Ethiopian industry: still banking on China - FT.com
Posted: 08 Jan 2016 10:59
Officials say investment will keep flowing, despite China’s slowdown
China’s slowing economy and the turmoil on its stock and foreign exchange markets have reverberated around the world and constitute one of the biggest threats to growth in other emerging markets in 2016.
But in Ethiopia, one of the many beneficiaries of Chinese trade and investment, officials remain unfazed.
Tedros Adhanom Ghebreyesus, Ethiopia’s foreign minister, says he is confident that Chinese investors still consider Ethiopia a “target country” for manufacturing operations overseas, as wages rise across Asia.
“I expect even more foreign direct investment flow from China. There is a strong interest to migrate manufacturing to Ethiopia,” Mr Ghebreyesus told the Financial Times.
Wages in Ethiopia are about a quarter of those in China’s and half of Vietnam’s. Ethiopia also benefits from duty-free access to the US market for many goods through the US Africa Growth and Opportunity Act.
In October, the IMF cut its 2016 growth forecast for Africa to 3.75 per cent on the back of weak commodities prices and China’s falling growth figures.
Ethiopia’s forecasts, by contrast, are holding at above 8 per cent through 2015 and into 2016.
Across Africa, the relationship with China — which surpassed the US to become the region’s top trade partner in 2009 — has been one of the drivers of an economic boom over the past decade.
Ethiopia’s economic indicators: holding steady
2013 2014 (e) 2015 (p) 2016 (p)
Real GDP growth 9.8 10.3 8.5 8.7
Real GDP per capita growth 7.2 7.8 6 6.2
Consumer price inflation 13.5 8.1 9 9
Budget balance, % GDP -1.9 -2.6 -1.4 -0.9
Current account balance, % GDP -6 -8.6 -5.9 -7.2
Source: IMF African Economic Outlook; e = estimate, p = prediction
Ethiopia’s semi-authoritarian government has made turning the country into a hub for light manufacturing a key priority. That strategy is bearing fruit: industrial output grew by 21.2 per cent between 2013 and 2014, and now accounts for some 14 per cent of GDP.
The Ethiopian government has set itself a target of $1bn in textile exports by 2016. Attracting Chinese companies will be key. Between 2003 and Q3 2015, 11 of the 15 projects China has invested in Ethiopia have been in manufacturing, according to fDi Markets, a data service from the Financial Times.
Chinese greenfield FDI: still flowing
Date Investing company Sector $m*
Mar 2015 Shaoxing Mina Textile Textiles 15
Nov 2014 China Poly Coal, Oil and Natural Gas 22.2
Sep 2014 Jiangsu Lianfa Textile Textiles 500
Dec 2013 Dandong Jinwan Plastics 5.23
Oct 2012 Baotou Bei Ben Heavy-Duty Truck Automotive OEM 94.5
Jan 2012 China Central Television Communications 7.5
Dec 2011 China FAW Group (First Automotive Works) Automotive OEM 94.5
Dec 2011 China South Locomotive & Rolling Stock Non-Automotive Transport OEM 60.6
May 2011 Chongqing Lifan Industry Automotive OEM 94.5
Nov 2010 Xinxiang Kuroda Mingliang Leather Company Textiles 67
Apr 2010 The China-Africa Development Fund Financial Services 11
Mar 2009 Chongqing Lifan Industry Automotive OEM 10
Aug 2008 CGC Overseas Construction Ceramics & Glass 15
Sep 2006 Huawei Technologies Communications 1,500
Sep 2006 ZTE Communications 5.21
Source: fDi Markets *includes estimates
Major retailers have taken note. Swedish clothing powerhouse H&M announced in August that it would begin sourcing products from Ethiopian factories, following similar initiatives by the likes of Tesco and Walmart.
The Ethiopian government is putting money behind its bid for industrialisation and plans to continue to do so at pace, despite headwinds in the global economy, according to the minister. >> Read More on FT.com