Raising The Red Lantern Part 3: Rising from the Ashes. Ethiopia

With a population of more than 100 million, Ethiopia is Africa’s second-most populous country, but its GDP per capita has historically been among Africa’s lowest. To accelerate broad-based growth and transform a mostly agrarian economy, the government has followed a deliberate policy of industrialization since 2010. This strategy has been underpinned by close cooperation with China and has drawn lessons from China’s own success at driving manufacturing-led growth. As a result, Ethiopia has increased its manufacturing value added by an average of more than 10 percent a year since 2004 and become one of Africa’s fastest-growing economies. For example, the value of its footwear exports increased at an average annual rate of 38 percent from 2004 to 2014, and the value of apparel exports increased at an average of 22 percent a year over that period.

Ethiopia has drawn on Chinese investment and expertise in several major aspects of its industrialization and broader economic development. It has engaged the Chinese government to finance key infrastructure, helping to add 66,000 kilometers of new roads since 2000 and increase power supply by 15 percent between 2010 and 2014.36 Chinese firms built, and now comanage, the 750-kilometer Ethiopia-Djibouti Railway, a $3.4 billion project opened in late 2016. And Ethiopia’s government has taken steps to improve its business environment and actively attract Chinese and other international investment. For example, it has waived customs duties for the import of capital goods, and it set up a one-stop shop to handle commercial registration and business licenses. It has also appointed Chinesespeaking liaison officers to facilitate investments from China, and the official Ethiopian Investment Commission regularly arranges trips to China—not just to the megacities of Beijing and Shanghai but also to provinces, such as Guangdong and Shandong, that are teeming with Chinese entrepreneurs. In May 2017, Ethiopian Prime Minister Hailemariam Desalegn visited seven Chinese provinces during an investment-promotion trip.

The Ethiopian government has tried to attract specific types of investment, including labor intensive manufacturers such as shoe factories, as well as technology-heavy firms such as pharmaceutical manufacturers for its upcoming pharmaceutical manufacturing hub.37 Perhaps most striking about Ethiopia’s relationship with China is that it does not allow Chinese firms to set up trading business and most services businesses. (Ethiopia does not allow any foreign firms into the trading business.) As a result, 62 percent of the nearly 700 Chinese firms in Ethiopia are manufacturers—double the percentage of manufacturing firms in our eight countries as a whole. One can debate whether this result is desirable for all African countries, but nevertheless Ethiopia is a dramatic example of how a determined national government with a clear strategy in directing Chinese investment and a willingness to enforce regulations can achieve striking results.