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

Kenichi Ohno
National Graduate Institute for
Policy Studies (GRIPS)
Revised March 2014

Topics
 Ethiopia’s weaknesses and strengths

 Ethiopia-Japan industrial policy dialogue Manufacturing FDI in Ethiopia: current status

and future potential
 The role of Japan and Japanese FDI

For more on policy dialogue see:- http://www.grips.ac.jp/forum-e/af-growth/support_ethiopia/
support_ethiopia.htm- JICA & GRIPS, Intellectual Partnership for Africa: Industrial
Policy Dialogue between Japan and Ethiopia, Dec.2011.
- K. Ohno, Learning to Industrialize: From Given Growth to
Policy-aided Value Creation, Routledge, 2013 (ch.10).

Ethiopia: Negative Aspects
Landlockedness Limited natural resources (blessing in disguise?) Business environment is far from satisfactory As one of the poorest countries, the Ethiopian private
sector is undeveloped—low technology, subsistence
farming, lack of connectivity, etc.
 Top leaders are generally dynamic but more andbetter middle level officials & experts are needed Industrial policy is still primitive by East Asianstandard—but policy learning is continuing; muchbetter than most other African countriesPositive Aspect 1
Political stability & high diplomatic standing
Offering stability in a region fraught with instabilities African Union headquartered in Addis Ababa
 Leadership in G20, COP, AU often representing Africa
 Smooth transition of power in 2012
 Constant policy direction—developmental state &Agricultural Development Led Industrialization (ADLI)Positive Aspect 2
Seriousness in learning industrialization
Ethiopian people are serious and patient; fewer crimes
 Strong determination of top leaders toward industrial
development
 Active learning from East Asia (Korea, Taiwan, Japan,
Malaysia…)
 High policy attention to priority sectors (leather, textile…)-- incentives, sectoral institutes & twinning, regular firm
visits, Export Steering Committee (monthly monitoring),
targeted ODA & FDI
 Compulsion to try many policy measures quickly(admirable but a more long-term systematic approach is
better)Positive Aspect 3(For Japan) Proper understanding of & highexpectation from Japanese businesses andcooperation (especially after PM Abe’s visit, Jan.2014)
Expecting quality, not quantity, in trade, FDI and ODA
with Japan (mindset, knowledge, technology, etc.)
 Willingness to hear Japanese advice in policy dialogue
 Serious high-level effort in scaling up kaizen to national
movement (supported by JICA)
 Creating champion products for Japanese market &attracting Japanese FDI (supported by METI, MoFA, JICA,
JETRO)PM Hailemariam (Feb.25, 2014) “It is my ambition toreceive more Japanese FDI & traders in Ethiopia. Japanesepresence provides a roll model for our firms to follow. Other
nationalities cannot do this.”Ethiopia-Japan Policy Dialogue
How It Started

 PM Meles attended TICAD IV in Yokohama (May 2008)
 IPD-JICA Africa Taskforce meeting chaired by J. Stiglitz

and attended by PM (Addis Ababa, July 2008) – GRIPS
team explained E. Asian development & presented abook to PM
 PM Meles requested two-part cooperation from Japan(kaizen & policy dialogue): “I have learned from Taiwan
and Korea. Now I feel it is time to learn directly fromJapan.”
Phase 1: 2009-2011
Phase 2: 2012-ongoing
IPD: Initiative for Policy Dialogue, a policy-oriented research project
organized by Prof. Joseph Stiglitz of Columbia University.

Ethiopia-Japan Policy Dialogue
Two Pillars

Kaizen (JICA) A continuous teamwork approach to eliminate muda
(unnecessary action, time, process, etc.) fromworkplace and improve efficiency
 Developed in Japan in the late 1950s; now spread to
the world through official aid & private teaching 30 pilot firms targeted, Ethiopian KAIZEN Instituteestablished (Phase 1)
Industrial Policy Dialogue （GRIPS & JICA）
 Quarterly/semi-annual sessions at three levels—PM,
ministers & operational Pragmatic discussion in Ethiopian context; studying
best & not-so-good policy practices in Asia & Africa
 To covert talk into reality, JICA & JETRO selectively
offer concrete industrial projects

2008

2009

2010

2011

2012

Industrial policy dialogue (GRIPS & JICA)

Preparation

IPD-JICA
conference
July 2008

Phase 2Phase 1

Official launch
June 2009

Industrial
projects(JICA)

2014

PM Hailemariam

PM Meles

TICAD IV
May 2008

2013

Final session
May 2011

LaunchJan. 2012

TICAD VMay 2013

PM Abe visits
EthiopiaJan.2014

Feb. 2014

Kaizen phase 1(30 pilot firms)
Kaizen phase 2(creating institution & experts)
Basic metal &engineering study

Export promotion(champion products)(With Germany)

Note: Black squares indicate policy dialogue sessions in Addis Ababa with PM, concerned ministers and state ministers,
and officials and experts at operational levels.

