Foreign investment in many sectors is controlled and so manufacturing currently accounts for just 13% of GDP. However, the government does welcome export-orientated manufacturing investment and Chinese companies have begun to take advantage of the country’s low wage costs and plentiful labour supply to switch production from China to Ethiopia.
Some analysts have suggested that this could become a significant trend as manufacturing wages continue to rise rapidly in China itself, but it seems too soon to predict an African manufacturing boom just yet.
Addis Ababa hopes that cheap and secure power supplies will attract foreign investors, and some progress has already been made in the textile and leather sectors, which the government has listed as one of the eight priority areas in its Growth and Transformation Plan.
Leather exports generated $121m in revenue last year, a 12% increase on the previous year. It is worth noting that the lion’s share of exports take the form of finished leather products, as the government has banned the export of raw animal skins and hides. In this case, at least, state intervention has paid dividends.
Ethiopia has the biggest livestock sector in Africa and the 10th biggest in the world, producing 7.5m goatskins, 8.1m sheepskins and 2.7m hides a year. Manufacturers also import animal skins from other countries in Eastern Africa.
Finished goods such as shoes, purses and finished leather are exported to the UK, North America, China and Japan in particular. They sell directly to foreign importers and wholesalers, while also producing and exporting footwear under the private labels of department stores, boutiques, shoe retail chains and mail order firms under contract.
While Ethiopia may soon have plentiful power supplies and improved transport infrastructure, manufacturers in many sectors, including textiles, require secure port access to ship their goods to customers.
Since the secession of Eritrea, Ethiopia has been a landlocked country and mainly relies on the port of Djibouti to handle its trade.
Fortunately, Ethiopia enjoys good relations with its small neighbour, which in turn relies on Ethiopian trade for much of its own economic activity.
Road and rail links between Addis Ababa and the port are being upgraded in order to serve an anticipated increase in manufacturing exports.
In addition, new road and rail links are planned with Kenya in order to enable greater Ethiopian trade through either Mombasa or the planned new port of Lamu.
Interestingly, both transport projects would run parallel to the new transmission line, a fibre-optic line and possibly even a fuel import pipeline.