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Paving the way for industrialization

Paving the way for industrialization

Bereket Gebru 07-31-17

With industrialization set as the most plausible route to become a developed state, all economies are competing to get there and ensure lingering prosperity. With Ethiopia, although the short term goal is to eradicate poverty and elevate the country to middle income, the long term goal is to become a developed country.

For a poor country like Ethiopia though, the path to industrialization is awfully long and rough. The strategy, however, has been to develop the agricultural sector into one that can be used a spring board for industrial development. Another strategy has been the expansion of infrastructure that is so vital in the process of industrialization.

As far as laying the ground work for infrastructure in the industrial sector is concerned, industrial parks have played a notable role. They provide industrial companies with much needed infrastructure in an otherwise no so ready economy. Therefore, they bridge the gap in the need for industrial investments and state of infrastructure in the country.   

Ethiopia has set out to raise the number of its industrial parks to ten during the second GTP period. Towards realizing that goal, the government set up the Ethiopian Industrial Parks Development Corporation (IPDC) in 2014. By setting up these gigantic industrial sheds, the country aims to enhance exports, employment, technology transfer and agricultural to industrial economic transformation.

Addis Industry Village, Bole Lemi I and Hawassa Industrial Park are the three industrial parks that are already operation in the country. It has recently been reported that Mekelle and Kombolcha industrial parks have been inaugurated. Adama and Dire Dawa industrial parks are expected to follow.

Ethiopian Industrial parks are assigned a specialized sector to serve. Some serve textile and garment industries while others are made for pharmaceuticals, footwear and leather products, agro-processing and heavy industries. Accordingly, the Mekelle and Kombolcha industrial parks constructed with a combined outlay of 250 million USD are both dedicated to the textile and apparel sector.

Another identifying factor about Ethiopian industrial parks is that they are eco-friendly. According to the IPDC website, the Hawassa Industrial Park stands in testimony as its “sewerage waste disposal will be recycled by using latest technology with Zero-Liquid Discharge (ZLD) facility that was constructed for this purpose.”

The implications of these industrial parks for employment creation, provision of housing and physical infrastructure, education, health and social services, and pollution control are staggering. The challenge for the public as well as the private sector is to facilitate the creation and maintenance of industrial parks that are competitive in the global as well as the local context. It states: “the ability to compete in national, regional as well as international markets is the hallmark of successful private enterprise and the paramount prerequisite for sustainable economic development.”

Access to major markets, infrastructure, cheap skilled labour and incentive packages, the Spring 2008 Prologis Research Bulletin states, are among the main reasons that determine the competitiveness of industrial parks in the global system.

Situated in the horn of Africa, Ethiopia provides an easy access to Africa, the Middle East, Asia and Europe. Therefore, it is ideally located to access the major markets in the world. As a rapidly growing economy, the state of infrastructure in the country is changing tremendously for the better with the industrial parks enjoying the best of electrical, water, telecommunications, roads and other facilities Ethiopia has to offer.

The 2008 bulletin states:

“When China first cracked its “Open Door” in 1980, it lacked virtually all of the basics (not to mention amenities) that modern business enterprises simply take for granted. Absent were such basics as a transparent legal system, the concept of private property, labor markets, banks, foreign exchange markets, and modern infrastructure — including highways, telecommunication facilities, water, waste management, comfortable living quarters, and energy-supply systems.

Only the most intrepid foreign enterprises were willing to venture into this uninviting setting.”

 

With more than a dozen years of rapid development under its belt, it is plausible to think that the present day Ethiopia offers more of some of the amenities stated above than the China of nearly forty years back. Although there have been improvements in infrastructure and work procedures, Ethiopia still needs to keep things rolling to catch up with the demands of today’s businesses. By providing businesses with a fully furnished space to operate from, Ethiopia’s industrial parks compensate for the shortcomings in infrastructure through their connection with ports and close proximity to airports, railway stations, dry ports and universities.

The other point to consider is the availability of cheap skilled labour force. Set to hit the 100 million mark, a significant section of the population of Ethiopia is young. This group constitutes the working section of society.

Therefore, there is a large availability of labour in the country. Considering the nearly universal enrollment in primary schools and considerable expansion of education at all levels in the past couple of decades, the labour force is more educated than it used to be. The salary level of Ethiopian workers is also generally low. Therefore, Ethiopia has skilled labour that can be employed for low price.

The other gauge deals with incentive packages. Accordingly, Ethiopia provides manufacturers with:

  • Zero tax
  • Exempted from income tax up to 8 - 10 years
  • Exempted from duties & other taxes on imports of machinery, construction materials, spare parts, raw materials & vehicles
  • One-stop-shop for government services
  • Land lease term: 60-80 years at zero charge for factories & residential quarters

Developers also enjoy equally beneficial incentives that include:

  • Exempted from income tax up to 15 years (outside Addis Ababa)
  • Exempted from duties & vehicles
  • Provision of essential infrastructure, including dedicated power substations
  • Land lease term: 60-80 years at zero charge with sub-lease rights

Considering Ethiopia ticks all the rights boxes to host competitive industrial parks at the world stage, the successful completion of the projects would speed up the transformation of the economy to an export-led industrialized one.    

 


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