Chi­nese op­ti­mism in Ethiopia

While Chi­nese com­pa­nies in­vest­ing in Africa are of­ten ac­cused in the West for ex­tract­ing re­sources and not hir­ing lo­cals, the real pic­ture is starkly dif­fer­ent, Chen Weihua re­ports from Ad­dis Ababa.

China Daily (Canada) - - IN DEPTH -

TJob cre­ators

Es­rael Etefa, 24, has worked at Hua­jian Shoes for three years. He was trained at its Dong­guan fac­tory in South China’s Guang­dong prov­ince with 88 other Ethiopian work­ers.

Speak­ing quite good Chi­nese, Etefa likes to in­tro­duce him­self as Fazhan, his Chi­nese name mean­ing “devel­op­ment’’. It was given to him by Hua­jian’s leg­endary founder and en­tre­pre­neur Zhang Huarong, who built the shoe-mak­ing em­pire from scratch in the 1980s.

“The work here is hard, but I like the work en­vi­ron­ment be­cause it teaches us how to over­come chal­lenges,” Etefa said in Chi­nese while eat­ing a Chi­nese-style lunch in the can­teen. Most of his Ethiopian co­work­ers pre­fer their own cui­sine, known as In­jera.

Natty Abebe has also worked at Hua­jian for three years since it started in the EIZ in 2011. He said the pay is good al­though over­time of­ten means a work­day from 7 am to 8 pm.

“Man­age­ment treats us well and I learned a lot here,” said the 26-year-old with a de­gree in ho­tel man­age­ment from the Univer­sity of Ad­dis Ababa and now an as­sis­tant to the work­shop man­ager.

A short walk from Hua­jian pass a beau­ti­fully land­scaped cir­cle is the assem­bly plant of Li­fan Mo­tors with some 50 new sedans, SUVs and mi­cro vans parked in a lot.

Nearby, Ale­mayehu Gizachew, the deputy plant man­ager, was test­ing a new mi­cro van. He made sharp turns and then hit the brake, look­ing sat­is­fied with the van’s per­for­mance.

The 36-year-old was an of­fi­cial in the Ethiopian gov­ern­ment’s au­to­mo­bile main­te­nance depart­ment be­fore join­ing Li­fan five years ago. He de­scribed Li­fan as a good com­pany and said that the cars as­sem­bled in Ethiopia he early morn­ing scene is brisk at the gi­gan­tic gate that re­sem­bles two spread­ing wings. Shut­tle buses ar­rive and lo­cal Ethiopian work­ers pour through the gate, most wear­ing green T-shirt uni­forms.

It is a scene that can­not be missed by peo­ple driv­ing through Dukem, a small town along the busy high­way link­ing Ad­dis Ababa, the cap­i­tal of land­locked Ethiopia, to the port of neigh­bor­ing Dji­bouti.

Far be­hind the gate, a well-groomed land­scape sur­rounds a dozen new fac­to­ries, of­fer­ing sharp con­trast to the nearby area of mostly farm­land and di­lap­i­dated houses.

This is the East­ern In­dus­try Zone (EIZ), the first such zone in Ethiopia and lo­cated about 37 km from Ad­dis Ababa. It is home to some 20 Chi­nese-in­vested com­pa­nies, from shoe mak­ing, tex­tile and gar­ments to au­to­mo­bile, steel, ce­ment and pack­ag­ing.

When started in 2009, it cov­ered 5-square kilo­me­ters. Now EIZ of­fers 130,000 square me­ters of in­dus­trial space fully equipped for mod­ern manufacturing with a guar­an­teed power and wa­ter sup­ply, an ef­fi­cient sewage sys­tem, roads and land­scap­ing.

The work­ers in green uni­forms are some of the 3,200 Ethiopi­ans hired by Hua­jian Shoes, which makes shoes mostly for the North Amer­i­can mar­ket for brands such as Guess, Nine West and Nat­u­ral­izer.

The largest em­ployer in the EIZ not only pro­vides them with free trans­porta­tion to and from the nearby towns of Dukem and De­bre Zeit, but also serves free meals each day start­ing with break­fast. are grow­ing in pop­u­lar­ity lo­cally.

