Ethiopia as Japan’s Partner inTrade and Manufacturing
A Perspective from Ethiopia-Japan Policy Dialogue

Kenichi Ohno
National Graduate Institute for Policy
Studies (GRIPS)
June 2013

Topics
 Ethiopia-Japan industrial policy dialogue Negative aspects
 Positive aspects
 Manufacturing FDI: current status and potential
 Uniqueness of Japanese FDI
 Proposal to Japanese businesses

For details of policy dialogue see:- http://www.grips.ac.jp/forum/af-growth/support_ethiopia/support_ethiopia.htm- JICA&GRIPS, Intellectual Partnership for African Development: Japan-Ethiopia
Industrial Policy Dialogue, Dec.2011, in Japanese.

Ethiopia-Japan Policy Dialogue
After IPD-JICA Africa Taskforce Meeting in AA (July 2008), PM
Meles requested Japan’s two-part cooperation (kaizen & policydialogue). Phase 1:2009-2011, Phase 2: 2012-ongoing.

Kaizen (JICA)


Kaizen introduced to 30 pilot firms (phase 1); for scaling
up, support given for institution-building & training of EKI

Industrial Policy Dialogue（GRIPS & JICA）
PM-ministers-operational level; 14 sessions conducted.
 Selection of issues with high relevance to Ethiopian gov’t;
study & report experiences of East Asian countries;
pragmatic policy discussions based on Ethiopian reality.
 To make policies happen, JICA & JETRO offer concrete
industrial support as necessary.
（IPD: Initiative for Policy Dialogue, a policy-oriented research project organized by Prof.
J. Stiglitz of Columbia University.

GRIPS-JICA Industrial Policy Dialogue withEthiopia
Industrial policy dialogue
Preparation

IPD conference
July 2008

Phase 1

Official launch
June 2009

Phase 2

Final session
May 2011
PM MelesJICA’sindustrial
supportprojectsLaunch
Jan. 2012

Next: Jul./Aug. 2013
PM Hailemariam

Kaizen phase 1(30 pilot firms)

Kaizen phase 2(creating institution & experts)
Basic metal &engineering study

Export promotion(champion products)(With Germany)
Note: Black squares indicate policy dialogue sessions in Addis Ababa with the prime minister, concerned ministers and state ministers, andofficials and experts at operational levels.

At the Prime Minister’s Office
Meeting with Senior Economic Advisor to PM

Presenting JICA’s Kaizen Report to PM

High Level Forum (minister & state minister level)

Meeting with Industry Minister

At the Ministry of Finance,
Economy and Development

Issues Discussed at High LevelForums
Phase 1East Asia’s industrial policies (method, organization,documentation; country studies) Kaizen and its transferability to Ethiopia; international
comparison of kaizen national movements
 Assessment & advice on PASDEP & GTP
 Basic metal & engineering survey, etc.
Phase 2
Integrated export promotion; champion products
 Strategic FDI marketing (inviting Malaysian & Thai officials)
 FDI-linked technology transfer (planned)
 Method & organization for drafting the next five-year plan(planned), etc.
Our Impression & Evaluation
We visited a number of African countries for policy dialogue
partner. We finally chose Ethiopia because of its mindset &readiness (also, request by PM).
 We were truly impressed by the positive and pragmatic
attitude of PM & Ministers toward industrialization. Ethiopia
is far better than Vietnam in this regard.
 If this mindset is combined with policy design andimplementation capability, Ethiopia can achieve sustained
growth. Japan wants to help Ethiopia in this difficult task.
 Japan is a small donor in Ethiopia, but our policy dialogue isfar deeper than those offered by WB, Western & emerging
donors. Sincerity, candidness & mutual respect on bothsides are key.
Negative Aspects
As one of the poorest countries, the Ethiopian private
sector is undeveloped—weak firms, subsistence farming,lack of infrastructure, etc.
 Landlockedness Limited natural resources (future possibility?) Business environment is far from satisfactory Policy capability is low; top leaders are generally good but
more and better middle-level officials are needed Industrial policy is still primitive (but policy learning iscontinuing; better than other African countries)Positive Aspects
1. Political stability and high diplomatic standing
Offering stability in a region fraught with instabilities Leadership in G20, COP meetings, AU, etc.
 Smooth transition of power in 2012
 Constant policies—democratic developmental state, ADLI, GTP
are firmly held

2. Seriousness in learning industrialization
People are serious & patient; few crimes
 Strong determination of top leaders toward agriculturaldevelopment and industrialization
 Learning from East Asia (Japan, Korea, Taiwan, Malaysia…)
 Economic Business Diplomacy (very actively conducted byleaders, MoFA, other ministries, foreign missions…)
 Strong support to priority sectors (firm visits, problem-solving,incentives, sectoral institutes, targeted ODA & FDI, etc.)(Cont.)3. Proper understanding and expectation of Japanesebusinesses and cooperation
 Expecting quality, not quantity, in trade, FDI and ODA
with Japan (transfer of knowledge, technology,institutions, mindset, etc.)
 Effort in scaling up kaizen (supported by JICA)
 Creation of champion products for Japanese market;
attraction of Japanese FDI (supported by Japan)
 Willingness to hear Japanese advice in policy dialogue(policy mechanism, export & FDI strategies, MSEs,
sectoral strategies, etc.)

