Could Ethiopia Become Africa’s Manufacturing Hub?

Africa is an enigma. Despite it’s enormous potential, the continent is often unappreciated as a potential manufacturing powerhouse in favor of more established economies like China and India.

Yet a recent report by the Overseas Development Institute found that manufacturing production in sub-Saharan Africa has more than doubled over the last decade.

According to the report, despite the region’s share of manufacturing in GDP falling from 19 percent in 1975 to 11 percent in 2014, it still grew faster than the global average at a rate of 3.5 percent annually, from USD $73 billion in 2005 to $157 billion in 2014.

The report suggests that this growth has been driven not only by rising wages in China, but also policy and infrastructure improvements in many parts of Africa. Ethiopia’s new industrial park is a prime example.

Hawassa Industrial Park

Located approximately 275 km (171 miles) from Addis Ababa, the country’s capital, the Hawassa industrial park encompasses 1.3 million square meters (~14 million square feet). Intended primarily for textile manufacturing, the park was built at a cost of $250 million.

Hawassa industrial park under construction. (Image courtesy of Ethiopia Online.)

Hawassa is expected to generate $250 million in exports this year, but the Ethiopian government has predicted that the park will generate roughly $2 billion in annual exports by 2020.

At the official opening ceremony last month, Ethiopian Prime Minister Hailemariam Desalegn said, “We want to sustain the growth of the manufacturing industry, as stipulated in our five-year Growth and Transformation Plan.”

Desalegn added that the park will create 83,000 jobs and that 16 similar industrial parks will be constructed across the country. The Hawassa park has already attracted 15 major manufacturers from China and the U.S., including PVH, Vanity Fair and the Raymond Group.

So what makes Ethiopia attractive as a manufacturing hub?

The country has no minimum wage laws for the private sector and the minimum age for labor is 14, though there are laws in place that prevent laborers under 18 from working more than 7 hours per day. In addition, the cost of electricity in Ethiopia is about $0.06 per kWh, less than half the African average of $0.14. This is due, in part, to the government’s heavy investments in the country’s infrastructure.

Although the majority of Ethiopia’s workforce is still employed in agriculture, the same was true of China only a decade ago. The combination of low labor and utility costs along with a highly motivated government can be a potent tonic for an emerging manufacturing sector.

Let’s hope Ethiopia has the formula right.

Will African manufacturing continue its growth despite global trends? Comment below.