Li­fan now ac­counts for half of the 1,500 new car sales each year in Ethiopia where 90 per­cent of the mar­ket is still dom­i­nated by used cars, many dumped by in­dus­tri­al­ized coun­tries. Li­fan Mo­tors Ethiopia has 160 work­ers, in­clud­ing seven from China. Its cur­rent assem­bly ca­pac­ity could pro­duce 5,000 cars a year with two work shifts. Ethiopia’s at­trac­tive­ness

For la­bor in­ten­sive in­dus­tries like shoe mak­ing, Ethiopia’s cheap la­bor pro­vides an op­por­tu­nity for Chi­nese com­pa­nies to stay com­pet­i­tive in the global mar­ket­place as la­bor costs have soared in China to al­most nine or 10 times the Ethiopian level.

That is one of the main rea­sons that Hua­jian Shoes has also been plan­ning for its own light in­dus­try park with the po­ten­tial to em­ploy at least 50,000 lo­cal work­ers. The com­pany has se­cured a piece of land in Lafto, south­west of the cap­i­tal, to build not just mod­ern fac­to­ries, but also classy res­i­den­tial, ho­tel and shop­ping fa­cil­i­ties in the next five to 10 years.

The other at­trac­tion has been the Horn of Africa na­tion’s easy ac­cess to the US and Euro­pean mar­kets, where Chi­nese ex­ports of­ten face quo­tas and anti-dump­ing charges.

For Liu Jiang, gen­eral man­ager of Li­fan Mo­tors Ethiopia, the long-term mar­ket prospect in the sec­ond most pop­u­lous African na­tion is quite bright.

He said that if the Ethiopian gov­ern­ment curbs the mar­ket for im­ported used ve­hi­cles, it will pro­vide sub­stan­tial op­por­tu­nity for new car mak­ers such as his.

“If we are lucky to have 20, 30 or 40 per­cent of maybe a 10,000-plus car mar­ket each year, that is not bad,” he said.

The mar­ket po­ten­tial could be even big­ger, he adds, given that the coun­try’s GDP has grown at dou­ble dig­its for more than a decade and is still grow­ing about 7 and 8 per­cent. Ethiopia could also be a gate­way to neigh­bor­ing coun­tries such as Kenya and Uganda, ac­cord­ing to Liu. Mul­ti­ple chal­lenges

For most Chi­nese com­pa­nies, in­vest­ing and op­er­at­ing in Ethiopia is not smooth sail­ing. And that is cer­tainly true for Zhou Weim­ing, head of the Dong­fang Spin­ning Print­ing and Dye­ing PLC in the EIZ.

Al­though the la­bor cost is cheaper, the 250 lo­cal work­ers at his fac­tory had no ex­pe­ri­ence in the tex­tile in­dus­try be­fore join­ing the com­pany. They have to be trained from the be­gin­ning by some 40 work­ers from China.

“We are try­ing to train sev­eral lo­cal work­ers to be team lead­ers and su­per­vi­sors, but it will be quite some time be­fore we can han­dle the op­er­a­tion com­pletely to the lo­cal staff,” Zhou said.

He ac­knowl­edges that so far lower pro­duc­tion costs have not been as much as ex­pected be­cause the fac­tory has to hire more work­ers to do the same amount of work required in China.

Un­like work­ers back in China, lo­cal Ethiopian work­ers are usu­ally not en­thu­si­as­tic about work­ing over­time even if that means more pay, a cul­tural dif­fer­ence that Zhou and many Chi­nese com­pany ex­ec­u­tives in the EIZ feel strongly about. In­stead, quite a few work­ers like to ask for a day off right af­ter pay­day to en­joy life.

Dong­fang Spin­ning, which pro­duces scarves and fab­rics for the Mid­dle East, US and Euro­pean mar­kets, plans to ex­pand its ca­pac­ity greatly in the com­ing years to oc­cupy a fac­tory equiv­a­lent to 120,000 square me­ters, po­ten­tially hir­ing sev­eral thou­sand lo­cal work­ers.

How­ever, Zhou said slow cus­toms clear­ance has hurt pro­duc­tion and in­ad­e­quate in­fra­struc­ture — such as power out­ages and a poor high­way sys­tem lead­ing to the port in neigh­bor­ing Dji­bouti — also pose a chal­lenge to do­ing busi­ness.

Wei Zhi­jin, deputy gen­eral man­ager of the Zhong­shun Ce­ment in the EIZ, said the Ethiopian la­bor law has been too pro­tec­tive of work­ers. “It makes fir­ing ex­tremely dif­fi­cult even with good and jus­ti­fied rea­sons. And you can only raise pay and not cut pay,” he said. Zhong­shun Ce­ment has 90 Ethiopian work­ers and 15 Chi­nese.

