Ethiopia feels China’s huge presence

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IOL br ethiopia2 Bloomberg Ethiopians work in a shoe factory operated by Huajian Group, which manufactures footwear for the US market, outside Addis Ababa. Huajian, in partnership with the China-Africa Development Fund, intends to invest big in the country over the next decade. Photo: Bloomberg.

Beijing and Nairobi - Ethiopian workers strolling through the parking lot of Huajian Shoes’ factory outside Addis Ababa last month chose the wrong day to leave their shirts untucked.

Company president Zhang Huarong, just arrived on a visit from China, spotted them through the window, sprang up and ran outside.

The former People’s Liberation Army soldier harangued them loudly in Chinese, tugging at one man’s shirt and forcing another’s into his pants.

Nonplussed, the workers stood silently until the eruption subsided.

Shaping up a handful of employees is one small part of Zhang’s quest to profit from Huajian’s factory wages of about $40 (R420) a month – less than 10 percent the level in China.

“Ethiopia is exactly like China 30 years ago,” said Zhang, who quit the military in 1982 to make shoes from his home in Jiangxi province with three sewing machines and now supplies such brands as Nine West and Guess?.

IOL br ethiopia Chinese and Ethiopian work supervisors stand for inspection by their president Zhang Huarong outside a shoe factory operated by Huajian Group outside Addis Ababa, Ethiopia last month. Photo: Bloomberg. Bloomberg

Almost three years after Zhang began his Ethiopian adventure at the invitation of the late prime minister Meles Zenawi, he says he is unhappy with profits at the Dongguan Huajian Shoes Industry unit, frustrated by “widespread inefficiency” in the local bureaucracy and struggling to raise factory productivity from a level he says is about a third of China’s.

Transportation and logistics that cost as much as four times those in China are prompting Huajian to set up its own trucking company.

And the use of four languages in the plant – Ethiopia’s national language, Amharic; the local tongue, Oromo; English and Chinese – further complicates operations, Zhang says.

It takes two hours to drive 30km to the factory from the capital along the country’s main artery, illustrating the challenges. Oil tankers and trucks scream along the bumpy, potholed and, at times, unpaved road.

Goats, donkeys and cows wander along the roadside and occasionally into bumper-to-bumper traffic.

Minibuses and dented taxis weave through oncoming traffic coughing a smoggy exhaust.

IOL br ethiopia3 Zhang Huarong, president of Huajian Group, says transportation and logistics that cost as much as four times those in China are prompting the company to set up its own trucking company in Ethiopia. Photo: Bloomberg. Bloomberg

Huajian is nonetheless becoming a case study of Ethiopia’s emerging potential as a production centre for labour-intensive products from shoes to T-shirts to handbags.

In a country where 80 percent of the labour force is in agriculture, manufacturers don’t have to worry about finding new workers. Its population of about 96 million is Africa’s second-largest after Nigeria’s.

 

A combination of cheap labour and electricity and a government striving to attract foreign investment makes Ethiopia more attractive than many other African countries, said Deborah Brautigam, author of The Dragon’s Gift: The Real Story of China in Africa and a professor of international development and comparative politics at Johns Hopkins University’s School of Advanced International Studies in Washington.

“They are trying to establish conditions for transformation. It could become the China of Africa.”

Huajian’s 3 500 workers produced 2 million pairs of shoes last year. Located in one of Ethiopia’s first government-supported industrial zones, the factory began operating in January 2012, only three months after Zhang decided to invest.

It became profitable in its first year and earns $100 000 to $200 000 a month, he said, calling it an insufficient return that will rise as workers become better trained.

Under bright fluorescent lights, amid the drone of machines, workers cut, glue, stitch and sew Marc Fisher brown leather boots bound for the US.

Meanwhile, supervisors monitor quotas on whiteboards, giving small cash rewards to winning teams and criticism to those falling short.

China, Africa and global retailers all have stakes in Ethiopia and such countries as Tanzania, Rwanda and Senegal, which become viable production bases for labour-intensive products.

Promoting trade, boosting employment and spurring investment are among the topics that will be discussed at the first White House US-Africa Leaders Summit in Washington from August 4 to August 6.

