Ethiopia
Information Kit
For Japanese Businesses

GRIPS Development Forum
December 2015

An Invitation to Ethiopia
This booklet has been prepared to offer useful information to Japanese businesses
seriously interested in doing business in Africa. In many developing countries, information
presented to potential foreign investors is too beautiful and superficial with a long wish list,
despite the fact that foreign investors really want honest, detailed and pragmatic information.
The GRIPS Development Forum team has visited a large number of countries in Asia andAfrica to compare the quality of industrial policy, and found that only a handful of countries
offer truly useful information to investors.
This booklet is one of the products of industrial policy dialogue which we are conductingwith the Ethiopian Government. It aims to improve the quality of Ethiopia’s information for theJapanese business community. The type of information needed is of course different from
one industry to another, and even from one firm to another. We recognize the limit ofusefulness of general information that can be conveyed in a printed form like this. We hope
to collect and update more individualized information in the future.
Ethiopia is not a typical “African country.” True, it faces many problems just like any otherlow income country, and its business climate is far from perfect. Nor is it endowed with richmineral resources like some other nations in Africa. However, Ethiopia is rapidly emerging
as a country of great advantages that can offset these weaknesses. Especially inlabor-intensive manufacturing, the country is beginning to attract a large amount ofinvestment from Turkey, India, China, Taiwan, Korea and other emerging economies, aswell as from US and UK. They often take the form of OEM production of high-end appareland footwear, which is creating a new export base. Decades ago, there was a wave ofindustrialization in East Asia that originated in Japan and spread to Newly Industrializing
Economies (Singapore, Hong Kong, Taiwan, Korea), the Association of Southeast Asian
Nations (Malaysia, Thailand, Indonesia, Philippines, Vietnam, etc.), and China. This wave
may have finally arrived in Africa.
Furthermore, Ethiopia’s special products such as high-quality leather, flowers, coffee,
sesame, gemstones, etc. also offer great business opportunities. We believe Ethiopia is acountry that is well worth investing for Japanese companies even with risks anduncertainties. This belief is based on Ethiopia’s labor quality and low wage, serious attitudeof the government, willingness to learn from Japan, good climate and personal security, andpolitical stability. We hope to introduce these aspects as vividly as possible in this booklet.
Situations and policies are changing fast in Ethiopia. Moreover, we cannot deny thepossibility of ambiguous interpretation and implementation of laws and regulations. We aremaking inquiries to policy makers to eliminate uncertainties as much as possible. We highly
recommend that you check the latest information before making a decision to invest in
Ethiopia.
This booklet was compiled and published by the GRIPS Development Forum which issolely responsible for the content. It does not represent the official views of the Ethiopian or
the Japanese Government.
December 2015
GRIPS Development ForumTable of Contents
Ch.1 What is Ethiopia?
1. Basic information ………………………………………………………………………………

2

2. The economy in the past and at present ………………………………………………

5

3. Weaknesses of a developing country …………………………………………………

8

4. A passion for industrialization ……………………………………………………………

10

Ch.2 Learning from Japan
1. Lessons from East Asia ……………………………………………………………………

18

2. Industrial policy dialogue ……………………………………………………………………

19

3. Kaizen ……………………………………………………………………………………………

23

4. Champion products …………………………………………………………………………

26

5. Keenly awaiting Japanese companies …………………………………………………

28

Ch.3 Manufacturing FDI from Emerging Economies
1. FDI inflow ………………………………………………………………………………………

34

2. Turkey ……………………………………………………………………………………………

36

3. India ………………………………………………………………………………………………

38

4. China ……………………………………………………………………………………………

39

5. Korea, Taiwan and others …………………………………………………………………

39

Ch.4 Investment Climate
1. Investment policy ………………………………………………………………………………

44

2. Wage and productivity ………………………………………………………………………

56

3. Industrial parks …………………………………………………………………………………

59

Appendix: Key Persons & Contacts

Source: Ethiopian Investment Commission, Invest in Ethiopia 2014.

Ethiopia in 2015

Strawberries

Addis-Adama Expressway

French wine Made in Ethiopia

Addis Light Rail starts service

Constructing Hawassa Industrial Zone
Addis-Djibouti New Railway
under construction

Aerial view of Bole Lemi 1
Industrial Zone

Chapter1

What is Ethiopia?

Chapter 1 What is Ethiopia?

１

Basic information

Impression of the country
In April 2015, Ethiopian Airlines started to fly direct from Tokyo to Addis Ababa in about 16 hours
even with one-hour refueling in Hong Kong (B787, three services per week). Ethiopia can also bereached by Emirates flights with a stopover in Dubai. Addis Ababa, the capital city, enjoys a pleasantclimate with temperature of 15-25C despite its low latitude (9 degrees north) because it is situated on
Abyssinian Highlands about 2,400 meters above the sea level. We need a jacket in the morning andevening. The rainy season may even be chilly (the major rainy season is February-May; the minor
rainy season is June-September). The dry season (October-January) is generally nice, but may be
too dry for skin-sensitive people. High altitude gives Addis Ababa an advantage of no tropical diseases
such as malaria, but some suffer from mountain sickness due to thin air. One worry for Addis residents
is the worsening air quality due to increasing automotive emssion, for which no systematic datacollection or policy action has been started.
Our first visit to Addis Ababa was in the summer of 2008. The Ethiopian Government was alreadyserious about industrial policy, but industry was still embryonic and Addis streets revealed the lowincome status of the country. Bole Road was not very impressive, the selection of souvenirs waslimited, and few modern high-rise buildings were visible. Beggers were at intersections. Japanese
Official name

The Federal Democratic Republic of Ethiopia

Politics

Federalism with multiple parties

Head of State

President Mulatu Teshome Wirtu

Prime Minister

Prime Minister Hailemariam Desalegn

Capital city

Addis Ababa (the African Union and the UN Economic Commission for Africa areheadquartered in Addis Ababa)

Regions

Nine regional states and two chartered cities (Addis Ababa & Dire Dawa)

IndependenceArea

No history of colonization except brief Italian occupation (1936-1941)
1.14 million km2 (3 times the size of Japan)

Population

84.8 million (2012/13 census); other sources report 90 million or more

Religion

Ethiopian Orthodox Church and Islam. There are also traditional religions.

Language
Ethiopiancalendar

Amharic is the administrative language. Oromo and Tigrinya are also widely spoken.
Total of 83 languages and over 200 dialects. English is used for education andbusiness.
A year, starting on September 11, is divided into 12 months each consisting of 30 days
and the thirteen month consisting of 5-6 days. It is about 7.5 years behind theGregorian calendar. A fiscal year begins on July 8.

Source: Ethiopian Investment Commission, Invest in Ethiopia 2014, with addition and edition by the author.

2Chapter 1 What is Ethiopia?

ODA targeted human security concerns such as food aid and digging wells. Addis Ababa was hometo the African Union and the United Nations Economic Commissions for Africa, but their buildings also
looked outdated (By now the AU Headquarters was rebuilt into a modern complex thanks to Chinese).
Addis Ababa reminded us of Vietnam in the mid 1990s. In those days, Hanoi was without traffic lights,
with no skyscrapers, and car and motorbike traffic was limited. Buildings were historical and aged,
western style shops and restaurants were few and far between (and not very attractive). Moreover,
only foreigners were sighted at such shops and restaurants.
Today, Addis Ababa is in the midst of construction craze by both private and public hands. Athoughfeatures of a low-income country still abound, many new things have emerged since seven years ago.
The city has many new shops, office buildings, hotels, apartments, public housing, roads and factories.
Underpasses have been created on Bole Road to ease traffic. Urban Light Rail started running (NorthSouth & East-West) and a railroad to Djibouti is in progress (both thanks to China). Addis still has lessskyscrapers than Hanoi or Hochiminh City, but construction cranes are everywhere in the city.
Due to its past problems, the country image of Ethiopia has been quite negative. For most
uninformed foreigners, Ethiopia is associated with a military regime (1974-91), refugees, poverty,
droughts, hunger, a separation war with Eritoria (1998-2000), and instability in neighboring countries.
The Ethiopian Government is well aware of this, but effort to reverse the image significantly is only
beginning.
Today there is no war or starvation in Ethiopia. Political stability has been maintained since 1991.
The country boasts little corruption and good personal security by the standard of developing
countries. During the last decade an average double-digit economic growth has been maintained,
which is highest in Africa. According to the late Prime Minister Meles, Ethiopia’s policy concern turned
from mere survival to industrialization around 2002-03 when difficult problems had been largely
overcome. The current state effort is directed to the vitalization of agriculture and manufacturing. The
policy menu includes introduction of new farming technology, strengthening private enterprises,
national kaizen movement, export promotion, industrial zones, attraction of manufacturing FDI andtechnology transfer—which is little different from what East Asian developing and emerging
economies are doing. Japanese cooperation has also shifted to industrial policy dialogue, kaizen,
champion products, and advice on GTP1 and GTP2.
Our team has visited the so-called Donors’ Darling countries in Africa to compare industrial policy
capabilities. Our impression is that there are only about three governments in Africa that may becapable of implementing effective development policies: Mautitius, Rwanda and Ethiopia.

Land and people
Ethiopia is the second most populous country in Africa after Nigeria. Although the demographic
statistics is somewhat uncertain, the current population of 90 million will soon reach 100 million. This

3

Chapter 1 What is Ethiopia?

population size is almost equal to that of Vietnam. Due to low income Ethiopia is not yet a huge
consumption market, but will be one in the future if industrialization proceeds smoothly. If investors
are targeting low-income consumption goods or construction materials, it is already a big market.
The central part of Ethiopia is a highland of 2,000 to 3,000 meters in elevation, which offers a coolclimate despite its proximity to the equator. In fact, the bulk of population is scattered in the highlands
rather than the hot lowlands. However, Ethiopian highlands mostly consist of mountains, valleys andhills which makes it extremely difficult to supply infrastructure services such as power, water and roadaccess to smallholder farmers spread widely over the terrain. Decentralized production of suchservices in each locality, rather than centralized supply, may be suitable. Ethiopia also contains dry
lands inhabited by nomads, green-covered southern region (a place where coffee originated), and theGreat Rift Valley with volcanic activities.
Looking back, Ethiopia boasted one of the high civilizations in ancient era which produced mythsof the Queen of Sheba as well as Cassiopeia, Cepheus and Andromeda. Kingdoms and empires
continued for about 3,000 years. Ethiopia was never colonized by foreign forces except for a brief
period of Italian occupation from 1936 to 1941. This is a unique feature of Ethiopia unlike most other
African countries. This long history generated a unique culture including the Amharic language, theEthiopian calendar and the Ethiopian Orthodox Church. Ethiopians are not like other African people;
they are often slim and thin-faced, serious and diligent, highly disciplined and relatively quiet.
Ethiopians are also a proud people. The Battle of Adwa, in which the Ethiopian Imperial Army defeatedthe Italians in 1896, remains a national pride to this date. The Ethiopian Government does not easily
follow the instructions of foreign donors or international organizations unless it is truly convinced.
Some governments outsource policy documents to foreign consultants, but Ethiopians never do that.
They write up policies by themselves even if their policy capability is less than perfect. Foreigners are
only allowed to offer policy analyses and proposals that may go into the policy document.
Ethiopian dishes are also unique. The staple food is injera (sour crepe?) made from teff flour. Injera
is placed over a plate, spicy thick stews of chicken, beans and other ingredients are placed on it, anda hand is used to pick them up with another injera. Ethiopian dances are also special; sharp anddynamic movement of the entire body reminds us of Ainu dances in Hokkaido. Popular music does
not sound like Western music; in fact the melody and rhythm are more like Japanese enka. Actually,
we even sometimes hear Japanese CDs played in Ethiopian shops and restaurants.
Ethiopia is home to as many as nine world heritage sites, which puts the country at the top of Africa
along with Morocco. Despite this, Ethiopia is not as popular among tourists as the pyramids in Egypt
or safaris in Tanzania and Kenya. Tourism potential is great but infrastructure for comfort travel is still
underdeveloped. Our team had an opportunity to rent a four-wheel drive to visit the Blue Nile Falls,
Gondar Castle, and rock-cut churches in Lalibela. It was a great experience we will never forget, but
hotels we stayed, even the best ones in town, were often without power or hot water and therestaurant menu was very short. Travelers staying at roadside motels may not even have a functioning

4Chapter 1 What is Ethiopia?

toilet. At present, we do not necessarily recommend remote areas of Ethiopia to honeymooners or
Japanese seniors who require full amenities. But if you are an adventurous traveler, Ethiopia can offera very exciting journey.
Let us turn to Ethiopian politics. The Mengistu regime (Derg) that brought war, starvation andsuppression to the Ethiopian people was removed by the military attack by the Ethiopian People’s
Revolutionary Democratic Front (EPRDF, which is the current ruling party) in 1991. After a period of
an interim government, the Federal Democratic Republic of Ethiopia (the current regime) wasestablished. From 1991 to 2012, Meles Zenawi, originally an anti-government fighter, led the country.
We were fortunate enough to have a series of policy dialogue with Prime Minister Meles during hislast years. We were greatly impressed by his strong beliefs, intelligence and action orientation—he
was truly a remarkable national leader. At the same time, his powerful ways were often criticized as
developmental dictatorship by Western donors and NGOs. In the summer of 2012, Mr. Meles passed
away and was succeeded by Deputy Prime Minister Hailemariam Desalegn. Through our continued
policy dialogue with Mr. Hailemariam, we realize that his leadership is as pragmatic and actionoriented as that of Mr. Meles. Western critics seem to be more comfortable with Mr. Hailemariam who
has no history of internal fight against political enemies.
The national election of Ethiopia takes place every five years. The election in 2005 wasaccompanied by violence, but the ones in 2010 and 2015 were peaceful and both resulted in alandslide victory for EPRDF.

２

The economy in the past and at present

A typical latecomer
Main economic indicators are shown in Table 1. Ethiopia recorded a very high average growth of
10.5% during 2006-2014. Despite this achievement, income per capita remains only $565 as of 2014
(World Bank data) which places the country in the low income category by the World Bank
classification. The reason for such a rapid growth, without any sign of significant industrialization or
rising competitiveness, is a puzzle. We presume that it was a combination of (i) a low starting point;(ii) political stability; (iii) a large inflow of aid; and (iv) lavish subsidies, public works and a construction
boom generated by the aid inflow, that was behind the past growth of Ethiopia. Rapid growth with little
improvement in industrial competitiveness is often observed in a fragile or war-torn economy after
peace is restored. Ethiopia shows many weaknesses typical of a low-income developing country. The
road to economic development remains long and winding.
Inflation which was high during the last decade came down to a single digit level in 2013-2014, but
returned to over 10% in mid-2015. Rampant inflation caused the worsening of the balance of5Chapter 1 What is Ethiopia?

payments, shortage of foreign exchange, a widening income gap, and hoarding of certain products.
These problems are not entirely solved even with less rapid inflation in recent years. Looking at thecomposition of GDP, the share of agriculture has gradually declined and that of service has risen.
Industry (which is the sum of manufacturing, mining and construction) has not grown appreciably andits share in GDP remained stagnant at 12-13%. Manufacturing has long remained about 4-5% of GDP.
In the balance of payments, import greatly exceeds export every year and the difference is financedby the inflows of FDI, private remittances and ODA. This is a standard pattern of a low-income
developing country. Rural population remains over 80% of total, and large internal migration into urban
areas so far has not occurred. On the other hand, the poverty ratio has fallen significantly perhaps
thanks to the rapid economic growth.
These numbers suggest that Ethiopia is a typical latecomer country at present. However, we may
add the following remark. Some countries in Sub-Saharan Africa are already in the “middle income”
group but this is mainly due to their endowment of oil, gas, copper, diamond and other natural
resources. Few of them earned a respectable income through competitive manufacturing or strong
export of commercial crops (with the exception of a small island nation of Mauritius). In those “middle
income” countries, there are a handful of very rich and privileged people while most farmers are livinga meager life similar to their brothers and sisters in poorest countries. Meanwhile, in Ethiopia where
natural resource export is small, income correctly reflects the competitiveness of its economy. This
spares the country an unnecessary fight over resource revenue or policy diversion. Ethiopian national
Tab.1

Basic Data

2006

2007

2008

2009

2010

2011

2012

2013

2014

GDP (current US$ million)

15,281

19,70827,06732,43729,934

31,95343,311

47,52554,798GDP growth (annual %)

10.8

11.5

10.8

8.8

12.6

11.2

8.6

10.5

9.9

GDP per capita (current US$)

194

244

326

380

342

356

470

503

565

Inflation, consumer prices (annual %)

12.3

17.2

44.4

8.5

8.1

33.2

22.8

8.1

7.4

Agriculture

45.9

45.5

48.4

48.6

44.7

44.7

48.0

45.0

42.3

Industry

12.5

12.5

10.9

10.3

10.2

10.5

10.3

11.9

15.4

Service

41.6

42.1

40.6

41.1

45.1

44.9

41.8

43.0

42.2

Exports of goods and services

2,105

2,489

3,085

3,405

4,071

5,332

5,963

5,934

6,416

Imports of goods and services

5,548

6,270

8,350

9,224

9,735

10,08013,69913,812

16,151

Foreign direct investment (net)

545

222

109

221

288

627

279

953

…

2,045

2,573

3,347

3,840

3,544

3,558

3,278

3,845

…

Population (million)

78.7

80.9

83.1

85.3

87.6

89.9

92.2

94.6

97.0

Population growth (annual %)

2.7

2.6

2.5

2.5

2.5

2.5

2.4

2.4

2.2

Average exchange rate (birr/USD)

8.7

8.8

9.2

10.4

12.9

16.1

17.3

18.2

19.1

GDP composition (%)

External transactions (US$ million)

ODA received (net)

Source: World Bank, World Development Indicators database (accessed on Nov. 12, 2015).

6

Chapter 1 What is Ethiopia?

leaders clearly state that growth based on mineral resources or aid is hardly sustainable and that
manufacturing is the only way to go. Ability to recognize the nation’s true economic position seems
to drive the Ethiopians to the path of industrialization however hard and long it may turn out to be.