Be­sides the la­bor law, Liu of Li­fan Mo­tors also pointed to Ethiopia’s in­ad­e­quate in­fra­struc­ture and rigid tax regime.

The first rail­way link­ing Ad­dis Ababa to the near­est port in Dji­bouti, where 70 per­cent of the trade comes from land­locked Ethiopia, is still two years from full op­er­a­tion. It is be­ing built by a Chi­nese com­pany.

For Li­fan, Ethiopia’s high tar­iffs and high con­sump­tion taxes have of­ten made as­sem­bling cars with im­ported parts more costly than im­ported cars.

For ex­am­ple, the Li­fan X600, a com­pact SUV, is sold for about 80,000 yuan ($13,000) in China, but in Ethiopia the price is driven up to 200,000 yuan by var­i­ous tar­iffs and taxes. World Bank re­port

A World Bank study re­leased in Novem­ber 2012 showed that China’s for­eign di­rect in­vest­ment (FDI) in Africa was ris­ing and Ethiopia was at the fore­front of the trend.

The study of 69 Chi­nese com­pa­nies in Ethiopia pointed out the po­ten­tial op­por­tu­ni­ties and chal­lenges for Ethiopia and made a num­ber of rec­om­men­da­tions.

China has been both the largest ex­porter and im­porter for Ethiopia. And Chi­nese FDI in Ethiopia has grown from vir­tu­ally nonex­is­tent in 2004 to well over $1 bil­lion in 2014.

Just dur­ing Chi­nese Pre­mier Li Ke­qiang’s visit to Ethiopia in May, Chi­nese gov­ern­ment min­is­ters and com­pany ex­ec­u­tives signed 16 deals with their Ethiopian coun­ter­parts, in­clud­ing loans and co­op­er­a­tion agree­ments for the con­struc­tion of roads and in­dus­trial zones.

The ex­pand­ing ties between the two coun­tries re­flect the struc­tural change tak­ing place in both coun­tries. Ris­ing la­bor costs in China mean it will be ready to re­lo­cate some 100 mil­lion low-skilled, la­bor-in­ten­sive jobs that would be suit­able for Ethiopia, ac­cord­ing to the re­port.

While Ethiopia’s rel­a­tively sta­ble po­lit­i­cal en­vi­ron­ment, its huge do­mes­tic mar­ket, easy ac­cess to Euro­pean and US mar­kets have been strong mag­nets for Chi­nese FDI, the re­port did ex­press con­cerns raised by Chi­nese busi­ness ex­ec­u­tives, rang­ing from trade reg­u­la­tion and cus­toms clear­ance ef­fi­ciency, ex­change rate fluc­tu­a­tion, in­con­sis­tent and in­ef­fi­cient tax regime, in­ad­e­quate la­bor ed­u­ca­tion and skilled la­bor pool to lack of ac­cess to lo­cal fi­nance and ex­ces­sive gov­ern­ment reg­u­la­tions.

A re­port re­leased in July this year by global busi­ness con­sul­tancy Deloitte called Ethiopia, A Growth Mir­a­cle, noted sim­i­lar chal­lenges fac­ing the coun­try in at­tract­ing FDI. Chi­nese op­ti­mism

To most Chi­nese ex­ec­u­tives, Ethiopia, like many fast-grow­ing African na­tions to­day, re­minds them of China in the late 1970s and early 1980s when the coun­try em­barked on its re­form and open­ing up drive lead­ing to more than three decades of rapid economic growth.

That is cer­tainly true for Liu of Li­fan Mo­tors. He said if more pref­er­en­tial poli­cies are in­tro­duced in Ethiopia to at­tract for­eign di­rect in­vest­ment and fast economic growth is main­tained, the po­ten­tial could be huge.

The 32-year-old has worked in the com­pany’s over­seas op­er­a­tions for a decade, in­clud­ing in Brazil, Thai­land and Egypt. He is op­ti­mistic that the sit­u­a­tion will im­prove be­cause the Ethiopian gov­ern­ment is ea­ger to learn from China’s ex­pe­ri­ence of the past decades and align it­self with Chi­nese au­to­mo­tive in­dus­try pol­icy.

That op­ti­mism is also voiced by Jiao Yong­shun, as­sis­tant direc­tor of the EIZ Ad­min­is­tra­tive Com­mit­tee, who said the zone will dou­ble the num­ber of its fac­tory build­ings to 21.

