Private Lane

Private Lane to Industrialization

There are seven privately- and 10 government-owned industrial parks (IPs) operating in Ethiopia. Although the government-owned ones were developed with massive finances, thus far their performance has not been satisfactory. On the other hand, companies operating inside privately-owned IPs are doing well. In fact, an increasing number of foreign investors are requesting to develop their own IPs. The government, recently decided to discontinue developing IPs and is preparing a directive to facilitate this. EBR’s Elias Tegegn explores the issue.

Haibo Manufacturing is a Chinese company producing children’s clothes and adult suits. The company relocated from China in 2016, and installed its factory inside Eastern Industrial Zone (EIZ), the first privately owned Industrial Park (IP) in Ethiopia. Haibo mainly produces for the domestic market and although it recently started exporting, COVID-19 interrupted its moves.

“More and more Chinese investors are coming to Ethiopia and they prefer operating collectively in such industrial environments,” says Zou Haibo, CEO of Haibo Manufacturing. “Eastern Industrial Zone has a conducive environment enabling smooth communication and workflow, which contributed to our success.

Considering the growing demand for its products both in the international and domestic markets, Haibo Manufacturing is finalizing the construction of two sheds of 5,000 square meters each, in addition to the 8,500 square meters shed it is currently using inside EIZ. The company currently employs 2,000, out of which 60 are Chinese trainers and supervisors. The average monthly salary for local labor inside private IPs is reportedly close to USD50, far behind China with an average of USD300.

Located 30 kilometers south of Addis Ababa, EIZ currently houses 131 companies, engaged in cement manufacturing, automobile assembly, steel rolling, and textile and garment production. It currently rests on 400 hectares of land with plans to expand with an additional 167 hectares.

Established 13 years ago at a cost of USD146 million, the IP is entirely owned and managed by the Jiangsu Yongyuan Group, a private Chinese investment company with 12 subsidiaries in China, two in the United States, and five in Ethiopia. All its subsidiaries located in Ethiopia are housed inside the park.

Currently, there are seven operational private industrial parks in Ethiopia, including Huajian and George industrial parks. “Many of those interested to invest in Ethiopia are requesting to establish private IPs,” says Anbessaw Serebe, Industry Park Facilitation Directorate Director at the Ethiopian Investment Commission (EIC). “Such investments are grand and cannot be implemented by only a few investors.”

Currently, 10 private industrial parks are in the pipeline, of which seven are proposed by Chinese developers, according to EIC data. “The commission is finalizing facilitations to give the green light for the construction of at least eight new private IPs in the current fiscal year,” adds Anbessaw.

“Many South Korean companies have strong ambitions to establish their own industrial parks in Ethiopia. They are late compared to their Chinese peers but only because of the foreign currency shortage in Ethiopia,” explains Dagnachew Befekadu, Director at EKOS Steel Mill, a South Korean company which started producing deformed bars and wire rods in 2018, on a 100,000 square meter plot in Dukem town.

While factories inside private IPs enjoy a dedicated and uninterrupted supply of water and power, as well as access to waste treatment plants, factories outside industrial parks operate inconsistently with utilities shortages and outages, among other challenges. For instance, although EKOS Steel Mill has the capacity to produce 150,000 MT of deformed bars and wire rods annually, it only utilized 15Pct of its capacity thus far, mainly due to power shortages.

One-stop services related to certification and licensing, customs and tax, and banking are provided inside IPs, making them preferable to operating individually outside parks. Other privileges ensue. Corporate income tax holiday for as much as fifteen years, retention of foreign currency from exports, duty free import of raw materials, freight discounts, exemptions from custom duties, and other facilitations are provided to companies located inside IPs.

Companies inside public IPs lease factory sheds at USD2 per square meter, for up to four years, growing to USD3 after 11 years. Water costs ETB1.75 to ETB11.60 per cubic meter, depending on the tariff category, while electricity costs USD0.045 per kWh. On the other hand, private IPs lease out steel structured factory sheds with a traveling crane at USD37.5 per square meter. The minimum lease time is three years, while the maximum is five.

Companies operating inside the seven privately owned IPs generated USD27.1 million by exporting manufacturing goods in 2019/20. Eastern Industrial Zone leads by generating USD14.7 million, followed by Huajian with USD4.9 million.

On the other hand, the 11 government owned IPs generated USD117.5 million during the last fiscal year. The flagship Hawassa IP, housing 22 foreign companies in its 52 factory sheds, leads with USD63.6 million, followed by Bole Lemi IP, which generated USD38.9 million

Currently, close to 77,000 people are employed both in private and government IPs. As of March 2020, Hawassa employed 27,700, while Eastern Industrial Zone employed 19,200 people. However, there is a high turnover rampage in government owned IPs due to low salaries. For instance, more than two-thirds of new employees working inside government owned IPs left their job during the first quarter of 2020/21 fiscal year. The average monthly salary for local labor inside private IPs is USD50, higher than the USD35 offered by companies operating inside government owned IPs.

On top of high staff turnover, government owned IPs are also struggling with weak domestic supply chain integration, an absence of foreign currency to import inputs, and low labor productivity. Although government owned IPs were built with large amounts of money—partly financed by external debt—their export performance remains far behind initial targets. As a result, the government started outsourcing the management of IPs under its control to private firms.

Recently, the government decided to remove itself from developing IPs. “The government will no longer engage in developing IPs, after finalizing the ones under construction,” stated Lelise Neme, Commissioner of EIC, during the first quarter report briefing on October 2020. “From now on, the government will limit its role to encouraging private developers as well as executing mega projects through Public Private Partnership (PPP) schemes.”

“The government has now understood that private IPs are a better alternative to accelerate development in Ethiopia,” stresses Anbessaw.

Metassebia Hailu (PhD candidate) who consults foreign companies investing in Ethiopia, agrees. “Private IPs are more advantageous to foreign firms rather than government-owned IPs,” says Metassebia. “The private sector can build industrial parks and rent to manufacturers or manufactures can install their own parks collectively .”

Metassebia says the first option is more beneficial towards boosting local investment. “It also helps manufacturers elevate their competitive advantage.”

Currently, a new directive aimed at facilitating and regulating the development of private IPs is under preparation, according to Anbessaw. Any private investor who would like to develop an industrial park or zone in Ethiopia is expected to develop a minimum of 75 hectares of land and invest over USD75 million, according to the draft directive. The investment board led by the Prime Minister is expected to ratify the new directive soon, according to Anbessaw. EBR

9th Year • Dec 16 2020 – Jan 15 2021 • No. 93


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