Preparation for Industrialization
Two decades ago when the current political regime was established, the Ethiopian economy wason the verge of collapse. Recovery was started by replacing economic planning with a market
mechanism and receiving aid from donors and international organizations. In the political arena, themultiple party election system and federalism which permits autonomy to regional states wereintroduced. The period from 1991 to 1995 (promulgation of the new constitution) was spent for nationbuilding effort. Also, the strategy of Agricultural Development Led Industrialization (ADLI) wasannounced during that time in which interaction between agriculture and industry was highlighted,
agriculture was supposed to prepare the conditions for full-fledged industrialization, and laborintensive and export-oriented sectors were promoted.
However, the separation war with Eritrea and internal problems associated with this war made it
impossible for Ethiopia to launch an effective economic policy for the moment. Only after a peaceagreement was concluded with Eritrea in 2000, and more specifically from around 2002-2003,
Ethiopia could finally concentrate on economic development effort. A series of policy initiatives wereannounced including Agricultural and Rural Development Policy and Industrial Development Strategy.
The three-year plan (from 2002) and the five-year plan (from 2005) were launched. The previous(2010/11-2014/15) and current (2015/16-2019/20) five-year plans are entitled the Growth andTransformation Plan (GTP). Transformation here practically means industrialization. The objective of
GTP I and II is to reach a stage where agriculture develops sufficiently, conditions for industrialization
are prepared, and the main engine of growth shifts from agriculture to industry. GTP I had very highoutput and export targets for various industrial sub-sectors.
However, reality is not progressing as the Ethiopian Government hoped. Objectively speaking,industry has not yet attained the capacity to become a main engine of growth. Recent high growth
was supported primarily by services and secondly by agriculture while manufacturing’s share remains
stagnant at around 4-5% of GDP despite the government effort.
ADLI paints a picture where domestic agriculture and industry stimulate each other and growtogether, but the reality of Ethiopia is different from this. What emerged in the recent past was thestart of a large inflow of labor-intensive manufacturing FDI into the country. Many of such FDI projects
import all or most inputs for production although some use domestic leather or cotton. Even whendomestic materials are used, FDI firms normally specify producers (or even produce materials bythemselves) while enforcing strict quality control and production instructions prior to procurement. In
other words, industrial growth is driven by FDI’s initiative rather than by the success of past agricultural

7

Chapter 1 What is Ethiopia?

policy. Thus, Ethiopia is beginning to follow the path of FDI-led industrialization similar to Southeast
Asia. The success of this policy will not depend critically on prior domestic agricultural development.
It is strict demand by FDI firms for high quality and reliable delivery to domestic producers (supporting
industries in a broad sense) that motivates improvements in domestic agriculture and services.

３

Weaknesses of a developing country

Of course, not everything is rosy in Ethiopia. Just as in all other low-income countries, the country
is besieged with a large number of difficulties. From the perspective of foreign investors, the largest
problems come from the weaknesses of the private sector as well as government administration.

Weak private sector and policy support
The lack of private sector dynamism is a common problem in developing countries. We may evensay that a country remains underdeveloped because its private sector is weak. Problems include thelack of professionalism, low quality, low technology, short-termism, passivity and violation of contracts
and delivery dates, all of which are visible in Ethiopia. We are especially annoyed by construction
without ensuring the level and perpendicularity of the structure. Gaps on the floor, inclined pillars, andannouncements not posted straight are common in Ethiopia (unlike in Vietnam). Leather jackets,
shoes and purses we see in the shops do not quite reach the quality standard demanded in theJapanese market. There are of course exceptions—excellent products or skilled craftsmen—but, in
terms of absolute numbers, they are few and far between. The Ethiopian Government is aiming at
upgrading mindsets of the citizens by introducing a national kaizen movement.
Weak public administration is another common problem in developing countries. Top leaders,ministers and state ministers may be brilliant and hardworking. But the rest of the bureaucraticmachinery is less outstanding. When we discuss economic policies and issues in such economies as
Taiwan, Korea, Singapore, Malaysia or Thailand, there is no need to meet top leaders; heads or
deputy heads of directorates, or even lower officials, will suffice. But in most African countries,
including Ethiopia, things do not get done unless one has access to state ministers or higher. This
makes high-level officials extremely busy. Good policies launched by the government remain
unimplemented or implemented ineffectively due to the lack of operational capacity on the ground.
Low skills, formalism and avoiding responsibility are usual problems. In Ethiopia, taxes and customs
procedure are particularly cumbersome.
The Fifth Tokyo International Conference on African Development (TICAD V) was held in Yokohama
in May/June 2013. Ethiopian champion products were to be displayed at the African Fair organizedat the same time. However, a JICA local staff in charge of shipping champion products to Yokohama

8Chapter 1 What is Ethiopia?

was besieged by a long and complex procedure, absence of inter-ministerial coordination, rules
contrary to export promotion, and a low capacity of administrative officers. Exhausted and in
desperation, he drafted a report to JICA and GRIPS on how difficult it was to ship a product from
Ethiopia. Another report assessing Ethiopia’s export promotion policy (commissioned by JICA andexecuted by a team of Addis Ababa University researchers, January 2014) similarly points to theacute need of improving skills and coordination among different ministries and agencies.
Moreover, problems also abound at the policy level. In our view, the Ethiopian Government makes
too much haste in producing policies and proclamations without due analysis and discussion. We alsofeel that there are too many policy organizations with overlapping duties which call for moreconcentration and streamlining. Propensity for “Speed over Quality” is prevalent in many policy
areas including establishment of high-level committees, SME promotion, kaizen or FDI attraction. We
have voiced our concern over this issue many times through policy dialogue sessions without much
impact. Our call for “Quality over Speed” often meets such counter-arguments as “Ethiopia is in ahurry” and “Japan is too cautious.” We believe it normally takes about three years to draft a newpolicy effectively, and about one year to revise an old one. This is a conclusion we got from theinternational comparison of policy methods covering Taiwan, Singapore, Malaysia, Thailand, etc. We
are afraid that Japan and Ethiopia cannot agree completely on how the quality and speed of policies
should be reconciled.

Better than India or Myanmar
Many problems listed above must be assessed in relative light. A weak private sector and a low
policy capacity are common issues in developing countries, and Ethiopia is hardly the worst among
them. In fact, Ethiopia has a number of strong points over other countries such as the labor advantage,
proactive policy mindset and little corruption, which will be explained more fully below.
Table 2 shows the global ranking of business climate of different countries and territories by theWorld Bank. According to the latest scorecard (2015), Ethiopia ranks 132nd among 189 countries,
which is low but not disastrous in comparison with countries that are popular among Japanese
investors. Ethiopia’s ranking is slightly lower than Egypt or Indonesia and higher than Cambodia, India
or Bangladesh. Myanmar, a country where Japanese interest is rising rapidly, ranks 177th which isnear the bottom. If Japanese investors are considering these destinations seriously, there is no reason
to exclude Ethiopia solely because of the lack of good business environment. Incidentally, Mauritius,
Rwanda, Tunisia and Morocco rank much higher than Ethiopia among African countries. Mauritius, at
28th, is one notch above Japan (29th).
At some point in future when a significant number of Japanese firms have invested in Ethiopia (oreven now in preparation for future), we would like to work with the Ethiopian Government to further
improve business conditions through various means including policy dialogue. Such action-oriented

9Chapter 1 What is Ethiopia?

Tab.2

2006
Singapore
Hong Kong
Korea
Malaysia
TaiwanThailand
MauritiusJapan
RwandaTunisia
MoroccoVietnam
China
Philippines
Egypt
Indonesia
Ethiopia
Cambodia
India
Bangladesh
Myanmar
Total number ofcountries & areas

Ease of Doing Business Ranking by the World Bank

2007

2008

2009

2010

2011

2012

2013

2014

2015

2
7
27
21
35
20
23
10
139
58
102
99
91
113
141
115
101
133
116
65
n.a.

1
5
23
25
47
18
32
11
158
80
115
104
93
126
165
135
97
143
134
88
n.a.

1
4
30
24
50
15
27
12
150
88
129
91
83
133
126
123
102
145
120
107
n.a.

1
4
23
20
61
13
24
12
139
73
128
92
83
140
114
129
116
135
122
110
n.a.

1
3
19
23
46
12
17
15
67
69
128
93
89
144
106
122
107
145
133
119
n.a.

1
2
16
21
33
19
20
18
58
55
114
78
79
148
94
121
104
147
134
107
n.a.

1
2
8
18
25
17
23
20
45
46
94
98
91
136
110
129
111
138
132
122
n.a.

1
2
8
12
16
18
19
24
52
50
97
99
91
138
109
128
127
133
132
129
n.a.

1
2
7
6
16
18
20
27
32
51
87
99
96
108
128
120
125
137
134
130
182

1
3
5
18
19
26
28
29
46
60
71
78
90
95
112
114
132
135
142
173
177

155

175

178

181

183

183

183

185

189

189

Source: Selected countries in Asia and Africa from the World Bank Doing Business Report 2006-2014.
This ranking was initiated in 2004 and began to be published in 2006.

bilateral negotiations for improving business climate are already in place in such countries as Vietnam,
Indonesia, Cambodia, and Myanmar.

４

A passion for industrialization

Eager and action-oriented
Ethiopia is not another “African country” in the area of policy execution also. Although private sector
dynamism is still feeble, commitment of the Ethiopian Government to industrialization is second tonone. Policy enthusiasm and action-orientation of the Ethiopian Government is far greater than thatof the Vietnamese Government or the Indonesian Government.
An appointment with the prime minister is difficult to secure even for the head of a diplomatic
mission. In most other countries, it is almost impossible for investors, professors or JICA officials tosit down with the prime minister to discuss any issue deeply. In Ethiopia, by contrast, top leaders arewilling to meet (or even positively seek meetings) with anyone who are likely to bring valuable

10Chapter 1 What is Ethiopia?

investment, assistance or knowledge to the country. Policy dialogue and kaizen with Japan wasstarted by Former Prime Minister Meles when he invited the Japanese ambassador to his office torequest such assistance. Other ambassadors are also called for investment, assistance, or industrial
zone development. An economist residing in London revealed that he had exchanged many longemails with PM Meles. Our policy dialogue team also had eleven policy dialogue sessions with PM
Meles and has also had eleven sessions already with PM Hailemariam. The quality of these highlevel discussions, which often lasts for two hours or more, is very high. In addition, we exchange longpolicy letters with the Prime Minister. Sometimes the Prime Minister asks for more papers to read in
advance.
We do not know any prime minister who is as eager and sincere to learn as this except in Ethiopia.
He is very willing to spend time with us although we are hardly VIPs. When we meet, serious andhonest exchanges are made instead of indulging in diplomatic protocols. When the Prime Minister
requests something, we must take it very seriously. We sometimes have to decline but most of thetime we try to come up with a positive answer. To any questions raised, we must prepare the answer
very carefully because the Ethiopian Government implements our proposals very quickly if they
consider them reasonable. A poor country with little endowment of natural resources can still receive
investment and cooperation of advanced and emerging economies because its national leaders arewilling to sacrifice their time and energy in top sales and negotiations even with not-so-famous foreign
investors, researchers and officials.
Ethiopian ministers, state ministers and officials have a full understanding of where the nation isheading. Take, for example, the National Export Coordinating Committee established in 2003 chairedby the Prime Minister. This is a copy of a similar mechanism used by the Park regime of South Korea
in the 1970s. At each committee session, which is held monthly and lasts all day, four or five key
issues are discussed. It is reported that 90 sessions were held in the first ten years. The Prime Minister
often instructs a minister in charge to come up with a solution before the next session. Each ministryorganizes an internal meeting to deal with this committee twice a month (before and after thecommittee session) to prepare for and cope with what is discussed at the high level. The reason why
kaizen spread so quickly and widely in Ethiopia can partly be explained by the strong leadership of
the Prime Minister as exhibited in such national committees as this.
Investors and development partners of any nationalities are welcome as long as they contribute toeconomic development. When we visited Ethiopia first, in 2008, Italy and UNIDO were cooperating in
the leather industry; Germany was engaged in the Engineering Capacity Building Program (ECBP)
composed of enterprise support, TVET, science and technology universities, and strengthening
economic associations; the United States was promoting private sector development; and DFID was
assisting research. Among these, the German cooperation was unique in the sense that it was thelargest economic cooperation program for Germany in the world and it was run jointly with the
Ethiopian Government sharing half of funding, staffing and management. But what Ethiopia really11Chapter 1 What is Ethiopia?

wants to learn is the development experience of East Asia. On this desire, Former Prime Minister
Meles drafted academic papers and gave many speeches at international conferences. He
dispatched several young Ethiopians to KDI School in Seoul to study Korean experiences, instructing
them to photocopy everything that was distributed and send it to the Prime Minister’s Office. At
present, Japan provides the largest intellectual assistance in the area of industrialization in terms ofboth quality and quantity (see below).
The national vision of Ethiopia is to join the rank of middle income countries by 2025. This must be
achieved not by a lucky discovery of natural resources but by the pursuit of middle income with quality.
This in turn means industrialization backed by quality, productivity, and competitiveness, for which
kaizen will be mobilized as a key tool. The economic vision for 2025, proposed by PM Hailemariam,is “Becoming a leading nation in light manufacturing in Africa in particular and in manufacturing in
general.” We believe this vision will be part of GTP II (the next five-year plan).
In East Asia, we have witnessed a wave of industrialization originating in Japan and spreading
sequentially to Newly Industrializing Economies (Taiwan, Korea, Hong Kong and Singapore),Southeast Asian countries, and China. This expanding pattern is called the flying geese model, which
now is reaching Myanmar. In this model, a more advanced economy transfers domestic production
processes that have become high-cost to the next row of countries. This passing of industries is
executed by manufacturing FDI. Under this formation consisting of first comers, middle achievers andlatecomers, an ordered division of labor in manufacturing was established within East Asia
In the last several years, we have seen emerging economies such as Turkey, India and China
beginning to transfer labor-intensive processes which have become costly to Ethiopia. Other countries,
including Korea, Taiwan, UK and US are also interested in bringing manufacturing FDI to Ethiopia(see below). This may be a sign that flying geese are finally arriving in Ethiopia. It should be notedthat Ethiopia is the only country in Africa that such a phenomenon is visible.

Policy actions already in place
During the last decade, the Ethiopian Government has introduced various policy measures throughtrial-and-error, self-effort and international cooperation. Notable policy actions currently in place
include the following.

■Industrial institutes
Institutes that deal with individual sub-sectors or specific issues have been established under the
Ministry of Industry (MOI). Among them, the Textile Industry Development Institute (TIDI, 2010), theLeather Industry Development Institute (LIDI, 2010), and the Ethiopian Kaizen Institute (EKI, 2011)are particularly noteworthy. Industrial support in these areas was already in place before theestablishment of these institutes because they were created by upgrading existing directorates or

12Chapter 1 What is Ethiopia?

units of MOI. While such industrial institutes often function poorly or exist only in names in many
developing countries, Ethiopia’s TIDI, LIDI and EKI already have the capacity to offer substantive
help to businesses. TIDI and LIDI receive Indian cooperation while EKI is supported by Japan, among
other partners. Most officials in these institutes actually visit enterprise gemba (factory floor) and havegood knowledge of what the industry truly needs, and many enterprises appreciate their support. A
Japanese producer of high-quality leather goods cooperated closely with LIDI to train its workers
before the factory began operation. We recommend that any Japanese investor interested in the
textile or leather sector visit TIDI or LIDI to collect information. For improving a newly-invested factoryor the factory of an Ethiopian partner company, we believe alliance with EKI will be very beneficial. In
addition to the ones already mentioned, Ethiopia also has institutes for machinery and metalworking,food processing and pharmaceuticals, construction and chemicals, meat and dairy products, andhorticulture.

■Five-year plans for industrialization
Ethiopia’s past five-year plans often spilled much ink on social issues in order to reduce poverty or
secure aid. Even though the Government was very serious about industrialization, the chapter on
industry was not strategically written. The current five-year plan, called the Growth andTransformation Plan (GTP) 2010/11-2014/15, features “transformation” (=industrialization) in its title
but its industrial strategy consists of a large number of sub-sector numerical targets, which reminds
us of socialist economic planning. In our policy dialogue with PM Meles, we asked why this was thecase and why terms like productivity, technology and kaizen were absent from GTP I. As we feared,
the bold output and export targets for the industrial sector in GTP I have been missed by wide margins.
PM Hailemariam however promises that GTP II will be very different from GTP I, that there will be a
new chapter on productivity and competitiveness, and that kaizen will be highlighted. The Ethiopian
Government takes note of Japanese advice regarding the long-term vision, the chapter on productivity
and competitiveness, and how kaizen should be integrated into GTP II. As of October 2015, GTP II
was still evolving toward finalization and the Government was conducting a large number of meetings
with stakeholders. We were informed that many of our advice would be adopted in GTP II.

■Attracting manufacturing FDI
In our policy dialogue session PM Hailemariam said, “Strategic FDI attraction, linkage between
FDI and domestic firms, export promotion, and industrial zone development are the four pillars of ourindustrial strategy. Now that FDI is surging, we must carefully lead and follow up this process as
business-as-usual will no longer do” (August 13, 2014). According to him, attracting manufacturing
FDI is more difficult than attracting agriculture or services, and the task is therefore placed directly
under his leadership. The Ethiopia Investment Agency under MOI was upgraded to the Ethiopian
Investment Board (policy level) and the Ethiopian Investment Commission (implementation level) both13

Chapter 1 What is Ethiopia?

of which are directly under the Prime Minister. The Industrial Park Development Corporation has also
been moved from MOI to the Office of Prime Minister where Mr. Hailemariam can directly guide andmonitor. As for new policy measures, in 2014 alone there was a revision of the Investment
Proclamation, and one-stop service and the follow-up mechanism for investors were introduced andbegan to be strengthened. A new proclamation that governs both FDI attraction and industrial zone
development was issued. The Ethiopian Government also has a surprising proposal for an industrial
park designated for Japanese investors. These new initiatives will be explained more fully below.

