Ethiopia Infrastructure a Major Benefactor in Chinese Investment

Ethiopia Infrastructure a Major Benefactor in Chinese Investment

January 24, 2019

Africa’s second most populous country, which was ranked the third-poorest in the world in 2000, has seen a meteoric rise through state spending on roads, giant dams and industrial parks.  Ethiopia’s services sector has also contributed significantly towards rapid growth. With an annual GDP per capita of USD 80 billion, it is miraculous that Ethiopia has seen poverty rates fall to 31% in less than a decade, making it among the top three fastest growing economies of the world.

By Viraj Desai

Ethiopia appears to be fast emerging as the China of Africa, having witnessed growth rates of nearly 10 percent over the past decade.

According to the International Monetary Fund, growth has been spurred by manufacturing and major infrastructure projects giving it a further fillip.

Despite human rights groups’ protests over the past few years, Ethiopia’s economy is now ahead of Rwanda, Ivory Coast and Senegal, all of which have growth rates in excess of 7% in the region.

Previously, Ghana was the fastest growing country with growth rate of 8.9%, which has slipped below 7% due to several known factors such as efforts to contain inflation and high interest rates.

Some of the successful measures initiated by the Ethiopian Government include construction of industrial parks in major towns including Bole Lemmi, Hawassa, Kombolcha and Mekele industrial parks, which are already operational, with more major construction projects in the pipeline. Industrial parks have tremendous capacity to generate employment and boost productivity.

Ethiopia has also seen significant Chinese investment. For example, the Eastern Industrial Zone in Oromia State has seen various factories including a pharmaceutical firm built at a cost of USD85 million. Additionally, Huajian shoe factory in Addis Ababa was manufactured by a Chinese firm and exports from the park have commenced for trade on international markets. Another industrial park currently under construction by Chinese government firm China Communications Construction Company is the Arerti Industrial Park, located in the Amhara region in North Shoa zone.

Ethiopia is steadily on a path towards reducing its reliance on primary commodities such as gold, oil and cocoa through increased investment in its Manufacturing sector; which is helping the country accelerate its ambition to achieve economic transformation.

The country’s five-year Growth and Transformation Plan 2020, aims to have constructed 15 new industrial parks with a budget of over USD 1 billion.

Interestingly, global fashion brands like H&M, Guess, J Crew, and Naturalizer have already established manufacturing centres in the country as Ethiopia hopes to compete with other low-labour cost countries of Asia.

Ethiopia is currently ranked 161th out of 190 countries globally and 31st in Africa, which may change due to said measures taken by its Government over the past few years. Its growing economy has also attracted funding of USD1.2 billion from the World Bank under its International Development Association, which will help generate an increase in lower-to-middle income consumers.

Energy Transformation

Ethiopia is quickly moving towards being self-sufficient in energy generation too. The country’s waste-to-energy plant, which commences operations this month, will be the first one in Africa and will incinerate 1,400 tonnes of waste every day. Currently, 80% of the rubbish is generated by its capital, Addis Ababa. This project is a PPP between the Ethiopian Government and a consortium of international companies, demonstrating the surging interest in FDI.

Furthermore, Ethiopia is looking to tap into its geothermal energy resources by involving potential local and foreign investors. The country, endowed with large natural resources, depends on traditional fossil fuels and biomass for its electricity needs; yet almost one-third of its population lack access to electricity. To combat this, the country is aiming to achieve universal electrification by 2025 by enhancing its institutional capacity. Solar energy has witnessed a steady growth over the past five years with a growth rate of 15-20% for the PV suppliers.

Another major infrastructure project is the Grand Renaissance Dam. Currently still under construction since 2011, costs have so far exceeded USD 4.7 billion. Once completed, it is projected to generate 6.45 GW of power, making it the largest hydro plant in Africa and 7th largest worldwide.

Increased Urbanisation

Currently 18-23 percent of 100 million people live in urban areas. This number is poised to increase, thanks to Ethiopia’s shift from agriculture to manufacturing.

The Government is looking to open up greater industry including sugar, railways, hotels and state corporations, which is likely to bring in more investments by domestic as well as foreign institutions.

Higher disposable incomes will also mean more travel for its citizens and this is helping Ethiopian Airlines deliver a stellar performance year on year. The airline recently introduced the self-check-in initiative to bring in the digital experience for its customers.

Ethiopia Airlines has been ranked the best airline in Africa for the past 7 years on the back of exceptional financial performance.

The Ethiopian 32 km light rail system was largely funded by China, enabling 60,000 citizens access to affordable travel from the city’s suburbs to the City Centre. A tremendous shift is likely due to its aims to electrify its national train system by 2025 and make it a transportation hub for neighbouring countries. One example is the 750km-long electric railway connecting Addis Ababa to the Red Sea via the Port of Djibouti, which will begin operations this month. This will reduce transit time from two-to-three days to around 10 hours. This will be a huge boon for the burgeoning manufacturing sector.

Ethiopia has also spent over USD10 billion on its roads in the past two decades. This has resulted in increasing its road network to over 1,00,000 kms from just 19,000 kms in the 1990s.


(Image of Ethiopian Prime Minister Dr Abiy Ahmed Ali at the African Union meeting, 18 November 2018, Addis Ababa. Courtesy of Office of the Ethiopia’s Prime Minister).


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