An African Manufacturer? Ethiopia Gears Up To Emulate China, Vietnam And South Korea In Factory Output

From the outside, the China-Africa Overseas Leather Products tannery looks eerily idle. Long white buildings with blue-tinted windows surround a nearly empty parking lot, and the facility is so quiet you can hear the fluttering of the Chinese and Ethiopian flags out front.

But inside the gate and down past the office buildings -- where many of the Chinese employees work and live -- is a collection of massive workshops, and there you can hear the whirr of machinery as animal hides are soaked, threshed, tanned, shaved, colored and finished. About 450 Ethiopian workers are there to move things along.

The factory is situated just north of this capital city, in the town of Suluta. That's where most of its employees come from, including Wuberst Desalegn, a 22-year-old woman who has been working at the factory since shortly after it opened in 2010. She has since been promoted to the position of finishing director. Wuberst isn't quite sure where she'd be if she weren't working at the China-Africa Overseas Leather Products facility, she says. Perhaps at home.

"I think maybe I'll stay in this company," she added. She makes 1,400 Ethiopian birr ($74) a month, which easily covers her rent of 250 birr ($13).

The government of Ethiopia hopes that millions more will follow in Wuberst's footsteps. It has plans to turn its economy from a primarily agricultural one (farming makes up 43 percent of GDP and employs about 85 percent of the population) into one where manufacturing plays a larger role.

It's a strategy that hopes to emulate the successes of East Asian countries such as Vietnam, China and South Korea, where wages are rising as manufacturing operations grow ever more sophisticated. Higher costs in Asia could push international manufacturers to move to Africa, where labor costs are minimal and land is relatively cheap. Ethiopia wants to be ready for that influx, and has been saying so for years.

But manufacturing's contribution to GDP has hovered around 4 percent for years; for all their talk, officials haven't been able to nudge that figure upward. Some apparently intractable issues, including a dire lack of financing, shoddy trade logistics and a shallow pool of local experience, will have to be overcome before Ethiopia can realize its dream of emulating Asia's manufacturing boom.
Manning the Machines

The appeal of manufacturing for developing economies is simple: Factory employees have high labor output per capita and can earn far more money than workers in most other sectors.

"It offers prospects for labor-intensive growth," Lars Christian Moller, the World Bank's lead economist in Ethiopia, told IBTimes. "That's in contrast to a sector like natural resource extraction, which has very high value-added but doesn't require a lot of labor. You don't just want growth; you want employment and poverty reduction. The more workers that can be involved in production, the better."

Ethiopia has plenty to attract manufacturers from abroad. Its natural resources, including abundant livestock, thick forests and arable land for cotton, make it perfect for factories churning out leather, wood or textiles. "Ethiopia has some of the best leather in the world," said Ji Bingbo, a marketing officer at the China-Africa Overseas Leather Products tannery. Low wages were also attractive to the company; Ji says most workers make between 700 and 1,000 birr ($37-$53) a month -- rates that are failing to attract laborers in Asia.

Ethiopia, in turn, benefits not only from increased employment but from higher demand for its own products. The tannery in Suluta sources almost all of its raw materials from the country, bringing extra revenue to the livestock and chemical industries.

The Ethiopian government is working to attract investment, both foreign and domestic, said Girma Damte of the Ministry of Industry. "In a few years we intend for the economy to be taken over by the industry sector. We have provided various incentives to investors in the manufacturing sector, like customs exemptions and tax holidays. We are seeing that foreign companies are very glad to invest in the country because of the favorable conditions we have here," he said.

Boosting private enterprise in any sector will be a boon to Ethiopia, which faces an economic turning point. Its Gross Domestic Product growth has averaged 10.6 percent annually during the past decade, a ringing endorsement of the government's state-driven economic policies -- until now. GDP growth slipped to 9.7 percent in the fiscal year ending this July, and the World Bank has projected average annual growth of just 7 percent through 2016.

For a country that boasts the world's third-highest rate of public investment and the sixth-lowest rate of private investment, many economists are urging a sea change in the way Ethiopia pursues growth. Privatization will be key. And while the government has been hesitant to open up sectors like finance and telecommunications, it readily acknowledges that beefing up manufacturing would be an ideal way to spur foreign direct investment and broad-based growth.
Source:ibtimes.com