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.

The 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.

Job 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 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