Skip to main content

Infrastructure is unlocking new manufacturing sector opportunities in Ethiopia

Hawassa Industrial Park, built by Chinese contractors, is already attracting global manufacturing firms. Source: Author's photograph

From the moment you touch down at Addis Ababa Bole International Airport, you’re struck by the volume of construction work ongoing. It’s a world away from the country that had a tumultuous latter half of the 20th century; featuring the nationalization and destruction of all industry under the communist Derg regime, one of the world’s worst famines in the 1980s, and a war with its neighbor Eritrea that only came to an end in 2000. At that time, Ethiopia was the world’s third poorest nation, and in effect, entered the 21st century with a blank slate.

Ethiopia’s growth since then has been startling; only China and Myanmar saw higher GDP per capita growth rates between 2000 and 2016. Ethiopia’s development focused government prioritized infrastructure build-up; in airports, rail, dams, power-stations, refineries and special economic zones.

The flagship Addis-Ababa to Djibouti railway now reduces journey times from 3 days to 9 hours; giving Ethiopian goods access to a well-located port with routes into Europe. Ethiopia’s electricity prices are low by African standards; and 86% comes from renewable sources. The Grand Renaissance Dam remains under construction, but once finalized will be the biggest dam in Africa. Ethiopian Airlines has made large investments in modern aircraft and cooling facilities and now flies to around 100 destinations worldwide. Hawassa Special Economic Zone is state-of-the-art, and is attracting global manufacturing firms to relocate their production to Ethiopia.

All these are clear examples of Ethiopia’s infrastructure push. In many cases, this infrastructure is being constructed by Chinese contractors, and hence falls under Beijing’s Belt and Road Initiative. However, as we’ve argued before, for infrastructure to yield worthwhile returns, it needs to spur the development of industry.

In this regard, Ethiopia is making progress, and has put special emphasis on developing its manufacturing sector. Ethiopia has a vision to become a light manufacturing hub in Africa over the next 10 years and the government is aiming for annual manufacturing growth of over 20%. Manufacturing jobs, standing at 380,000 in 2015 are expected by the government to increase to 758,000 by 2020 and 1.5 million by 2025. Most of the manufacturing sector’s growth is expected to come from light manufacturing and agro-processing industries, with an emphasis being put on those industries which will produce for export.

This is ambitious; but despite recent political transition, the government remains steadfast and is playing a key facilitating role in driving the growth of the manufacturing sector. Crucially, new infrastructure has lowered the cost of inputs into the manufacturing process (e.g. electricity) and also lowered transport and logistics costs. The combination presents an interesting commercial opportunity for firms seeking to enter the manufacturing space in Ethiopia.

Ethiopia’s manufacturing wages are around $50 a month, compared to around $300 in Vietnam and $500 in China. Yet, historically, firms did not move to Ethiopia given an unreliable power supply and high logistics costs in the landlocked country. That is beginning to change. Ethiopia’s special economic zones (SEZs) go further in helping foreign firms lower their cost base; they provide long-term rental contracts, import tariff exemptions as well as remove restrictions on capital repatriation. Importantly, the zones are more functional in comparison to SEZs in other African countries.

New infrastructure is also permitting linkages through the Ethiopian economy. For example, when infrastructure was lacking, a textile firm would be reluctant to set up in Ethiopia if there was an unreliable supply of cotton inputs. New infrastructure improves access to these inputs, and thereby lowers time to market in an increasingly competitive global apparel industry. Some manufacturing operations we spoke with in Ethiopia had reduced their lead time down to 21 days.

Ethiopia also benefits from preferential access into the US market through the African Growth and Opportunity Act (AGOA). For companies based in countries subject to US import quotas on textiles, such as China, moving production to Ethiopia in order to reach the US marketwould save additional costs and free them from burdensome US restrictions.

Of course, there are still challenges. Cultural gaps between managerial styles has resulted in high labor turnover in factories, productivity remains low (albeit on the rise) versus international standards, and a forex crisis has made it harder to take money out of the country.

