On the road to growth

Stable political, economic environment key factors for rising Chinese investment in Ethiopia

Relations between China and Ethiopia have been special as both nations have ancient civilizations and many common historical experiences. Along with this they also share common goals such as economic development.

Relations between China and Ethiopia can be traced back to 1970, when diplomatic ties were established. Since then various bilateral arrangements have been set up.

Since the early 1990s, when the Ethiopian government introduced its market-oriented economic policy, the scope of the relationship has grown rapidly and Chinese investment has become more visible, especially in the infrastructure and manufacturing sectors. Chinese investment was especially significant under the late Meles Zenawi government. The late prime minister paid his first visit to Beijing in 1994 and since then several high-level exchanges have taken place.

The latest examples are the visit of the Chinese Foreign Minister Wang Yi to Ethiopia this month, and the visit of Ethiopian Prime Minister Haile Mariam Desalegn to China in June 2013. High-level visits have been one of the main pillars of China-Ethiopia relations.

Economic and technical cooperation between China and Ethiopia began in 1971. China has implemented a number of projects such as roads, dams, veterinary stations, power stations and water supply projects in the African nation.

Bilateral trade has also continued to grow rapidly since the mid-1990s. Trade volume increased from $17.5 million in 1994 to $860 million in 2007 with an average annual growth rate of 35 percent. The bilateral trade volume was $1.5 billion during the first 10 months of last year. China is now Ethiopia's biggest trading partner and one of its largest foreign investors.

China's main exports to Ethiopia include light industrial products, high-tech products, machinery and equipment, textiles and pharmaceutical and chemical products. Its imports from Ethiopia include sesame seeds, frankincense, myrrh, leather, cotton and coffee. Ethiopia is China's largest source of sesame imports.

Since 1986 there has been a strong Chinese presence in the construction sector in Ethiopia. Chinese state-owned companies, such as the China Road and Bridge Corporation, undertook projects like the Addis Ababa Ring Road. In 2004, China's share of construction investment in Ethiopia was equal to nearly 40 percent of the total Chinese investment in the country.

The Chinese investors' engagement in the fast-growing manufacturing sector of Ethiopia has the potential to contribute to industrialization. The current pattern shows that many Chinese investors are moving manufacturing to Africa.

Good relations with Ethiopia have been important for China. Ethiopia is not only a regional hub, but also home to several important institutions such as the African Union. Besides, the importance of Ethiopia's market cannot be overlooked as it has a population of more than 80 million.

The Chinese government plans to expand the scale of bilateral cooperation with Ethiopia in the future through the use of tariff-free policies, increasing imports from Ethiopia, supporting Ethiopian development of wind, solar and other clean energy, promoting development aid programs to support the development of infrastructure in Ethiopia, livelihood projects and help in improving self-development capabilities within Ethiopia.

The light rail project in Addis Ababa, which started in January 2012, is expected to be completed by January 2015. The Ethiopian government has spent $475 million on the project, of which 85 percent is loans from the Export-Import Bank of China.

In January 2013, the China Development Bank and the Ethiopia Development Bank signed a special loan agreement of $25 million for the development of small and medium-sized enterprises in Ethiopia

Bilateral exchanges and cooperation between the two countries in culture, education, health and human resource development are also growing rapidly. There have been frequent cultural exchanges since the two countries signed a cultural cooperation agreement in 1988. So far, China has provided more than 529 scholarships to Ethiopian students to study in China. Ethiopia's first Confucius Institute was established in Addis Ababa in 2010. Since 1974, China has sent 17 medical teams to Ethiopia, with a total staff of 270.

There is much debate regarding the impact of increasing Chinese engagement not only in Ethiopia but also across the African continent. China has rightly highlighted the mutual benefits to be reaped from its relationships with African countries and its approach to bilateral relations and economic cooperation has manifested as a form of expanding South-South Cooperation.

"Neo-colonialism" was referred to when former US secretary of state Hillary Clinton visited Africa during her tenure. "Chinese plundering African resources" and other ideas also emerged.

But the fact is China has become the largest trading partner of Ethiopia, with bilateral trade imbalance improving significantly. Over the past three years, Ethiopia's exports to China have doubled. Chinese enterprises in Ethiopia have developed rapidly, and concentrated in manufacturing iron and steel, chemicals, pharmaceuticals, leather and glass, indicating that China's investment in Africa is definitely not just to get resources, which contradicts what some have claimed.

Industry in Ethiopia is weak and the land is not rich in mineral resources, but what is gratifying is that the country during 2011-15 is expected to reach an average economic growth rate of 8.1 percent.

Gradually moving toward political stability is an important reason to maintain the development of the Ethiopian economy. Stable political and economic environments are the key elements for Chinese investors to explore the markets in Ethiopia without any hesitation.

In addition, the two governments take good care to maintain the good relationship between them. These are some of the reasons for the close partnership between China and Ethiopia. The relationship also benefits from a win-win principle in China's foreign policy and the economic and political requirements for South-South Cooperation.

Kuruvilla Mathews is professor at Addis Ababa University in Ethiopia. Wang Xiaoguang is a visiting scholar at the same university.