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22 African Business July 2019

THE VIEW Dianna Games

Low wages are Ethiopia’s main drawcard in attracting international investment for its manufacturing industry. Dianna Games examines the dilemma many African countries face in deciding whether to prioritise creating jobs or promoting higher wages

Ethiopia gambles on cheap labour

Even as much of the world moves into high-tech mode, old-fashioned industrialisation is still an aspiration for most African countries.

Increasingly, the big differ-

entiator is cheap labour. As wage packages rise in low-cost manufacturing destinations in Asia and elsewhere, international investors are looking for new countries where they can produce competitively for global markets.

One of the nations that has put its head above the parapet in this regard is Ethiopia. This fast-growing and rapidly liberalising nation has been courting international producers to realise its ambition as a manufacturing hub in Africa. The reformist government of prime minister Abiy Ahmed sees manufacturing as another way to attract FDI as it opens up previously closed sectors of the economy.

China is well represented in the numerous industrial parks that have opened over the past few years, and aims to increase its presence in the country as more such parks, which are a key part of Ethiopia’s future industrial planning, open their doors.

Ethiopia, like China before it, has focused on the garment sector with a view to positioning itself as a top sourcing and manufacturing destination for apparel. The government has admitted that this is a risky sector to choose to kick-start its industrial ambitions, given high levels of competition, but maintains that produc-

Right: Workers at a textile factory in Addis Ababa, Ethiopia.

ing for export markets is a viable way to build industrial capacity.

It plans to boost clothing exports to $30bn a year from the current $145m. And the response to Ethiopia’s offerings has been positive, with many large Chinese enterprises investing in the sector and garments being produced for some of the world’s biggest fashion brands such as Calvin Klein, H&M and Tommy Hilfiger. Competitive advantage The country has many advantages in its quest for developing value chains internally. In its industrial arsenal it has duty-free imports of capital equipment, tax exemptions, cheap electricity, a thriving local airline with a large international footprint and duty-free access to the US market through the African Growth and Opportunity Act.

The main drawcard is cheap labour, which is not only a key competitive advantage but a counter to low levels of skills and productivity. However, critics have hit out at the level of minimum wages on offer, saying they will barely lift workers out of poverty. Attrition rates at the clothing factories in Ethiopia are high as semi-trained workers seek higher wages elsewhere after a stint in the workplace. This is pushing up training costs for companies operating there.

Among the critics is New York University’s Stern Center for Business and Human Rights, which details its concerns in a recent report. Made in Ethiopia:

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