Coun­tries on the con­ti­nent look to in­dus­trial parks to boost in­vest­ment, pro­mote man­u­fac­tur­ing and create jobs

China Daily European Weekly - - FRONT PAGE - By DAVID BLAIR and XIAO XIANGYI

Crowds of peo­ple wait each day out­side the gates of the Chi­nese-built Eastern In­dus­try Zone in Dukem, Ethiopia, about 30 kilo­me­ters south­east of the cap­i­tal, Ad­dis Ababa, to sub­mit job

ap­pli­ca­tions. Many coun­tries through­out Africa, to deal with the twin prob­lems of un­em­ployed young peo­ple and large trade deficits, are build­ing such in­dus­trial parks as part of a strat­egy to at­tract low-wage man­u­fac­tur­ers.

As China’s econ­omy moves to higher-value-added prod­ucts, and be­cause wages there have in­creased rapidly over the past 10 years, many low-wage man­u­fac­tur­ers, es­pe­cially in the tex­tile and gar­ment in­dus­tries, are con­sid­er­ing mov­ing their pro­duc­tion to Africa.

How­ever, low wages won’t be enough. Coun­tries will also need to pro­vide a good busi­ness en­vi­ron­ment as well as the in­fra­struc­ture needed by man­u­fac­tur­ers. In­dus­trial parks, of­ten built by Chi­nese com­pa­nies, are a key way that African coun­tries are work­ing to create vi­able man­u­fac­tur­ing plat­forms.

Sub-Sa­ha­ran Africa is the youngest re­gion in the world, with 43 per­cent of its pop­u­la­tion un­der age 15, ac­cord­ing to data from the Kaiser Fam­ily Foun­da­tion. In the United States, China and Europe, less than 25 per­cent of the pop­u­la­tion is so young. In Africa, 200 mil­lion peo­ple are be­tween the ages of 15 and 24. The con­ti­nent’s pop­u­la­tion is ex­pected to reach 2 bil­lion by 2050, ac­cord­ing to Kaiser.

Jiao Yong­shun, vice-di­rec­tor of the Eastern In­dus­trial Zone, says: “The peo­ple at the gate come from dif­fer­ent parts of the coun­try, and they are look­ing for a job here. They sit there and dis­cuss which fac­tory gives the best salary and work­ing en­vi­ron­ment and share other in­for­ma­tion about work­ing in the park. We used to have many for­eign in­vestors who wor­ried about whether they could find suf­fi­cient em­ploy­ees here in Ethiopia, but when they ac­tu­ally come here and see those peo­ple at the gate, the wor­ries are just gone.”

African coun­tries have long been very low in the World Bank’s rank­ings for ease of do­ing busi­ness. The index in­cludes mea­sures of such is­sues as ease of get­ting elec­tric­ity, reg­is­ter­ing prop­erty, get­ting credit, deal­ing with con­struc­tion per­mits and pay­ing taxes.

But many African coun­tries are mak­ing strong ef­forts to move up the ranks. For ex­am­ple, Rwanda has im­ple­mented the high­est num­ber of busi­ness re­forms in the world over the past 15 years, ac­cord­ing to the World Bank. In 2017, a record 83 re­forms that made it eas­ier to do busi­ness were im­ple­mented in 36 of 48 economies in sub-Sa­ha­ran Africa. The World Bank says this is the largest num­ber of re­forms ever recorded in any re­gion by its Do­ing Busi­ness re­port, and rep­re­sents 31 per­cent of all re­forms im­ple­mented glob­ally in the past year.

Justin Yifu Lin, hon­orary dean of the Na­tional School of Devel­op­ment at Pek­ing Univer­sity and a for­mer World Bank chief econ­o­mist, is a lead­ing ad­vo­cate of the ar­gu­ment that African coun­tries should fol­low the East Asian path of growth that was kicked off by low-wage man­u­fac­tur­ing.

