Treading a new path: Growing Ethiopia’s factory floors

At 6:45am the first bus halts outside the main gates of the Eastern Industry Zone. The doors clang open. Bleary-eyed young men and women begin to emerge and brace themselves against the chilly morning air. A second, then a third and fourth bus arrive from the nearby dormitories, disgorging more and more workers dressed in the turquoise polo shirts that employees are required to wear on the shop floor at Huajian, one of China’s largest footwear manufacturers.

Each member of staff pauses briefly at the factory door and presses an identity tag against the electronic sensor that records their clocking-in time. Minutes later small groups of employees begin to assemble inside and outside the main buildings. Lines are formed, calisthenic drills executed and chants recited before workers march briskly to their stations and begin their duties.

These scenes, played out in thousands of factories across China each day, seem more than a little incongruous here in Dukem, about 40km south of Addis Ababa, Ethiopia’s capital. But they could become an increasingly familiar sight if, as the Ethiopian government hopes, Chinese companies move more light manufacturing operations to this booming East African country.

“With the fast growth of its economy, Ethiopia will become a promising land full of trade and investment opportunities,” wrote Ethiopian Prime Minister Hailemariam Desalegn at the first Africa-China Commodities, Technology and Service Expo, held in Addis Ababa in December 2013. “More Chinese enterprises will be attracted to Ethiopia with technology and investment, which will achieve win-win cooperation.”

Chinese manufacturers, facing rising costs at home, are well aware of Ethiopia’s advantages: cheap labour and land leases; low-cost and reliable electricity (with more to come soon as a series of hydro-electric dams turns the country into an exporter of electricity) in Addis Ababa, where most manufacturing is situated; easy access to cotton, leather and other agricultural products; and proximity to key markets in Europe and the US.

This explains why Addis Ababa was chosen as the location for this fair, the first of its kind to be held on the continent to showcase Chinese companies and generate business. “We selected Ethiopia as the destination of this expo because we think Ethiopia is a place many Chinese industries would like to relocate to,” said Gao Hucheng, China’s minister of commerce.

Opportunities in Ethiopia

Huajian, which produces shoes for Guess, Tommy Hilfiger, Naturalizer and other western brands at its Dukem factory, is keen to take full advantage of the opportunities Ethiopia affords. “We are not coming all the way here just to reduce by 10%-20% our costs,” insists Helen Hai, former vice-president of Huajian Group, who is now advising the Ethiopian government on how to attract Chinese investors. “Huajian’s aim here is in 10 years’ time to have a new cluster of shoemaking. We want to build a whole supply chain,” she adds.

The company’s vision is bold. Huajian began producing shoes in Ethiopia in January 2012 and the company now employs 2,500 people in the country, 90% of whom are local. Huajian currently exports more than US$1m worth of shoes from Ethiopia to Europe and the US each month. But within a decade, Huajian hopes Ethiopia will become a global footwear industry hub, providing jobs to more than 100,000 local workers, 30,000 of whom will be directly employed by Huajian.

Together with the China-Africa Development Fund, a private-equity facility, Huajian has committed to invest $2bn over the next 10 years to create a “shoe city” that will provide accommodation for as many as 200,000 people, as well as factory space for other footwear, handbags, accessories and components producers.

Hai is convinced Ethiopia will become “the future manufacturing floor of the world”. She believes it should follow China’s path and begin with labour-intensive industries such as footwear and garment production. “The labour cost in shoemaking in China is about 22% of the overall cost portfolio,” she explains. “In China today the cost of each labourer is $500 [a month]. In Ethiopia it is only $50. So the question comes down to the efficiency.” If one Ethiopian worker can produce the same number of shoes as one Chinese worker then labour costs could be reduced from 22% to 2.7% of the new total cost.

People argue that African efficiency is low, Hai says, but she maintains that with one year’s training Ethiopian workers could achieve “70% of the efficiency” of workers in China.

The profit motive for relocation to Ethiopia is clear. But other factors – excise breaks, tax holidays and cheap land rental offered to investors in certain preferred sectors – make Ethiopia attractive too, Hai claims. For example, Ethiopia is eligible for schemes like the US’s African Growth and Opportunity Act (AGOA) and the EU’s Everything but Arms (EBA) treaty, which allows exporters from many African countries duty- and quota- free access to the US and Europe.