African countries have a compelling opportunity to seize a share of the about 80 million jobs that China will export as its manufacturers lose competitiveness, according to Justin Lin, a former World Bank chief economist who now is a professor of economics at Peking University.

Chinese Premier Li Keqiang and Ethiopian Prime Minister Hailemariam Desalegn, who met on May 4, backed the move of Chinese industries to Ethiopia.

China is “supporting Ethiopia’s great vision to become Africa’s manufacturing powerhouse”, Hailemariam told reporters at a joint press conference in Addis Ababa.

Weaker consumer spending in the US and Europe after the financial crisis prompted global retailers to hasten their search for lower-cost producers, said Helen Hai, head of China Africa Consulting in Addis Ababa.

She ran Huajian’s Ethiopia factory until July last year.

While China’s inland regions offered manufacturers a cheaper alternative to the export-linked coastal areas, rising costs and a limited pool of available workers now are undermining that appeal.

Average factory pay in Henan, about 800km from the coast, rose 103 percent in the five years ended in September and 80 percent in Chongqing, 1 700km up the Yangtze River.

In the same period, salaries rose 82.5 percent in Guangdong, where Huajian has its base in the city of Dongguan.

Cost inflation in countries including China has prompted Hennes & Mauritz (H&M), Europe’s second-biggest clothing retailer, to work with three suppliers in Ethiopia.

The country has “great potential” for production, H&M head of sustainability Helma Helmersson said in an interview in April.

China’s average manufacturing wage is ¥3 469 (R5 900) a month.

Pay at the Huajian factory ranges from the basic after-tax minimum of $30 a month to about twice that for supervisors.

By contrast, average manufacturing wages in South Africa, Africa’s biggest manufacturer, are about $1 200.

The duty-free and quota-free access that Sub-Saharan Africa enjoys for the US and EU markets gives additional savings thanks to the African Growth and Opportunity Act for the US and the EU’s Everything But Arms accord for the poorest countries.

Import tariffs on shoes made in China range from 6 percent to as much as 36 percent, Zhang said.

A spokeswoman for Guess? confirmed that a licensee had done business with the Huajian Ethiopia factory in the past and might do so in the future.

A spokesman for Sycamore Partners, which owns Nine West, declined to comment on its business relationships and whether it had a relationship with Dongguan Huajian Shoes Industry.

Marc Fisher Footwear was making shoes in the Ethiopia factory, Jaclyn Weissman, a spokeswoman for the company, said in a statement.

Signs of Ethiopia’s allure include factories outside Addis Ababa set up by leather goods maker Pittards of the UK and Turkish textile manufacturer Ayka Tekstil.

Foreign direct investment in the country surged almost 250 percent to $953 million last year from the year before, according to estimates by the UN Conference on Trade and Development.

Zhang spends about half his time in Ethiopia, he says.

During the visit last month, he spoke to about 200 uniformed Huajian supervisors, a mix of Ethiopians and Chinese, gathered in the parking lot.

A giant plasma screen mirrored the crowd as Zhang hurried on to the stage.

He berated those assembled for a lack of efficiency, then praised them for their loyalty to Huajian, his words translated into Amharic and Oromo.

He ordered them to march on the spot, to turn left and to turn right, all chanting together in Chinese.

“One, two, one,” they chanted. “One, two, three, four,” as they marched in step.

Slogans followed: “Unite as one.” “Improvement together.” “Civilised and efficient.”

They sang the “Song of Huajian”, whose words urged “We Huajian people” to bravely move forward, to hold the banner of Huajian high and to “keep our business forever”.

Chinese supervisors led the song, their Ethiopian colleagues stumbling over some words and struggling to keep up.

Later, Zhang explained that he couldn’t be as tough on the staff as he would have liked.

“Here the management cannot be too strong as there will be a problem with the culture,” he said via a translator.

“In China you can be strong, but not here. The conditions here mean we have to show respect. On one hand we have to have strict requirements; on the other hand we have to take care of them. They have their own dignity. They may be poor but we have to respect their dignity.”

About 200 of the workers rebelled early last year, going on strike for two days after demanding a share of profits following a period in which Huajian’s orders surged, said Hai.

The incident was resolved with the help of Ethiopian labour officials, she said.

