Ewnetu Haile 06-12-18
A recent Bloomberg article entitled “Ethiopia already is the China of Africa” argues that the economic context of whether Ethiopia can become the China of Africa is short of providing the full picture of the similarities between the two rapidly growing economies. It contends that strong national history and the belief that their countries are set to become great again are common traits the rapidly growing economies share. The article argues that understanding the recent success in these countries requires going beyond policy into their history, confidence and their ideas.
Although Ethiopia is a potentially huge manufacturing and investment hub growing steadily to replace China as one of the world’s major manufacturing hubs, the Bloomberg article states that the shared strong sentiments towards their history and the promise of greatness in the future made Ethiopia the China of Africa. The article states that these shared social realities contribute to the recent economic success in both countries.
Recent references of Ethiopia as the China of Africa have definitely heated up as a recent report by a group of American economists contended “Ethiopia can follow in China's footsteps, and become a destination for low-wage manufacturing jobs.”
Such references to Ethiopia’s rapid economic growth demonstrate the high expectations the world associates changes in that county with. In addition to the policy factors that have set the economy on a fast track to development, the world is now associating its past civilization and the confidence it bestows upon contemporary Ethiopians as a non-policy factor contributing to rapid economic growth.
The report by the group of economists categorizes African states into three in terms of their income levels. The first group consists of solidly middle-income countries. This group includes South Africa and Botswana, which are characterized by very high labor costs and capital intensive industries. The second group includes leading low and lower-middle lower-income African countries like Kenya, Tanzania and Senegal - coastal, relatively stable, and with a strong business sector. These countries have relatively costly labor compared to countries like Bangladesh. “The third group consists of countries at the very low end of the income spectrum, so poor that there are almost no real comparators.” The report cites the DRC, Ethiopia and, to a lesser degree, Malawi, as countries that appear to fit the bill.
The report dismisses the prospects of the DRC and Malawi as investment hubs as implausible citing the “governance failings” in these countries. It goes on to assert that Ethiopia is the ideal country with all the traits to become the new China in Africa. The report states:
Though landlocked, it (Ethiopia) has been moving towards easing logistics constraints through road and rail connections; it also has good air connections. It benefits from a stable administration that sees the manufacturing as a central part of its growth strategy. It also benefits from generally low costs. As measured by Purchasing-Power Parity, the general level of prices in Ethiopia is below the level in India and comparable to that of in Bangladesh. The firm surveys also suggest comparable levels of labor costs and a similar WEF Global Competitiveness ranking despite its far lower income level.
The report further cites a McKinsey Survey administered to Chief Procurement Officers of large apparel companies on which countries would become the top manufacturing destinations in the next five years. The result, it states, ranks Ethiopia as the seventh in the world and the first among African countries. With such lofty perceptions about the country by Chief Procurement Officers, the flow of FDI to Ethiopia should pick up even more momentum in the coming years.
The report also states that higher labor prices and the reputational problem of poor working conditions in Asian industrial locations are deriving investors away from the region to other destinations such as Africa. The rising wages of workers and the general cost companies incur in China are also forcing companies to relocate to alternative destinations. In other countries, it is restrictive labor and business laws that are raised as constraints for more foreign direct investment.
Ethiopia, on the other hand, offers lower labor wages and better working conditions than the countries with reputation for poor working conditions. The report states that some sources claim manufacturing working conditions in Ethiopia - though far from ideal - are better than in Bangladesh and Cambodia. In the International Trade Union Global Rights Index, goes on the report, Ethiopia fared better than Mexico and Malaysia. There have, however, been health and safety concerns in some instances. Although not vividly put, the report implies that there are no restrictive labor laws in Ethiopia, which is meant to show that companies have relatively bigger room to manipulate labor. These conditions need to be improved.
The report concludes that though it is hard to project what the future will bring, it is safe to determine that Ethiopia is better positioned to embark on a manufacturing-led take off than other African countries. It, therefore, has the potential to become the China of Africa.
Although the economic realities clearly indicate that there is a potential for manufacturing-led take off in Ethiopia as was the case in China, the social traits of the people of the two countries mark a much closer rating in their contribution to economic growth. With the economic factors complemented by such positive social characteristics, the international community has raised its level of expectation from the hundred million people of the horn of Africa country. Accordingly, Ethiopians need to make the best out of this opportunity and prove to the world that there is a valid reason for raising their expectations.