Chinese investment creates a new global hub in Ethiopia

 

Huajian Group, a Chinese footwear manufacturer, has big plans for Ethiopia.

"We are not coming all the way here just to reduce our costs by 10 to 20 percent," insists its vice-president, Helen Hai. "Our aim here is in 10 years time to have a new cluster of shoe making. We want to build a whole supply chain. I want everything to be produced here."

Hai's vision is bold: within a decade she expects Ethiopia to be a global hub for the footwear industry, providing jobs for more than 100,000 local workers.

With the China-Africa Development Fund, Huajian has committed to jointly invest $2bn to create a light manufacturing special economic zone.

The company has already leased 300ha of land in Lebu, on the outskirts of Addis Ababa, where it plans to build a 'shoe city' to provide accommodation for 200,000 people and factory space for other producers of footwear, handbags, accessories and components.

Hai expects construction to begin later this year.

Huajian now has a modest facility 40km south of the capital. It employs 1,600 workers and exports more than $1m worth of shoes per month to the United States and the United Kingdom.

Huajian's vision dovetails with Ethiopia's industrialisation strategy, which is designed to tap into sectors where the raw materials can be sourced locally and value can be added by industrial processing.

Footwear – and the leather sector generally – is an exemplar.

According to figures from the Ethiopian Leather Industries Association, the country has the biggest livestock population in Africa, with 50m cattle, 25m sheep and 23m goats.

Zemedeneh Negatu, a managing partner at Ernst & Young Ethiopia, says: "Today Saudi Arabia is the largest petrochemical producer in the world and that's because the main raw material is right there in the desert. It's the same thing with leather in Ethiopia."

He supports Huajian's idea of building a supply chain for a single industry in a specific geographical area.

"That should be the goal. You create clusters around one or two major foreign or Ethiopian investors throughout the country based on competitive and comparative ad- vantages," he says.

"Huajian could be the anchor but all around are Ethiopian companies. And I think that it should be made clear to the investors that they need to help build local capacity."

That is what Huajian is trying to do. "I want to help them to grow because when the local producers grow, the whole market is growing \[and] I can offer skills that the locals don't have," Hai explains.

[B]MODEL FARM[/B]

Pittards, a British manufacturer of speciality leathers, has adopted a similar approach.

The company took over a state-owned tannery in 2009 and is developing a model farm in Debre Berhan to introduce rearing methods that prevent damaging the leather.

Tsedenia Mekbib, general manager of Pittards' Ethiopian operations explains: In Ethiopia the grade of leather is compromised because during the rearing of the sheep and goats the leather is scarred and then marked with a hot iron.

What attracts companies like Huajian and Pittards to Ethiopia is political stability, proximity to markets, access to raw materials and a plentiful supply of labour.

But the challenges of doing business in this tightly controlled and landlocked country are great.

Both Hai and Tsedenia highlight the problems they face.

High fees at the port of Djibouti (around $1,000 per container) and the cost of transportation to Addis ($3,000 per container for a 700km journey) are not offset by the waiving of import tax on capital goods.

An inefficient local labour force and a shortage of foreign exchange have resulted in export delays.

According to Tsedenia, however, the business environment in Ethiopia is improving. "Each month you see a differ- ence," she says. "That's encouraging." ●