■Benchmarking, twinning and BPR
These are the methods Ethiopia has adopted even before the initiation of the Ethiopia-Japan policy
dialogue. Benchmarking means selecting model countries or companies for catching up, measuring
their achievements in concrete numbers, and setting targets for Ethiopia. Twinning is a method of
improving human resource, organization and programs of such institutions as universities, research
centers and support agencies through a cooperation agreement with similar but superior institutions
abroad. Business Process Re-engineering (BPR) is re-organization of private or public organizations
to optimize their activities against their objectives. In Ethiopia these tools were applied widely in the
recent past. BPR even became a national fad at one time in which every government office was
required to implement it but lasting results were fewer than expected. Apart from these, Ethiopia also
has the Civil Service University, the Management Institute, the nationwide TVET system with German
assistance, as well as Public-Private Dialogue at the federal and regional level. At present, kaizen
with Japanese assistance seems to be the most popular productivity tool. About kaizen, PM
Hailemariam says that “the fire has been already ignited and no one can stop it.” More discussionof kaizen is given below.

■Economic and Business Diplomacy
Around 2011, when PM Hailemariam was Deputy Prime Minister and Foreign Minister, the Ethiopian
Economic and Business Diplomacy National Coordination Committee was established, which washeaded by the Foreign Minister, held monthly and attended by 18 ministries and agencies and theprivate sector. The MoFA’s Directorate of Economic Business Diplomacy serves as the secretariat.
Under this Committee, there are five sub-committees that meet twice a month to discuss trade, FDI,
tourism, technology transfer and ODA, each coordinated by a relevant ministry. Through thismechanism, MoFA in Addis Ababa gives instructions, provides information and respond to inquiries
vis-à-vis Ethiopian foreign missions abroad. Ethiopian ambassadors and consulate generals are
required to come home every summer to receive a few weeks of training in marketing, finance, etc.
Ambassador Markos Tekle Rike in Tokyo says he receives a large number of emails from theheadquarters every evening to which he must react. In fact, many investors from Turkey and India
have arrived in Ethiopia because Ethiopian ambassadors in these countries were active in country

14

Chapter 1 What is Ethiopia?

marketing and business negotiations. However, Economic and Diplomatic Diplomacy seems to sufferfrom limited budget and human resource. In addition, it is not clear how this mechanism led by MoFA
will work with the FDI attraction mechanism under the Prime Minister established in 2014 discussed
above as well as the Export Promotion Agency created under MOT in October 2015.

A standard Ethiopian dish with several
items on top of injera

Prayer at a church

15

Chapter2

Learning from Japan１

Lessons from East Asia

The reason why Ethiopia rejects Western or World Bank development orthodoxies and looks toEast Asia as a source of policy inspiration is a mystery to us. But it is certain that the strong personal
belief of Mr. Meles who led the country for 21 long years had played an important part. Looking back,
Chapter 2 Learning from Japanthe long history and unique culture of Ethiopia, and the national pride of having never been colonized,
may also have made Ethiopia a country of strong will and independent government unlike other
African nations. There may be a regional factor too because East African neighbors such as Rwanda
and Kenya are also countries serious with industrial development.
At any rate, the current government which came into power in 1991 selected to build a nation basedon East Asia’s developmental experience. As political situation stabilized and the problem of hunger
subsided, the desire to learn from East Asia appears to have intensified. PM Meles, a former top
student turned military leader, was a very intelligent person who, while executing state affairs as aprime minister, studied latest economic theories and exchanged views with eminent foreign
economists to formulate an academic argument on why the policy package imposed by the IMF and
the World Bank failed to develop Africa. He even drafted a doctoral dissertation on this topic andsubmitted it to a British university but the dissertation was rejected. One of his articles is published asa chapter of a book edited by Professor J. Stiglitz of Columbia University and others in 2012, Good
Growth and Governance in Africa: Rethinking Development Strategies. His article is full of economic
terms such as Pareto efficiency, rent seeking, market failure and optimization of self-interest, whichvery few other heads of state are capable of utilizing.
Bureaucrats also share the top leader’s enthusiasm for learning from East Asia. To enhance FDI
policy, JICA and GRIPS invited two Malaysian experts to Addis Ababa and subsequently sent 11
Ethiopians, including a State Minister of Industry and the Director General of the Ethiopian Investment
Agency, to Malaysia for two weeks to learn the country’s FDI strategy (“South-South” Cooperation).
In Kuala Lumpur the Ethiopians had an internal meeting at the hotel lobby every morning before
departure. At night, we often spotted Ethiopians working at the business center. Half-way through theprogram, the Ethiopians made a prepared presentation of results up to that moment. On the return
flight, they even started to revise the Investment Proclamation based on the Malaysian lessons. At
this we were surprised and advised to take more time to formulate such an important law as this. Afterthe mission, the Ethiopians submitted a report with reasonable quality. In many developing nations,
officials consider foreign trips as part of their benefits or shopping opportunities. Ethiopians are notlike them. They have the urge to learn from others and reflect them in their own policies.

18Former Prime Minister Meles Zenawi(1955-2012, PM and President 1991-2012)

２

Chapter 2 Learning from Japan

We have made effort to learn from East Asia for long, but intellectual
partnership with Korea was not very successful. This year I witnessed
Japan’s new African initiative at the TICAD IV meeting [Yokohama,May 2008] and heard the GRIPS presentation in July [Addis Ababa,
the Africa Task Force meeting organized by Prof. Stiglitz]. Now I am
convinced that the time has come to engage in direct intellectual dialogue with Japan, the country
that spearheaded East Asian development. We do not agree with the idea of the IMF and theWorld Bank that a small government is a good government. Government in a developing country
must positively and actively engage in development. Government has the duty to eliminate rent
seeking and increase value creation. It must secure necessary policy instruments and guide theprivate sector. Ethiopia hopes to create a developmental state by building a political support
among smallholder farmers, who are the dominant majority, and micro and small entrepreneursin urban areas whom we hope to strengthen in the future. From Japan, we expect analysis of ourdevelopmental system from the viewpoint of East Asia by GRIPS, and OJT-style productivity
improvement of enterprises by JICA” (the first policy dialogue session at the Prime Minister’s
Office, October 14, 2008).

Industrial policy dialogue

Around 2002, the GRIPS Development Forum began to visit a number of African countries in searchof an ideal partner for industrial policy dialogue. In Zambia, Tanzania, Ghana, Uganda andMozambique, we met presidents and ministers, did policy research and engaged in small-scale policy
dialogue. Then we were called by JICA to attend a policy meeting in Addis Ababa. Professor J. E.
Stiglitz, a Nobel laureate, organized annual African Task Force meetings of the Initiative for Policy
Dialogue (IPD), and the next meeting would be held in Ethiopia. JICA supported it financially but it
wanted Japan to contribute intellectually as well—so we were asked to present something. It was thesummer of 2008. We had heard that Ethiopia was serious about industrial policy so we gladly
accepted. But we did not imagine that Prime Minister Meles would attend virtually all sessions of thetwo-day meeting.
We explained the East Asian approach to industrial policy and presented our edited book to thePrime Minister. He started to read it during the conference. Chapter 7 of the book was JICA’s kaizen
assistance in Tunisia. In the following week, PM Meles invited the Japanese ambassador to his office
and requested two-part cooperation from Japan: policy dialogue with GRIPS and kaizen by JICA. Our
industrial policy dialogue started this way.

19

Actually, industrial policy dialogue is conducted jointly by GRIPS and JICA at three levels: Prime
Minister, Ministers and State Ministers, and operational people. We also visit enterprises, universities,
international organizations, other donors, and sometimes give lectures on request. Policy dialogue
sessions were held four times a year during Phase 1 and twice a year during Phase 2. Although thefrequency is now reduced, our workload remains the same or even higher because of increased

Chapter 2 Learning from Japan

research at home, letters to PM and ministers, and policy missions to third countries in Asia and Africa.
We aim at building mutual trust, conveying most appropriate lessons from any country (not just Japan),and respecting the will and ownership of the Ethiopian Government.
The topics of policy dialogue are selected carefully each time to fit the situation and policy issues
in Ethiopia which are rapidly changing. We do not want to just present our research findings or policy
recommendations; we want to make sure that what we say is closely linked to what Ethiopia wants todo, and actually leads to policy formulation and improvements. Fortunately, the Ethiopian Governmentis a fast changer of policies when it is convinced of the value of policy advice (in fact we often feel it
is too fast).
In this bilateral policy dialogue, we consider it important that Japan offers some (not necessarilyall) of the funding, skills or technology needed to implement the proposed policy. This increases the
chance of proper implementation as well as keeps up the interest of the Ethiopian side in continued
policy dialogue. Table 3 lists the concrete topics raised in the ministerial level discussions (“High
Fig.1

20

Industrial Policy Dialogue and Kaizen

Level Forums”). Other topics may come up with the Prime Minister, and we collect information andexchange views on many other issues.
As manufacturing FDI began to gush into Ethiopia, and as the Ethiopian Government stresses
strategic FDI attraction and industrial park development, we also began to focus on FDI policy. In along paper submitted to the Ethiopian Government in October 2015, we raised the following points.
● Despite high growth, the capacities of both government and the private sector remain weak.
Chapter 2 Learning from Japan● The great advantage of Ethiopia at present is low wage. Guard it carefully and simultaneously
make utmost effort to raise productivity. Do not raise wages excessively as in Southeast Asia.
● If manufacturing FDI continues to come, Ethiopia will be the first African country to join the “Flying
Geese Pattern” of Asian economies. The concept of middle income traps is explained.
● FDI attraction, strengthening domestic firms, and linkage between the two should be pursued.
● In the next 5-10 years, highest policy attention should be paid to accumulation and improvementof light industries. Heavy, high-tech, and new industries should be pursued with moderation.
● Concrete advice is given on kaizen, industrial parks, linkage formation with FDI, handholding,champion products, national image building, etc.
● Ethiopia’s investment climate is inferior. Bold reforms are needed in foreign exchange, taxes,
customs clearance, and logistics.
When policy discussions begin to cover these issues, we no longer see any difference between
Asia and Africa. In fact, many countries in Asia remain unable to effectively execute policies Ethiopia
is trying to adopt. Ethiopia has entered an era in which development experiences of East Asia—both
successes and failures—are directly relevant to its policy formulation.

High Level Forum

With Former PM Meles

21

Tab.3Topics Discussed at High Level Forums (Ministerial Level)

Chapter 2 Learning from Japan

Presentations by Japan or Third Country

22

Presentations by Ethiopia

PHASE 1
Session 1
June 2009(1) JICA’s plan for policy dialogue(2) ADLI and future directions for industrial
development(1) Evaluation of current PASDEP focusing on
industrial development and related sectors

Session 2
Sep. 2009(1) Cross-cutting issues on industrial policy &East Asian policy menu
(2) Organizational arrangements for industrial
policy formulation(3) SME policies in Japan(1) Comments and feedback by the Policy
Dialogue Steering Committee on Japanesepresentations

Session 3
Nov. 2009(1) Designing industrial master plans:international comparison(2) Industrial policy direction of Ethiopia:
suggestions for PASDEP II(1) Concept for the industrial chapter of
PASDEP II and the formulation plan

Session 4
Mar. 2010(1) Basic metals and engineering industries:
international comparison of policy framework& Ethiopia’s case(1) Draft of industry sector for PASDEP II(2) Overview, contents of PASDEP II draft ofchemical subsector

Session 5
July 2010(1) Result of basic metal and engineering
industries firm-level study – parts conductedby MPDC and JICA

(1) Report of kaizen training in Osaka(2) Report of kaizen training in Chubu(3) Current status of kaizen project andinstitutionalization of kaizen

Session 6
Oct. 2010(1) Singapore’s experience with productivity
development: internalization, scaling-up, andinternational cooperation(1) Contents of industry sector in GTP(2) Singapore’s productivity movement andlessons learned

Session 7
Jan. 2011(1) The making of high priority development
strategies: international comparison(1) Organizational structure of MOI andlinkage with other ministries

Session 8
May 2011(1) Ethiopia's industrialization under GTP(2) Achievements of Kaizen Project(3) Kaizen movement in Asia & Africa(4) Taiwan: policy drive for innovation(1) MSE development strategy of Ethiopia(2) Kaizen dissemination plan
(3) Botswana's productivity movement and its
Implication for Ethiopia

PHASE 2
Session 1
Jan. 2012(1) Export orientation: 3 policy directions(2) Export promotion: JICA’s experience(3) Export promotion center in Egypt(1) Export promotion of Ethiopia(2) Assessing Ethiopian investment andexport policies

Session 2
Aug. 2012(1) Results of champion product seminar(2) Export promotion of Malaysia(3) Economic diplomacy in Thailand(1) Performance of export promotion in
Ethiopia(2) Export promotion by foreign mission

Session 3
Jan. 2013(1) Proactive FDI policy(2) FDI policy experience of Malaysia(3) JICA’s assistance in Zambia etc.

(1) FDI inflow into Ethiopia

Session 4
Aug. 2013(1) JICA’s PSD assistance in Indonesia(2) FDI-linked technology transfer(1) Malaysia’s strategic FDI policy(2) Revision of Investment Proclamation

Session 5
Feb. 2014(1) International comparison of manufacturingperformance(2) Handholding programs(1) Sectoral institutes: roles & performance(2) Kaizen in GTP2 and long-term vision

Session 6
Aug. 2014(1) FDI-led industrialization in East Asia
(2) FDI inflow into latecomer Asia

(1) Proposal for key ideas in GTP2
(2) Current status of Ethiopian FDI

Session 7
Jan. 2015(1) Modality & key points of Japanese-run
industrial zones in Vietnam, Thailand(2) IZ & F/C issues in Myanmar, India(1) Productivity & competitiveness chapter,
industry chapter & kaizen in GTP2

Session 8
Oct. 2015(1) FDI attraction at Phnom Penh SEZ(2) Summary & remaining issues of Phase 2(1) Productivity & wage survey results(2) Discussion on GTP2 draft (industry)

３

KaizenThere is hardly any need to explain what kaizen is to Japanese business people. But they mightwant to know how Japan brought kaizen to Ethiopia and what difficulties and results have been
produced up to this moment. As noted above, it was Former Prime Minister Meles who requested
Japan to introduce kaizen to Ethiopia. He remarked, “I knew about kaizen but I did not know JICA
Chapter 2 Learning from Japanwas helping kaizen implementation in many developing countries. Will you please do in Ethiopia what
you have done in Tunisia?” While JICA was preparing, we held seminars on what kaizen was all about,what problems were usually encountered in introducing kaizen to developing countries, and publisheda booklet on these matters. There are two issues commonly brought up: (i) can kaizen be practiced
in a country whose culture is entirely different from Japanese? (Answer: sure it can; improvements
are regularly achieved even in India or Latin America); and (ii) can kaizen be introduced
simultaneously with Western management tools? (Answer: kaizen is bottom-up and cumulative, andWestern methods are top-down and swift. In principle they are mutually consistent though severeburden and pressure may be put on a company if it is asked to do both at the same time andmonitored.)
JICA’s kaizen project was started in the autumn of 2009. Its method was basically the same as inother countries. But enthusiasm on the Ethiopian side was second to none in the world. Phase 1(2009-11) established the Kaizen Unit under MOI and conducted a pilot project based on 5S and QC
Circles. Among 30 targeted companies, six produced excellent results and four performed well. In
comparison with other countries, this scorecard was standard and may even been considered a great
success because the implementation period in Ethiopia was shorter than the average. Nine young
Ethiopians were trained to become instructors of kaizen in classrooms or in factory floors. It must be
admitted that there was some friction initially between the Japanese side (“Learn basic ideas andattitudes first”) and the Ethiopian side (“Please show us visible results quickly”) and there was delayin activating the Kaizen Unit. But such issues are normal in introducing kaizen to any country, andshould not be taken too seriously. The important thing is that a successful solution of these problems
made the two parties even more productive and mutually trusting.
Phase 2 (2011-14) strengthened the institution and human resource to sustain kaizen. The Kaizen
Unit was upgraded to the Ethiopian Kaizen Institute (EKI). Japanese and Ethiopian experts visited
factories together to improve 249 enterprises (51 large & medium and 198 micro & small). Ethiopian
experts gradually took charge in company guidance. A total of 409 Ethiopians, consisting of EKI
experts and TVET teachers, acquired basic kaizen skills such as 5S, muda elimination and equipmentlayout. Seven public seminars were held with over a thousand attendees. Hiroshi Osada, Professor
Emeritus of Tokyo Institute of Technology, helped to establish an MA Program in Kaizen. The
Ethiopian Government was not satisfied with JICA support alone and introduced additional kaizen to23

EFFORT companies, state-owned enterprises and public works by mobilizing German assistance aswell as Ethiopian consultants. This made EKI extremely busy. Kaizen songs and dances were created.
Regular kaizen programs were aired on TV and radio, and newspapers also wrote about kaizen. In
2014, September was designated as “Kaizen Month” and the National Kaizen Council was
inaugurated. Kaizen Month was repeated in September 2015.

Chapter 2 Learning from Japan

Phase 3 (2015-19) will aim at producing high-level kaizen leaders. The next five-year plan (GTP2)
will feature kaizen as a key tool for improving productivity. Separately, in his visit to Addis Ababa in
January 2014, Prime Minister Shinzo Abe promised to set up the first TICAD Human Resource
Development Center for Business and Industry in Ethiopia. The Ethiopian Government expects muchfrom this initiative, and the Japanese Government will construct a new building for this purpose.
Ethiopia wants to become the hub of kaizen in Africa and help other countries on the continent tolearn kaizen in the future. Ethiopia already started teaching kaizen to Tanzania.
Thus kaizen is already a great passion in Ethiopia to which the Japanese Government is trying to
respond with cooperation that matches Ethiopian zeal. If your company decides to invest in Ethiopia,
we would strongly recommend that you use Ethiopian kaizen to strengthen your factory or thefactories of your local partners.
EKI was transferred from MOI to the Ministry of Public Service and Human Resource Developmentby the government reorganization of October 2015. This can be construed as an effort to scale up
kaizen from manufacturing to public servants and citizens at large. Nevertheless, the latter ministry
has not managed kaizen up to this point and we must monitor how the services of EKI will be affectedby this change.