Plans are in place for a 10,000 sq m of­fice build­ing, an 11,000 sq m show­room and re­cep­tion cen­ter, three 18,500 sq m ac­com­mo­da­tion blocks, and a 3,000 sq m can­teen.

The zone, fi­nanced by Jiangsu Yongyuan In­vest­ment Co Ltd, which is part of the Jiangsu Qiyuan Group, is listed as part of the Ethiopian gov­ern­ment’s Sus­tain­able Devel­op­ment and Poverty Re­duc­tion Pro­gram. The Ad­dis Ababa gov­ern­ment has of­fered var­i­ous pref­er­en­tial poli­cies to com­pa­nies oc­cu­py­ing space in the zone, in­clud­ing ex­tended tax holidays.

Jiao says Chi­nese Pre­mier Li Ke­qiang’s much-pub­li­cized visit to the zone in May, ac­com­pa­nied by Ethiopian Prime Min­is­ter Haile­mariam De­salegn, gave it a huge boost.

Since then, the num­ber of en­quiries from pos­si­ble Chi­nese ten­ants has surged, con­vinc­ing the own­ers to con­sider fur­ther ex­pan­sion.

Mean­while, EIZ has in­spired the Ethiopian gov­ern­ment to de­velop more in­dus­trial zones in the na­tion’s mod­ern­iza­tion drive. The gov­ern­ment-built Bole Lemi In­dus­trial Zone has al­ready at­tracted 20 for­eign ten­ants, in­clud­ing the shoe­maker Gorge Shoe Corp from Tai­wan, and a new state-owned site is now be­ing planned in Kil­into, south of there.

Jiao said he is con­cerned whether some of the sub­si­dies and ben­e­fits be­ing of­fered by the gov­ern­ment to other Ethiopian in­dus­trial site de­vel­op­ers are not be­ing made avail­able to Chi­nese coun­ter­parts.

As a land de­vel­oper, the EIZ it­self is not yet el­i­gi­ble for the promised tax holidays that are of­fered to other for­eign manufacturing com­pa­nies, ac­cord­ing to Jiao. The 58-year-old has been do­ing busi­ness in Ethiopia since 1999, when he worked for a tex­tile group based in Tang­shan, in North China’s He­bei prov­ince. Good cor­po­rate cit­i­zens

Like sev­eral other Chi­nese com­pa­nies, Li­fan Mo­tors is also try­ing to adapt to the lo­cal com­mu­nity, in­clud­ing play­ing an ac­tive role in cor­po­rate so­cial re­spon­si­bil­ity.

For Li­fan Mo­tors, of each of its cars sold in Ethiopia in 2013, 300 birr ($15) was do­nated to the char­ity.

Liu, the gen­eral man­ager, looks quite proud as he talks about how pre­vi­ous Ethiopian Pres­i­dent Girma Wolde-Gior­gis in­vited Li­fan ex­ec­u­tives to at­tend his birth­day party at the pres­i­den­tial palace to ex­press his ap­pre­ci­a­tion for the char­ity work.

Li­fan is also in­volved in other char­ity work, such as plant­ing trees, help­ing build roads and do­nat­ing ed­u­ca­tional ma­te­ri­als for 400 or­phans and se­nior cit­i­zens, all of which un­der­lines its long-term com­mit­ment to the Ethiopian mar­ket, Liu said.

As cur­rent Pres­i­dent Mu­latu Teshome opened the new Li­fan plant in the EIZ in May, he was joined by two un­der­priv­i­leged Ethiopian chil­dren who had re­ceived help from the com­pany through an Ethiopian char­ity, the Mary Joy Devel­op­ment As­so­ci­a­tion. Con­tact the writer at chen­wei­hua@chi­nadai­lyusa.com

PHO­TOS BY CHEN WEIHUA / CHINA DAILY

The East­ern In­dus­try Zone in Dukem, about 37 km from Ad­dis Ababa, is home to about 20 Chi­nese-in­vested manufacturing com­pa­nies em­ploy­ing thou­sands of lo­cal work­ers.

A worker as­sem­bles mi­cro vans at Li­fan Mo­tors Ethiopia. The com­pany has the ca­pac­ity to build 3,000 ve­hi­cles a year in Ethiopia with a sin­gle pro­duc­tion shift. Work­ers from Hua­jian Shoes play ping-pong in a hall­way of the fac­tory build­ing.

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