Development Frontier

By John Aglionby, Addis Abeba

With costs rising in Asia, the East African country wants to be the next low-cost manufacturing hub. But after a wave of violent unrest, its authoritarian government must deal with social and political challenges.

Abebech Dansa says she could not be happier. Last year the 25-year-old single mother from Hawassa, 275km south of the Ethiopian capital Addis Abeba, quit her job at a beauty salon. She moved to TAL Apparel, a Hong Kong-based garment manufacturer that was setting up a factory in Hawassa’s newly built, state-of-the-art industrial park.

After several months’ training at TAL’s factory in Indonesia, Ms Dansa works stitching shirts on the company’s rapidly expanding product line in Hawassa, which has just started exporting to the US.

She earns 1,040 Br (45 dollars) a month plus benefits – 50pc more than in her previous role – making shirts for a company that supplies JCPenney, J Crew and Burberry.

“There’s a good mood here; there’s a good feeling,” she says. “Many people were unemployed and unhappy, but now they are getting jobs and making good money. The city is unrecognisable compared with a few years ago. There are new buildings, modern roads and big industries.”

Her progress is part of a new economic plan for the East African nation that for decades was known for little beyond being a famine-blighted wasteland and producing marathon runners.

Helped by significant foreign investment, mostly from China, which has poured resources into dams, roads and railways, Ethiopia has drawn up a China-style boom: for ten years from 2005 annual economic growth has averaged 10pc.

The continent’s second-most populous country has overtaken Kenya to become the largest economy in East Africa, according to International Monetary Fund data.

Ethiopia is trying to ape the centrepiece of Asia-style industrialisation: it aims to become the next global manufacturing hub as costs rise in places such as Bangladesh and even China.

Roger Lee, TAL’s chief executive, describes Ethiopia as “the last frontier . . . regarding major production”. In the process, Ethiopia’s authoritarian government is making a China-style bet on its own survival.

With violent protests rocking large parts of the country and the imposition of a state of emergency, the authorities are gambling that continued strong growth – including plans for another nine industrial parks – will fend off widespread discontent over suppression of democratic rights and crony capitalism.

Arkebe Oqubay, the minister in the prime minister’s office driving the industrialisation policy, says the goal is to “shift Ethiopia from an agrarian economy to a level of development where manufacturing becomes dominant”, with democracy coming later.

“We have to focus on economic performance not to sustain any totalitarian political system,” he says. “We do it because the ultimate goal of any nation aspiring to develop, aspiring to catch up, is to improve the livelihoods of the people.”

Others are not so forgiving. Zeid Ra’ad al-Hussein, the United Nations (UN) high commissioner for human rights, warned on a recent visit to Addis Abeba that if the government does not open up “social pressure will build to a point where dramatic things happen” – even with strong economic growth.

Replicating the model

The Hawassa Industrial Park is the flagship facility for the industrialisation strategy. Despite the unrest, most foreign investors at the facility are continuing to back the government and its efforts to boost manufacturing.

“We were looking for a country that has a sufficient available workforce, is sufficiently near a seaport for exports, low enough wage levels, a well-thought-out framework from the government on how they will support industry … and duty-free access to the key US and European markets,” says Mr Lee at TAL.

Another big draw has been some of the cheapest power in the world, at about 0.03 dollars per kWh. Bill McRaith, chief supply officer for PVH, the New-York listed clothing company that has opened a factory at Hawassa, says the government has delivered on its promises.

“Often you have a vision of what’s possible and the reality, as a general view, falls short,” he adds. “The pleasant experience in Ethiopia is that everyone has held the course. This investment has gone better than any other similar development we’ve done to date, although we’re still at the front end of the ramp-up of the development.”

What is unclear is whether the Hawassa model can be replicated across the country in a way that would ease social tensions. The industrial park took nine months to build and is expected to employ 60,000 and create another 150,000 indirect jobs. Of the nine other parks planned, several are due to open this year.

Mr Arkebe says the government wants to create 200,000 jobs every year until 2025. That sounds impressive, but the minister admits that when set against the 2.3m Ethiopians being born every year and with 80 per cent of the rural youth not finishing primary school, the challenge remains daunting.

Three-quarters of the population rely on subsistence farming for their livelihood yet agriculture generates only 37 percent of the gross domestic product (GDP). There are plans to expand commercial farms, modernising farming techniques and expanding the area of land being irrigated.

Foreign diplomats are not convinced the broader policies will succeed, particularly since the financial services, retail and telecoms sectors are closed to foreign investors, and the government is suspicious of the private sector. Export earnings of crops such as coffee fell last year and targets for manufacturing and power exports have been missed.

Even if the policies attract sufficient foreign investment to meet the job creation and other economic targets, there are a growing number of people who believe it will be in vain because the government is not dealing with a host of political and civic grievances.

A one-hour drive north of Hawassa provides a reminder of the fragility of the foundations on which this apparent economic miracle is built. Burnt-out buses and trucks litter the side of the main road near the town of Ziway, in the Oromia region.

They are monuments to the 11 months of protests that rocked swaths of the country until the government, which has been controlled by the Tigrayan People’s Liberation Front (TPLF) since 1991, imposed a state of emergency in October.

The protests began in Oromia before spreading to Amhara and other regions. Hundreds, and possibly more than 1,000 people were killed and tens of thousands detained, many without charge. Most were released after five weeks of “education and training”, as the authorities described it.

Brute force has restored a veneer of stability to most of the country. But the state of emergency, which was meant to last six months, has been extended until August – albeit in a diluted form – as the government admits that armed groups remain active.

‘Hopelessness leads to protest’

Arguably, more worrying for Ethiopia’s long-term prosperity is that, according to foreign diplomats, businesspeople and rights activists, the government is doing little of substance to address the grievances that stoked the unrest.

Broadly speaking, these include the economic favouritism shown towards members of the TPLF and other parties that make up the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) coalition and the lack of civic and democratic rights.

The EPRDF controls all the seats in parliament; many opposition parties are emasculated, and their leaders detained or in exile; independent media is muzzled, and critics are dealt with harshly.

In May, Yonatan Tesfaye, a former spokesman of the opposition Blue party, was jailed for six-and-a-half years for “encouragement of terrorism” after he criticised the government’s handling of the protests in several Facebook posts.

One of the country’s most prominent opposition politicians, the Oromo leader Merera Gudina, is on trial for terrorism after sharing a platform at the European Parliament with the leader of a political group that the government

Published on Jul 16,2017 [ Vol 18 ,No 899]



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