PM Hailemariam’s View on Kaizen (1965- , Prime Minister since 2012)
I would like to say a few words about kaizen. Some Ethiopian firms think they have learned kaizen
after doing 3S or rearranging equipment for a few months and attaining cost reduction or
productivity improvement. Many adopt kaizen just as a tool to realize such short-term gains.
Kaizen is a long-term philosophy and has no end. It is necessary for our kaizen supporting
institutions to understand this deeply. Otherwise there is a risk that it may end up as a one-time
fad without leaving us anything just as BPR before. I myself talk about this to our people wheneverI have a chance through media. There are countries where kaizen disappeared before taking root.
We should not be like that. We need to proceed carefully in the early stage to drive kaizen
philosophy into the heart of our people. Kaizen is an important national agenda for improving
productivity. I believe this difficulty can be overcome” (at the Prime Minister’s Office, February 25,2014).

24

Chapter 2 Learning from Japan

A tire company practicing kaizen with JICA support

A leather shoe factory practicing kaizen with JICA support

25

４Champion products

While kaizen fire is burning, we still had a worry. Improving gemba (factory floor) efficiency iscertainly desirable, but that is only the first step toward competitiveness. Management, humanresource, marketing, power supply, material inputs, logistics, the distribution system, and access to
Chapter 2 Learning from Japanfinance and foreign exchange must all be improved. Even if these problems cannot be solved at once,a broad perspective is needed for industrial promotion. We felt that Ethiopians were overly concerned
about supply-side issues such as investment and technology. We wanted them to turn to producing
what the market demands rather than trying to sell what one has produced to the market.
To boost the perspective from the buyer side, we proposed creation of champion products.
Ethiopian export mainly consists of primary commodities such as coffee and sesame. They carry theimage of low-quality bulk goods. Processing, branding and value addition are often done by foreign
buyers abroad. JICA sent an experienced export promotion expert from Japan to Ethiopia, who taughtthat a champion product must satisfy the following conditions: (i) it is a premium good; (ii) it is unique
to Ethiopia and difficult for other countries to copy; and (iii) it must be rooted in Ethiopian life andculture. A champion product is born when these conditions are combined with proper response toforeign market demand. Successful champion products from Egypt, El Salvador, Peru, Guatemala
and Chile were discussed. In Ethiopia, garment designed with tilet (traditional dress), honey, products
using teff or ingera (Ethiopian staple food), and herbs were proposed as possible candidates.
Marketing and sales techniques including website, newsletter, DVD, trade fair, and “antenna shop”
were explained.
The concept of champion product touched the patriotism of Ethiopians and was greeted with astorm of applause. Stakeholders including a State Minister of Industry, the Chairman of Addis Ababa
Chamber of Commerce, and innovative entrepreneurs in coffee, tourism and jewelry businesses were
impressed. Many meetings and seminars were organized to discuss PR strategy, identification ofchampion products and policy support. Trade fairs began to promote Made-in-Ethiopia high-quality
products. Among them, the most notable occasion was the display of Ethiopian champion products
at the African Fair on the occasion of TICAD V in Yokohama which was visited by PM Abe, and actual
sale of such products in Shibuya, Tokyo, in 2013. The idea of champion products inspired Ethiopians
toward identification of the goal which would be reachable by proper effort and strategy.
JICA additionally assisted Ethiopian national re-branding and promotion by mobilizing Dentsu (thelargest advertising company in Japan) and the Foundation for Advanced Studies on International
Development (FASID) during 2014-2015. The project proposed CREATIVITY in MOTION as anational image and produced a video associated with it. It also suggested creation of HIGHLAND
LEATHER brand for Ethiopian high-quality leather products using the country’s unique leather
materials. Using this brand, some Ethiopian firm already found a buyer in Japan.

26

The goal of exporting high-quality Ethiopian goods to the world market generally excites people.
But the problem is no organization or enterprise is willing to take leadership in arranging staff, securing
budget, and designing and implementing concrete action plans. Awareness-raising is done. The next
step should be to establish a champion product strategy as one of the key policy pillars in export
promotion, and formulate and execute an action plan through public-private cooperation. It is not yet
clear which organization—EIC, the newly created Export Promotion Agency, etc.—will lead national
Chapter 2 Learning from Japanre-branding. If a Japanese company comes to Ethiopia in search of unique materials or local products,
it may be able to take part in this effort.

Ethiopian corner at African Fair
(Yokohama, May 2013)

Sale of African goods in
Shibuya, Tokyo (June 2013)27

５

Keenly awaiting Japanese companies

In the post WW2 period, Japan’s outward FDI first went to our neighbors including Korea andTaiwan. Japanese firms also invested in large advanced markets such as the US and Europe to avoid
trade friction. Yen appreciation starting in 1985 pushed Japanese firms to build factories in Southeast
Chapter 2 Learning from Japan

Asia. In the 1990s China emerged as an important production location as well as market. Morerecently, India and Myanmar are popular destinations. Compared to these, the number of Japanesecompanies that have ventured out to Africa remains small. The reason for this is twofold: the distanceproblem and the generally cautious attitude of Japanese firms. We have explained why Japanese areslow movers to prime ministers and ministers of many countries citing these two factors.
First, Africa is far from Japan culturally, psychologically and in terms of information. Large transport
cost and time must be incurred from Asia where Japanese firms have built a dense production network.
Even in this internet age, distance remains an obstacle in business. German manufacturers pour into
Eastern Europe but not Southeast Asia. For Turkish investors, Ethiopia is a country just beyond Egypt,and direct flights between the two countries are convenient. For Japanese businesses, Southeast
Asia is near and popular, and Myanmar and India are also inviting. It is natural that very few of us
have had much interest in studying investment possibilities in destinations far beyond these countries.
Second, Japanese firms are very unique. We like to invest in manufacturing and manufacturingsupporting services more than short-term trade or real estate business. We are gemba-oriented andcare so much about product quality and customer satisfaction instead of companies’ share prices orfinancial performance. We are slow to enter new frontier countries and not good at risk taking. But
once invested, our manufacturers stay longer in the host country even if crises and problems occur.
We train employees and assist partner companies even if job hopping is rampant. Relatively speaking,we comply with local laws and regulations better than others, protecting environment and workers’
rights and honoring contracts and payment deadlines. Japanese business behavior is so unique in aworld where flexible partnership reformation, quick decision and fast withdrawal to cut losses are thenorm. Given this Japanese business model, it is no wonder that we are cautious in coming to Africa.
Most African countries do not know this, so they complain, “China and India are coming. Why does
Japan hesitate?” The Ethiopian Government also complains but it already knows the two reasons
above. Moreover, Ethiopia evaluates very highly the fact that Japanese companies build long-term
relationship, teach workers, and help local partner companies to do better. More than 1,500 projects
have already arrived from emerging economies to Ethiopia, some of which hire thousands of workers,
but there are only two Japanese SMEs that do monozukuri (manufacturing) in Ethiopia as ofNovember 2015, as far as we know. Even so, the Ethiopian Government rolls out the red carpet forJapanese investors. For the quality of industrialization in the future, it wants to invite manufacturers
not just from emerging economies but also from Japan and the West. Top leaders request Japanese28

investment seriously and persistently to PM Abe and METI ministers, as well as through ourambassadors and even industrial policy dialogue. PM Hailemariam believes that kaizen will not bereal unless Japanese companies come and coach Ethiopian companies.
We should be very proud and grateful that Ethiopia is so ardent and sincere in inviting Japanese
investors with a full knowledge of our strengths and weaknesses. Even Vietnam, one of the mostpopular destinations of Japanese FDI, took more than a decade to understand our merits. But the
Chapter 2 Learning from Japan

presence of only two Japanese SMEs is certainly not enough to respond to the Ethiopian hospitality.
Intellectual contribution by industrial policy dialogue is also insufficient. Seriousness of the Ethiopian
Government is evident in its persistent request for a JETRO office in Addis Ababa as well as thegovernment’s plan to build an industrial zone or area reserved for Japanese firms. Previously, we
advised to the Prime Minister that an idea of an industrial zone only for Japanese was unwise in acountry with so few Japanese firms, in comparison with Southeast Asia where thousands of them
operated. But reality is proving us wrong. Even slow-thinking Japanese businesses are becoming
increasingly interested in Africa in general and Ethiopia in particular. Ethiopian investment seminars
in Japan are always full and organizers are forced to decline many guests. PM Abe’s visit to Ethiopia
in January 2014 accelerated this momentum. We must admit that a wave of Japanese FDI may arriveand even a large firm may invest in Ethiopia in not-so-distant future.
In August 2014, we were informally informed of an official idea to build an area reserved forJapanese firms. In November 2014 we heard a similar plan from the Prime Minister’s Office. The
following is the intention of the Ethiopian Government as we understand it. Industrial parkdevelopment is a key pillar of industrialization in the coming decade, and the Government alreadystarted enhancing this policy even before GTP2 is finalized. A number of countries will support thispolicy, and construction is already underway in some areas. As for Japan, it would be best if aJapanese developer built an industrial zone (through JV with the Government or with Ethiopian
budget). If that is difficult, a small area within a planned industrial park can be reserved for Japanese
investors. Again, the Government prefers joint development of such an area with a Japanesedeveloper, but construction by Ethiopian budget, with Japanese firms providing FDI marketing andinvestor support services on a contract basis, is another possibility.
The situation at the end of November 2015 is as follows. JICA and GRIPS separately sent Japaneseexperts to explore the feasibility and concrete details of a Japanese investment area. Our conclusion
is that part (about 50ha) of proposed Kilinto Industrial Zone Phase 1 can be developed jointly by the
Ethiopian Government (providing basic infrastructure) and a Japanese industrial zone developer(providing rental factories and investor marketing and support services). Kilinto Industrial Zone will be
developed by the Ethiopian Government with support of the World Bank in the south of Addis Ababa(see map at outset). Dohwa Engineering, a Korean consultant firm, is in charge of detail design. It isadjacent to a new highway which is already passable though not completed. The Government (IPDC)
and a Japanese industrial zone developer are currently exchanging basic information and, if things

29

proceed smoothly, they will be expected to negotiate concrete conditions and sign a contract. The
Ethiopian Government greatly welcomes this initiative and the World Bank is also happy with the idea.
We do not see any problem with Dohwa’s detail design either. While this is a move by a private
developer, Japanese official organizations including the Embassy, JICA, JETRO, JBIC, etc. are willingto offer necessary support to the creation and marketing of the proposed Japanese investment area.

Chapter 2 Learning from Japan

Remaining concerns, if any, are as follows. First, basic infrastructure of an industrial zone such as
ground preparation, drainage, power, and waste water treatment is often constructed with poor quality
and inferior materials even if the detail design is adequate. In many countries including Ethiopia, suchirregularities by contractor firms are commonly observed. An effective mechanism must be devised
to avoid this situation because Japanese firms do not tolerate substandard infrastructure. Second, wewant commitment of the Ethiopian Government’ to improve the investment climate which is quite poorat present. Investors of all nationalities complain about customs clearance, tax administration, foreignexchange control, power shortage, accounting system, logistics, and a mechanism to hear andrespond to investors’ opinions. Third, among these, problems associated foreign exchange control
can be eased by the CMP scheme (garment producers receive only processing fees while materials
are provided “free of charge” by a buyer abroad, eliminating the need to secure foreign exchange toimport materials—widely practiced in Myanmar). The Ethiopian Government is concerned that CMP
will discourage domestic production of materials, but some (non-Japanese) FDI firms already engage
in CMP production in Ethiopia. Fourth, group investment and nokisaki business (temporary rental ofunused factory space to another firm for operation) should be allowed to minimize the initial cost andrisk of investment for manufacturing SMEs. These points have already been explained to the
Ethiopian Government through the bilateral policy dialogue.
As for establishment of a JETRO office, which was strongly requested by the Ethiopian Government,
Prime Minister Abe informed to Prime Minister Hailemariam the decision to set up a JETRO office in
Addis Ababa on the occasion of the UN General Assembly in New York in September 2015.
Preparation is ongoing and the new JETRO office is expected to be inaugurated by March 2016.
If a sufficiently large number of Japanese companies come to Ethiopia, or even before then, we
would like to do two things in our policy dialogue. First, we will declare the unique merits of theJapanese business model mentioned above, such as long-term engagement, strengthening local
workers and partner companies and legal compliance. At the same time, we will assist problemsolving and local partner enhancement of Japanese companies in cooperation with the Ethiopian
Government, making it the role model of FDI-local firm linkage. Second, we will broadcast this linkage
model to the rest of Africa and publicize the notion that Japanese investment brings benefits to hostcountries mainly in terms of quality, and not quantity, of enterprise activities. For Japanesemanufacturers, this will constitute no additional burden because what we are asking is to do in
Ethiopia what they are already practicing in any other countries.

30

Chapter 2 Learning from Japan
Proposed Japanese area in Kilinto, adjacent highway, and apartment
construction across highway.

PM Hailemariam on JETRO“From my days of the Foreign Minister, I heard and witnessed the wonderful functions and services
of JETRO and have been requesting a JETRO office in Ethiopia. My hope is to invite Japanese
investors and trading houses to Ethiopia; the current number is too small. We will set a target forJapanese FDI and continue our effort. I am convinced that the presence of JETRO here will be agreat help. If Japanese firms can invest in other African countries, they can certainly come toEthiopia. Maybe our country image has improved after Mr. Abe’s visit. I insist on a JETRO officebecause I believe JETRO can persuade Japanese businesses on the ground to invest here. The
presence of Japanese companies will teach us a lot. No other countries can do the same” (at thePrime Minister’s Office, February 25, 2014).

31

Chapter3

Manufacturing FDI from
Emerging Economies

1

FDI inflow

According to the Ethiopian Investment Commission, FDI inflow is on the rise. Based on Ethiopian
Calendar ending in June, it recorded $1.0 billion in 2013/14 and $1.5 billion in 2014/15. (the current
exchange rate is about 21 birr/USD; birr slides down against USD at the annual rate of 5-6%). Thesefigures are actual implementation, not license registration, of projects that have invested all proposed
capital and physical equipment. The Ethiopian Government disregards registration figures as
unimportant and does not even publish them. Past investment data had many inconsistencies suchas the listing of non-existing companies and the lack of follow-up after registration, but these problems
are being rapidly dealt with. In 2014, about 2,000 ghost companies were removed from the databasefor a major cleanup, and a system of post-investment monitoring and assistance for registeredprojects was created at EIC where 35 staff regularly visit 300 important projects and follow up all otherprojects through submission of semi-annual documents. Even so, there still remain irregularities in
Chapter 3 Manufacturing FDI from
Emerging Economies

Ethiopian FDI data which we hope will be eliminated in the future.
The Ethiopian Government is very eager to attract manufacturing FDI. Partly thanks to lessons fromJapan and Malaysia, FDI policy is swiftly changing. In 2014-2015 alone, we saw revisions of theInvestment Proclamation and Regulation, upgrading of the Ethiopian Investment Agency to the
Ethiopian Investment Board and the Ethiopian Investment Commission, introduction of new policy,
proclamation and organizational arrangement for industrial zone development, as well as
strengthening one-stop investor support and the follow-up mechanism for key FDI projects asmentioned above. A new policy to target Japanese FDI attraction was also launched in 2014. We
welcome all these policy actions and hope to assist their effective implementation.
Among FDI source countries, Turkey and India are competing for the top position and China ranks
the third. These three countries alone have over 1,500 registered investment projects of which about
500 are already in operation. The majority of these projects seem to be manufacturing (see below). It
is important that these are precisely the three largest garment exporters in the world. They target
Ethiopia in order to relocate domestic production abroad because their labor-intensive processes arelosing competitiveness mainly due to rising wages at home. Another strong incentive for theirrelocation is the existence of import privileges for African products in the US and EU market (AGOA& EBA). FDI firms from Korea, Taiwan, US and UK are fewer in number, but their interests are also
rising rapidly. Japanese FDI is still very few, but we hope to accelerate it in the near future (just like
Japanese, German firms are also said to be cautious in coming to Africa).
The following pages summarize the results of hearings conducted by the Japanese Embassy in
Ethiopia, GRIPS and JICA regarding the current status of industrial zone development, tenant firms,
and FDI inflow from emerging countries.

34

Firm
Ayka
Huajian
H&M
George Shoe
Tesco
Pittards
GE

Home

Sector

Implemented FDI

Production in Ethiopia

Integrated production ofKnit garment
mid-range knitted goods
OEM
for Western markets
Footwear for EU & North
China Footwear OEM
America
Apparel for Western
SwedenApparelmarkets
Leather shoe Footwear for US &TaiwanOEM
Chinese markets
Apparel for Western
UK
Large retailmarkets
Leather
Leather gloves, bags,
UK
products
garments
Medical device for African
US
ConglomeratemarketTurkeyEmployees

Year

Remark

7,000

2009

Expanding; has a plan to build rental
factory apartments.

3,500

2012

Expanding; has a plan to build an IZ.

2012
800

2013

Opened office in 2014.
1,430

2011
2014

Shri Vallabh
PittieIndia

Spinning

Cotton fiber

Kanoria

India

Denim

Denim cloth

350(plan)

2012?

Myungsung
Medical Center

Korea

Medical service

Medical service fordomestic market

120

1994

HirokiJapan

High quality Leather jackets, shoes,
leather goods products

30

2013

Jay Jay Mills

India

Babywear

100

2014

Arvind

India

Denim

Shints ETP
Garment

Korea

Garment

Beconnected

Belgium&
HollandApparelaccessories

Design prints and tags forapparelUnileverUK &HollandFood and
consumer
goods

Detergent, health careproducts, beverages, ice
cream, etc.

