If the shoe fits then wear it

Ethiopia try­ing to be­come center for man­u­fac­tur­ing in Africa on the back of Chi­nese in­vest­ment, re­port An­drew Moody and Wang Chao

China Daily (Canada) - - BUSINESS -

Mod­ern and brightly lit with all the staff in neat uni­forms, it could be a state-of-the-art man­u­fac­tur­ing fa­cil­ity in Shen­zhen or Guangzhou.

The Hua­jian shoe­mak­ing fac­tory is not in China, how­ever, but about 30 kilo­me­ters from the center of Ad­dis Ababa.

Even its lo­ca­tion is some­thing of a dis­guise. There is noth­ing much African about the East­ern In­dus­try Zone in that in ap­pear­ance it could be any one of thou­sands of in­dus­trial parks around China.

Hua­jian, which em­ploys 3,000 lo­cal work­ers, how­ever, could have a sig­nif­i­cance way be­yond just be­ing a sin­gle fac­tory.

It could ul­ti­mately be the start of a chain of in­vest­ments that rev­o­lu­tion­izes the econ­omy of Africa’s most sig­nif­i­cant econ­omy on the Horn of Africa.

Chi­nese in­vest­ment is at the van­guard of the Ethiopian gov­ern­ment’s at­tempts to move away from be­ing an agri­cul­ture-de­pen­dent econ­omy to one in which man­u­fac­tur­ing plays a more dom­i­nant role.

Agri­cul­ture now ac­counts for around 43 per­cent of GDP with man­u­fac­tur­ing mak­ing up just 4 per­cent.

If this trans­for­ma­tion is suc­cess­ful it could prove to be some­thing of a role model for the rest of Africa, which is largely seen by ma­jor multi­na­tion­als as a less de­sir­able lo­ca­tion for man­u­fac­tur­ing in­vest­ment than Bangladesh, In­dia, Viet­nam, Cambodia or even China it­self.

This en­gage­ment with Ethiopia is also dif­fer­ent to the stereo­type of one cen­tered around China buy­ing up African re­sources.

Al­though the coun­try does have po­ten­tially large re­serves, in­clud­ing iron ore and gas, they have gone largely un­tapped so far.

If there was any doubt that man­u­fac­tur­ing jobs were needed in Ethiopia, where youth un­em­ploy­ment of 50 per­cent is one of the high­est in the world, this might have been re­moved by the fact that 4,000 turned up for 100 jobs when Hua­jian be­gan re­cruit­ing in 2012.

So suc­cess­ful has the plant been that Hua­jian Group, which has China bases in Dong­guan in Guang­dong and Ganzhou in Jiangxi, is plan­ning a $2.5 bil­lion in­vest­ment with the China-Africa De­vel­op­ment Fund to cre­ate a huge footwear man­u­fac­tur­ing base that will cre­ate 100,000 jobs within five years and ex­port up to $4 bil­lion of shoes ev­ery year.

He­len Hai, for­mer vi­cepres­i­dent and chief ex­ec­u­tive of­fi­cer of Hua­jian’s over­seas in­vest­ment op­er­a­tion, who helped set up the fac­tory, says that what is not widely un­der­stood is that China, be­ing the man­u­fac­tur­ing workshop of the world for 20 years now, has a real com­par­a­tive ad­van­tage this area.

She says many in the West might view China’s man­u­fac­tur­ing as be­ing in de­cline be­cause of higher la­bor costs but in re­al­ity com­pa­nies can now lever­age their ex­per­tise in ar­eas such as Africa.

“This ad­van­tage in man­u­fac­tur­ing has al­ready shifted from the West to China. The West doesn’t re­ally have it any­more with this type of op­er­a­tion. What we are do­ing is com­bin­ing Chi­nese knowhow with com­pet­i­tive la­bor,” she says.

Hai, 35, also a for­mer UKbased ac­tu­ary with a man­age­ment de­gree from INSEAD, ac­tu­ally ran the pro­duc­tion line from the shopfloor when the op­er­a­tion first started and says that many Western firms lack this man­u­fac­tur­ing com­pe­tence.

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The com­pany makes shoes for lead­ing brands such as Coach, Clarks and Guess.

La­bor is just 2 per­cent of pro­duc­tion costs com­pared with 22 per­cent in China, but lo­gis­tics cost quadru­ple from 2 to 8 per­cent. “Lo­gis­tics is the one big prob­lem of do­ing any­thing in Africa,” she says.

This lack of in­fra­struc­ture is some­thing the Chi­nese have also made a sig­nif­i­cant con­tri­bu­tion to rem­e­dy­ing over the past decade.

China Com­mu­ni­ca­tions Con­struc­tion Co, one of China’s largest State-owned com­pa­nies, has built many high­ways in Ad­dis Ababa, in­clud­ing the $100 mil­lion ring road project, which was com­pleted in 2004.

Another project is the $612 mil­lion, 80 km road be­tween the cap­i­tal and the city of Adama, which is set to be com­pleted ahead of sched­ule.

