Investment is All About Trust

In recent years, there has been a giant leap forwards making Ethiopia a hub of light manufacturing industries in Africa by 2025. To this end industrial parks in Addis Ababa and Hawassa, mainly designed for textile and garment manufacturing went operational to boost export revenues. 13 additional parks are currently under construction for same. EBR spoke to Belachew Mekuria (PhD), deputy commissioner for Industrial Parks Division at the Ethiopian Investment Commission (EIC) about the performance of the already operational ones, status of the industry parks under construction, and the challenges companies and employees in the parks experience.

How many of the companies which leased working space at the Hawassa Industrial Park (HIP) are operational so far? When will the HIP be fully operational?
Companies at HIP started operation six months ago. There was some delay because of the political unrest in the country recently. Six companies already started exporting while 16 others completed their first phase. 37 companies secured sheds initially and recently 15 more companies are included. In July, 2017, the second phase of HIP will kick off. As of September 2017, all the 16 companies will start to export.

And the status of the other industrial parks under construction.
The industrial parks in Komolcha and Mekele will be inaugurated this month, while those in Dire Dawa and Adama will be operational in September 2017. The parks at Kilinto, Bole Lemi phase two, Jimma, Bahir Dar and Debre Birhan are in good progress.
The industrial parks in Hawassa, Jimma, Mekele, Kombolcha and Addis Ababa (Bole Lemi) will be occupied by companies engaged in textile and garment. EIC is currently screening investors for these parks.

How do you evaluate the performance of Bole Lemi Industrial Park?
As the first industrial park developed by the government, it took three years to complete it. This was because it involved 20 contractors to finalize it, which makes the management of the construction complex.
It was not easy because we did not have the chance to learn from global experiences and practices. In any case, the factories in the park hired around 11,000 workers and are operational with USD 2 million monthly export revenue.

But the initial plan was to create 25,000 job opportunities.
Well, this is in its second year of operation. And it is Addis Ababa, where the construction sector is booming. Workers come from rural areas to work in the construction and service sectors. This hinders the industries in the parks from getting sufficient number of workers. There is also high staff turnover, absenteeism, low productivity and inefficiency.

Employees at the park also complain about the low wage.
At the beginning of industrialization, wage has a linear relationship with productivity. You always start from somewhere low. Unless the productivity has increased, the wage will be locked at lower level, which is problematic.
Where there is low wage and productivity, retaining workers becomes difficult, because they have high expenses of transportation, housing and others costs. These issues put the manufacturing sector under challenging situations. We are now revisiting the whole situation. Recently, we commissioned a study to identify ways to overcome problems such as low level of productivity, high turnover and absenteeism. We diagnosed the situation and identified the problems. The problem boils down to housing, transportation and other social factors. Most of the workers are women. So if there is a child care centre inside or near the park, the high level absenteeism can be minimized.

Is the government going to build dormitories for the workers at Bole Lemi?
We are encouraging the investors to build their own dormitories, which is the common practice in many other countries. Two of the biggest companies in Bole Lemi are in the process of acquiring land for that. One of the two companies, the South Korean Shints ETP Garment, plans to build dormitories for 4,000 workers, on six hectares of land.

What are the lessons taken from Bole Lemi, especially in employee recruitment?
In the absence of productivity, working conditions cannot be good. Therefore, we have to invest in building capacities to improve productivity. Productivity comes with trainings. It’s all about creativity, punctuality, work ethics and capability to deliver. So, we established Skill Grading and Screening Centre in Hawassa.
The centre screens the fitness and willingness of prospective employees to take the available jobs. Then it grades them to various levels from A to C and make workers available for the industries. Every week, companies in the park provide the number and grade of workers they need. When employers need to hire, they are supplied from the list. So far, 27,000 prospective workers are registered and are ready for recruitment. Recruited employees take a week-long training on work ethics, discipline, punctuality, hygiene, and industrial culture. The companies also provide technical trainings. This model will be replicated in the industrial parks under construction.
With the support of GIZ, we are establishing a training academy in the HIP. The other intervention is establishing the Hawassa FM radio station in the park to teach basic skills.

