Company, where he chairs the executive board, has been producing fabric in Bangladesh for 12 years. Only five months after his first trip to Ethiopia, he decided to open branches here: JP Textile now stands in Hawassa and C&H Garment is housed in Bole Lemi, another industrial park, near Addis Ababa. "Ethiopia has two advantages," he says. On the one hand, he says, there is a profusion of cheap energy harvested from hydroelectric projects across the country. On the other, there's the possibility of benefiting from tax exemptions thanks to the African Growth and Opportunity Act.

It is this American piece of legislation that allows some African countries, including Ethiopia, to be exempted from customs duties for goods exported to the US, to ensure the economic development of the continent. "Everyone knows the US is the biggest textile importer across the world," Yang Nan says. "In some ways, Ethiopia can represent a Trojan horse for Chinese firms who want to use the country as a re-exportation hub towards more promising markets," says Xavier Aurégan, an independent researcher for the French Institute of Geopolitics.

Another major advantage for Ethiopia is the country's young, cheap and abundant labour force. "Labour cost here is the lowest in the world," says Yang Nan - just like China 30 years ago. But nowadays the average wage in China is more than $800 a month, too much to remain the world's factory. China's future therefore depends on Ethiopia, where there is no minimum wage.

At JP Textile, for instance, most workers are paid less than $35 a month. Isn't this exploitation? "Workers don't go to the factory threatened with a gun to their head," says Arkebe Oqubay, special counsel to the Ethiopian Prime Minister and author of the 2015 book Made in Africa: Industrial Policy in Ethiopia.

While there is no gun, there certainly is apprehension. By relocating its factories, China is also exporting the country's work methods and discipline. At JP Textile, workers who arrive late have to do push-ups or clean up the storehouse, says Selam Negusie, a 23-year-old supervisor, who was trained in Wuxi on China's eastern coast, and speaks fluent Mandarin. She says it's in China that she learned "hard work and punctuality" - two values written on banners everywhere around the factory, and translated into English, Mandarin, and Amharic, the official language of Ethiopia. "When the Chinese scream at you, they're doing it in a positive way!" she says. "To develop an industry, we need hardworking people," adds Yang Nan. The goal here is to train local supervisors who will take over from their Chinese counterparts. And their methods? "I haven't punished anyone yet but, if I have to, I will," Negusie says.

China is Ethiopia's "most reliable partner," Chinese Foreign Minister Wang Yi said during his visit to Addis Ababa in June. "Until now, China has been the most generous with us," says Arkebe Oqubay. He sweeps away accusations of neo-colonialism. "Who blames China? The formers colonial powers. Ethiopia doesn't have any preferences for any country. We are only taking care of our own interests." This is a "win-win partnership," says Sisay Gemechi, CEO of the Ethiopian Industrial Parks Development Corporation, adding that the country needs China because it needs investment and infrastructure. Nevertheless, "Ethiopia represents only 2% of the commercial relations between China and Africa," says Xavier Aurégan, the French researcher. Indeed, the African country imports 90% of finished products from China, which makes the trade balance highly uneven. Despite the advantages, the business climate is complex in Ethiopia and transportation costs are high.

"Ethiopia is not the only one to dream about all the possibilities China is offering: Djibouti, Kenya and Tanzania could be serious competitors to attract Chinese capital and projects," Aurégan warns. In any case, the two countries will continue to have a good relationship. The Chinese-Ethiopian industrial park of Dongguan is under construction in the suburbs of Addis Ababa. In 2020, it will be the country's biggest special economic zone.

Ethiopia bullish on its growing textile and garment sector

Ethiopia is pursuing an ambitious industrialisation development strategy. One of the main parts of Ethiopia's industrialisation drive is the textile and garment sector, which the government hopes will substantially boost export revenue while creating mass employment opportunities for Ethiopians.

Ethiopia's aim to earn US$ 1 billion from textile and garment production in several years' time may seem too ambitious, given the sector's revenue of only US$ 89.3 million in the fiscal year that ended on July 8, industry players are optimistic on the way forward. The country is working on several fronts to increase revenue from the sector, said Bantiyhun Gesesse, corporate communications director at Ethiopia Textile Industry Development Institute.

Industrial Parks ARE The Future

While Ethiopia's export targets have failed on several benchmarks, industry insiders say the textile and garment sector is still on an optimistic trajectory. Fasil Tadesse, president of Ethiopian Textile and Garment Manufacturing Association, said the handicap the sector faces can be solved with the provision of industrial zones. "The proliferation of industrial parks overseen by Ethiopian Prime Minister Hailemariam Desalegn and Ethiopian Industrial Park Corporation Board Chairperson Arkebe Oqubay shows government commitment to textile and garment sector," he said.

Several industrial parks have been built and commissioned across Ethiopia, including the Hawassa, Kombolcha and Mekelle industrial parks. Hawassa Industrial Park was constructed at a cost of US$ 246 million, while Mekelle and Kombolcha Industrial Parks cost US$ 100 million and US$ 90 million respectively.

All three industrial parks were constructed by China Civil Engineering Construction Company. "We need a leadership that's vigilant, vibrant and with full experience that can lead with knowledge in these industrial parks if they're to fulfill Ethiopia's textile and garment sector aspirations," Tadesse said.

China Is Ethiopia's Newest Textile And Garment Export Destination

While the textile and garment sector currently employs a small proportion of the millions of Ethiopians, Tadesse said it's not too early to dream big. Tadesse said his optimism comes partly from changes in the world's most populous nation, China, which used to supply 60% of the world's textile & garments until recently. "China's 1.4 billion people are transitioning into a high-tech economy, becoming possibly a net buyer in five years' time," he said, adding that the Chinese market could be bigger than Western Europe, North America and Australia combined. Tadesse acknowledged that Ethiopia will face fierce competition from the likes of Vietnam, Sri Lanka, and Bangladesh. "The textile and garment sector is a low-cost industry which by its nature is migratory, so Ethiopia's cheap electricity at three cents per kwh, and abundant, affordable trainable manpower should give the country the edge," he said.

A ProMISING FUTURE FOR INDUSTRIES

Tadesse and Gesesse's optimism about the future of Ethiopia's textile and garment sector is shared by Mohammed Hassen, general manager of Al-Mehdi Group of Industries. Hassen said his firm, which established its knitwear, textile and garment factory in 2007, in Dukem city, 37 km south of Addis Ababa, hopes to benefit from Ethiopia's preferential access to US and European markets. The factory exports soccer uniforms, basketball uniforms, shirts, trousers and shorts, with 40% of the textile products and 100% of garment products sold to foreign markets.

Despite challenges such as inadequate infrastructure and logistics, which has been exacerbated by Ethiopia being landlocked, Hassen is optimistic about his firm's prospects. "We hope the expected commissioning of the Chinese-built US$ 4.2 billion, 756 km Addis-Djibouti rail line will reduce our transportation cost by half, helping add to our expansion plans," he said. "As skilled labour increases and Ethiopia's textile and garment sector expands, I'm sure Ethiopia will soon be known as a center of fashion garments," Hassen added.