“Cur­rently, Africa’s econ­omy is based on agri­cul­ture and min­ing, while the man­u­fac­tur­ing in­dus­try’s share in the GDP is de­clin­ing. African coun­tries have gen­er­ally rec­og­nized the im­por­tance of eco­nomic re­struc­tur­ing, but steer­ing the econ­omy away from agri­cul­ture to­ward in­dus­try is eas­ier said than done,” Lin wrote in the mag­a­zine China Fi­nan­cial and Eco­nomic News in 2016.

“China has es­tab­lished in­dus­trial parks, im­prov­ing in­fra­struc­ture and the busi­ness en­vi­ron­ment, to re­duce trans­ac­tion costs in them,” Lin wrote. “In this process, a grad­ual cap­i­tal ac­cu­mu­la­tion and in­dus­try up­grade has bol­stered the in­dus­tries’ in­ter­na­tional com­pet­i­tive­ness. … African coun­tries can at­tract in­vest­ment through the es­tab­lish­ment and devel­op­ment of spe­cial eco­nomic zones or in­dus­trial parks. These would be­come in­dus­try clus­ters, which can fur­ther re­duce trans­ac­tion costs and im­prove the over­all busi­ness en­vi­ron­ment.”

Be­lay Heilemichael, area man­ager of the Ethiopia In­vest­ment Com­mis­sion, spoke to CGTN about the ser­vices pro­vided by the Hawassa In­dus­trial Park, which was built by China Civil En­gi­neer­ing Con­struc­tion Corp. “There are three ob­jec­tives,” he said. “The first is to gen­er­ate for­eign cur­rency; the sec­ond is to im­ple­ment op­por­tu­nity; the third is tech­nol­ogy trans­fer. ... The in­vestors should not have to go out­side of the park to get ser­vices. All ser­vices, bank­ing ser­vices, even visa ser­vice, will be pro­vided there. To en­sure suc­cess here, the gov­ern­ment has a on­estop ser­vice cen­ter where in­vestors can even get their visas and res­i­dent per­mits.”

He added that the com­pa­nies in the in­dus­trial park will be able to gen­er­ate ex­port rev­enue of up to $1 bil­lion (860 mil­lion eu­ros; £767 mil­lion) and hire up to 100,000 peo­ple.

Tao Huix­ing, di­rec­tor of the man­ag­ing com­mit­tee of the Eastern In­dus­trial Zone, says com­pa­nies lo­cate there be­cause the park pro­vides com­plete util­i­ties and a on­estop ser­vice for ev­ery­thing.

So far, the par­ent com­pany of the Eastern In­dus­trial Zone, Jiangsu Qiyuan Group, has in­vested around $200 mil­lion in the park it­self, for in­fra­struc­ture such as power, wa­ter and other con­nec­tions. Jiangsu Qiyuan, based in Zhangji­a­gang, near Suzhou, Jiangsu prov­ince, is a small, pri­vate pro­ducer of pre­ci­sion metal prod­ucts.

In ad­di­tion, the com­pa­nies in the park — mostly Chi­nese com­pa­nies, though there also are lo­cal com­pa­nies as well as ones from In­dia, the United States and the Nether­lands — have in­vested a fur­ther $400 mil­lion, Tao says.

Re­gard­ing Qiyuan’s 2008 de­ci­sion to be­gin build­ing the Eastern In­dus­trial Zone, Tao says: “A lot of China’s low-wage in­dus­try will move here. For­merly in China, wages were very low, but now they are quite high. For some la­bor-in­ten­sive in­dus­tries, it is very dif­fi­cult to sur­vive be­cause of the in­creased la­bor cost. Here, wages are much, much lower — less than 10 per­cent of Chi­nese wages.”

Ethiopia has about 45 mil­lion peo­ple of prime work­ing age, be­tween 18 and 50, he says.

“About 10 years ago, the econ­omy of China was al­ready very big. We en­coun­tered many trade re­stric­tions lim­it­ing ex­ports to Europe and Amer­ica, es­pe­cially in tex­tiles, gar­ments, tele­vi­sions and some tech prod­ucts. In these cir­cum­stances, the Chi­nese gov­ern­ment said that if you all stay in China, then it will be more dif­fi­cult. La­bor costs have in­creased, so you should find a new place over­seas,” Tao says.

