Chinese Enterprises in Ethiopia

During his visit to the East African nation in May 2014, Chinese premier Li Keqiang vowed to strengthen friendly relations and cooperation between the two countries, based on bilateral fundamental and long-term interests. Taking infrastructure construction and energy resource exploitation as the key points, both sides will expand mutual beneficial cooperation in light rail and expressway construction. In addition to traditional cooperation fields such as communication and infrastructure construction, labor-intensive industries like leather and textiles have also found good business opportunities in Ethiopia.

China is Ethiopia’s largest trade partner. The total volume of trade between the two countries in 2013 reached an all-time high of US $2.1 billion. With a direct investment of nearly US $100 million in 2013, China has become Ethiopia’s biggest source of foreign capital. Investment from China has been instrumental in boosting local economy, creating employment opportunities and promoting local industrial and technological upgrading.

Stimulating the Local Economy

In Sululta, a town 25 kilometers north of Addis Ababa, capital of Ethiopia, China-Africa Overseas Leather Products S.C.(CAL) has been in operation since September 2011. Sponsored by a Chinese leather company from Henan’s Xinxiang City, the company has exported some seven million pieces of leather, earned foreign exchange of about US $50 million, and benefited about 50,000 local livestock farmers.  

Leather processing is a key industry supported by Ethiopia’s government, and leather is one of the country’s main exports. During the fiscal year of 2013-2014, Ethiopia’s leather export volume was US $97.7 million. CAL’s value of exports accounted for 12 percent of the country’s total.

There are many such Chinese enterprises in Ethiopia. For example, the East Cement S.C. in Fiche supports a number of Ethiopia’s key projects, such as light rail construction in Addis Ababa and the Geba hydropower project. In 2009, the country’s total available cement supply was only 1.8 million tons, yet the market demand was around three million tons and had to rely on imports. A cement shortage seriously hindered a great many local infrastructural projects and as a result, the price skyrocketed to about ETB 5,000 per ton. Under this background, the East Cement S.C. was established with a gross investment of US $100 million. So far, the company has produced 700,000 tons of cement clinker and directly supplied the market with 880,000 tons of cement, effectively alleviating its scant supply in Ethiopia. Currently, the price of cement has dropped to ETB 2,050 per ton.

Meanwhile, China-invested enterprises have played an enormous role in communication network construction in Ethiopia. ZTE launched its Ethiopian subsidiary in 2000. The company has been exclusively contracted to build a nationwide communication network since the end of 2006, making Ethiopia one of the most developed African countries in terms of communication systems. The enhanced network capacity has indirectly propelled Ethiopia’s GDP growth. The “pulling power” of communication infrastructure construction has encouraged the Ethiopian government to set telecommunications as an important part of the country’s Growth and Transformation Plan (GTP). On August 18, 2013, after two years of planning, ZTE signed a network expansion contract worth US $800 million with Ethiopia. Meanwhile, the corporation is working with many ministries and large enterprises in Ethiopia to provide a package of information communication technology solutions. Today, Ethiopia’s high-speed and stable fixed and mobile networks have greatly satisfied the demand from enterprises and the government.

Meanwhile, the project contracting market of Chinese enterprises in Ethiopia continues to expand exponentially. A number of major projects concerning the national economy and people’s livelihood are underway.

Fulfill Social Responsibility

Corporate social responsibility underpins China’s investment in Ethiopia. At present, CAL offers some 500 employment opportunities for local people. The company is well received by the local government, financial and legal institutions and leather associations. To support the local community, the company installed drinking water pipelines and has donated to road- and dam-building projects in the local area.  

Because leather processing is a high-polluting industry, CAL regards environmental protection as its top priority. Since it enlarged its production lines in 2014, the company has improved its sewage treatment facilities, which means that wastewater is now recycled and drinkable for flocks and herds.

Established in 2008, Ethiopia Hansom International Glass PLC. is the first glass manufacturer in Ethiopia and East Africa. The company makes effective use of local raw materials such as silica sand, limestone and magnesite, while offering the community job opportunities, skills training and local industrial development. “As the foundation of Sino-Ethiopian industrial cooperation, the glassworks is testament to the friendship between the two countries,” said Meles Zenawi, then Prime Minister of Ethiopia, at Hansom’s inaugural ceremony.

ZTE has also plugged a deficit in Ethiopia’s communication technology education by offering free training for 1,000 local engineers and donating technology worth US $8 million to a local training center. In addition, ZTE has established links with 13 local universities to cultivate talent for Ethiopia in this field. ZTE is welcomed in Ethiopia for its humanitarian response to the community, having donated to local orphanages, primary schools and environmental projects.

Personnel localization has always been the goal pursued by China-invested enterprises. Take ZTE as an example – more than 60 percent of its 1,000 employees in Ethiopia are locals.

Meet the Challenges

According to Deborah Brautigam, author of The Dragon’s Gift: The Real Story of China in Africa, the combination of cheap labor and low overheads, plus the government’s eagerness to absorb foreign investment all make Ethiopia much more attractive for investors than other African countries. 

With no shortage of manpower, Ethiopia’s human resources cost is one-fifth that of China, one of the key factors that attracts Chinese enterprises to invest there. However, the shortage of skilled workers is a challenge. Manager Zhou invested in a textile mill in Ethiopia that employs more than 200 local people. According to him, although it is easy to recruit local workers, their technological know-how can’t compete with that of their Chinese counterparts. As a result, he has to recruit skilled workers from China to work there.

Local people sometimes find it hard to understand this. According to CAL’s HR manager, at the initial operation stage, a company is permitted to hire more Chinese workers, but the aim is that after necessary technical training, local people take over.

For an increasing number of Chinese enterprises in Africa, the best way to train local employees and ensure secure work for host communities is a hot topic that deserves much consideration.