It will also work on the re­cently an­nounced $250 mil­lion ex­pan­sion of Bole In­ter­na­tional Air­port in Ad­dis Ababa, giv­ing it ex­tra ca­pac­ity and a new VIP ter­mi­nal. This will be funded by a loan from China Exim Bank.

China’s deep­en­ing re­la­tion­ship with Africa is also sym­bol­ized by the gleam­ing new African Union head­quar­ters, which cost $124 mil­lion and was “gifted to the African peo­ple” by the Chi­nese gov­ern­ment.

The grow­ing re­la­tion­ship is that of trade be­tween China and Ethiopia, which has risen more than 25 times over the past decade to $1.8 bil­lion in 2012. It is fore­cast to rise to $3 bil­lion by 2015.

Ethiopia’s ex­ports to China, in­clud­ing one of its prin­ci­pal ex­ports — se­same seeds — make up just $300 mil­lion with Chi­nese ex­ports to Ethiopia con­tribut­ing $1.5 bil­lion.

This grow­ing trade was ev­i­denced in De­cem­ber when more than 150 Chi­nese com­pa­nies ex­hib­ited at the 2013 (Africa) China Com­modi­ties, Tech­nol­ogy & Ser­vice Expo at the Mil­len­nium Hall in Ad­dis Ababa, which was seen as a land­mark event.

Wang Yi, China’s for­eign min­is­ter, said on a visit to Ad­dis Ababa ear­lier this month that he would like to deepen the trade re­la­tion­ship, par­tic­u­larly with agri­cul­tural prod­ucts and tex­tiles.

“Many Chi­nese tex­tile and agri­cul­tural prod­ucts com­pa­nies are look­ing to ex­pand their busi­nesses over­seas, and Africa is their best desti­na­tion. I hope Chi­nese com­pa­nies can help Africa to ac­cel­er­ate its in­dus­tri­al­iza­tion process,” he said.

This ac­cords with the Ethiopian gov­ern­ment’s plan to in­crease em­ploy­ment in its do­mes­tic tex­tile in­dus­try ten­fold to 500,000 within the next two years.

Qin Jian, deputy head of mis­sion at the Chi­nese em­bassy in Ad­dis Ababa, says China has ad­van­tages over Western coun­tries when trad­ing with Ethiopia, par­tic­u­larly in such ar­eas as lower-cost ma­chin­ery and heavy engineering.

Qin, who was speak­ing at the am­bas­sador’s res­i­dence in a leafy area of the city, be­lieves that China has played a key role in Ethiopia’s de­vel­op­ment.

“Chi­nese com­pa­nies are re­ally fa­mil­iar to peo­ple here. They have played a large part in de­vel­op­ing in­fra­struc­ture, which Ethiopi­ans see as en­sur­ing their well-be­ing and sus­tain­able long-term de­vel­op­ment.”

He be­lieves the Chi­naEthiopia re­la­tion­ship gives the lie to ac­cu­sa­tions in the West that China only wants to grab Africa’s re­sources and be­come a new colo­nial power.

“Nowa­days the Western me­dia tries to de­mo­nize China-Africa re­la­tions and only re­port the bad side such as sup­posed vi­o­la­tions of nat­u­ral re­sources. Ethiopia is a non-nat­u­ral re­source coun­try but we have large-scale in­vest­ment,” he says.

Over at the sprawl­ing cam­pus of the Univer­sity of Ad­dis Ababa, one of Africa’s lead­ing aca­demic in­sti­tu­tions, Ale­mayehu Geda, a pro­fes­sor of eco­nom­ics, says there are a num­ber of rea­sons why China sees Ethiopia as an im­por­tant eco­nomic and po­lit­i­cal part­ner.

“It is a huge po­ten­tial mar­ket for a start. It has a pop­u­la­tion of more than 80 mil­lion, mak­ing it the sec­ond most pop­u­lous coun­try in Africa.

“The coun­try has al­ways been po­lit­i­cally ac­tive across the con­ti­nent, even be­fore the African Union was based in the city. If you have good re­la­tions with the Ethiopian lead­er­ship you can net­work the rest of the coun­try.”

Geda also says that Ethiopia is in­creas­ingly act­ing as a shop win­dow for Chi­nese in­fra­struc­ture ex­per­tise.

“Be­cause of the African Union, there are a lot of po­lit­i­cal visi­tors. They can see things such as the elec­tric rail that is be­ing built and they might think to them­selves that they would like one of those in their own coun­try,” he adds.

Fana Gabre­sen­bet, a lec­turer at the In­sti­tute for Peace and Se­cu­rity Stud­ies, also at Ad­dis Ababa Univer­sity, says most Ethiopi­ans con­nect with China through things that af­fect their lives.

“The av­er­age per­son re­lates to China in terms of cloth­ing, kitchen­ware, cell­phones and other con­sumer goods that China is ex­port­ing. With in­fra­struc­ture, their eval­u­a­tion might be pos­i­tive in terms of get­ting the job done quickly,” he says.

