Ethiopia's foot-steps forward

Within a fragmented economic region of more than 50 independent states, Ethiopia stands out from other nations on the continent by being the world's most populated landlocked sovereign state.

Other factors have attracted Chinese investors to Ethiopia. A 2012 World Bank study of Chinese firms in Ethiopia, found that they were motivated by Chinese government incentives, Ethiopia's political stability and the opportunities to tap into other African destinations from there.

In addition, Africa's untapped industrial potential and vast but fragmented supply of low-cost labor and natural resources also attracted Chinese companies.

Ethiopia has a population of more than 90 million. This is larger than the population of any Western European nation, and is Africa's second-largest after Nigeria. At more than four children per woman, the nation’s fertility rate is roughly triple that of China's. If the intended national process of incremental economic upgrade succeeds over the next decades, the country will become a large middle-income consumer market.

Other reasons to invest in Ethiopia include its proximity to high-income markets and to nations designated as "least developed countries". The latter, a group of the world's poorest countries, enjoy trade preferences from the European Union and the US, including quota-free access for shoes. Ethiopia is also closer to Europe than most African nations.

A recent meeting between the Ethiopian and Chinese foreign ministers in Addis Ababa confirmed their commitment to the development of economic ties. That commitment is important.

The development of this industrial zone near Addis Ababa still faces many challenges. As was the case in China, the zone is not expected to make a net profit for at least a decade. Unlike China's portside zones, Ethiopia's zone is 900 km from the nearest port, in neighboring Djibouti. An improved rail connection is being built.

A World Bank report identified some generic additional investment disincentives, including higher than expected freight costs relating to the necessary use of a foreign port, inadequate infrastructure, unpredictable customs clearance, and higher relative net rental and labor value even where the absolute costs of each are lower. Against the challenge of economic geography and the legacy of recent turbulent events, the call by the president of the African Development Bank for domestic and international investors to prioritize the three I's — institutions, integration and infrastructure — is crucial in Ethiopia for long-term profits.

It is 30 years since images of famine left a lasting scar on Ethiopia and all of Africa. An expanding shoe-manufacturing hub in the country now provides an opposite example, in this case of an intended continent-wide manufacturing transformation that is in its early stages. This shoe hub outside of Addis Ababa may thus reflect an industrial zone in China in the early 1980s, now being transferred to the horn of Africa. If lessons from that story are embedded into the investment process in Ethiopia, and elsewhere, the new hub may become less about the style and quality of Ethiopian-made shoes, and more about how improved institutions, integration and infrastructure, with help from China and other nations, helped to transform a nation, and a continent.

The author is a Beijing-based academic who holds a doctorate in economics from Peking University, and specializes in China-Africa affairs.