August 5, 2021

In Ethiopia, economic transformation put to the test of instability

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Women workers at a garment factory in Hawassa Industrial Park in southern Ethiopia in October 2019.

The metal behemoths parade under the gaze of motorists who take the highway linking Addis Ababa to Djibouti. Nineteen hangars belonging to the Adama industrial park, 100 kilometers southwest of the Ethiopian capital, and symbolize the country’s ambition to find its place on the world trade map by establishing itself as the ” future China of Africa “, According to the phrase rehashed in recent years.

These parks – the country has a dozen – have long been an essential link in Ethiopia’s economic transformation strategy, promoted by Prime Minister Abiy Ahmed, favorite in the general elections scheduled for Monday, June 21.

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The visit to the Adama special economic zone, inaugurated in 2018, nevertheless gives a glimpse of the extent of the difficulties. To get there, you have to take a rutted dirt road that leads to an imposing six-lane road that is hopelessly empty. From a distance, we can see the Ethiopian-Djibouti railway line, supposed to be the main export logistics axis, ” but who still does not transport any of our goods », Admits the director of the park, Abdela Gebo.

Three years after its opening, investors are long in coming. A single company, the Chinese textile specialist Antex, occupies the premises at the rate of five warehouses. Its boss, Alex Lyu, installed his hundreds of sewing machines as soon as it opened. ” Since then, the park is still not connected to running water, he laments. We had to dig a well, extract and treat the water ourselves! »

“Privatize all industrial parks”

Expenditure ” reasonable »But which the industrialist would have done well, just like the incessant power cuts. A diplomat said that when he went to visit Adama, “ we heard only one noise, that of the generators ».

« These parks are not enough profitable, recognizes director Abdela Gebo. We only want one thing now, and that is for the private sector to make us competitive. A call that the Ethiopian finance ministry says it has heard. “We will adopt an aggressive strategy to privatize all industrial parks, because they are no longer a priority for the state. Building a park is easy, but connecting it to water systems and the power grid is much more complex », Recognizes Brook Taye, advisor to the ministry.

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Still not discouraged, Antex employs more than 5,000 workers in the industrial complex and says it wants to double its activity in the next three years. Attracted by an advantageous tax policy, Alex Lyu is betting even more on the cost of labor, on average four times cheaper than in Bangladesh.

The Special Economic Zones today employ almost 80,000 Ethiopians. It is on these small hands, poorly qualified and paid a pittance, that the industrialization strategy of the last decade has been based, with its parks specializing in textiles, the food industry and the pharmaceutical industry.

Inflation approaching 20%

But low wages also have its downside: mediocre productivity coupled with impressive turnover. In the first half of 2020, a third of park employees left their jobs, according to Industrial Park Development Corporation, the public entity that administers these special economic zones.

How to live on 23 euros per month? This is the dilemma facing Adama’s few thousand employees as inflation hovers around 20%. The prices of major expense items like rent, gas, teff and vegetables have even doubled or even tripled since 2020. Textile workers, 90% female, are often forced to share rooms with four or five people. , being unable to afford housing despite the eight hours of assembly line work a day.

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Still far from the “Prosperity” promised when Abiy Ahmed came to power, Ethiopia seems to be at a new crossroads in its development. After having aroused a rare enthusiasm in the West, the economic ambitions of the country are now raising doubts.

Several foreign industrialists admit, on condition of anonymity, that the exorbitant logistics costs, the shortage of foreign currencies and the growing political instability are gradually eroding their beliefs in the Ethiopian “success story”. The civil war in the province of Tigray, the resurgence of community tensions or the diplomatic crisis with Sudan blur the outlook.

Growth close to 10% until 2019

« Reforms were not undertaken as quickly as expected, but things are moving forward », Tries to reassure Alexander Demissie, director of the consultancy firm China Africa Advisory Group, taking for example the recent liberalization of the telecommunications sector. Announced as “The deal of the century”, it is done in slow motion, penalized by the addition of protectionist barriers. The opening up of the logistics and banking sectors, considered very promising, is also taking a long time to come.

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Some investors continue to believe in the long-term potential of the country, the second most populous in Africa, with some 110 million inhabitants, and which was forecasting growth of close to 10% until the arrival of the pandemic. “Even if the context is not conducive to investments today, I am settling in Ethiopia because I am betting that it will be a major player in ten years”, slips a European entrepreneur. A hope that seems to share many French companies like Bolloré or Orange.

But, for the time being, the balance seems to tip more towards the risks, as evidenced by the recent economic sanctions imposed by the United States, in connection with the ongoing conflict in Tigray. Beyond visa restrictions and the suspension of part of the aid, Washington intends to put pressure on the International Monetary Fund (IMF) and the World Bank to freeze disbursements.

New pitfalls for Ethiopia, already on the verge of over-indebtedness. The country has also requested a restructuring of its debts with the G20 countries, as authorized by the “common framework for the treatment of the debt” negotiated in 2020 to help developing countries to cope with the crisis. Covid-19. ” The rating agencies misinterpreted our request, se plaint Brook Taye. Our request for help in responding to the pandemic was seen as financial distress. »

Moody’s, S&P Global Ratings and Fitch all downgraded Ethiopia’s rating in the first half of 2021. While acknowledging the “Strong potential for economic growth”, the Fitch agency justified its decision by ” double-digit inflation, weak development and governance indicators and high political risks ”, summarizing the uncertainty that today surrounds this country for a time described as ” Tiger “ of Africa.