Heineken

Holland

Alcoholicbeverages

Beer

280

2011

CastelFranceAlcoholicbeverages

Wine, beer

800

2007

DiageoUK

Alcoholicbeverages

Beer

BMET

TurkeyCable

Babywear for westernmarkets (one type only)
Jeans (export to EU & US
using tariff privileges)
Outer & sports wear (forUS market using AGOA)

Home, building & telecom
cables for domestic sales

Opened office in 2012; production
contracts with local factories
Operating in Bole Lemi 1; building aleather IZ in Mojo.

2014?

2014

2014

2014

2012
700

A hospital with 161beds.
Started production in rented factory
space in 2014. Shoes are contracted
out to local producer.
Production at Bole Lemi 1. Engaged
in CMP contract.
Using imported materials from India.
Occupies 5 sheds in Bole Lemi 1.
2nd overseas factory after Vietnam.

4,800(plan)
100

730 in production, 700 in tannery;plan to expand to 5,000 in 5 years.
Plan to build factory; products to beexported by Ethiopian Airlines.
Building the largest spinning factoryin Africa.
Factory under construction; usinglatest technology including robots.

2010

Moving from Asia to Africa.
Operation at Eastern Industry Zone.

Chapter 3 Manufacturing FDI from
Emerging Economies

Tab.4

Attracted by large population &demand. Success in Vietnam to be
replicated in Ethiopia. At Eastern IZ.
Besides own brand, acquired local
brands (Harar, Walia). New factorybuilt in 2015.
Besides own brand, acquired local
brand (St. George). Started producing
Rift Valley Wine in 2014.
Acquired local Meta Beer in 2012.
New factory built in 2015.
Importing materials from Malaysia &India; equipment from Turkey.

Note: The table lists a selection of implemented FDI projects which could be confirmed by site visit, company
homepage or electronic media as of November 2015. Unknown information is left blank.

35

２

Turkey(Interview with Turkish sources, August 2014)
In 2013, export from Turkey to Ethiopia amounted to $4 billion (iron and steel occupied two-thirds
and the rest composed of foodstuff, machinery, cosmetics, chemicals, etc.) and import from Ethiopia
to Turkey was $500 million (sesame, coffee, textile and garment, etc.) At end 2013, cumulative Turkish
FDI in Ethiopia was $1.6 billion (implementation as of end 2013), placing Turkey at the top position
as investor in Ethiopia followed closely by India. The third largest investor was China. In 2014, Indian
FDI is likely to be greater than Turkish. As of now, there are 465 registered Turkish investors in
Ethiopia of which 155 are in operation. Manufacturing, construction and services are the mostprominent sectors. Within manufacturing, textile and garment is the leading sub-sector with the top
eight projects accounting for 70% of total (AYKA, ELSE, SAIGIN, ETUR, Dire Dawa Textile, MNS,AKPER, DEMKA). For all these firms Ethiopia was the first overseas production location. Large firms
Chapter 3 Manufacturing FDI from
Emerging Economies

in other sub-sectors include BMET, a producer of fiber optical cables and transformers. Turkish SME
investors manufacture steel pipes, detergent, construction materials, macaroni, and so forth.
The largest investor from Turkey is Ayka, a garment manufacturer established in 1988. In 2009 it
built a large factory complex in western Addis Ababa as its first overseas investment. It specializes
integrated production of knitted products such as polo shirts and pajamas which are sold to Westernmarkets through a German buyer. Ayka procures domestic cotton as well as imports cotton because
domestic cotton production is insufficient for its volume. Ayka is additionally planning to produce
cotton in Ethiopia. The operation size is expanding from the original 5,000 workers to 7,000 and even
12,000 workers in the future. The success of Ayka, which has become the largest single exporting
firm in Ethiopia, is prompting many other Turkish textile and garment firms to move here and has
increased the visibility of Ethiopia as an FDI destination among multinational companies around theglobe.
Our policy dialogue team also visited Ayka Addis. Vertically integrated production from raw
materials to preparation, spinning, knitting, dyeing, drying, sewing and packing was proceeding in
grand scale using brand-new machines. Even the knitting section alone had one-hundred and a few
dozen machines, which was an amazing sight. We also saw a similarly integrated garment factory in
Mauritius. Integrated large-scale garment production is unfamiliar to firms in East Asia where
specialization and division-of-labor are the norm.
Domestic wage increase is the main reason for the exodus of Turkish firms to Ethiopia. A typicalunskilled worker costs about $500 per month inclusive of social security contributions. At this wage
level, labor-intensive manufacturers cannot compete with Bangladesh, Pakistan, Vietnam, Laos, India,
etc. Ethiopian wage is $50 per month or lower and has remained stable. Several other reasons also
make Ethiopia one of the best investment destinations for Turkish firms. First, export credit guarantee

36with favorable conditions is available from the Development Bank of Ethiopia (if you are a
manufacturer). Second, Ethiopia is politically stable, security conditions are good, and people are kindand good at learning. Third, production costs including labor and energy are relatively low. Additionally,some Turkish companies which initially went to Egypt are now relocating to Ethiopia because ofpolitical instability in that country.
There are also problems, however. Labor turnover is high (about 35% per year). Government
procedures are bureaucratic, complicated and change rapidly which often necessitates meetings with
the Prime Minister, Deputy Prime Minister and other high levels for solution. Inter-ministerial
coordination does not exist; MOT, MOI, ERCA, etc. make decisions separately in disregard to eachother’s decision. Export firms earning foreign exchange are promoted, but FDI firms producing for thedomestic market and therefore compete with domestic products (especially construction materials)
are not treated well due to political pressure from local companies. No such pressure is encounteredif you export 50% or more of your products, and EDB export credit guarantee is available if you export
Joint venture with local partners is problematic because corporate cultures are so different between
the two countries. Ethiopians are slow decision makers and this creates problems in purchasing new
equipment or access to finance. Logistics has improved and is good at present. Transport from Turkey
to Addis takes 25 days on average (20 to 40 days depending on shipping routes). Land transport fromDjibouti to Addis takes one week for a large investor such as Ayka that enjoys special treatment fromthe government. But SMEs face longer delays because they have to cope with administrative
procedures themselves. Recently, commercial attachés of various embassies in Addis Ababa began
to exchange information every three months. It is hoped that cooperation of stakeholders with open
mind will contribute to the betterment of investment climate.

Chapter 3 Manufacturing FDI from
Emerging Economies

75% or more.

Ayka is expanding from the first phase (5,000 workers) to the second and third phase with strong
support of MOI. Ayka also plans to secure land in two locations (Jemo and Gulale) in the Addis
suburbs to create concentration of Turkish firms, including three 4-5 story factory apartments toreceive fifty 100% export-oriented Turkish firms, in joint venture with the Ethiopian Government [Asof November 2015, this project is behind schedule. Non-Turkish tenant firms are also welcome].
Separately, another Turkish group plans to build a large industrial city in the north of Addis Ababa withan expected investment of $10 billion [this project, at the water source of Addis, has encountered a
problem in environmental assessment].
President Mulatu Teshome (in office from November 2013) was previously the Ethiopian
Ambassador to Turkey for seven years and actively courted Turkish firms to come to Ethiopia then[he was also an ambassador to Japan in the 1990s]. Former PM Meles also marketed Ethiopia
aggressively to Turkish investors upon his visit to Turkey.

37

３

India

（Interview with Indian authorities, August 2014）
Total bilateral trade between India and Ethiopia amounted to $1.3 billion in 2013, of which India’s
export was as much as $1.1 billion (steel, infrastructure, pharmaceuticals, paper, etc.) overwhelming
the flow in the other direction (leather, spice, etc.) India’s investment in Ethiopia is about $4 billion(registration base), with 608 firms registered and 221 firms in operation. In agriculture, commercial
enterprises aiming to create large-scale farms face delays in land procurement due to resident
resettlement, environmental issues, etc. but small-scale investments are more successful. Prominent
Indian investors include Pidilite (adhesives), ShriVallabh Pittie (textile spinning) and Kanoria (denim).
Just recently, five more firms invested in Ethiopia. While Chinese firms invest actively in theinfrastructure sector supported by their government, Indian FDI is private sector-led and implements
projects quickly. Our speed of implementation is appreciated by the Ethiopian authorities.
Chapter 3 Manufacturing FDI from
Emerging Economies

The India Business Forum was created recently with the initiative of the Indian Ambassador. 110
firms are now registered members. Meetings are held monthly to discuss common problems andexchange information. If necessary, the Indian Ambassador will approach the Ethiopian Government
to solve problems.
Indian companies are attracted to Ethiopia mainly by low labor cost and additionally by good
personal security, cheap water and electricity, and low corruption. On the other hand, problems
include frequently changing laws and regulations, the problem of inability to bring experts without highformal education (visas for such experts are hard to obtain), and difficulty in buying foreign exchange.
ERCA is a source of many problems not only for Indians but also for investors from other countries.
High transportation cost due to landlockedness is also an issue. Recently, the German Embassy
initiated a meeting of commercial officers of investor countries (Germany, China, US, India andTurkey) to discuss investment climate issues. The next meeting will be hosted by India andparticipation of the Japanese Embassy is welcome.
India supports Ethiopia through human resource development and technical cooperation and there
are multiple channels for these. They include (i) scholarship and technical economic cooperation for
training and studying abroad—India Technical and Economic Cooperation (200 people per year),
Indian Council for Cultural Relation (50 per year), and Indian Africa Forum Summit (20 per year); (ii)technical cooperation by the Central Leather Research Institute to LIDI (dispatch of Indian experts
and training of Ethiopians for three years with the Ethiopian budget); and (iii) dispatch of Indian
instructors to Ethiopian universities and other educational institutions (1,500 Indian instructors,
including retired professors, have been dispatched so far with the Indian budget and additional
support from the UN).

38

４

China

According to the World Bank survey published a few years ago on Chinese enterprises in Ethiopia,
as of March 2012 there were 372 registered Chinese firms of which 86 were already in operation. The
sectoral distribution of Chinese FDI was wide covering food processing, garment, IT, machinery andnonferrous metals. At that time Chinese investment in Ethiopia amounted to $450 million, generated
15,910 regular jobs with an average wage of $85 per month. Motives for coming to Ethiopia included
Chinese networks (invited by a friend), selling to the Ethiopian market, low wage, incentives offeredby the Ethiopian Government, and incentives offered by the Chinese Government. Business
impediments included difficulties in customs clearance and business transactions, control in foreignexchange and the exchange rate, irregularities and non-transparency of tax administration, finance,
and the shortage of skilled workers.
Among Chinese manufacturers in Ethiopia, Huajian has a relatively large operation. At home,establish a new production site, the company built its first Ethiopian factory that employed 1,750
workers in the Eastern Industry Zone, an industrial estate developed by a private Chinese group in
Dukem, south from Addis. Huajian has also secured land of 99ha for expansion with the purpose ofcreating an agglomeration of footwear makers. It was former PM Meles who requested Huajian tocome to Ethiopia. The company immediately made a decision, quickly built a factory and trained
workers, and started operation after three months—speed which can hardly be matched by any
Japanese company. Initially, the preparation and operation of Huajian was guided by Ms. Helen Hai,
a young Chinese business promoter with British experience. After retiring from Huajian, she for a time
joined the industrial zone development project of the World Bank (see below) as an advisor. Ms. Hai

Chapter 3 Manufacturing FDI from
Emerging Economies

Huajian is the largest OEM producer of brand shoes in the world hiring 25,000 workers in China. To

also promotes Chinese investment in Rwanda. Her dream is to create accumulation of labor-intensive
manufacturing in Africa and her name is well known not only in Africa but also among economic
officials and business people in Europe and America.

５

Korea, Taiwan and others

Korean FDI remains less than Turkey, India or China in terms of volume. According to the hearingof KOTRA by the Japanese Embassy in March 2014, there were eight Korean firms registered in
Ethiopia: Keangnam Enterprise (construction, 1997), Myungsung Medical Center (medical service,2004), Angel Industries (wig production, 2006), BM (textile and garment, 2010), Standard Diagnostics(diagnostic reagents and pharmaceuticals, 2011), Access to Bio (diagnostic reagents, 2011), LG(electronics, 2013), and Wooam (IT telecom, 2013). ［Besides these, Shin Textile Solutions, a contract
manufacturer for outer and sport wear, is building its second global production site in Ethiopia

39

following Vietnam.］Among Taiwanese firms, arrival of George Shoe (OEM production of leather shoes) is most visible.
In 2014, it started operation in two rental factory sheds (total of 16,500m2) in Bole Lemi 1 Industrial
Zone. Initial operation was prepared and managed by Mr. O.K. Kaul, an Indian expert and a former
CEO of Tata International with business experiences in over 30 countries. Mr. Kaul is highly satisfied
with the support of MOI (with then State Minister Mr. Sisay visiting his factory each week to see if
there was any problem), speed of customs clearance and infrastructure construction, and personalsafety and good security of Ethiopia. He plans to hire 2,000 workers after in-house training. George
Shoe is building a new tannery complex in Mojo for supplying leather for internal use, and shoe
production will reach 15,000 pairs when this facility is completed. George Shoe specializes in OEM
production of high-end leather shoes for men and women. Ethiopia is the third production location forthe company after Taiwan and China.
In 2014, interests among British and American firms also rose in such areas as large-scale retail

Chapter 3 Manufacturing FDI from
Emerging Economies(outsourcing products), geothermal power, bio-fuel, chemicals and pharmaceuticals. The number ofvisits by American firms increased sharply after the US-Africa Leaders Summit (the first such meetingby the US, similar to Japan’s TICAD) held in Washington, DC in early August. There is a plan initiatedby an American group to collectively relocate a large number of suppliers from Asia to Ethiopia.
Makers of alcoholic drinks such as Castel (France), Heineken (Holland), and Diageo (UK) areresponding to the growing demand for beer in Ethiopia by buying up local breweries and building newfactories.
FDI firms employing a large amount of labor and competing effectively in the global market such as
Ayka and George Shoe evaluate highly the investor support provided by the Ethiopian Government
and especially MOI-associated institutes such as TIDI and LIDI. We believe the present support
mechanism, in which state ministers and responsible officials spend much time and energy to monitor
and support VIP investors, is realistic and acceptable for Ethiopia which is not yet equipped with moresophisticated policy institutions, sufficient industrial human resource, or effective cooperation among
ministries. However, other companies which are not regarded as highest priority routinely face serious
hurdles in customs clearance, tax matters and land acquisition. Although the time available to stateministers and responsible officials is limited, we urge the Ethiopian Government to expand red-carpet
treatment to all investors regardless of size and nationality. We are also happy to assist improving
Ethiopian business climate.

40Eastern Industry Zone:
The gate, Huajian Factory,
and inside a factory shed

Chapter 3 Manufacturing FDI from
Emerging Economies

Ayka’s Spinning and Knitting Section(for Sewing Section see the cover page of ch.3)

George Shoe Factory in Bole Lemi 1 IZ:First row from left to right: Mr. Kaul,
Ambassador Suzuki, and Mr. Yaregal(Former Deputy DG, Ethiopian Industrial
Development Zones)

41

Chapter4

Investment Climate

１

Investment policy

Ethiopian investment policy is in a transition period for expansion and enhancement. In the next
five-year plan (GTP2), the Government will emphasize FDI attraction in manufacturing and agriculture
and is preparing laws and institutions for this purpose. This is a welcome move, but concrete details
and actual implementation as well as the authorities and functions of new mechanisms need to bemonitored and evaluated on the ground. The following information reflects our current knowledge
obtained from the Prime Minister, advisors to PM, Ethiopian Investment Commission, Industrial Park
Development Corporation, MOI, the Japanese Embassy, UNIDO, JICA and others. Given the flexibility
and ambiguity of the current policy, investors are well advised to check the latest information.

