Low costs attract investors, but there are many obstacles to the country’s industrialisation.
The Ethiopian government is pouring resources into industrialisation in an effort to break into global markets.
In the near future, everybody will produce the right products to fit the international market
But, in a country where manufacturing accounts for only 4.2% of gross domestic product, challenges loom large.
Ethiopia’s largest garment producer, Almeda Textiles, imports machinery from Asia and chemicals from Europe, says general manager Libelo Gebreslassie.
It then exports finished garments to retailers like HM of Sweden, KiK Textilien of Germany and Steve Horne Enterprise of the US.
“The very important thing is support from the government,” Libelo says.
“Even though there are a lot of problems, this is the reason why international investors are coming.”
He adds that Almeda faces obstacles including low-quality domestic cotton, the high cost of imported chemicals and low managerial capacity.
Ethiopia’s ability to break into global value chains is inhibited by difficult trade logistics, power shortages, red tape and a lack of access to credit.
The country’s advantages include low costs – labour, land leases and electricity are relatively cheap – and duty-free machinery imports and duty-free access to Western markets, according to Lars Moller, the World Bank’s lead economist in Ethiopia.
“Ethiopia’s image as an investment destination has improved tremendously in recent years, which is positive and is supporting the trend of an increased number of companies investing here,” Moller explains.
“But it will take a while before this will transform the economy.”
Foreign-owned firms, including Chinese leather producers and Turkish textile factories, are indispensable to Ethiopia’s industrial sector.
Locally owned businesses hope to gain more market share.
“Everybody is aware that we have a good opportunity, and in order to utilise this opportunity, we have to change internally,” Libelo says.
“In the near future, everybody will produce the right products to fit the international market.” ●