Manufacturing FDI:
Current Status and Potential






Ethiopia’s performance in attracting manufacturing FDI (not bigprojects, extraction, energy or aluminum smelting) is relatively goodby African standard. Many labor-intensive light industry projects
have come from Turkey, China, India…, some of which are quite
large (unfortunately, none from Japan so far).
 In terms of scale, Ayka, a Turkish maker of knitted apparel islargest. Products are sold to European & US markets through aGerman buyer.
 In terms of number, Chinese dominate (372 registered, 86 inoperation as of mid 2012, many engage in manufacturing).
Top leaders approach targeted foreign firms with some success.
Ethiopia expects much from key FDI firms, and in turn takes care ofthem well with support and problem-solving.
Access problem?—2-day trucking from Djibouti to AA; for mid-range
apparel, this adds about 2% to product value ($3,000/14ftcontainer). MOI will solve customs/transport problems if any.
Mozambique, Tanzania and Ghana receive relatively less FDI in
manufacturing despite the fact that they have political stability,
coastal access and higher income.

Ayka (Turkishfirm producing
knitted goods,
verticallyintegrated,
employing
5,000 workers

FDI
activities

Eastern Industrial Zone by China

Local Firms(JICA-supported kaizen
introduced)

Tire factory

PVC pipe factory

Tannery

Local Firms
Nutrition
food &edible oilfactory

Leather shoe
factory

Rose cultivation

TVET (Germany-assisted)

Leatherproductworkshop

WB “Light Manufacturing inAfrica” (2012)



Comparison of Africa (Ethiopia, Tanzania & Zambia) and Asia (China& Vietnam) with special attention on Ethiopia.
Analysis of potential & problems of Ethiopia’s five light industries(apparel, leather products, wood products, metal products, agrobusiness).
Ethiopian wage is ¼ of China and ½ of Vietnam. Labor productivity
is ½ of China and same as Vietnam. Policy can expand this sector.

Light
manuf.
wage($/mo.)
2011

Light
manuf.
labor
productivity
Polo shirts/worker/day2011

WB Survey “Chinese FDI inEthiopia” (Dec.2012)
As of mid 2012, 372 Chinese FDI projects were registered,of which 86 were in operation. Many were engaged inmanufacturing. 69 firms responded to questionnaire.
 Sector distribution: food, apparel, IT, machinery, non-metalminerals, other (many).
 China’s total investment $450 million; 15,910 full-time
employment; average wage $85/month.
 Motives for investing in Ethiopia—Chinese business network(friends), Ethiopian market, low wage, incentives, andincentives by Chinese government.
 Main impediments—problems in customs clearance &business transaction, foreign currency & exchange rate,irregularities & non-transparency in tax administration,
finance, lack of skilled workers, etc.


Uniqueness of Japanese FDI
The Japanese model is unique among global players whopursue short-term profits and flexible partner change Manufacturing—far more than property, trade or mining
 Monozukuri (manufacturing) spirit—proud of factory floor;
endless pursuit of quality & customer satisfaction
 Long-term orientation—last in coming to frontier countries
but once invested, will stay long against difficulties.
 Partner assistance—providing training to local firms andengineers
 Legal compliance—observance of local labor, tax,
environment laws
 Japanese firms are slow but sincere; developing countries
will eventually realize their virtue. They may not know atfirst, but after a number of years of receiving FDI, firms that
contribute to national development, and those that don’t, will
become clear (cf. Vietnam; but not yet in Africa).
Proposal to JapaneseBusinesses (Quality over Quantity)
Ethiopia’s initial conditions are unfavorable, but people areserious and government wants to learn industrialization.
Even without big projects, industries can grow steadily.
 Let us show the goodness of Japanese firms, whether you are
manufacturing or importing.
 Please do FDI or trade that leads to long-term benefits forboth sides; not just for short-term gains or resources.
 Combine Japan’s technology with improvement of local
capability to produce high-quality products unique toEthiopia.
 Ethiopia may not become a large export base for Japaneseindustrial products like East Asia. But the following projects
are feasible. If quality is produced, scale does not matter.
 Add value to exports by marketing, quality guarantee,
packaging, logistics, etc. (coffee, sesame…)
 Produce champion products by creating Ethiopian brand FDI in manufacturing that uses Ethiopian high-quality
materials (leather products, gems & jewelry…)
(Cont.)Linkage with kaizen—ask EKI/JICA to send a kaizen team toyour company or partner factory for improvement. Proposea change to kaizen curriculum to fit your needs.
 Public-private partnership—if there is anything thatgovernments can do (regulation, tax, foreign currency,HRD, policies, etc.), please approach our Embassy, JICA,
JETRO or GRIPS regardless of your sector or size. We will
do our best to solve the problem with the Ethiopiangovernment.