Investment-related organization
Investment-related organizations are rapidly changing in Ethiopia. Below we skip past evolutions
and explain organizational arrangements we are aware of as of late November 2015.
The highest body in deciding investment policy is the Ethiopian Investment Board (EIB) chaired by
the Prime Minister, which was established in 2014. The Ethiopian Investment Commission (EIC),
which serves as the secretariat for EIB as well as an implementation body, was simultaneously
created. EIC is an upgraded version of the previous Ethiopian Investment Agency (EIA) under MOI,
and thus overtakes the latter’s functions including investor licensing and support. Mr. Fitsum Arega,
who used to be the Director General of the Ethiopian Investment Agency, continues his duties andChapter 4 Investment Climate

became the first EIC Commissioner. The reason for establishing EIB and EIC in 2014 is given in thebox below. Additionally, at the end of 2014, the Ethiopia Industrial Development Zone Corporation
under MOI was strengthened and reorganized as the Industrial Park Development Corporation (IPDC)
under the Prime Minister’s Office, where Mr. Sisay Gemechu (former State Minister of Industry) was
appointed as CEO with the rank of State Minister. The Board of IPDC is chaired by Prime Minister’s
Economic Advisor Dr. Arkebe Oqubay. As temporary arrangement, EIC is housed in the old EIAbuilding on Bole Road and IPDC is operating in rented office space near the Kenyan Embassy. Thereis a plan to relocate both organizations to newly constructed buildings near the Prime Minister’s Officein the future.
In October 2015, the Export Promotion Agency was created under MOT. In the past, the Ethiopian
Export Agency was established in 1998 but was abolished in 2002 due to the lack of effectiveness.
The revival of this agency in a new form may improve the chance of enhanced export promotion.
However, it is still not clear how the new agency will work with existing mechanisms such as Economic
and Business Diplomacy, economic ministries, EIC, TIDI, and LIDI. Besides this, a professional
agency to support and develop SMEs, which we believe is essential for Ethiopia’s industrialization, is

44

PM Hailemariam on new investment policy arrangement“We have upgraded the Ethiopian Investment Agency, which was under MOI, to the Ethiopian
Investment Commission, which is directly under my supervision. We also created the Ethiopian
Investment Board as the high-level decision making body, and I chair this Board. In the past theCouncil of Cabinet Ministers had to decide special incentives for priority projects on an ad hoc
basis. Now the Board can take over that function on a regular basis without the trouble ofconvening a cabinet meeting. You ask if there is any duplication or complication with existing
systems such as MoFA’s Economic & Business Diplomacy, MOT’s Export Promotion Directorate,and sectoral promotion by line ministries, and my answer is no. Promotion of manufacturing is themain pillar of GTP2 [next five-year plan]. Manufacturing FDI will require far more sophisticatedmarketing than agricultural FDI. MOA can oversee production of agricultural commodities and
MOT can market processed food. Meanwhile, I will personally guide the policy for manufacturing
FDI. Upgrading of EIA to EIC and EIB, and industrial zone development, are also for the same
purpose. This means that manufacturing is a national priority” (at the Prime Minister’s Office,August 13, 2014).

still missing. However, manufacturing SMEs are under MOI even in the current arrangement.
Manufacturing is under the jurisdiction of MOI. Under the leadership of Minister Ahmed Abitew, MOI
has currently two State Ministers: Mr. Tadesse (in charge of priority sectors) and Mr. Mebrahtu (incharge of plans and strategies). We also work closely with Mr. Ahmed Nuru, Director General andAdvisor at the Directorate of Policy and Program Study and Monitoring & Evaluation, a reliable person
who drafts policy documents and coordinates external relations. To move things ahead, policy
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discussion and problem-solving must be held with these leaders and officials of MOI.
Furthermore, Ethiopia has specialized institutes that support investors. Particularly worth mention
are the Ethiopian Kaizen Institute (EKI) headed by Mr. Getahun Tadesse, the Textile Industry
Development Institute (TIDI) headed by Mr. Sileshi Lemma, and the Leather Industry Development
Institute (LIDI) headed by Mr. Wondu Legesse. There are also the Metal Industry Development
Institute (MIDI) and the Food, Beverage & Pharmaceuticals Industry Development Institute.
Agricultural investment is under the authority of the Ministry of Agriculture led by Minister Tefera
Derbew, an intelligent and experienced person. Attraction and support of large-scale agriculturalinvestment is in the hands of State Minister Wondirad Mandefro. Among agricultural support institutes,
most notable are the Ethiopian Horticulture Development Agency (EHDA) and the Ethiopian
Agricultural Transformation Agency (ATA). It must be noted however that ATA is mainly targetingsmallholder farmers for technology transfer and integration into global value chains and does not work
directly with large-sized FDI.
Japanese Ambassador to Ethiopia Kazuhiro Suzuki and Ethiopian Ambassador to Japan Markos

45Tekle Rike are also dynamically promoting Japanese FDI into Ethiopia. The Japan External Trade
Organization (JETRO), in response to the strong request by the Ethiopian Government, has decided
to open an office in Addis Ababa and this decision was conveyed directly from Prime Minister Abe to
Prime Minister Hailemariam in September 2015 at the occasion of the UN General Assembly in New
York. The JETRO office should be operational by March 2016. The Japan International Cooperation
Agency (JICA) and our university, the National Graduate Institute for Policy Studies (GRIPS), areassisting the Japanese business community through kaizen, champion product development andindustrial policy dialogue. The Japan Bank for International Cooperation (JBIC) can financially support
eligible Japanese FDI firms. Mr. Tadesse Dadi Segni, Advisor at the UNIDO Ethiopia Office, is also
assisting Japanese FDI in close cooperation with UNIDO’s Investment and Technology Promotion
Office (ITPO) in Tokyo. These are the prime policy contacts if a Japanese firm seriously wants toinvest in Ethiopia.

Investment law
Ethiopian law combines continental law and British common law. Policy documents are divided into
Proclamations that require parliamentary approval and Regulations which contain implementation
details decided by the Cabinet. There are also ministerial directives under them. Ethiopian investment
law is in the process of development. The latest legal documents consist of Investment Proclamation
No.769/2012 and its amendment, Proclamation 849/2014, as well as Council of Ministers Regulation
No. 270/2012 and its amendment, Regulation No.312/2014. Details such as the sectors and activities
eligible for incentives and how industrial zones are organized are stipulated in Regulations. Besides

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these, two regulations were issued in 2014 to establish EIB, EIC and IPDC (Regulation No.313/2014
and Regulation No.326/2014), and a new Proclamation on Industrial Parks was produced in 2015
(Proclamation No.886/2015).
According to the explanation by EIA (precursor of EIC), key points about recent revisions are thefollowing. First, one-stop investor service was strengthened. Second, adjustments were made in the
sectors in which FDI was permitted—the previous negative list was replaced by a positive list, andloopholes were filled. Third, the minimum FDI size was raised with the intension of protecting
Ethiopian SMEs. Fourth, industrial zone policy was revised and enhanced—state’s role was increased
due to the perception that private sector-led development had been ineffective. State-run industrial
zones will be built for speed, but the Government will not rule out non-state developers or
management contracts with private firms. Normal industrial zones will be developed instead ofcreating special economic zones or export processing zones. For agro-processing, the UNIDOsupported initiative of Integrated Agro Processing Parks is separately in preparation.
It must be understood that these policy directions are still provisional and subject to change andimprovement. Our team expressed doubt about some of these revisions, but the Prime Minister46

replied that Ethiopian investment policy was still under development and could be changed if
problems arose. Incidentally, FDI in mining and agriculture which requires large-scale land use anddevelopment is separately dealt with. FDI in mining in particular, managed by the Ministry of Mines,
is outside the purview of the new investment law.

Types and sector
Investment by foreign nationals can be made in any form including 100% foreign ownership andjoint venture (JV) with Ethiopian partners with no restriction on the share of the foreign side. However,there are restrictions on the minimum size of FDI. Investment of $200,000 or more is required for
100% foreign FDI and investment of $150,000 or more is required for JV with a local partner. For
technical consultancy service, minimum required investment is $100,000 for 100% foreign FDI and$50,000 for JV. These restrictions do not apply for re-investment. From January 2014, the policing ofthese minimum capital requirements became stricter and as a result the reported number of FDI fellduring that year. This was to eliminate people who received investment licenses for the only purposeof getting residential permits to become teachers, dentists, company employees, etc. without any
intension of investing (no relevance to Japanese people who rarely engage in such activities).
Prohibited sectors for FDI are as follows.
● Government monopoly areas—postal service, power transmission & distribution, passenger airtransport● JV with government required—weapons & ammunition, telecom services● Areas only for domestic investors—certain designated items in the following sectors: export,
import and wholesale trade; textile; leather; construction; construction materials; education;
Chapter 4 Investment Climate

medical service, printing, etc. (for designated items see EIC documents)● Areas only for Ethiopians—financial service, insurance, broadcasting, legal service,advertisement, domestic air transport, shipping business, etc.
Permitted sectors for FDI (the positive list) are as follows.
Manufacturing, agriculture, ICT, power generation, hotel & tourism, grade 1 construction, realestate, secondary & higher education with own building, TVET, health service with own building,architectural & engineering technical service, publishing, import of LPG & bitumen, designatedexport and wholesale trade
Customs duties on capital goods and construction materials are exempted for:
Manufacturing, agriculture, ICT, power generation, hotel & tourism, grade 1 construction,
secondary & higher education with own building, TVET, health service with own building, importof LPG & bitumen

47

The above is a summary of information given in EIA/EIC investor brochures in 2013 and 2014. For
investment purposes, the latest status and details of designated items should be checked by going to
the windows of EIC or consulting newer documents if any. In our view, the global norm is to publish arelatively short “negative list” that defines areas not permitted to FDI, and declare all other areas tobe open to FDI. In addition, a “positive list” of targeted products and activities eligible for special
incentives (possibly with certain additional conditions) should be announced, and incentives should
be given in a speedy, fair and transparent way to all projects that satisfy the criteria. The Ethiopian
system is not like that at this moment.

Incentives and supporting measures
Main investment incentives are given below. Again, details should be checked with EIC.
● Customs duty exemption on imported equipment, construction materials and spare parts (notexceeding 15% of the value of equipment). Exemption is given during the entire period of
operation for manufacturing and agriculture and for five years for other sectors. This privilege isdecided by EIC for manufacturing and by ERCA for all other sectors (this is the current
arrangement; approval procedure is under review at present).
● Corporate income tax (CIT) exemption for 1 to 9 years. For details please see Appendix V of
EIC’s Invest in Ethiopia: An Investment Guide to Ethiopia 2014. Note that the number of years of
exemption differs according to location and product export ratio (over 60% or over 80%) even forthe same sector. CIT is either levied or exempted, and there seems to be no partial reduction(technically there is for investment in remote areas but this has never been actually applied).

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Years are counted from the receipt of Business License issued by EIC when operation wasstarted (not Investment License). This is virtually the same as the number of years in operation.
● For a developer of an industrial zone, CIT exemption is available for 10 years if the location iswithin 40 km of Addis and 15 years if it is farther. Tenant firms in an industrial zone are also
eligible for additional CIT exemption of 2 years (within 40km of Addis) or 4 years (farther) in
addition to normal exemption, provided that they export 80% of their products or more. The abovemeasures were introduced in 2014 to promote industrial zone development.
● FDI is permitted to employ managers, experts and workers. Approval is given by EIC for
manufacturing, and by the Ministry of Labor and Social Affairs for all other sectors. (According to
EIC, certain qualification is required for approval; work experience alone is not enough.)● Losses incurred during the CIT exemption period can be carried forward after the exemption
period is over, for half the duration of the CIT exemption. However, carry forward period cannot
exceed five income tax periods (one income tax period is six months).
● More informally, special policy attention and support as well as negotiable privileges may beavailable for priority sectors and enterprises.

48

Export incentives include the following.
● Duty Drawback Scheme—imported and domestic materials used for the production of exported
goods are eligible for exemption of customs duties and other taxes. Paid duties and taxes arerefunded at the time of export of finished goods.
● Voucher Scheme—a voucher (printed paper having monetary value) which can be used to pay
duties and other taxes is given to export firms.
● Bonded Factory and Manufacturing Warehouse Schemes—firms that have the status of abonded factory or a manufacturing warehouse are allowed to use such facilities to importmaterials without payment of customs duties.
The export incentive system distinguishes Type 1 Import (equipment and materials imported for the
purpose of production which are subject to customs duties of 10-20%) and Type 2 Import (goods
imported for personal or non-productive purposes). EIC explains that Duty Drawback Scheme is not
popular as it requires additional financing until final goods are exported. For this reason, virtually all
firms that export regularly have moved to Voucher Scheme. Additionally, the Bonded Factory and
Manufacturing Warehouse status has been granted to a small number of industrial zones and firms
with records of large amounts of export. These export privileges are currently reviewed by MOI, ERCA
and other responsible organizations for a possibility of revision.
As an example, Ayka Addis receives customs duty and CIT exemption for five years; pays land rentof $1/m2/month (the same as in Bole Lemi 1 Industrial Zone, which is low), an electricity tariff of 2.7
cent per KW, and an average wage of about $70 (plus lunch, commuter bus and clinic); with threework shifts and 5-day working week (information provided by the Japanese Embassy; these
conditions may not apply to other FDI firms). Land rent in the future industrial zones developed by the
Ethiopian Government will not be as low as in Bole Lemi 1; the first industrial zone offered bargain
Chapter 4 Investment Climate

rent for attracting tenant firms as fast as possible but the Government now worries about the numberof years required to recoup the initial investment for developing industrial zones.
Only leather has an export ban on raw materials and an export tax of 150% on semi-finished goods
in order to encourage domestic processing. For all other sectors there is no export restriction.
Many exporting firms operating in Ethiopia avail themselves of privileges provided by the African
Growth and Opportunity Act (AGOA) in the US market and by Everything But Arms (EBA) in the EU
market. AGOA exempts import quotas and duties on textile products from Sub-Saharan Africancountries which are recognized (as democratic) by the US Government. AGOA was renewed by the
US Congress in June 2015 which makes it available for producers for a foreseeable future. EBA
similarly exempts import quotas and duties on all products except weaponry from poor countries.

Investment Procedure
A foreign firm seriously considering investment in Ethiopia should visit the Ethiopian Investment

49

Commission (EIC). If the firm decides to go ahead with the project after collecting and analyzing
information, the first step it must take is to obtain Investment License from EIC. From there, a seriesof procedure flows such as company registration, construction, work permits, environmental impact
assessment, etc. etc. Investment types include (i) commercial registration of a new company; (ii)commercial registration of a branch company; (iii) investment made by a business organization
incorporated in Ethiopia; and (iv) expansion or upgrading of an existing enterprise. Needed
documentation differ from one type to another.
The following are issued or approved by EIC, or EIC will assist firms to obtain them.
● Investment License (needs to be obtained first), Business License, and construction permit.
● Notarization of memorandum and articles of association● Issuance, renewal, amendment, replacement, substitution or cancellation of commercial
registration, trade or firm name, and work permit.
● Grading of construction contractor● Registration of technology transfer agreement, and domestic investor and foreign investor
export-oriented non-equity based collaboration agreement● Customs duty exemption of capital goods and construction materials for manufacturing● Securing land for the project● Support for obtaining a bank loan, resident permits, and contracts for water, power and telecom● Tax identification number (TIN)
Currently EIC is strengthening one-stop service for 28 types of procedure. As of January 2015,

Chapter 4 Investment Climate

branch offices of the Development Bank of Ethiopia (11), customs (2) and visa issuance (1) werelocated on the sixth floor of the EIC building (number of seconded staff in parentheses). The
Commercial Bank of Ethiopia, which handles bank accounts and foreign exchange, also opened an
office on the first floor of EIC. Branch offices of power, telecom and environmental impact assessment
are still not in place partly due to the shortage of space.
Following the JICA-supported official policy study mission to Malaysia in 2013, EIC (at that time theEthiopian Investment Agency) internally created a directorate for investor follow-up in which seventeams (Relationship Building Teams with a total of 35 staff) monitored the progress of registeredprojects in leather, food processing, chemicals, agriculture & horticulture, textile & garment, metals,
and others. Another directorate supports the realization of priority projects. EIC has about 180 staff(of which about 80 are professionals) not counting the seconded staff from other organizations noted
above. In February 2014, EIC was receiving client service training from a British training institution.
EIC commits to the maximum time for issuing various licenses and permits following the receipt ofapplication. Some of the promised delivery time limits are given below.
● Investment License—3 hours for first issuance, 19 working days for expansion investment

50

● Business License—10 working days
● Commercial registration—3 hours for issuance or amendment, 2 hours for renewal● Work permit—2 hours for issuance, 1 hour for renewal, etc. etc.

Land
Land is public property in Ethiopia, and investors can obtain only the right to use land. Land use
right and fixed assets attached to land are transferable and can be collateralized. The land rent isdetermined by demand and supply (“by auction”) reflecting location, soil, etc. Provision of industrial
land to attract FDI has become a priority for the Ethiopian Government, with land for manufacturing
and/or export-oriented enterprises being offered at reasonable cost (factory shed rental in Bole Lemi
1 Industrial Zone costs $1/m2/month, which the Government says is a special pilot case which may
not apply in the future). EIC supports land acquisition of foreign investors, and IPDC is in charge ofraising funds for industrial zone development, management of state-run industrial zones, provision ofindustrial land, construction of factory sheds, etc. (see below for industrial zones). Land is under theauthority of regional governments. Land acquisition is a headache that generates a budget problem
and time delay due to difficult relocation negotiation with farmers (law requires compensation atmarket value). The Government plans to expedite this process by assigning industrial land
preparation to the newly created IPDC which is directly under the Prime Minister’s Office.
For agricultural land, the Government aims to convert unused land in rural and peripheral areas
into agricultural production through FDI attraction. The Ministry of Agriculture (MOA) is tasked to guideand allocate land over 5,000ha, provide information and technology, and build necessary
infrastructure.
Chapter 4 Investment Climate

The following information was obtained in our interview with MOA in 2013. Agricultural investment
so far amounted to 2 million ha with 3,000-4,000 projects, but large-scale projects has been few (about
25). Large-scale projects are usually initiated by Indians or Gulf state investors but few of them had
actually been implemented. Small-scale projects are carried out mainly by Ethiopians and Diaspora
people. MOA’s FDI policy is directed to four crops (cotton, rubber, palm and sugarcane) which areprioritized in GTP. MOA welcomes agricultural FDI from any country, but Ethiopia’s foreign missions
can properly screen investors in several countries only—India, China, Gulf states, South Africa and
Italy. Foreign investors who approach MOA directly, without going through an Ethiopian embassy, arescreened carefully by MOA for past performance, project feasibility, land selection, environmental
impact, etc. While the Government started one-stop service for investors, it is difficult for MOA to issue
Investment License quickly because agricultural investment requires time to prepare infrastructure
and check environmental impact. To expedite approval, MOA plans to create a list of land suitable forlarge-scale agricultural production and conduct land preparation, environmental impact assessmentand facility construction in advance. Most of the candidate locations are uninhabited land in51

Benishangul-Gumuz, Gambela and Southern Regional States for which resident resettlement is not
required. This agricultural development model is an invention by Ethiopia and not a copy of someother country.

