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Transforming the industry sector through capable IPs

Transforming the industry sector through capable IPs

Gebre-Michael Asgedom 01-05-18

Japanese casual wear retailer, Uniqlo, had on December 27, 2017 stated that it had opened its first African manufacturing plant in Ethiopia to take advantage of low labor costs, hoping to create an export hub for the U.S. and European markets. This high-end clothier has aimed to begin test production of T-shirts and other tops in Ethiopia as early as 2018. It said more products will join the mix if the plant shows that it can handle the volume and meet quality standards.

Uniqlo stated that Ethiopia is located closer to Europe and is a key market strategy for growth. The clothier has intended to export to the U.S. as products from Ethiopia would not be taxed as the country enjoys AGOA opportunities. Similarly, fast-fashion titan H&M Hennes & Mauritz has also begun production in Ethiopia to benefit from vast investment opportunities in Ethiopia.

These days industrialization has been associated with the name of Ethiopia and the world is hailing its development effort through industrialization. The various Industrial Parks (IPs) being erected throughout the country are part of its plan to increase the number of its IPs to 15 by June 2018.

Nation’s tireless effort to boost manufacturing and export has emanated from its strategic thinking to build more industrial parks and enable the manufacturing sector to contribute up to 20 percent of the GDP (and 50 percent of the export volume by 2025).

Currently, Ethiopia has seven operational industrial parks with Mekelle and Kombolcha being the latest additions commissioned earlier close to the beginning of Ethiopian New Year. Both were built at a cost of 100 and 90 million USD respectively. The endeavor of industrialization is endless and nation is working round the clock. Accordingly, the coming January 2018 will see the start of operation of Kilinto Pharmaceutical and Bole Lemi 2 IPs. Likewise, Bahir Dar and Jimma IPs will be operational in May and Debre Birhan and Arerti parks will also start   production the following month.

The chain of construction is gathering momentum and Ethiopia is about to construct two other industrial parks, Dire Dawa and Adama in the coming September. The two IPs will cost 190 and 125 million dollars respectively. The ultimate target of constructing IPs is to jolt up speedy economic growth across the country and effect meaningful change as far as sustaining decades of double-digit growth and creating two million direct and 4.4 million indirect manufacturing jobs.

To vigorously expand IPs, the country has eyed to invest one billion USD per annum. Hence, the country has planned to spend as much as ten billion USD over the next ten years to boost exports and make itself Africa’s top manufacturer. Of this huge amount, the government has targeted to invest half of the money to build IPS across the country. The IPs are expected to house textile, leather, agro-processing and other labor intensive factories.

It is believed that the IPs will help compensate the under plan achievement during the GTP-I, which could not hit the targeted amount of 15-fold increase in textile and leather exports and earn 1.5 billion USD. It is regrettable that the manufacturing sector was not successful to reach the desired level in the First GTP. It happened due to lack of specialized parks furnished with essential facilities including power, water, banks, customs and transport.

Hence, nation believes expansion of IPs is instrumental in sustaining the current growth of manufacturing, attracting FDI, creating jobs and realizing poverty alleviation. Seeing the encouraging prospect of growth in the sector, nation is exerting strenuous effort to achieve annual growth of 24 percent and increase its contribution to export revenues from the current 10 percent to 25 percent.

 

Industrious effort is being exerted to ensure sustainable development of the economy, reduce the contribution of agriculture to the GDP and substitute it with light and medium industries that are labor-intensive and employ thousands of citizens. Cognizant of this very fact, the government has been paving the way to encourage both domestic and foreign private investment and has been heavily investing on infrastructure, energy, rural finance, research, access to improved technology and information, among others.

 

All of the growth registered in the construction of IPs and attraction of investment has not happened overnight.  Farsightedly, the government has endorsed IPs development proclamation two years ago. This has opened the door for influx of investors as it states that industrial parks can be developed by any profit-making public, public-private or private enterprise. Currently, it is working miracles to whet the interest of FDI investors, realize rapid industrialization, nurture the growth of manufacturing and accelerate economic transformation.

 

These days nation has made it clear that investment in IPs is open to any national, domestic and foreign investors who are capable to undertake manufacturing activities to the desirable level. However, unlike the years in the beginning that saw wholesome recruit ion nation is selectively wooing very much capable and high-end investors that have successful track records.

 

This meticulous selection is eyed to enhance productivity, proactively curb failures, penetrate in to the global market and generate billions of foreign currency. And currently, it is judiciously recruiting high-profile investors to facilitate more export-led manufacturing, speed up productivity and curb lagging performance associated with incapacity.

 

Not only settlement and launching manufacturing, nation has freely entitled industrial park developers to construct their own industrial parks, either independently or through public-private partnership. But, the IPs are needed to have consistent qualities that fulfill the standard of IPs construction set by the country.

 

Ethiopia’s shift to the perspective of industrialization has enabled to construct many IPs and attract many FDI investors. Overall, FDI flow into Ethiopia has grown since 2010, at an average rate of nearly 50 per cent per year, reaching USD 2.2 billion in 2015 (UNCTAD 2016) and USD 3.2 billion, according to UNCTAD Investment Report of 2017. It witnessed Ethiopia has attracted FDI in commercial agriculture, manufacturing, leather, and textiles sectors.

 

Similarly, not only attracting foreign investment, currently nation is interested to allure high quality FDI companies with high export potential. So far, most investors are drawn to Ethiopia for it offers preferential export access to the US and EU markets through the EU’s Everything But Arms regime and the recently-extended African Growth and Opportunity Act (AG of the United States), though  had not fully been able to exploit these preferences until now.

To attract the required amount of FDI, the country has been introducing huge number of incentive packages to investors who want to invest in the IPs. The incentives range from 10-15 years of tax relief to duty free importation of capital goods and machineries (some even argue that the incentive packages are too generous and the country is not getting the real benefits from the capital that flows to the country).

Until now, numerous textile and garment manufacturers are flocking to Ethiopia from India, Bangladesh, China, and Turkey and currently from Japan, among others, in search of cost-effective means and profitable options that may enhance export to the European and American markets.

 

Tangibly, the last five years had witnessed growing investment and enhancement of capacities in the industrial sectors. Coupled with existing capacities, these developments are positive signs for Ethiopia’s future endeavor of industrialization and ambition of structural transformation.

 

And Ethiopia is making itself better ready to the toughest competition being posed by growing industrialists all over the globe. In this regard, nation has given due attention to development of qualified industry parks by allocating tremendous amount of budget to construction. The sector is anticipated to have multi-prong benefit to the development of the country as it could employ thousands of productive work forces and consume huge amount of raw material produced at home.

Nation has been intensifying its endeavor to transform the economy from agriculture to industry-led there by bolstering the manufacturing sector in its Growth and Transformation Plan II (GTP-II). To this end, the government has aimed to construct many IPs and make Ethiopia Africa’s manufacturing hub by 2025, with a focus on light and medium manufacturing. Similarly, specific industrialization goals enshrined in the Plan includes generating two million jobs in medium and light industries and securing 40 percent of the export share from manufacturing.

 

Ethiopia is busy constructing many IPs in all regions taking in to account the crucial role of industry to effect the country’s economic transformation. Nation is working to the top of its capacity to realize robust manufacturing sector and enable it to take off. It is trying to be preferable destination of investment by applying ingenious mechanisms including facilitating smooth flow of investment, attracting more FDI, improving quality of manufacturing produce and penetrating in to the niche of world market through capable industry parks.


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