Yet, there can be little doubt, that with new infrastructure and a committed government, the manufacturing sector in Ethiopia has become a more compelling proposition for foreign firms, and has unlocked a whole new commercial opportunity. This is vindicated by firms including Philip Van Heusen (PVH), H&M, Tesco, Gap, Belk, and Walmart basing their production in Ethiopia. The government has worked closely with these first mover firms, listening to their advice and feedback. These close collaborative partnerships are highlighted by remarks made by Mark Green, executive vice president of global supply chain at PVH, who said “I don’t know of any other sourcing country where there’s been such an alignment between the government’s vision and industry’s vision.”

For further information about how we can help your market entry strategy into Ethiopia, contact us here.


Popular posts from this blog

SSG Commando Muddassir Iqbal of Pakistan Army

“ Commando Muddassir Iqbal was part of the team who conducted Army Public School operation on 16 December 2014. In this video he reveals that he along with other commandos was ordered to kill the innocent children inside school, when asked why should they kill children after killing all the terrorist he was told that it would be a chance to defame Taliban and get nation on the side. He and all other commandos killed children and later Taliban was blamed.
Muddassir Iqbal has deserted the military and now he is  with mujahedeen somewhere in AF PAK border area”
For authenticity of  this tape journalists can easy reach to his home town to interview his family members or   ISPR as he reveals his army service number”
Asalam o Alaikum: My name is Muddassir Iqbal. My father’s name is Naimat Ali. I belong to Sialkot divison (Punjab province), my village is Shamsher Poor and district, tehsil and post office  Narowal. Unfortunately I was working in Pakistan army. I feel embarrassed to tell you …

The Rise of China-Europe Railways

The Rise of China-Europe RailwaysMarch 6, 2018The Dawn of a New Commercial Era?For over two millennia, technology and politics have shaped trade across the Eurasian supercontinent. The compass and domesticated camels helped the “silk routes” emerge between 200 and 400 CE, and peaceful interactions between the Han and Hellenic empires allowed overland trade to flourish. A major shift occurred in the late fifteenth century, when the invention of large ocean-going vessels and new navigation methods made maritime trade more competitive. Mercantilism and competition among Europe’s colonial powers helped pull commerce to the coastlines. Since then, commerce between Asia and Europe has traveled primarily by sea.1Against this historical backdrop, new railway services between China and Europe have emerged rapidly. Just 10 years ago, regular direct freight services from China to Europe did not exist.2 Today, they connect roughly 35 Chinese…

CPEC Jobs in Pakistan, salary details

JOBS...نوکریاں چائنہ کمپنی میںPlease help the deserving persons...Salary:Salary package in China–Pakistan Economic Corridor (CPEC) in these 300,000 jobs shall be on daily wages. The details of the daily wages are as follows;Welder: Rs. 1,700 dailyHeavy Duty Driver: Rs. 1,700 dailyMason: Rs. 1,500 dailyHelper: Rs. 850 dailyElectrician: Rs. 1,700 dailySurveyor: Rs. 2,500 dailySecurity Guard: Rs. 1,600 dailyBulldozer operator: Rs. 2,200 dailyConcrete mixer machine operator: Rs. 2,000 dailyRoller operator: Rs. 2,000 dailySteel fixer: Rs. 2,200 dailyIron Shuttering fixer: Rs. 1,800 dailyAccount clerk: Rs. 2,200 dailyCarpenter: Rs. 1,700 dailyLight duty driver: Rs. 1,700 dailyLabour: Rs. 900 dailyPara Engine mechanic: Rs. 1,700 dailyPipe fitter: Rs. 1,700 dailyStorekeeper: Rs. 1,700 dailyOffice boy: Rs. 1,200 dailyExcavator operator: Rs. 2,200 dailyShovel operator: Rs. 2,200 dailyComputer operator: Rs. 2,200 dailySecurity Supervisor: Rs. 2,200 dailyCook for Chinese food: Rs. 2,000 dailyCook…