Logistics
Securing an access to the sea is a life-or-death issue for the Ethiopian economy. Ethiopia did havea sea coast until Eritrea broke up from it (declaration of independence in 1991, approval in 1993), but
it is a landlocked country now. The present access to the sea uses trucking to the Port of Djibouti.
Relationship between Ethiopia and Djibouti is favorable (Ethiopia supplies electricity and water to
Djibouti) and the road to Djibouti is of acceptable quality. Road congestion has been serious as one
approached Addis, but this problem was partly but greatly alleviated after the completion of three-lane
Addis-Adama Highway in May 2014 (at least for approach from the south). Congestion still exists inand around Addis Ababa, but there are plans to build access roads from the south of Addis to the east
(where Bole Lemi industrial zones are located) and the west without going through the center. As of
December 2015, the new highway to the east of Addis is passable though not completed. Additionally,
when the railway to Djibouti, currently under construction by CCECC (Chinese builder), is completed,rail access to the sea will also become possible. The Government says construction will be finishedby 2016.
Transport infrastructure is still underdeveloped in Ethiopia, but construction is going on at full speed.
Addis Ababa is seeing construction of Ring Road and other major roads and intersection
improvements. The underpass crossings on Bole Road have been completed. In long distance,

Chapter 4 Investment Climate

improvement of major roads, including roads to Djibouti, and construction of a new railway system
are underway. An intra-city Light Rail which links Addis with two lines East-West and North-Southstated operation in September and November 2015, respectively. A number of donors, including
Japan, are contributing to the construction of transport infrastructure but the most visible assistanceis provided by China who can build things fast, cheap and in large numbers.
Despite progress in hard infrastructure, there are problems on the soft side of the story. Land cargotransport between Addis and Djibouti is a monopoly of state-owned Ethiopian Shipping & Logistics
Services Enterprise (ESLSE), whose service quality must be greatly improved. Dry ports in Mojo andDire Dawa are also operated by ESLSE. In October 2015 the official at Dire Dawa Dry Port told usthat there are usually 400 containers kept at this dry port with the average staying time of 15 days
(17-19 days at Mojo Dry Port). The reason for the long stay is nationwide shortage of foreign exchange
and not the lack of staff capacity or equipment at the dry port. Importers have to wait until the bankprovides them with foreign currencies during which time the documents cannot be processed.
Transport data reported by Ayka are as follows. Trucking from Addis to the Port of Djibouti takes
three days with a land transport cost of $3,700 (40-feet container) and customs duty at Djibouti of52

$1,100. Ocean transport from Djibouti costs $2,600 to Turkey, $1,500 to Germany, $1,700 to India,
and $2,000 to China (information gathered by the Japanese embassy). During our visit to Ayka Addis
in January 2012, it was explained that there had been a problem of pilferage (stolen cargo) in trucking
initially but irregularity was corrected by the Government. By that time Ayka found no problem withlogistics. It should be reminded however that Ayka is the largest FDI project in Ethiopia and receives
high attention and red-carpet treatment from policy authorities. It is unlikely that the above information
applies directly to other investors, especially SMEs. Further research is needed to grasp the overalllogistics situation in and around Ethiopia, and it would be highly desirable if the Government madeeffort to solve logistic problems for all investors regardless of size and priority. JICA is currently
undertaking a comparative study of business conditions in a number of African countries including
Ethiopia, which covers transport and logistics situation also.
Ethiopian Airlines, a national flag carrier owned by the Government, deserves special mention. It
has sufficient regular routes and fleet to be considered one of the largest airlines in Africa. The
company homepage reports 76 aircrafts in total which breaks down to 13 B787s, 10 B777s, sevenB767s, two B757s, 19 B737s, 17 Bombardier Q400s, and eight cargo and other planes. It also has
additional 42 aircrafts on order. Addis Ababa Bole International Airport is relatively modern. However,
airport services and management has much room for improvement. Recent news on Ethiopian
Airlines include a large order made on B787s, becoming a Star Alliance member, and racking up thehighest profit in Africa in 2013/14 (beating South African Airways). Direct service to Narita started in
April 2015 (with one-hour stopover in Hong Kong for refueling; currently three flights a week). After
that, more new direct flights are rapidly established. Ethiopian Airlines is the model company among
Ethiopian SOEs and its management is highly dynamic and growth-oriented. Separately, in 2013,
tentative cold chain facility was installed in Bole International Airport to expedite flower export to the
Chapter 4 Investment Climate

EU market. It is planned that this facility will be upgraded to full capacity and three other similar
facilities will be built in the rest of the country.

Possibility of domestic financeFor large-scale investment or investment in priority sectors, financing from the Development Bankof Ethiopia (DBE) is available. DBE is a state-owned policy bank whose role is to extend medium- tolong-term credit to national priority projects. It adopts the project finance model in which the borrowercomes up with 50% (previously 30%) of needed finance and DBE provides the remaining 50% in
either foreign or domestic currency with low interest rates (the priority rate of 8.5% and the normal
rate of 9.5%) without requiring a collateral. For manufacturing, loan maturity is normally 10 years orless with a grace of 3 years, while long-term projects such as infrastructure and forestation may havea period of 20 years with a grace of 5 years at the maximum. In early 2013, client distribution was 18
foreign firms (mainly textiles and floriculture) and 59 domestic firms. In terms of loan volume, about

53three-fourths was for foreign clients. DBE does not serve SMEs except for micro-finance programs
funded by development partners. However, there is a plan for DBE to positively engage in SME
finance during GTP2.
More specifically, the priority sectors of EDB are (A) commercial agriculture including horticulture,
cotton, sugarcane, fishery, seed improvement, poultry and processing; (B) agro processing including
food processing, cotton production and processing, diary farming, animal feed, coffee processing,edible oil and juice production; (C) manufacturing including textile and garment, leather and leather
products, footwear, paper and paper products, chemicals, packaging and pharmaceuticals. Ethiopia
is one of the few poor countries that have a functioning policy finance institution serving domestic
agriculture and industry in a significant way.
Additionally, working capital can be financed from the Commercial Bank of Ethiopia or othercommercial banks provided that the project passes the bankability criteria.

Other
Except for the sectors closed to FDI mentioned earlier, domestic and foreign firms are treatedequally under the Ethiopian law. Ethiopian Constitution and Investment Proclamation guarantee
investors against expropriation or nationalization, and specify advance payment of compensation“corresponding to the prevailing market value” of a private property if expropriation or nationalizationis necessitated for public interest.
Ethiopia is a member of the Multilateral Investment Guarantee Agency (MIGA) and the WorldIntellectual Property Organization (WIPO). Furthermore, Ethiopia has concluded bilateral investment

Chapter 4 Investment Climate

treaties with 30 countries (not with Japan yet) and double taxation treaties with 18 countries (not withJapan yet). To accelerate Japanese FDI into Ethiopia, it is imperative that these bilateral treaties be
concluded with Japan as soon as possible. In fact, the Ethiopian Government is already urging theJapanese Government to do so.
Ethiopia is not a member of WTO and thus is not bound by WTO rules, but it is currently negotiating
accession. It is the Government’s policy not to open up the financial and telecom sectors for the statedpurpose of retaining sufficient policy instruments for development. It is not very clear how this policy
stance will affect Ethiopia’s WTO entry negotiations. As explained above, Ethiopia has a number ofinvestment incentives (including CIT exemption) linked with export performance, such as 60% or 80%
of products being exported, but this is in clear violation of WTO rules that prohibit export subsidies.
At some point in the future, Ethiopia, and firms operating in Ethiopia, will have to take WTO rules into
consideration.

54

Issues in investment climate
Barriers to business activities in Ethiopia most often cited by both domestic and foreign firms include
shortage of foreign exchange, material procurement, power failure, tax matters, and customs
clearance. To cope with these problems, it is necessary to have (i) a mechanism for collective voiceraising among investors of all sectors and nationalities; (ii) official surveys on actual situation; (iii)
design, implementation and monitoring of an action plan for solution; and (iv) assistance bydevelopment partners to carry out the above. While everything cannot be remedied at once, the twoparties (government and investors) should cooperate and make progress gradually and patiently.
Final solutions to some problems such as those related to foreign exchange or power failure may taketime, but short-term fixes should also be introduced to ameliorate such problems for priority sectors
and firms.
Ethiopia is in chronic shortage of foreign exchange. The law says foreign investors have the rightto make outward remittances in convertible foreign currency of profits and dividends, principal andinterest payments on external loans, payments related to technology transfer agreements, proceedsfrom the sale or liquidation of an enterprise, compensation paid to an investor, and proceeds from thesale or transfer of shares or partial ownership of an enterprise to a domestic investor. But legal rights
may not translate to actual receipt of convertible currency if banks are out of foreign exchange.
According to EIC, a three-month wait is possible when market conditions of major export goods suchas coffee and gold are unfavorable, but foreign exchange is made available to export firms on a priority
basis. In other words, firms buying foreign currency for non-export purposes are likely to face a longwait. We need reliable fact-finding research.
Ethiopia still has foreign currency surrender requirement. Export firms earning foreign exchange
Chapter 4 Investment Climate

must sell 90% (previously 80%) of it to a bank within 28 days whereupon the Government allocates it
to targeted sectors and projects (the National Bank says exporters can retain as much as 10% of theforeign exchange, and there will be no need for surrender if imports are made within 28 days). Japan
adopted this system under economic crisis immediately after WW2, but Ethiopia still operates thisawkward system, apparently because capital transactions are controlled, interbank markets are
primitive, and the earning power of foreign exchange remains weak. Since the objective of this policy
is to increase the supply of foreign exchange, a more convenient system should be considered atleast for firms that can earn foreign exchange in the net (sales minus purchase) with the same result.
A Cut-Make-Pack (CMP) mechanism used in Myanmar and other countries where a foreign garment
firm pays only the labor cost without using any foreign exchange for importing materials, may bestudied. In fact, our policy dialogue team is making an inquiry to the Ethiopian Government if such ascheme is acceptable. On the other hand, there is already at least one non-Japanese FDI company
that uses this scheme for operation in Ethiopia.
Power blackouts are another serious impediment. 99% of Ethiopia’s electricity comes from hydro-

55

power generation. In the future when Grand Renaissance Dam on the Blue Nile near the Sudaneseborder with the capacity of 6,000MW is completed, Ethiopian power capacity will rise dramaticallyfrom the present 2,000MW to 10,000MW, satisfying domestic demand as well as exporting power toneighboring countries. A number of countries, including Sudan, Kenya and Rwanda, are waiting for
Ethiopian electricity. The dam is being built with domestic funding only (national budget and people’scontributions). It is 47% complete as of October 2015 according to the Government. Full completionis expected in mid-2017. But we must also be mindful of a possibility of delay associated with such
big projects as well as a water dispute between Ethiopia and Egypt. Firms may install a generator in
self-defense, but due to its high fuel cost it can be used only in emergency and not for regular use. Inan effort to invite FDI and promote industrialization, many developing countries and localities commit
to uninterrupted power supply to industrial zones even when the rest of the city is blacked out. We
understand that Ethiopia will also follow this practice. If even that is difficult, the last resort is scheduled
and pre-announced power stoppage as few times as possible.
Inefficiency and corruption are common problems in tax collection and customs clearance in many
developing countries. In Ethiopia, investors complain bitterly about ERCA. In international comparison,
we feel that Ethiopia suffers from inefficiency relatively more than from corruption. In a developmental
state such as Ethiopia, is it not possible to mobilize benchmarking and BPR to set targets and anaction plan for improving ERCA in a top-down manner?
To solve these problems, we first need a good fact-finding survey. Then we need to urge and workwith the Ethiopian Government to design and implement both temporary measures and ultimate

Chapter 4 Investment Climate

solutions.

２

Wage and productivity

Ethiopia’s population structure is pyramid-shaped as seen in the Ethiopia Demographic and Health
Survey of 2011. On close examination, we detect that males in the 50s are relatively few and infants
aged 5-9 are more numerous than those below the age of five. But overall, it exhibits a structure of aclassical developing country with a large number of children in school age and few old people. Thistendency has not changed very much from the Surveys of 2000 and 2005. This means a large numberof youths will enter the labor market in the near future, and we can say that Ethiopia is a country
suitable for labor-intensive manufacturing. However, labor shortage may arise in certain skills or
locations (such as the vicinity of Addis Ababa). How much rural-urban migration will occur is still
unknown in Ethiopia, but such migration will surely occur to some extent even with cultural andlinguistic differences across regions. Ethiopians have already migrated to all over the world and labor
exports to Middle East is also active.
Ethiopians are serious and nimble-fingered people. Ethiopia at present does not have minimum

56

Fig.2

Population Pyramid

Source: Ethiopia Demographic and Health Survey, 2011.

wages. Wage levels we hear are approximately $50 per month for entry-level workers and $70-80 for
more experienced ones, but higher and lower numbers are also reported probably depending on
location, sectors and benefits. In Ethiopia where large-scale labor-intensive FDI has just started topour in, systematic wage statistics such as the ones produced by JETRO for Asian countries do notexist. To partly remedy this problem, JICA conducted a wage and labor productivity survey in 2015 bymobilizing Addis Ababa University researchers. The results show that average monthly wage in andaround Addis was $95 for leather (this includes both tannery and products), $89 for textile andgarment, and $58 for floriculture. This survey did not effectively separate different functions,
Chapter 4 Investment Climate

experiences or academic backgrounds of workers and thus can only report average wages of different
cohorts of workers in each sector. Starting salary may be about $50 but firms that intensively use
skilled and experienced workers or middle managers (such as tanneries) naturally have higher
average wages than those that hire a large number of unskilled workers.
Using available macro data, Ethiopian labor productivity can be calculated as follows. In the elevenyears ending in 2011/2012, manufacturing real value-added per employee (i.e., labor productivity)rose at 2.7% per annum, which is relatively low if this number is credible. Labor productivity rose 10%
per annum during Japan’s high growth era (1955-1970). It annually rose 8.8% in China, 4.8% in India,
and 4.5% in Vietnam during 1995-2013. Meanwhile, during the same period, only about 2% annual
increase was observed in Malaysia, Thailand, and Indonesia, and the Philippines even recorded
decline. We can say that Ethiopian productivity performance is low but not far lower than some of the
Asian developing countries. We are advising the Ethiopian Government to aim at the labor productivity
increase of 5-10% per annum if the country is determined to become a leader in light manufacturing.
No rising trend in wage is reported by EIC or the Ethiopian Industrial Development Zones

57

Corporation. We also do not hear about wage inflation but there is informal talk about possibly limited
wage pressure. The Ethiopian Government advises FDI to consider rural areas where labor is moreabundant instead of Addis vicinity in order to avoid wage inflation in the future, although no such trend
is visible today. It strongly instructs labor-using large factories to locate in industrial zones outside
Addis Ababa. On the other hand, real wage for workers (measured in price-adjusted birr wage, notdollar wage that concerns foreign investors) recently registered a decline due to high inflation. If thistrend continues in the future, it will pose a very serious problem from the viewpoint of social stability.
We must admit that unskilled wage of $50 per month is very low. It is lower than those in so-called
low-wage countries such as Indonesia ($263) and Vietnam ($173). It is even lower than those in thepoorest countries in Asia such as Myanmar ($127), Cambodia ($113), and Bangladesh ($100) - theseare JETRO survey results in 2015. Moreover, in many Asian countries wages are shooting up every
year. If we look at Africa, apart from crisis or fragile countries, other politically stable countries alreadyhave wage levels comparable to Indonesia or India, which makes Ethiopian low wage very unique.
Our team is urging the Ethiopian Government to jealously keep this wage advantage. We advise that
all must make effort to improve productivity, let wages rise in tandem with labor productivity, andsystematically collect necessary data on wage and productivity to enforce this policy.
The Ethiopian Government is already well aware of the crucial importance of productivity increase.
For this purpose, it has introduced benchmarking, BPR and kaizen, and set up many sectoral
institutes. It emphasizes education in science and technology and has built engineering universities
at full speed. Adoption and scaling-up of the German-coached TVET system across the country wasfor the same purpose. GTP2, to be finalized and announced in early 2016, will emphasize quality,
productivity, and competitiveness.

Chapter 4 Investment Climate

There is also good news. The World Bank published Light Manufacturing in Africa, a reportcomparing Asia and Africa, in 2012. It singles out Ethiopia as a model country and examines its
potentials in apparel, leather products, wood processing, metal products, and agro business. The
report concludes that Ethiopian wage is 1/4 of China and 1/2 of Vietnam, while productivity of
Ethiopian garment worker (number of polo shirts per person per day) is 1/2 of China and the same asin Vietnam. This means that productivity-adjusted wage in Ethiopia is only half of China and Vietnam.
In Tanzania, labor productivity is similar to Ethiopia but wage is 3.6 times higher than Ethiopia.
The World Bank lead economist in Addis Ababa was skeptical about realization of a large volume
of manufacturing FDI into Ethiopia. But he was of the opinion that labor supply would not be aconstraint in the foreseeable future because a large pool of unskilled and unemployed workers existed
and migrant workers were likely to shift from going to Gulf states to coming to Addis. He added thatthe recent wage hike of public servants (about 30%) might exert some pressure on private sector
wages, but in terms of USD, no sharp rise would be expected in the next several years; thus Ethiopia
would remain a very low wage country. By contrast, he warned that skilled labor (middle-leveltechnicians and engineers) might face skill-versus-industry needs mismatch despite fast expansion

58

of engineering universities in rural areas, and urged the Government to better target TVET programsto actual industrial needs.