“Chi­nese com­pa­nies are ex­pe­ri­enced in these things, be­cause at an early stage of our open­ing-up, we also did things like this. In the early ’80s, the Chi­nese gov­ern­ment cre­ated busi­ness-friendly poli­cies and en­cour­aged Chi­nese com­pa­nies to ex­pand ex­ports. This pol­icy had a very good ef­fect. Af­ter five or six years, Chi­nese com­pa­nies had a lot of for­eign cur­rency and could use it to im­port ad­vanced pro­duc­tion ma­chin­ery from Europe, Amer­ica and Ja­pan,” he says.

China Daily re­cently vis­ited five Chi­nese man­u­fac­tur­ers in Ethiopia that il­lus­trate the op­por­tu­ni­ties and chal­lenges com­pa­nies are find­ing there and through­out Africa. Com­pa­nies mak­ing shoes and blue­jeans are pro­to­typ­i­cal low-wage man­u­fac­tur­ers, though the shoe fac­tory ex­ports its prod­ucts and the jeans fac­tory tar­gets the lo­cal mar­ket. Fac­to­ries that make glass, ceramic tiles and alu­minum win­dow cas­ings build sub­sti­tutes for im­ported prod­ucts needed for Ethiopia’s build­ing boom, but their strate­gies are not so de­pen­dent on large num­bers of low-wage work­ers.

Gar­ment man­u­fac­tur­ing, which de­pends on a large, fairly low-skill work­force, is a good ex­am­ple of the

kind of in­dus­try that finds its com­par­a­tive ad­van­tage in Africa at this time. For ex­am­ple, Lida (Ethiopia) Tex­tile, which is in­side the Eastern In­dus­trial Zone, makes blue­jeans that are sold in the mar­kets of Ethiopia. The fac­tory be­gan pro­duc­tion in Septem­ber 2017 and was al­ready prof­itable by Novem­ber, says Liu Jianxun, the fac­tory di­rec­tor. He says that al­though the jeans re­duce Ethiopian im­ports, many of the raw ma­te­ri­als, es­pe­cially cot­ton, must still be im­ported from China.

Sim­i­larly, Dong­guan Hua­jian Group, a large Chi­nese shoe­maker, built a shoe fac­tory and in­dus­trial park in Ad­dis Ababa. The com­pany now em­ploys 6,000 Ethiopian work­ers and plans to ex­pand to 15,000 soon, and pos­si­bly to 100,000 even­tu­ally.

Glass man­u­fac­tur­ing re­duces Ethiopia’s de­pen­dence on im­ports for use in its build­ing boom. But mak­ing glass re­quires highly ex­pe­ri­enced man­age­ment, a large in­vest­ment in equip­ment and a more skilled work­force, ac­cord­ing to Liu Jun, sales and mar­ket­ing man­ager of Ethiopia Han­som In­ter­na­tional Glass Co, which is lo­cated in Ad­dis Ababa and is a sub­sidiary of CGC Over­seas Con­struc­tion Group.

“If the elec­tric power goes down for even seven min­utes, the ma­chin­ery can be de­stroyed be­cause the flow of cool­ing wa­ter is stopped. So we have five backup gen­er­a­tors. There are many ce­ment fac­to­ries in Ethiopia. If a prob­lem hap­pens, they just stop. But glass fac­to­ries are dif­fer­ent. Here we run 24 hours a day, ev­ery day. Within five years, we have not stopped for even one minute,” Liu says.

“Be­fore they came here, our Chi­nese work­ers worked in glass fac­to­ries. They had 10 to 20 years’ ex­pe­ri­ence. Lo­cal work­ers just have one or two years’ ex­pe­ri­ence, maybe five years,” says Liu, adding that there are around 80 Chi­nese em­ploy­ees and 250 Ethiopi­ans.

