Ethiopia’s industrial parks and industrial zones programme has met with quick success, attracting international companies on the back of their incentives regime, large labour pool, and involvement as one of the major African partners in China’s Belt and Road Initiative (BRI). With more set to begin operation – two in February 2017 and a total of ten within five years – the country is hoping these parks will be the backbone of a light industry revolution.
The major economic story out of Ethiopia in the twenty-first century has been one of growth: the country has regularly seen double-figure annual GDP growth, an emerging class of young entrepreneurs has decreased brain-drain and reliance on remittances, and industry has begun to make inroads in a traditionally agriculture-centric economy. Some prominent economists have also noted that the country’s growth coincides with diminishing inequality, unlike in notable neighbours in sub-Saharan Africa where growth has not led to substantial gains for the most impoverished. Despite these developments, recent political unrest in Ethiopia related to land ownership and agriculture has cast a shadow over the “Ethiopian miracle”, raising concerns about the country’s industrialisation trajectory and political stability from an investment standpoint. Nevertheless, Moody’s, Standard & Poor and other credit ratings agencies have maintained the country at an investment-grade rating. The introduction of new special economic zones and industrial parks aimed at growing the light industry base and adding value to local agricultural products should go a long way toward attracting new foreign investment.
The parks’ special regime includes an 8-10 year exemption for manufacturers on income taxes, other tax exemptions on imports of capital and materials, expedited customs processes and work permit acquisition, long-term land leases on favourable terms, and a single point of contact for registration, incorporation, and all subsequent administration. The government also highlights the country’s 94 million-strong population and surging young labour pool as attractive reasons for multinationals to invest long-term.
A flagship with Chinese design: The Hawassa Industrial Park was the first of the new specially incentivised industrial parks to open, inaugurated in July 2016. Hawassa and the Bola Lema I Industrial Park are the only parks currently active, but the Ethiopian Investment Commission has signaled that several new parks will open in the first half of 2017.
Hawassa, a 130-hectare eco-industrial park in the country’s southeast, was built by the China Civil Engineering Construction Corporation (CCECC), and has a textile and apparel focus. Its “eco” designation is a nod to the Zero Liquid Discharge (ZLD) system that allows for 85% wastewater recycling, along with other green elements in design and construction. According to China’s Xinhua news agency, the park has already received substantial investments from Chinese, American, and local Ethiopian firms, and expects to build from $150 million USD in export revenue to $1 billion. “As annual manufacturing growth currently is 25 percent, in 10 years’ time, it’s projected to increase its GDP share by four fold and it’s share in exports to 50 percent,” Prime Minister Hailemariam Desalegn was quoted as saying in AllAfrica.
“We have drawn lessons from Hawassa Industrial park. It has an economic value of generating over one billion USD annually. And we noticed that by diversifying such industrial parks, we can overcome hard currency shortfalls and unemployment.”
“Industrial parks create powerful wing for economic development of a country, our company deem ourselves as a strategic long-term link between China and Ethiopia” said Yuan Li, Chairman of CCECC, quoted in Xinhua.
China has tabbed Ethiopia as a key strategic location for the African portion of its Belt & Road Initiative, a massive infrastructure project aimed at establishing integrated land and maritime infrastructure connecting China with global markets, and fostering concurrent fiber optic connectivity. For this reason, China’s development banks and government bodies are engaged heavily in financing projects like Hawassa, and Ethiopia is collaborating with China on a number of major infrastructure projects in addition to its ten planned industrial parks.
Keeping stability: High-profile protests took place during much of 2016 and into the new year, raising questions about the government’s ability to meet its citizens’ demands. The protests, which on several occasions have lead to civilian deaths, have had an ethnic character and are related primarily to land rights issues and sentiments of economic exclusion. A state of emergency was declared in October 2016 and remained in place throughout the remainder of the year. Some economists predict that perceived instability, coupled with a current account deficit, may make foreign investment outlook slightly less rosy than the International Monetary Fund and other organisations have predicted for the short-to-mid term.
Ethiopia’s GDP growth in 2016 slowed to roughly 6% from its 10% average, and is projected by World Bank to maintain a similar level in the coming year. Expanded production and export volume has been offset by stagnating commodity prices globally, but the increased capacity bodes well for the country’s five-to-ten year outlook.
Outlook: In order for Ethiopia’s industrial parks to help its economy transition to a greater share of industrial activity than the current level of 6-7%, and to add value to Ethiopia’s dominant agricultural sector by introducing new food processing technologies, the country’s infrastructural integration will have to be maximised. A new Djibouti-Ethiopia railway makes the prospect of growing exports in a landlocked country more viable: all of Ethiopia’s new parks will rely on Djibouti as a maritime outlet.
Recent political turmoil will also have to be addressed, as continued widespread civil unrest could lead to investment rating downgrades and foreign investment flight. However, with years of robust growth and strong commitments from international partners to count on, the industrial parks programme is likely to have a positive impact on industrial production and exports, and the goals of creating employment and steadily growing FDI look to be within reach.