At the Prime Minister’s Office

Meeting with Senior Economic Advisor to PM

Presenting JICA’s Kaizen Report to PM

High Level Forum (minister & state minister level)

Meeting with Industry Minister

At the Ministry of Finance,
Economy and Development

Issues Discussed at High Level
Forums (Phase I)
Ethiopia’s development philosophy—Democratic
Developmentalism (DD) & Agriculture Development
Led Industrialization (ADLI) East Asia’s industrial policy methods (procedure,organization, documentation…)
 Kaizen and its transferability to Ethiopia; national
productivity movements in Asia & Africa
 Country studies, policy missions & expert invitation—
Japan, Singapore, Taiwan, Korea, Malaysia, Thailand,
India, Mauritius, Botswana, Burkina Faso…
 Advice on 5-year plans (current & next)
 Basic metal & engineering surveyOur Evaluation (Phase I)
Policy dialogue is not easy. We visited many Africancountries for a policy dialogue partner. We chose
Ethiopia because of its commitment & readiness (alsothere was PM request).
 We were impressed by the positive attitude of PM &ministers toward industrialization.
 For results, mindset needs to be combined with policy
capability on the ground. Japan wants to help Ethiopia
in policy learning.
 While Japan is a small donor and investor in Ethiopia,
our policy dialogue is deep and intensive. Sincerity,
candidness and mutual respect are key.
Current Discussion (Phase II)
Planning method
 Planning Commission, Ministry of Industry
 Including productivity & quality targets and actions
into the next 5-year plan (incl. kaizen)
Concretizing PM’s idea to “become the leader ofAfrican light manufacturing by 2025”
 Data comparison on manufacturing performance –Africa & Asia (Ethiopia has a long way ahead) Attracting labor-intensive FDI from high-wage Asia
while avoiding future problems
Specific measures (with possibility of Japanese aid) Creating champion products for Japanese market
 FDI attraction (especially Japanese firms)

PM Hailemariam in TICAD V(Yokohama & Tokyo, May 2013)

Mr. Hailemariam represented Ethiopia as well as
Africa because Ethiopia was AU’s chair in 2013.
 Repeated statements that Ethiopia was committed toindustrialization, and Japanese FDI and technology
were strongly needed.
 Ethiopian investment seminar at JETRO Headquarters
with packed audience.
 Requesting assistance of GRIPS Development Forumin formulating the next 5-year plan (integrating kaizen
into the plan, Planning Commission & think tank).
PM Abe’s Visit to Ethiopia(Addis Ababa, Jan. 2014)© Cabinet Secretariat Office

Recognizing importance of ongoing kaizen & policy
dialogue Mr. Hailemariam strongly requested establishment of
JETRO office in Addis Ababa Produce visible results; bring Japanese FDI Ethiopian Airlines will have direct flights to Narita
 Don’t fly empty; fill with passengers & cargo Abe’s speech at AU: Japan’s cooperation will provide
human touch & bottom-up focus, which are common
features of Japanese firms.
Japanese FDI in Ethiopia
Still Tiny, Must Increase

Turkey has over 400 FDI projects (125 in operation);
India and China also have hundreds of projects, manyof which are light manufacturing.
 Japan had no manufacturing FDI in Ethiopia until
recently. In 2013, Hiroki, a Yokohama leather shop,
invested in Addis after careful preparation. It trained
workers at LIDI and will start operation soon. It will
export highest quality leather jackets, bags, etc.
 Japanese investors’ interest in Ethiopia (and Africa ingeneral) is rising. We will create a mechanism to letvarious Japanese organizations work together to turnthis interest into real investment.
Manufacturing FDI in Ethiopia
Current Status and Future Potential

Manufacturing FDI is coming from Turkey, India, China,
Korea, Pakistan, Sri Lanka… Some are large-scale laborintensive OEM producers of brand apparel & shoes.
 Ayka, a Turkish knitted apparel maker produces
30,000-40,000 pieces/day & hires over 5,000 workers.
Products are sold in EU & US markets via a German
distributor. Ayka is expanding & more textile firms arearriving from Turkey.
 Huajian, a Chinese shoe maker producing Westernbrand shoes, hires 1,750 workers and is expanding.
 George Shoe, a Taiwanese firm soon producing highend shoes and hiring 2,000 workers. Ethiopia is its
third global production site after Taiwan & China.

