China Investing Heavily In Ethiopian Manufacturing

Bloomberg published last week a well balanced article on the state of manufacturing in Ethiopia and China's big role in it. 

Lured by tax incentives, promises of infrastructure investment, and ultracheap labor, countries the Western world once outsourced production to, particularly China and Sri Lanka, are now the middlemen ramping up production here for GuessLevi’sH&M, and other labels. These industrialists like Ethiopia because the government wants them as much as they want cheap labor and tax breaks.

The model for Ethiopia is for big foreign investment to come in and for these rich investors to work directly with the Ethiopian government to move away any obstacles necessary. The result is a quick (in Africa) process to get industrial parks built and ready for thousands of workers to come in.

Since 2014, Ethiopia has opened four giant, publicly owned industrial parks; it plans eight more by 2020.

Ethiopia has boasted one of the world's fastest growing economies. 10.8% annual growth is incredible since 2004 but methods Ethiopia has used to achieve it are reason for concern. Poverty has gone down from 50% to 31% since 2000 but given the stellar growth for the whole economy the reduction in poverty for those at the bottom is not that great. Politically Ethiopia is very divided along tribal lines and the government has become increasingly authoritarian

The Ethiopian People’s Revolutionary Democratic Front (EPRDF) controls every seat in Parliament and claims to represent all of Ethiopia’s 70-plus ethnic groups, but its power is largely held by the Tigray, who constitute only 6 percent of the population.

It is not certain whether or not these industrial parks will be successful. Some are being built in remote areas for political reasons which usually isn't a good sign and while foreign investment is attractive, it can leave the country quickly.

The larger issue is that the Ethiopian government is dictating who is able to do business efficiently. If you have a lot of money and connections you get to play by a different set of rules than Ethiopians who are trying get by on their own. Rather than making business in Ethiopia easier for everyone they are making a separate lane of for large businesses which get the fast track.

The result is what we are seeing in Ethiopia where an increasingly angry populace is being confronted with an increasingly authoritarian government. There are many positive aspects to what is going on in Ethiopia but only when looked at from afar. Will the optimistic or pessimistic scenarios play out? Time will tell.