There are many developing countries competing to attract light manufacturing industries. Beside cheap labour, why can’t Ethiopia offer skilled manpower to lure investors?
Investors understand that they are not going to get readily available skilled labour in Ethiopia. They come with the understanding that it takes time to create the required skill and efficiency in the labour, and the proper platform to transfer knowledge and skills to the local staff. The main thing is to take those who are already available and willing to be trained and work in the factories. If you take China, it has become very difficult to find labour that can join factories due to the lack of willingness [and alternative options they have]. The minimum wage in China is now USD321 per month, and in reality factories pay around USD800.
So, factories in China have to look for new frontiers where they can expand, develop the skills available, create the market, and pursue sustainable production in socially and environmentally responsible manner. So, we are trying to brand Ethiopia as a country where socially and environmentally sustainable production is possible. We encourage foreign investors to bring expatriates to train the locals, for which we even provide incentives such as salary income tax exemptions, for a limited period of time. The Ethiopian Textile Industry Development Institute, Ethiopian Leather Industry Development Institute and others also closely work with the industries to develop the skills.

Was there a plan to boost labour productivity before adopting the Industrial Parks Development Strategy?
Huge portion of the budget of the government goes to education and infrastructure development. The mix of disciplines students peruse at territory level, with 70Pct of them studying science and technology courses, was intended to increase the number, skill and productivity of graduates in line with the industrialisation plan of the country. However, we are witnessing that graduate are coming to the industries without possessing the required set of skills. To fill this gap we encourage industries to provide practical skills development programmes such as apprenticeships, [traineeships, internships, and externships.]

The investors in these parks complain about the poor logistic and lack of local input supply, which forces them to import with inflated cost. So, they say the cheap labour advantage the country offers is outbalanced by these challenges.
Of course there are challenges. However, I do not think these disadvantages offset the benefits that came with the availability of ample work force.
The investors are not coming only targeting the surplus labour or as others say ‘cheap labour’. Of course, the government is focusing on labour intensive light manufacturing. Therefore, labour is critical. However, the most important factors that attract and retain investors are the conducive business and operating environment as well as the government’s development strategy that is very well aligned with the global trend. The presence of strong public institutions to support the industries is also another factor because investment is all about trust. It has to be enhanced by strong government structure. The other factor is proximity to potential markets. Ethiopia is closer to most export destinations like Europe and USA. The existence of green energy is the other point.
We have challenges though they are being efficiently addressed. Logistics is one because Ethiopia is a land locked country. We rely on Djibouti Port for now. Transport business has been costly until recently and is in fact closed for foreigners. There is no efficiency in our logistic sector and we import fuel, which escalates cost further.
But, things are now changing. The recently inaugurated railway between Addis Ababa and Djibouti takes ten hours. It used to take three to four days to transport goods in trucks. This will significantly reduce logistic cost. We have also a globally competitive airline for cargo.
Getting sustainable input, of course, is going to take some time. For all the industries, there need a systematic approach. First, one needs to understand the value and supply chain in a particular sector.

Tell me about the reforms at EIC. It’s seems a lot is happening to attract more FDI?
The restructuring at EIC started two years ago. Now, investors come directly to the EIC. If their interest is to engage in heavy industry, they will be directed to the relevant institutions. But, if their interest is to engage in light manufacturing industry, all the services related to licensing, customs and bank are available in our office. We provide work permit, process visa and do everything under one roof. That efficiency and transparency puts us in a competitive condition compared to other African countries. We want to model EIC after KOTRA, a state-funded trade and investment promotion organization of the Government of South Korea, and other globally successful institutions in developed countries, so we can become vibrant and instrumental in attracting FDI.

Indigenous companies played crucial roles during industrialization stage in most of the developed countries. But in Ethiopia, foreign investment seems to overtake their roles.
This is like the chicken and egg conundrum. Our plan at the end of the second phase of the Growth and Transformation Plan is to attract a mass of critical foreign investment, which can be a fertile ground for skill and knowledge transfer to forthcoming local investors. We cannot develop local capacity without the skills and knowledge necessary to build their competitive edges. That’s why the government reserves at least 20Pct of all the parks to local investors [so that they learn industrial culture and technical expertise from the foreign investors].

The labour proclamation is being amended. There are some advocates who believe the amendment should put a minimum wage for workers because in the industry zones, employees are getting as low as USD35 a month.
The amendment has been overdue for a long time. Labour law is dynamic by nature. It has to evolve with time. There are quite a number of areas that needed changes. But, setting minimum wage is not one of them. This is problematic at this early stage of industrialisation.

When Government builds industry parks, the hope is to attract foreign and local companies that will engage in export. But there are arguments in favour of import substitutions as well.
Yes, companies in the industrial parks will continue exporting 100Pct of their produce for years to come. This is necessary to solve the foreign currency shortage in the country. All the industry parks under construction will be export processing zones as well because the shortage of foreign currency will not show decline under the current circumstances.
On the other hand the mega public projects underway are consuming huge amount of the scarce foreign currency. We have to expand our export earning sources to satisfy this demand. EBR

5th Year • July 2017 • No. 52