３

Industrial parks

In the southern part of Addis Ababa and further beyond, called Akaki Kality, accessible by car within
30 minutes from the center if there is no traffic jam, there is an old concentration of state-owned andprivate factories. Leather tanneries have been scattered around Addis. In the northern region of Tigray,there is a two-decade old industrial cluster of companies founded by the Endowment Fund for
Rehabilitation of Tigray (EFFORT) which critics call party-owned companies. Ethiopia also has aformer military factory, Metal Engineering Corporation (METEC), privatized in 2011. These are the oldindustrial areas of Ethiopia, the existence of which however was not sufficient to strongly propelindustrialization in a globalized world.
It was only recently that the Ethiopian Government became very serious about preparing industrial
zones to attract FDI. Initial plans included construction of industrial zones by Indian and Chinese
developers. However, impatient Ethiopians were not happy with the result; the speed of construction
was too slow, rental prices were too high (though developers were given cheap land), and few tenantcompanies invested. To us Japanese these criticisms seemed a bit too harsh on foreign developers
who must operate in less-than-perfect business environment. At any rate, the Government
consequently decided to build industrial zones by itself to speed up. In October 2013 the 100% stateowned Ethiopia Industrial Development Zones Corporation was established. In 2014 it was madelegally clear that industrial zone development could be undertaken by any developer whether it is
Chapter 4 Investment Climate

foreign, state-run or JV. The Industrial Development Zones Corporation was reorganized andstrengthened from MOI supervision to under direct guidance of the Prime Minister’s Office. The
Government explained that FDI developers were the best but the Government had to prepareindustrial zones fast because “there is a long queue of FDI companies wanting to come” and such achance should not be missed (Ethiopia is happy to let foreigners operate zones through management
contracts).
We were initially apprehensive because there were not many industrial zones created byinexperienced governments which achieved brilliant success. But we had to eat our words when wesaw that Bole Lemi 1 Industrial Zone, the first such zone established by the Ethiopian Government,
was fully booked even before construction was completed. However, as an industrial zone Bole Lemi
1 is far from perfect, for example, with unusual management office buildings and scattered debris onzone roads. The World Bank is supporting the next two state-run industrial zones—Bole Lemi 2 andKilinto—with finance and know-how (see below).
Ethiopia’s industrial zone policy is active, but there are a few unfamiliar points to the Japanese eye.
This may be partly because Japanese standards are unique but also because Ethiopian industrial

59

zone policy is still in an early stage.
Ethiopian policy makers led by Dr. Arkebe insist that each industrial zone should host only one (ora very few) type of investors among garment, leather, agro processing, pharmaceuticals, electronics,
heavy industries, etc. However, Japanese industrial zones in East Asia are not choosy about sectors
as long as investors abide by the common standards in environmental protection or handlinghazardous materials (developing countries may prohibit plating or painting activities). Electronics orgarment clusters may form naturally by market force. But industrial zones do not narrowly specify
tenant firms which is disadvantageous to sales. Note however that the Ethiopian government
promises not to apply the “only one sector” rule to the proposed Japanese investment area so thisissue does not concern us for the moment.
Ethiopia is receiving large manufacturers producing garment and shoes using a large amount of
unskilled labor. But this is just the first step in FDI-led industrialization. As in East Asia, there will be along road ahead to develop local inputs and internalize technology and human resource. When manylarge factory sheds are being erected, it is easy to forget the importance of supporting industries andengineer training to which SMEs can contribute greatly. Transition from unskilled labor to technology
transfer is a topic that should be taken up by future policy dialogue sessions.
The Ethiopian Government plans to raise $1.3 billion for building industrial zones, of which $300
million is covered by Euro Bond issue, $250 million by World Bank loans, and $350 million by
government budget. For future industrial zones, the “turnkey contract” approach is adopted in which
one designated contractor will undertake everything rather than multiple biddings for different works
as the World Bank requires, which Ethiopia thinks is too slow. The Government also wants to securetenant firms before construction so infrastructure and sheds are built to their specifications; recover

Chapter 4 Investment Climate

infrastructure cost within 15 years (by setting the rental price accordingly); and enforce global
standard environmental and green standards. In Bole Lemi 1, factory rental has a renewable 10-year
term with the rental charge of $1/m2/month in the first five years and $1.25/m2/month in the remaining
five years. This is cheap, and the Government says this was a special deal for initial zones which will
not continue in the future.
Table 5 lists existing and planned industrial zones. Bole Lemi 1 (fully occupied), Bole Lemi 2(planned), and Hawassa (almost fully occupied) offer relatively large prefabricated rental factories(“factory sheds” in Ethiopian terminology) and no land-only rentals. This was due to having to
respond to large and urgent demand for factory space; the Government is not exclusively interested
in supplying rental factories only. As noted above, the Government wants to create specialized
industrial zones. Bole Lemi 1 and 2 and Hawassa are reserved for textile and garment while Kilinto
can host agro processing, food and beverages, pharmaceuticals, and furniture only (no textile orgarment). Dire Dawa, close to Djibouti Port, is earmarked for export-oriented manufacturers. The
Government guides labor-intensive large operations away from Addis and into regional industrial
zones in order to cope with expected urban labor shortage and allocate industry widely among regions.

60Industrial Zones

Industrial zone
Bole Lemi I

Developer
Government

Location
15km SE of
AA center,within 30
min. driveSize
156ha; 20
factory
sheds, 10each of5,500m2 &11,000m2

StatusOpen in2014, fully
occupied; 5in operation,
all sheds
completed

RemarkFactory sheds only, no land rental;
possible to rent multiple sheds; 12tenants from Taiwan, Korea, India,
China & Pakistan; of which 10 are
garment, 1 each in footwear &gloves; no labor supply problem;
wage $50-55/mo. Waste water
treatment under construction

Bole Lemi II

Government

Adjacent toBole Lemi I

186ha; 15
sheds andparcels ofland planned

F/S done;
finalizing
detail design

F/S done by Korean company
Dohwa; WB assists with finance &TA (sheds, infrastructure, etc.); forgarment & footwear investors.

KilintoForeigndeveloper
preferred but
state
development
also possible

20km S of
AA center308ha withpossibility of
expansion

175km S of
AA viaMojo, half
day drive(railway &highwayplanned)E of AA,
300km
from
Djibouti;
near new
RR station
N of AA
near
Dessie270ha, 30
sheds, 100
apartments,
shops,
hotels, etc.

Construction
started July
2015, to befinished Jan.
2016

1,500haF/S done by
Chinese;detail design
stage

1,000haF/S byIndiangovernment
fund

Hawaｓsa(previously
Awassa)Dire Dawa

Kombolcha

F/S done by Korean company
Dohwa; WB assistance; for wide
sectors incl. agro processing,electronics, furniture, etc.

PharmaceuticalIndustrial Zone

Near AA

Initiative in2015, details
unknown

High Tech ParkAA, near
Bole
AirportDetails
unknown

Eastern
Industry Zone

Jiang Su Qi
Yuan Group(China)S of AA;
about 1hour drive

500ha in
total; 11
sheds of10,000ha
each

10 Chinese
firms; sheds
are fully
occupied;
Phase 2construction
startedGovernment is looking for foreign
developers for these zones; if
there is no taker, government iswilling to invest according to
specs required by tenant firms. A
foreign group is moving into
Hawassa with infra cost shared bygroup and government. F/S ofDire Dawa was conducted by
China Association of Development
Zones. Indian Government will
support Kombolcha with a loan of$50 million.

Chapter 4 Investment Climate

Tab.5

Supported by Bill Gates
Foundation, study by McKinzey.
To invite large pharmaceuticalfirms from EU, US and Asia forboth domestic sales & export.
Study done by McKinzey.
Adjacent to new Addis Ababa
Science & Technology University.
The first IZ in Ethiopia; developedby a Chinese private group with
Chinese government support;
Huajian has been operating herein 2 factory sheds.

61George Shoe
City

GeorgeShoe(Taiwan)

Mojo; S of
AA, about
2 hourdrive

50ha

Designstage

Building tannery and leatherrelated facilities for use by George
Shoe and other Taiwanesecompanies; expanding from Bole
Lemi I.
Expanding from Eastern Industry
Zone to its own zone; detaildesign to be finalized; delay seen.

Huajian ShoeCity

HuajianJemo area
inside AA

138ha

Land
procured;
designing
stage

Gaizo

Ayka

Jemo &
Gulaleareas inside AA

Detaildesignfinished

Initially to invite Turkish exportoriented textile firms but now any
firm can come; Delay seen. Gaizomeans Garment Industrial Zone.

Kingdom Linen

KingdomGroup (HongKong)

South endof AA

3 factory
apartments,
4-5 stories
high; 5ha in 2
locations
30ha

Negotiating
land &
designing

Largest Chinese linen producer.

Note: This table summarizes our knowledge as of November 2015 with information provided by the Government andsite visits. The Ethiopian Government also has decided to build industrial zones in Adama (a.k.a. Nazaret) andMekelle. There are plans for building industrial zones in Bahir Dar and Jimma also. An industrial area reserved forJapanese firms is being considered within Kilinto.

Addis Ababa is slated for skill- and knowledge-intensive activities rather than mass production of
simple products. Other than these, a state-led industrial zone is planned in Kombolcha andPharmaceutical Industrial Zone and High-tech Industrial Park are also proposed in the Addis suburbs.
Further into the future, Adama, Mekelle, Bahar Dar, and Jimma are expected to have industrial zones.
The World Bank supports development of Bole Lemi 2 and Kilinto Industrial Zone with theCompetitiveness and Job Creation (CJC) Project accompanied by an IDA loan up to $250 million for
the five-year period, which was approved by the Bank Board in May 2014. The CJC Project aims to
Chapter 4 Investment Climate

create model industrial zones in Ethiopia through assistance in both software and hardware. It has
four components: (i) legal framework and institutional capacity building; (ii) construction of factory
sheds, infrastructure and management support; (iii) a TVET center (expecting participation of tenantfirms, TIDI, LIDI, etc.); and (iv) linkage between industrial zones and local SMEs.
At present Hawassa Industrial Zone in the Southern Region shows rapid progress. The area has alarge farming population suitable for labor-intensive works. A US-based group is relocating its suppliercompanies in large number from Asia to Ethiopia, and Hawassa was chosen as the place. The firstphase (100ha) will have 35 large factory sheds, 100 residential units, worker dormitories, andcommercial areas. China’s CCECC is the builder under the “turn-key contract” starting constructionin July 2015 and finishing by January 2016 (originally December 2015; we need to check the qualityof infrastructure after completion). The Government will support Hawassa by building a new highway(within 3-4 years), a railway line, and a small airport (by end 2016). Private developers will receive
15-year tax holiday and tenant firms will enjoy two more years of tax holiday (8-10 years). Other thanthe US group, companies from Indonesia, India, Sri Lanka, China, and US have showed interest andPhase 1 is virtually full even before completion, with Phase 2 to follow. Some firms began worker

62

training. The shed rental is expected to be $2/m2/mo. in the first two years, $2.5 up to the 7th year,
and $2.75 up to the 15th year, allowing the developer to recoup the initial investment in 15 years.
These are state-led industrial zones. The fact is there are more FDI firms wanting to invest or
expand in industrial zones in Ethiopia than the Government can offer, with the consequence that someof the FDI firms have started to build industrial zones or factory apartments for their own expansion
or for inviting more manufacturers from the home country, as in Table 5. To us Japanese it is almost
unthinkable to build first factories in remote areas far from Addis, but investors from other countries,
especially emerging economies, seem to have no such worries. Investing in rural areas will certainly
have benefits including low wage, easy recruitment of workers, and supporting the Ethiopian
Government in allocating industry widely across Regions.
George Shoe (Taiwan), an OEM manufacturer of brand shoes, is building an industrial zone (Mojo
George Industrial Zone) in Mojo, a town designated as the leather cluster by the Government, where
2 tanneries and 14 factories are to be constructed. Eastern Industry Zone (China), Ethiopia’s first(private) industrial zone, is developed and managed by a private firm from Jiang Su Province since2009. Huajian (China), another OEM shoe maker, rents two factory sheds there. Factory sheds are
fully occupied but land is still available at Eastern Industry Zone. Separately, Huajian also develops
its own industrial zone for expansion, but progress is slow—only land breaking and fencing were done
and the Government is worried. Ayka (Turkey) has a plan to build factory apartments in two locationsin Addis Ababa, but this project is also encountering delays. One of the location was to be developed
jointly with the Ethiopian Government, but this proposal was cancelled.
In autumn 2015, discussion started to establish a Japanese investment area in part of Kilinto
Industrial Zone, as explained at the end of Chapter 2. The Ethiopian Government and the World Bank
welcome this idea, and the Japanese Government and its agencies will support this project. This area
Chapter 4 Investment Climate

will be managed by a private company and it is too early to know if negotiations, contract andconstruction will go smoothly between Ethiopia and the company. Nevertheless, it can be safely said
that, if this plan goes through, it will be a big step forward for Japanese manufacturing firms to comeand operate in Ethiopia in particular and Africa in general.
Ms. Helen Hai, who established Huajian Factory in Ethiopia, subsequently became a World Bank
consultant at MOI but her contract expired in June 2014. We hear that she is currently an advisor at
the Prime Minister’ Office. She is also the CEO of Made in Africa and a UNIDO Goodwill Ambassador
for Africa’s industrialization (appointment in November 2014).

63

Key Persons
As of December 2015
H.E. Dr. Mulatu Teshome Wirtu
President

Mr. Ahmed Nuru
Director General and Advisor, Policy and Program Studyand M&E, Ministry of Industry

H.E. Mr. Hailemariam Desalegn
Prime Minister

Mr. Getahun Tadesse
Director General, Ethiopian Kaizen Institute

H.E. Mr. Dr. Yinager Dessie
Commissioner, National Planning Commission

Mr. Sileshi Lemma
Director General
Textile Industry Development Institute

H.E. Mr. Ahmed Abitew
Minister of Industry

Mr. Wondu Legesse
Director General
Leather Industry Development Institute

H.E. Mr. Tefera Deribew
Minister of Agriculture and Natural Resources

Mr. Solomon Afework
President, Ethiopian Chamber of Commerce & Sectorial
Association

H.E. Dr. Newai Gebreab
Chief Economic Advisor to Prime Minister
Director, Ethiopian Development Research Institute

H.E. Dr. Markos Tekle Rike
Ambassador

H.E. Dr. Arkebe Oqubay Metiku
Economic Advisor to Prime Minister

H.E. Mr. Kazuhiro Suzuki
Ambassador

H.E. Mr. Sisay Gemechu
State Minister of Industry

Mr. Kimiaki Jin
Chief Representative, JICA Ethiopia Office

H.E. Mr. Tadesse Haile
State Minister of Industry

Mr. Tadesse Dadi Segni
Adviser, UNIDO Ethiopia Office

H.E. Dr. Mebrahtu Meles
State Minister of Industry

Ms. Helen Hai
Business supporter and advisor in Africa's
industrialization

Mr. Fitsum Arega
Director General, Ethiopian Investment Commission

Second son & daughter of Abebe Bikila, the winner of1964 Tokyo Olympic Marathon

Contacts
As of December 2015

Organization
Embassy of Ethiopia

Address, Phone and e-mailTakanawa Kaisei Bldg 2fl. 3-4-1 Takanawa Minato-ku,
Tokyo 108-0074 JAPAN, Tel: (03)5420-6860,
info@ethiopia-emb.or.jp
http://www.ethiopia-emb.or.jp/

Contact Person
H.E. Markos Tekle Rike, Ambassador
Mr. Hailu Tefera Garomsa, Minister
Counsellor II

Ethiopian Investment
Commission (EIC)

P.O. Box 2313 Addis Ababa, Ethiopia
Tel: (251) 11 551 0033, ethioinvest@eia.gov.et
http://www.ethioinvest.net/

Ethiopia Chamber ofCommerce & Sectorial
Association

P.O.Box. 2458 Addis Ababa, Ethiopia
Tel:(251)115 518 055, aachamber1@ethionet.et
http://www.addischamber.com/

Embassy of Japan

Kirkose Kifle Ketema K19 H653 Addis Ababa, Ethiopia H.E. Mr. Kazuhiro Suzuki, Ambassador
Tel: （251）11-551-1088
Mr. Kazuto Nakamura, Second Secretary
kazuto.nakamura@mofa.go.jp
Mr. Kazuhiko Sasaki, Second Secretary,
Economic Section
kazuhiko.sasaki@mofa.go.jp
http://www.et.emb-japan.go.jp/index_j.htm

Ministry of Economy,
Trade and Industry(METI)

1-3-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8901,
Japan, Tel: (03)3501-1511, africa@meti.go.jp
http://www.meti.go.jp/

Middle East & Africa Division, Trade Policy
BureauJETRO Headquarter

Ark Mori Building, 6F 12-32, Akasaka 1-chome,
Minato-ku, Tokyo 107-6006, Tel: (03)3582-5511
e-mail: PLA@jetro.go.jp（Planning Dept）/
ORH@jetro.go.jp（Oversea Research Dept, Middle East
and Africa）, http://www.jetro.go.jp/indexj.html

・Planning Division Dept
・Middle East and Africa, Oversea
Research Dept
・Mr. Takeshi Ishigayasumi, JETRO
Johannesburg Deputy Executive Director

JICA Headquarter

Nibancho Center Building 5-25, Niban-cho, Chiyodaku, Tokyo 102-8012, Tel: (03）5226-6660,63
e-mail: iltps1@jica.go.jp (Private Sector Division1)
6rta2@jica.go.jp (Africa Division2）
http://www.jica.go.jp/ethiopia/

・Private Sector Division1and
Divison2,Industrial Development and Public
Policy Dept.;
Mr. Keiji Katai, Advisor
・Africa Division2

JICA Ethiopia

Kirkos sub-city, Kebele 02, House No.676／05, Addis
Ababa, Ethiopia （MINA Building, 6 -7F）
Tel: 251-11-5504755
Tanaka.Hiroyuki.2@jica.go.jp
Fukuda.Kana@jica.go.jp
http://www.jica.go.jp/ethiopia/office/index.html

Mr. Kimiaki Jin, Chief Representative
Mr. Hiroyuki Tanaka, Senior
Representative
Mr. Kana Fukuda

Ethiopia airline Japan
office (GSSA)Toranomon TBL building 8FL. 1-19-9 Toranomon
Minato-ku, Tokyo 1050001 JAPAN,
Tel: 03-3593-6730, mesays@ethiopianairlines.com

Mr. Mesay S. Mengistu, Area Manager inJapan Office

UNIDO Ethiopia

P.O. Box 5580, ECA Old Building Addis Ababa,
Ethiopia, Tel:251-11-5514 245
t.segni@unido.org, office.ethiopia@unido.org
http://www.unido.org/office/ethiopia.html

Mr. Tadesse Dadi Segni, Investment
Advisor for Ethiopia

UNIDO Investment andTechnology Promotion
Office, Tokyo（ITPO）

Ichigo Hanzomon Building 7th Floor 2-19, Hayabusacho, Chiyoda-ku, Tokyo 102-0092 Japan
Tel: +81-3-5275-3321, itpo.tokyo@unido.org
http://www.unido.or.jp/

Mr. Solomon Afework, President

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First published in Nov. 2014;
revised in Dec. 2014, Jan., Feb. & Dec. 2015