Africa Rising: China steps up production in Ethiopia with drill instructors, investors

On arrival at Ethiopia's Eastern Industry Zone, 36 young African factory workers in red track suits are parading military-style in the car park.

"Welcome to Huajian," they bellow in harmony under the mid-morning sun as they march to the orders of a Chinese drill instructor.

Welcome, indeed, to the world of Huajian Group, a manufacturer of productive, disciplined workers – and shoes.

"They do this in the morning," Vice President Helen Hai, herself a recent recruit, explains about the exercise. "This is how we train to have a military mind set."

Huajian is one of the latest Chinese companies to move into Ethiopia. While the government has long leaned on Western support to feed the needy and provide social services, it is increasingly attracting Asian finance and investment for industry and infrastructure.

"China's presence in Ethiopia is filling a huge gap," says Deborah Brautigam, an expert on the Asian giant's presence on the continent at American University. "The West sees Ethiopia as a country that needs to be saved. The Chinese see multiple business opportunities and a way to 'do well by doing good.' "

But while international actors from China to the World Bank see significant potential for Ethiopia to grow as a manufacturing hub, logistical challenges such as unwieldy customs procedures and costly transportation are preventing the country from realizing its potential.

100,000 workers making $4 billion worth of shoes, clothes

Meles Zenawi, a former Marxist rebel and Ethiopia's leader for more than two decades, has long had practice soothing Western diplomats alarmed at a worsening trend of political repression. Now he's proving to be adept at wooing investors as well.

Before Prime Minister Meles headhunted Huajian on a September trip, "We had never thought about Ethiopia," says Hai. Just over three months later, the first pair of shoes from Huajian International Shoe City Plc in Dukem town was boxed and on its way to the US.

Back in China's Guangdong Province, the company produces 20 million pairs of footwear annually from operations that resemble small towns. Huajian Ethiopia plans to relocate to its own industrial zone on the fringes of the capital, Addis Ababa, where it hopes that more than 100,000 workers will be employed producing $4 billion worth of shoes and clothes for export after a decade.

After 15 years, the master plan is for it all to be Ethiopia-run, says Hai. "We want to build a system for Africa to produce [goods] themselves," she says. "That's better than giving them [goods]."

Ethiopia: good potential, but 30 years behind China

Ethiopia's exports totaled just $2.8 billion last year, with coffee making up almost a third of that figure. Imports cost $4.5 billion more than the value of goods sold abroad over the past seven months, local newspaper Capital reported last month. The government hopes that new revenue streams from mining and electricity sales will soon help balance the economy of the landlocked country.

The World Bank's Chief Economist Justin Yifu Lin believes that Ethiopia also has the potential for light manufacturing in clothes, leather, metal, wood, and agribusiness, given the low-set up costs and abundance of cheap labor and raw materials such as livestock and land.

"I am sure a low-income country like Ethiopia can also start the industrialization process" if it reduces the cost of doing business, he said at the bank's launch of a book titled "Light Manufacturing in Africa."

Despite wages being half those of Vietnam and a fifth of China's, logistics in Ethiopia are preventing a manufacturing take-off. "Currently it's not competitive because of the cost of production," Lin says.

Hai agrees. The attraction is not the policies, but the government's desire to attract investors, its duty-free access to US and European markets, local leather production, and low wages, explains Hai, who was previously chief actuary in China for Zurich Financial Services Ltd.

It takes up to 60 days from Huajian's receipt of an order to deliver it to the US from China; from Ethiopia it takes more than 100 days. A single-lane road to the nearest port at Djibouti needs improving, customs officials need training, the trucking industry needs to be liberalized, and duties waived for materials imported for export industries, Hai says.

"If the government doesn't do this, Ethiopia can't become a large manufacturer because in today's world you have to make it competitive," she states. "China made that decision 30 years ago."

Ethiopian officials sometimes seem reluctant to accept outside advice, however.

At the World Bank book launch, State Minister of Industry Tadesse Haile took issue with a recommendation to remove taxes on imports of raw materials for leather processing, signaling the prevalence of protectionist attitudes. The inputs "are all produced locally," he explained.

In another example, Ethiopian financial consultants Access Capital recently suggested partially privatizing state-owned behemoths such as Ethiopian Airlines and Ethio Telecom to raise money for ambitious infrastructure projects like railways and dams. But chief government spokesman Bereket Simon dismissed the idea of loosening the state's grip on the economy's "commanding heights."

Chinese-funded infrastructure mitigates risk

One area the government is making great strides in is transport infrastructure. A six-lane highway from the capital to Adama – en route to the neighboring Red Sea country of Djibouti – may be finished next year, and Chinese companies are building a new rail link to the Red Sea port.

Half of the $612 million highway that helps link land-locked Ethiopia to key global shipping lanes was paid for by China in the form of a preferential export buyer's credit. And subsidies from China's economic cooperation fund are helping a private Chinese company build and run the Eastern Industry Zone where Huajian set up shop.

Chinese assistance is also helping to end a patchy power supply that blights Ethiopia's factories. In 2010, the state-owned Industrial and Commercial Bank of China provided a $459 million loan for the Gibe III hydropower project, primarily for the Dongfang Electric Corporation to construct the electro-mechanical section. Although harshly criticized by environmental groups for its downstream impact on pastoral communities, the half-completed dam will more than double Ethiopia's electricity generating capacity.

"China's expanded presence certainly helped," lure Huajian to Ethiopia, says Prof. Brautigam. "Chinese-financed infrastructure – a six-lane toll road, telecoms projects, power plants – is shrinking the high costs of production in Ethiopia. This helps reinforce Ethiopia's claims that it is a good location for Chinese companies to do business."

But while it awaits these improvements, for now, Huajian relies on the personal assistance of senior officials, such as Tadesse, to get things moving and limit the risks of costly bureaucratic delays and logistical challenges.

"I was in the state minister's office almost every day pushing him," on completing the deal for the new Ethio-China Light Manufacturing Industrial Special Economic Zone, Hai says. Top officials are supportive and work "really hard," according to her. "I appreciate them very much."

The World Bank's private-sector lending arm, the International Finance Corporation, and the China-Africa Development Fund, have both expressed an interest in investing in the zone – although Hai is keen to stress that so far Huajian has not received any money from the Chinese government.

'Punctuality is integrity'

Ethiopia's leadership is "development-oriented, but not terribly democratic," says Brautigam, adding that it is much like China's in the late 1970s. Currently, Meles's government is more interested in directive authority than unleashing the creative potential of a rapidly growing population of more than 80 million people. The fondness for Huajian's rigorous approach makes sense.

Slogans such as "Absolute Concentration" and "Punctuality is Integrity" bear down from banners on the factory's 500 Ethiopian and Chinese workers stitching and cutting away. One worker is assigned to salute each entering and exiting visitor.  

"If they can't discipline themselves, how can they make the perfect shoes for others?" asks the steely yet impeccably polite Hai.

One employee with a grasp of Hai's concept of the "industrial culture" is 21-year-old biology graduate Mastewal Tsegaye, who had been selected to go to China for some Huajian training. "We read and accept the messages" above the production lines, she says. Ethiopia needs factories like Huajian's for its "development future" and Mastewal wants to make the company "more professional and competitive."

And marching up and down in the tropical heat as you're getting shouted at for an hour a day by a foreigner? "It's good exercise," she obediently replies.