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Sustaining the momentum

Updated: 2014-01-24 10:14
By He Jingtong ( China Daily Africa)

With its distinct and relatively independent economic growth model, Ethiopia has a key role to play in the overall development of the African continent. As an African nation never colonized by a foreign power, it offers a rare perspective on how foreign investment, particularly from nations like China, can be used to help foster sustainable development.

From an investment perspective, there are several reasons as to why Ethiopia is an attractive investment option. It is also equally important to understand the synergies between the two nations from an investment perspective.

Ethiopia is a major gateway for Chinese enterprises looking to tap other markets in Africa, as it is not only a regional hub, but also the headquarters of the African Union. It is also one of the few African nations that offer a slew of incentives for companies setting up units.

Since the Ethiopian government implemented the policy of opening up in 1991, the government has actively promoted the market economy and privatization policies to encourage more foreign investment. Prominent among them are lower investment barriers, more investment avenues, tax incentives, investment protection and other related services.

Sino-Ethiopian economic cooperation that began in 1971 has mostly been in highways, veterinary stations, industrial parks, cement plants, power stations and water supply projects. Chinese companies have to date constructed more than 21 major infrastructure projects in Ethiopia.

As well as the investment, exports from China such as light industrial and high-tech products, machinery and equipment, textiles, pharmaceuticals and chemical products have helped sustain the industrial momentum. Imports from Ethiopia such as sesame seeds, frankincense, leather, cotton and coffee have also helped China.

Since China and Ethiopia signed an agreement to avoid double taxation in 2009, mutual investment has continued to expand with the cumulative direct investment of Chinese enterprises in Ethiopia surpassing $200 million.

Interestingly, there has also been a sea change in the pattern of economic cooperation between the two sides. The areas of investment have diversified from light industry, textiles and food to building materials, basic materials and mineral resources development, automotive assembly and industrial parks.

The stable political situation and effective governance in Ethiopia has also helped attract Chinese investment. Honest people and good social security have been the other major draws.

Ethiopia has abundant water and biological resources, a rather unique advantage in Africa. It is also among the world's top 10 nations in animal husbandry, while its livestock is rated the best in Africa. Along with a huge natural bamboo forest area, the country is also ideally suitable for cultivation of crops such as eucalyptus and castor oil plants.

With a population of more than 80 million, Ethiopia offers huge untapped domestic demand and an abundant supply of labor. As one of the most underdeveloped countries, it also enjoys duty-free and quota-free policies with the United States and the European Union.

Ethiopia has recently embarked on a mission to transform itself from an agrarian economy to an industrial economy. Foreign investment, especially in huge infrastructure projects, has been identified as the key facilitator for this transformation.

Food processing and machinery manufacturing are key investment areas identified by the Ethiopian government along with efforts to promote domestic economic zones. It is the last aspect that augurs well for Chinese firms as they have rich experience in setting up special economic zones.

Compared with emerging economies such as Ghana or Nigeria, Ethiopia does not have abundant oil resources. However, the country's mining industry offers good prospects. It has proven resources of more than 500 metric tons of gold and rich deposits of platinum and nickel. Decorative, architectural and industrial minerals such as marble, granite, limestone, clay, gypsum, opal, diamonds and various other gemstones are also of interest to Chinese companies.

Currently there are more Ethiopian companies coming to China purchasing machinery, equipment, mining and other engineering materials. Ethiopia's mineral resources will also effectively optimize and upgrade the country's export-oriented agricultural trade.

Chinese enterprises mostly carried out engineering and construction projects in Ethiopia during the 1980s. Because Chinese banks can provide loans, the Chinese share of the project contracting market in Ethiopia in recent years has showed a continued increase.

State-owned Chinese companies like China Hydroelectric Corporation and China Road and Bridge Corporation have played key roles in Ethiopia's rapid industrial strides.

However, private enterprises from China are also gaining ground. China's largest footwear exporter, Huajian, has made huge investments in the Ethiopian footwear sector.

Chinese investments have played a key role in improving the overall economic conditions and living standards in Ethiopia. Continued investment from China is also expected to help Ethiopia's transition to a middle-income nation by 2025.

The author is a professor at Nankai University in Tianjin, who specializes in China-Africa relations.

(China Daily Africa Weekly 01/24/2014 page9)

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