Ethiopia’s Attraction
Manufacturing FDI attracted to Ethiopia because of: Low wage by African standard ($50/month) Serious and disciplined workers
 Political stability and personal security
 Government committed to industrialization; Ethiopia
expects much from FDI firms, and in turn takes careof them with support and trouble-shooting (if you area priority FDI firm).
 Easy access to EU market by air & sea.
 Landlocked? Access problem?—Two-day trucking fromDjibouti Port to Addis adds about 2% to the cost of
mid-range apparel ($3,000/14ft container). Reported
irregularity in transport was corrected by MOI.

Ayka Addis,
verticallyintegrated,
producingknitted goods,
employing over
5,000 workers

FDI
activities

Eastern Industrial Zone by China

Helen Hai, CEO, Huajian Ethiopia©FT

Rental factories for
FDI at Bole Lemi
Industrial Park

Local Firms(JICA-supported kaizen
introduced)

Tire factory

PVC pipe factory

Tannery

Local Firms
Nutrition
food &
edible oil
factory

Leather shoe
factory

Rose cultivation

TVET (Germany-assisted)

Leather
product
workshopSwaziland
Thailand
Korea
China
Malaysia
Indonesia
Philippines
Singapore
Pakistan
Vietnam
Sri Lanka
Cote d'Ivoire
Bangladesh
Zimbabwe
Mauritius
Cameroon
Cambodia
Tunisia
MoroccoEgypt
Madagascar
Namibia
SenegalIndia
Mozambique
South Africa
Lesotho
Malawi
Kenya
Tanzania
BurundiZambiaTogo
UgandaLao PDR
Mongolia
GuineaGhana
Sudan
Burkina
Nepal
Botswana
AngolaRwandaAlgeria
Congo, Rep.
Ethiopia
Nigeria
Sierra Leone

Manufacturing Value Added(% of GDP, latest available data)% of GDP45

40

Africa

35

Asia

30

25

20

15

10

5

0

Source: World Bank, World Development Indicators database (accessed Oct.30, 2013).

Note: Data are for 2012. For countries with no 2012 data, data for the latest available year are used.

Manufacturing Value Added per Head
(USD, latest available data)

Source: World Bank, World Development Indicators database (accessed Oct. 30, 2013).
Note: Data are for 2012. For countries with no 2012 data, data for the latest available year are used.

ChinaKorea
Singapore
India
Thailand
Malaysia
Indonesia
VietnamPhilippines
S. Africa
Pakistan
Egypt
Tunisia
MoroccoBangladesh
Sri Lanka
Cambodia
Botswana
Nigeria
MyanmarNamibia
Kenya
Mauritius
Algeria
Cote d'Ivoire
Swaziland
Tanzania
SenegalGhana
ZambiaUgandaZimbabwe
Madagascar
Nepal
Togo
Ethiopia
Mozambique
Mongolia
RwandaManufactured Export (USD billion)$ billion
200
China $1,923.8b, Korea $466.3b, Singapore $285.1b
Africa

Asia

150

100

50

0

Source: World Bank, World Development Indicators database (accessed Oct. 30, 2013).

Note: Data are for 2012. For countries with no 2012 data, latest available data are used.

Net Manufactured Export (USD billion)(Manuf. export - manuf. import)
China $920.2b, Korea $206.5b
Africa
Asia

China
Korea
Singapore
Malaysia
Philippines
Bangladesh
Swaziland
Botswana
Togo
Cambodia
MyanmarThailandMadagascar
Mauritius
RwandaPakistan
SenegalMongolia
Zimbabwe
Namibia
Nepal
UgandaCote d'Ivoire
MozambiqueTunisia
ZambiaTanzania
Ethiopia
Sri Lanka
Kenya
MoroccoVietnam
Ghana
India
Egypt
Nigeria
Algeria
S. Africa
Indonesia$ billion
70
60
50
40
30
20
10
0
-10
-20
-30
-40
-50
-60
-70

Source: World Bank, World Development Indicators database (accessed Oct. 30, 2013).
Note: Data are for 2012. For countries with no 2012 data, latest available data are used.

