Unless We Build IPs Suitably, They will Not Come

Prime Minister Abiy Ahmed (PhD) last week attended the inauguration of an industrial park in Adama. These parks could indeed help Ethiopia to become a manufacturing hub in Africa but may end up hurting the economy if not managed properly or built for political reasons, argues Dawit Tadesse (dawittadesse9053@yahoo.com), an assistant professor who specializes in finance and economics and the managing partner of Lead Plus Management Consultancy & Training Center.

Former Prime Minister Hailemariam Desalegn best described the strategic thinking behind the industrial parks at an inauguration ceremony for one before he resigned the premiership.

“We have built the nest, so the birds now have a place to land,” he said.

In the second edition of the Growth Transformation Plan (GTP II), the government planned to build seven industrial parks in selected areas of the country. Some of the industrial parks, such as the Hawassa and the first phase of Bole Lemi, are already operational.

There are also three industrial parks in the country owned by foreign investors: the Eastern Industrial Zone at Dukem, the Lebu Industrial Zone, owned by Huajian Group, and Mojo Industrial Zone, owned by George Shoe.

In 1986, there were 176 zones in 47 countries. By 2006, this number rose to 3,500 zones in 130 countries. They were concentrated in Asia, mainly China, Latin America, and central and Eastern Europe. Among the countries listed above, China accounts for the largest share, with over half of them privately-owned and operated.

In the sub-Saharan African region, several countries also launched zone programs in the 1970s, including Liberia, Mauritius and Senegal, but they did not operationalise programs until the 1990s or 2000s. These zones are largely different from the modern large-scale multi-use zones that are currently being proposed though. Their performances were weak, and even some countries’ programs failed.

Generally, there are different types of special economic zones, industrial parks are just one kind. They could be free trade zones, export-processing zones, hybrid, and special economic zones. They could even be enterprise specific – single factory zones, comprehensive, bonded areas, high-tech zones, eco-industrial zones or parks.

Industrial parks themselves could be of different sorts, such as mega parks, university parks, entrepreneurship parks, parks with laboratories and technological support, parks with intensive infrastructure, parks with virtual offerings and e-community parks.

Theoretically, the development of industrial parks is an important factor for any economy to actively participate in the global economic system. The role of industrial parks in supporting the local development is measured in the number of new jobs created and the income received from taxes and duties.

The more productive the industry and efficient its production, the higher the company’s profits and, thus, the benefits to the local community as well as the country.

Industrial parks may be considered a solution to overcome supply constraints by attracting innovative businesses that can generate jobs, higher incomes and, therefore, more resources to the government.

They can exploit the local potential in supporting knowledge-based business development and outline an environment where companies can interact with other supporting knowledge suppliers, thus facilitating business and local development.

On the other hand, overall review of the literature indicates that if industrial parks are not properly managed, they will bring about disadvantages. The significant hazard could be that it leads to an increase in pollution as many units emit poisonous gases, which over the years have turned out to be the primary cause behind global warming.

Industries can also lead to an acute shift from the agriculture sector, creating a gap that in the long term can result in food shortages because of lack of interest in agriculture and allied activities. In the same token, as a result of industrial capacity to attract many people, it could lead to problems of urbanisation, which, without the proper management, can give way to a lack of housing and green spaces, congestion and health-related problems.

Monopolies could arise and lead to exploitation of consumers and the worsening of inequality is just as worrying.

Barring the possible disadvantages though, Ethiopia has been striving to become a hub for light manufacturing industries in Africa with an ambitious plan to develop world-class industrial parks with hard and soft infrastructure.

The importance of industrial parks can be described by the tens of thousands of jobs, up to three-quarters of which go to women, firms inside them have created. Nonetheless, the amount of foreign currency the nation generated from the operational industrial parks last fiscal year is over 71 million dollars, which is low given the lofty expectations.

Unfortunately, even the job opportunities the parks are creating have to be seen critically. The enforcement of labour rights is lackluster and has resulted in a public outcry and high turnover rates at the parks.

Kassahun Folle, president of the Confederation of Ethiopian Trade Unions, had stressed that the employees have no unions to represent them and that salary scales are too low to support a decent living. Indeed, it is not uncommon to hear of monthly salaries to the tune of around 1,000 Br.

There are several factors often posited to explain the failures of industrial park programs. Some are highly specific, such as the threat of conflict, but most are broad. It could be weak sector targeting, poor choice of location, insufficient investment in infrastructure and inadequate implementation capacity and lack of high-level support and stability.

Industrial parks fail to perform either because parks do not get built or are built but there is little demand from firms to locate and invest in them or create few cluster effects. It could also be that the parks are successful but have neutral or negative side-effects on the investment climate outside the park, known as negative spillover effects and the crowding out phenomenon.

In this regard, there are some concerns on location selection and operation and maintenance in industrial park development in Ethiopia. When parks are not located properly, there is a continuous struggle with the community behind the park. Industrial park locations can completely cut the community’s access to highways.

But most of the worry rests on whether or not there is enough demand for these parks. There is the grave concern that the government is investing in the industrial parks just for political purposes without seriously considering their feasibility. If they fail to attract enough demand and have limited cluster effects, it would be yet another waste of public resources that  slurps up the growth of the economy and reduces public trust in government.

Feasibility on its own will not suffice though. The parks require a well-thought-out organisational structure, enough skilled workforce and resources to manage them. Unless these are realised, it is impossible to retain current investors let alone attract new ones.

That these industrial parks become successful cannot be better argued from the perspective of the resources they have and continue to consume. The government has exhausted its budget and foreign currencies, dragging the nation into debt, to build such infrastructure. If these parks are not able to attract investors, they would not merely be a waste of money but failed ventures for which the next generation will continue to foot the bill.

Meanwhile, the government has been giving very generous exemptions for industrial park developers and investors in land leases and duties. Many though have stressed that these privileges are being abused and the nation’s tax revenue stagnating as a result.

None of these is to mean that the industrial parks will not be beneficial to the country. Handled the right way, the nation could become the hub of light manufacturing industries in Africa. If the industrial parks are politicised in their management and initial decision-making process, they will merely be another sugar project.

It is advisable that the government not engage in new industrial park ventures in the near future to assess the success of the already operational ones and take experiences. It will help the country to use its limited resources effectively.

It may not matter how many nests we have across the country unless birds fail to find them accommodative.

By Dawit Tadesse
Dawit Tadesse (dawittadesse9053@yahoo.com), an assistant professor who specializes in finance and economics and the managing partner of Lead Plus Management Consultancy & Training Center.

Published on Oct 13,2018 [ Vol 19 ,No 963]



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