Ethiopia lures manufacturing with cheap power and labour costs a tenth of China’s

Low-cost manufacturing is shifting from China to Ethiopia, lured by cheap electricity and labour costs that are a tenth of China’s. Ethiopia is building a name for producing clothes, shoes and other basic goods, while also tackling transport bottlenecks. Trade and Industry minister Tadesse Haile says he wants Ethiopia to export $1.5 billion of textiles a year in 5 years, from $100 million now.
Bureaucracy and slow and poor transport links means that costs are not as low as they should be, according to an excellent report by Reuters (see “Garment-making finds new low-cost home in Ethiopia”). Ongoing power cuts and sometimes poor telecommunications, both still state monopolies, could be added to the list.

Credit: Ethiopian Radio and Television Agency (ERTA)

Credit: Ethiopian Radio and Television Agency (ERTA)

Credit: China Daily

Credit: China Daily

Reuters journalist Aaron Maasho points to Government and foreign investors building factory zones. Companies from China, India, Turkey and the Gulf are setting up manufacturing. He quotes Nara Zhou, spokeswoman for Huajian Group, a Chinese company that makes over 300,000 pairs of boots and sandals a month for retailers such as Guess from a factory near the capital: “We have to move because of manufacturing’s development in China, due to the high increase in wages and in raw materials.. Ethiopia enjoys stability, the Government is eager to industrialize and there is also the low labour cost here – a tenth compared to China.”
Ethiopia is one of Africa’s – and the world’s – fastest-growing economies. Despite the government’s socialist roots, there is no minimum wage, letting firms such as Huajian pay salaries of $50-$70 a month – still higher than the average per capita income. Desta, one of 7,500 employees at Ayka Addis Textile and Investment Group, a Turkish-owned factory 20 kilometres west of Addis Abeba, told Maasho:”Almost every young person in this locality now works here…We all struggled to make ends meet beforehand. We can now afford proper healthcare or sending a child to school.”
Ethiopia’s electricity grid offers electricity at US$0.05 per kilowatt hour, compared with $0.24 cents in neighbouring Kenya and the country is investing heavily in hydropower generation. According to Minister Tadesse: “The availability of power and the cost is cheaper than any other country in the world. We are providing power, land and labour all very cheaply.” Kenya and Uganda are also chasing investment into textiles but cannot compete on input costs against Ethiopia, where wages are 60% lower than the regional average, according to Jaswinder Bedi, Kenya-based chairman of the 27-nation African Cotton and Textile Industries Federation: “Ethiopia is a new player…They are growing and they are growing rapidly.”
The Government projects gross domestic product (GDP) growth at 11% a year, and even the 8.5% forecast for the current year 2014/5 by the International Monetary Fund is impressive. The Government is keen to attract labour-intensive investment and jobs for the 90m Ethiopians – Africa’s second biggest population – with another 2-3m born every year and population growth forecast to continue over 2% a year until 2030.
The Government says it has introduced incentives such as tax holidays and subsidized loans to investors with interest rates as low as 8%. Cheap loans are attractive as inflation is often considerably higher (it has been up to 60%), and the currency has seen steady and managed devaluation, boosting exporters and manufacturers who substitute imports.
Transport remains a bottleneck, it takes on average 44 days to import or export a container, compared to 26 for Rwanda. Amare Teklemariam, chief executive of Ayka Addis, told Reuters: “Our logistics costs are second to inputs. It affects the competitiveness of the company”. Ethiopia is 141 on a 2013 World Bank trade logistics index.
The Government says it investing an amount equivalent to two thirds of GDP into new infrastructure every year, expanding the road network to 136,000 km by next year, from just 50,000 km in 2010 and it is already working on grand plans to build 5,000 km of railway lines by 2020 from less than 800 km at the moment.
For more background see the excellent Reuters report here.

Churchill Avenue, Addis Abeba (www.tourismethiopia.gov.et)

Churchill Avenue, Addis Abeba (www.tourismethiopia.gov.et)

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