Manufactured Export(% of total export, latest available data)% of total export
100
Africa

90

Asia
80
70
60
50
40
30
20
10
China
Cambodia
Botswana
Banglade
Korea
Philippine
Pakistan
Nepal
ThailandTunisia
Singapore
Swaziland
Sri Lanka
MoroccoVietnam
India
Malaysia
Mauritius
Togo
Madagasc
Egypt
Namibia
SenegalS. Africa
Indonesia
Kenya
UgandaMyanmar
Tanzania
Zimbabwe
Ethiopia
RwandaZambiaCote
Ghana
Mozambiq
Mongolia
Nigeria
Algeria0

Source: World Bank, World Development Indicators database (accessed Oct. 30, 2013).
Note: Data are for 2012. For countries with no 2012 data, latest available data are used.

Africa: Light Manufactured Export

Source: UNCTADstat, accessed Nov. 2013. Light manufacturing is defined using SITC as shown in previous slideAfrica: Net Light Manufactured Export(LM Export – LM Import)

Source: UNCTADstat, accessed Nov. 2013. Light manufacturing is defined using SITC as shown in previous slide

FDI Inflow in Secondary Industries（Annual Average of 2003-2012）

Sources: International Trade Centre (World Bank and UNCTAD) and Ethiopian Investment Agency.
Note: Preliminary calculation from ITC database. Average inflow during 2003-2012. Average of available years only when
there are missing data. Data definition and quality need to be confirmed. For Ethiopia, average manufacturing FDI
inflow for 2004-2013 (EIA data).

Ethiopia: FDI Inflow (National Data)

Source: Ethiopian Investment Agency.

Ethiopia: Light Manufacturing FDI Inflow(Calculated from EIA data on individual projects)

Note 1. Light manufacturing is defined as products of food, textile, leather, wood, furniture& jewelry. “Other” manufacturing does not include machinery assembly.
Note 2. Figures here are far smaller than manufacturing FDI in the previous slide. The gap is
too wide (5-8 times in recent years) to be explained by differences in definition.

WB “Light Manufacturing in Africa”(2012)
Comparing Africa (Ethiopia, Tanzania & Zambia) and Asia (China& Vietnam) with special attention on Ethiopia.
Analyzing Ethiopia’s five light industries (apparel, leather
products, wood products, metal products, agro-business).
Ethiopian wage is ¼ of China & ½ of Vietnam. Labor productivity
is ½ of China & same as Vietnam. Policy can expand this sector.

Light
manuf.
wage($/mo.)
2011

Light
manuf.
labor
productivity
Polo shirts/worker/day2011Summary

Policy Should Make A Difference
Ethiopia’s current manufacturing capability is very
limited. There is a long way ahead.
 However, recent arrival of light manufacturing FDI
and rising investor interest are good signs.
 Ethiopia may take off as Africa’s leading lightmanufacturing exporter if good policy (businessconditions, FDI marketing, post-investment support…)
is combined with current advantages (low wage,
political stability…)
Uniqueness of Japanese FDI
The Japanese business model is unique among global players: Manufacturing-focus—not so much trade, mining or
property
 Monozukuri (manufacturing) spirit—proud of efficient
factory floor; endless pursuit of quality & customer
satisfaction
 Long-term orientation—last in coming to new frontier but
once invested, staying long against difficulties
 Private assistance—providing training to local firms andworkers for building long-term reliable relationship Legal compliance—good observance of local labor, tax,
environment laws
These features should be highly desirable for African businesses
wanting to improve skills & technology for long-term rather
than pursuing short-term profits.

Proposal for Japanese Firms

In Investing in Ethiopia in Particular and Africa in General

Initial conditions are less favorable than in East Asia. But
patience and trust-building should open up new frontiers in
the long run—as in China, Vietnam, etc. before.
 Japanese cannot be like Chinese, Korean or Europeans. Our
business style is slow but sincere. Let us keep this feature ingoing to Africa.
 Do FDI and trade for long-term mutual benefits
 Improve local capability to produce high-quality products Add value by Japanese methods and technology
 Respect local laws, culture & rules as much as possible
 Work with kaizen centers, experts and factories.
 Work with Japanese embassy, JICA, JETRO, (even GRIPS)
for solving policy-related problems.
 Publicize the Japanese way across Africa.