Five workers interviewed at the factory earlier this month described a workplace of strict standards, with rewards for good results and penalties such as docked pay for ruined shoes.

Taddelech Teshome, 24, said her day started at 7.20am after her Chinese employers provided employees with a breakfast of bread and tea.

When her morning shift during which she ferried shoes from the factory floor to the warehouse was over, she got fed the national staple, sour bread, for lunch.

After work, a Huajian bus took her to nearby Debre Zeit, a town where she rented a room with her sister for $18 a month.

She came to Huajian just over a year ago from her home 165km away in Arsi region after her sister started at the factory.

“The work is good because I pay my rent and I can look after myself,” she said, wearing an aqua Huajian polo shirt.

“It’s transformed my life.”

Taddelech said she wanted to work for two more years at the plant and become a supervisor.

She aspires to build her own house.

With inflation at 8 percent – down from 40 percent in July 2011 – saving cash is tough.

Mohammed al-Jaber, who earns $30 a month for gluing shoe linings eight hours a day, six days a week, said he could add to his pay with perfect attendance each month – a $7.50 bonus – and overtime.

Any extra gets sent home to his family in the Arsi region.

Once famine-plagued Ethiopia, run by former rebels since they overthrew a socialist military junta in 1991, is seeking investment to support a growth rate that is expected to fall to 7.5 percent this year from 9.7 percent last year.

The population is expanding annually by 2.9 percent, at a time when the urban unemployment rate is 17.5 percent.

Ethiopia aims “to transform the economy” via industrialisation by attracting foreign investors to zones where key public services will be concentrated, state minister of finance Ahmed Shide said in an interview in Addis Ababa.

One appeal for China: Ethiopia follows a similar tightly controlled, state-heavy economic model.

Opposition parties won only one out of 547 parliamentary seats at the last election in 2010.

Ties are strong between the Communist Party of China and the Ethiopian Peoples’ Revolutionary Democratic Front: On July 10, Central Committee political bureau member Guo Jinlong visited Ethiopia and met with Prime Minister Hailemariam.

The two pledged to enhance co-operation, the official Xinhua news agency said.

Ethiopia’s heavy public investment in infrastructure using credit from Chinese state banks promises to relieve some key bottlenecks.

The Export-Import Bank of China is funding a railway from Addis Ababa to landlocked Ethiopia’s main port in neighbouring Djibouti.

Ethiopia lost its coastline when Eritrea became independent in 1993.

The Chinese and Ethiopian governments also are investing in hydroelectric plants – including what will be Africa’s largest, the domestically funded Grand Ethiopian Renaissance Dam on the Blue Nile – that should increase Ethiopia’s power supply five-fold by 2020.

That may help overcome obstacles including the supply of electricity and cumbersome customs and tax procedures.

In May, a World Bank team went to visit a textile factory in the Eastern Industrial Zone, where the Huajian plant is located, and found they are faced with daily power outages lasting for hours, Ethiopia country director Guang Zhe Chen said.

“There’s a big issue if you can’t ensure sustainable power supply for industrial zones,” he said.

While countries like Ethiopia have the potential to host Asian manufacturers, a “surge” has not occurred, in part because of trade logistics constraints.

“Getting things in and out of Ethiopia is very expensive and time consuming.”

Ethiopia slipped one place to 125th in the World Bank’s 2014 Doing Business rankings for 189 economies.

It was behind China, at 96th, and ahead of competitor Bangladesh, which ranked 130th, the Washington-based lender said on its website.

It’s easy to forget that China’s infrastructure also was rudimentary at a similar stage of development, said Lin.

He recalls that the first time he made the 154km trip between Shenzhen and Guangzhou in southern China in the early 1980s it took more than 12 hours, including long waits for ferries to cross rivers.

The same trip now takes two hours.

“There were no bridges,” Lin said in an interview. “Nor were workers accustomed to modern production techniques. ”

Rising Chinese wages that Zhang calls “an inevitable trend” are pushing Huajian to try to increase its workforce in Ethiopia to as many as 50 000 within eight years.

A model of a planned new plant at the edge of Addis Ababa is displayed at the factory.

The 126-hectare complex, partly financed by more than $300m from Huajian, will include apartments for workers, a “forest resort” district and a technical university. – Bloomberg



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