Han­som is the only glass man­u­fac­turer in Ethiopia, but its prof­its are not very high be­cause the gov­ern­ment tells the com­pany it needs to con­trol its prices, Liu says.

Sim­i­larly, Hua­jia Alu­minum pro­duces win­dow frames for the lo­cal mar­ket. Cai Jin­feng, the com­pany fac­tory’s man­ager, says: “When we first came to Ad­dis Ababa sev­eral years ago, many build­ings in the city had empty holes in the wall for win­dows. So we de­cided to open an alu­minum fac­tory in­stead of mak­ing plas­tic tubes like our mother com­pany in China. The fac­tory started to pro­duce a year ago and is just start­ing to make a profit. Most of the raw ma­te­ri­als are im­ported from China. We have only 10 to 15 per­cent Chi­nese em­ploy­ees; the rest are Ethiopian work­ers.”

Not all com­pa­nies have found the go­ing easy.

The Diyuan ce­ram­ics fac­tory, in the Eastern In­dus­trial Zone, pro­duces ceramic tiles in­tended to sub­sti­tute for im­ports in the many build­ings go­ing up around the coun­try. The com­pany be­gan pro­duc­tion around two years ago and con­tin­ued for a year and a half, but the en­vi­ron­men­tal pro­tec­tion bureau of the lo­cal gov­ern­ment made it cease pro­duc­tion, ac­cord­ing to Zhou Jingfeng, the fac­tory’s di­rec­tor.

“We have in­vested $3 mil­lion in pol­lu­tion con­trol. We can meet both Chi­nese stan­dards and Ethiopian stan­dards, but the lo­cal gov­ern­ment, not the Ethiopian fed­eral gov­ern­ment, just won’t let us pro­duce, be­cause lo­cal res­i­dents com­plain to them when they see our (coal-fired) chim­neys,” Zhou says. “In the yard of the ce­ram­ics fac­tory, 104 con­tain­ers have re­mained locked for more than 15 days. Each con­tainer is charged $100 a day, so we are suf­fer­ing a great loss.”

The tran­si­tion to man­u­fac­tur­ing­based growth is just get­ting started in Africa. For ex­am­ple, in Ethiopia in 2015, agri­cul­ture still ac­counted for 85 per­cent of em­ploy­ment, 90 per­cent of for­eign cur­rency earn­ings and about 39 per­cent of GDP, ac­cord­ing to Ethiopian gov­ern­ment data.

There is an on­go­ing de­bate about whether the re­cent eco­nomic suc­cesses in Africa were caused by higher com­mod­ity prices or by a tran­si­tion to an econ­omy based on man­u­fac­tur­ing-led growth. A World Bank re­port from 2017 con­cluded: “Over the past decade and a half, sub­Sa­ha­ran Africa has ex­pe­ri­enced rapid eco­nomic growth at an av­er­age an­nual rate of 5.5 per­cent. But since 2008, the share of man­u­fac­tur­ing in GDP across the con­ti­nent has stag­nated at around 10 per­cent. This calls into ques­tion as to whether African economies have un­der­gone struc­tural trans­for­ma­tion — the re­al­lo­ca­tion of eco­nomic ac­tiv­ity across broad sec­tors — which is con­sid­ered vi­tal for sus­tained eco­nomic growth in the long run.”

One fac­tor help­ing the tran­si­tion is new Chi­nese-built in­fra­struc­ture — roads, rail­ways, dams, wa­ter and elec­tri­cal sys­tems — that make busi­ness pos­si­ble. Ahmed Shide, the min­is­ter of Ethiopia’s Gov­ern­ment Com­mu­ni­ca­tion Af­fairs Of­fice, told Xin­hua in May: “Learn­ing from the Chi­nese eco­nomic growth ex­pe­ri­ence, Ethiopia will have about 15 in­dus­trial parks by June, most of them built with Chi­nese money and ex­per­tise. We have also heav­ily in­vested, with Chi­nese as­sis­tance, in road, rail and air in­fra­struc­tures to al­le­vi­ate trans­porta­tion prob­lems for Ethiopia’s ex­ports.”