“I am not sure that China does too well with their soft power. The state me­dia here re­ports about all the big in­fra­struc­ture projects and meet­ings with min­is­ters but the pri­vate me­dia con­tains a lot of crit­i­cism, par­tic­u­larly in re­la­tion to roads that are sup­posed to last 20 years show­ing wear af­ter a few years.”

Gabre­sen­bet, who was speak­ing over cof­fee in the lobby of the In­ter­con­ti­nen­tal Ho­tel, one of the city’s five-star ho­tels that con­trast sharply with the poverty on the streets out­side, dis­misses the idea that China is act­ing as a colo­nial power in Ethiopia or Africa but he says it does have in­ter­ests.

“We don’t have oil and valu­able nat­u­ral re­sources so you can’t blame China for th­ese things in Ethiopia but I would say Ethiopia is an im­por­tant coun­try to have re­la­tions with since by ex­ten­sion you have the po­ten­tial for in­flu­enc­ing the po­lit­i­cal process in Su­dan, where China has big nat­u­ral re­source in­ter­ests.”

For many Ethiopi­ans what China can bring in terms of jobs is para­mount. East­ern Steel, which makes spi­ral steel and other steel prod­ucts, is one of the lat­est Chi­nese com­pa­nies to set up op­er­a­tions in the coun­try.

It be­gan op­er­a­tions in Oc­to­ber at an 8,500 square me­ter fac­tory at the East­ern In­dus­try Zone.

With a ca­pac­ity of 300,000 tons a year, it will be Ethiopia’s big­gest steel com­pany.

By De­cem­ber it had al­ready hired 108 work­ers and had 50 Chi­nese staff on the ground train­ing them. It will be sup­ply­ing steel to, among oth­ers, Chi­nese con­struc­tion com­pa­nies around the city.

Miao Wenwei, the 42-yearold gen­eral man­ager, says there is a need for high­er­grade steel in Ethiopia.

“The qual­ity of the lo­cally made steel is not good. It is like the qual­ity in China in the 1980s,” he says.

Apart from the mar­ket op­por­tu­nity, lower la­bor costs make the mar­gins more com­fort­able. “La­bor is cheap. In China you have to pay work­ers be­tween 160 yuan ($26) and 200 yuan a day. Here it is about 20 yuan per worker,” he says.

The East­ern In­dus­try Zone, where 11 fac­to­ries are cur­rently lo­cated, has been a mag­net for a lot of Chi­nese in­vest­ment. It is one of the largest in­dus­trial parks of its kind in Africa.

The park is a com­bined Chi­nese-Ethiopian gov­ern­ment project but has been de­vel­oped and op­er­ated by the pri­vate Jiangsu Qiyuan Group, based in Jiangsu prov­ince.

It is not just aimed at Chi­nese com­pa­nies. Unilever NV, the An­glo-Dutch con­sumer goods gi­ant, is set to open a 5,000 sq m sham­poo fac­tory in June. A Viet­namese tex­tile com­pany is also plan­ning a base.

Lu Qixin, deputy di­rec­tor of the site, with his trade­mark big Ver­sace dark glasses, is a fa­mil­iar fig­ure as he drives around the park.

He says the whole project has been a ma­jor com­mit­ment and the com­pany has al­ready in­vested $80 mil­lion in the site.

“It is drain­ing on the fi­nances. Cur­rently, we are do­ing this with my brother’s money. We are look­ing to get a sub­sidy this year from the Chi­nese Min­istry of Com­merce,” he says.

None­the­less, the com­pany wants to fur­ther de­velop the site and now has plan­ning per­mis­sion for a five- star ho­tel and a res­i­den­tial and re­tail de­vel­op­ment com­plex ad­ja­cent to it. It should be com­pleted by 2017.

“We will do the res­i­den­tial area first so when Chi­nese com­pa­nies send peo­ple here there will be some­where for them to stay,” he adds.

Amid all this de­vel­op­ment the lives of many Ethiopi­ans are be­ing trans­formed.

Mula Warsa, 20, was one of Hua­jian’s first em­ploy­ees and is now man­ager of the pack­ing depart­ment, which in­volves su­per­vis­ing 20 peo­ple and earns 3,000 Ethiopian birr ($150) a month. She was hired straight from tech­ni­cal col­lege where she stud­ied footwear pro­duc­tion.

Speak­ing af­ter lunch at the im­pres­sive can­teen at the fac­tory, where work­ers eat ei­ther in the sec­tion serv­ing Chi­nese food or the one with lo­cal dishes, says there is a good work­ing re­la­tion­ship be­tween the Chi­nese and Ethiopian staff. “There may be cul­tural dif­fer­ences but th­ese do not af­fect how we work to­gether,” she says.

Suzhou, Con­tact the writ­ers at an­drew­moody@chi­nadaily.com.cn and wangchao@chi­nadaily.com.cn

SONG CHEN / CHINA DAILY

WANG CHAO / CHINA DAILY

The Hua­jian shoe fac­tory em­ploys 3,000 lo­cal work­ers in Ethiopia.

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