“The Ad­dis Ababa-Dji­bouti rail line, which re­cently started com­mer­cial oper­a­tions, has cut trans­porta­tion time for Ethiopian goods to the Dji­bouti ports from two days to 10 hours, giv­ing a leg up for Ethiopia’s eco­nomic dreams of be­com­ing a light man­u­fac­tur­ing hub in Africa and a mid­dle-in­come econ­omy by 2025,” he said. “Ethiopia has seen China’s suc­cess in hav­ing an ef­fi­cient and ef­fec­tive in­fra­struc­ture to fa­cil­i­tate ex­ports from in­dus­trial parks, and as such is build­ing a ‘devel­op­ment belt’ to copy the Chi­nese suc­cess story.”

Shide said about half of the in­dus­trial parks will be lo­cated along the rail line.

Tao, of the Eastern In­dus­trial Zone, says that chang­ing an eco­nomic devel­op­ment strat­egy takes time. “In China, we have in­dus­trial parks ev­ery­where, es­pe­cially in Jiangsu. We know how to build them. But when we started ne­go­ti­a­tions with the Ethiopian min­istries in 2008, they had no idea what an in­dus­trial park is. They did not have any laws about this.

“Ten years ago, the in­vestors who came here thought the risk was very low gov­ern­ment ef­fi­ciency. What took three days in China would take maybe a month in Ethiopia. But things have changed. Now we don’t even think about gov­ern­ment ef­fi­ciency,” he says.

Huo Jiang­tao, as­sis­tant dean of the In­sti­tute for African Stud­ies at Guang­dong Univer­sity of For­eign Stud­ies, told Xin­hua in June: “China’s in­vest­ment in Africa has to­taled more than $100 bil­lion, and the coun­try has built more than 20 eco­nomic zones on the con­ti­nent, with more planned.”

By the end of last year, Chi­nese com­pa­nies had built 75 zones for eco­nomic and trade co­op­er­a­tion in 24 coun­tries along the routes of the Belt and Road Ini­tia­tive, con­tribut­ing more than $2.2 bil­lion in taxes and cre­at­ing al­most 210,000 lo­cal jobs by the end of 2017, ac­cord­ing to Xin­hua.

“We ac­tu­ally want to see more com­pe­ti­tion from lo­cal Ethiopian com­pa­nies,” says Lu Qizhong, di­rec­tor of the Eastern In­dus­try Zone. “For ex­am­ple, they have in­vested in ce­ment fac­to­ries, so their pro­duc­tion ca­pac­ity has in­creased rapidly. Ten years ago, their an­nual im­ports of ce­ment were 3 mil­lion tons per year. Now their ca­pac­ity has reached 21 mil­lion tons, so they have the po­ten­tial to ex­port.”

Tao says: “We want to teach the lo­cal peo­ple so, some years later, these peo­ple can also be busi­ness op­er­a­tors. They can set up their own busi­ness. China was also like this in the 1980s. Young peo­ple work­ing in fac­to­ries got some ex­pe­ri­ence and learned how to pro­duce, then they went out of the fac­to­ries and set up their own work­shops.

“Also, we don’t want to for­get our old friends who helped us,” he adds. “In the 1960s and ’70s, China got a lot of sup­port from African coun­tries. When friends sup­port you in your dif­fi­cult time, you can­not for­get them.”



Work­ers at the Lida (Ethiopia) Tex­tiles jeans fac­tory in the Eastern In­dus­trial Zone of Ethiopia.


Man­agers of Eastern In­dus­trial Zone (from left) Tao Huix­ing, Lu Qizhong and Jiao Yong­shun.


Work­ers at the steel prod­ucts fac­tory in Tian Tang In­dus­trial Park in Mukono, Uganda.


Work­ers at Hua­jia Alu­minum in the Eastern In­dus­trial Park.


The empty pro­duc­tion line at Diyuan ce­ram­ics and the one-stop ser­vice cen­ter in Eastern In­dus­trial Park.

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