Established in 2004, Industrial Parks Development Corporation (IPDC) has constructed 13 industrial parks across the country. The industrial parks have been built with a grand vision of the country’s transforming the economy from agrarian based to that of industry. Scaling-up export of manufactured goods is also the main intention behind constructing the industrial parks, attracting foreign investments and balancing export-import accounts, says Sandokan Debebe, recently appointed CEO of the IPDC.
With regard to job creation and promoting foreign investments into the country, he says that Ethiopia joined lately to the Industrial Parks (IPs) clubs, consists of nations with special economic zones. For instance, most nations have implemented the concept of IPs in the 1960-70s. Ghana, Morocco and South Africa are also pioneers in developing IPs in Africa. Ethiopia’s experience of parks is not more than 6 years and in that regard, “We are late to develop the idea and implement it,” said Sandokan. However, he stated that the government conducted feasibility studies and explored successful countries experiences for years. He added: “We are among the few listed African countries with a good reputation in terms of performance of IPs”.
Constructing mega projects like industrial parks take lots of effort and we did that in a short time, he says. “World’s largest companies have started exporting their products from our industrial parks. Therefore, we can witness that though we are late-entrant to the industrial club, we are becoming efficient,” as he puts it.
We took the last five years performance as a fresh learning curve for us, he emphasized. Convincing global investors to conduct businesses in Ethiopia was not as such an easy task. Hence, industrialization process by itself is a very new process to take lessons out of.
Speaking of exports to the United States through the African Growth and Opportunity Act (AGOA), a duty and quota free trade privilege, Sandokan said that Ethiopia has been among Africa’s top five exporters of leather, apparel and textile products to the US.
Through this trade platform, Ethiopia has earned $730 million in the last two years. However, Sandokan believes the country has not been exploiting its export potential in the market.
“We are not supplying raw materials to exporting industries at our full capacity—they are importing it,” he said. “When we are supplying these raw materials locally, we can even earn more income”.
Distribution of the parks across regions has been a matter that repeatedly requested by regional administrations.
Pertaining to the issue, Sandokan responds it’s more of a question of market and economy that puts proximity to ports, transport and logistics, and provision of infrastructures such as telecoms, which are international standards into considerations.
“However, all the parks have not been inaugurated because they fulfilled similar criterions,” he explained.
“Based on each region comparative and competitive advantage, Ethiopia has a potential of constructing 100 industrial parks in the upcoming 20 years,” he mentioned by referring Ethiopia’s national spatial plan of 2020.
Impacts of Ethiopia’s expulsion from AGOA
Put it simply, AGOA’s role is not more than among the investment opportunities of Ethiopia—that’s not the sole export-outlet, says Sandokan. Ethiopia is also using the Europe’s Everything but Arms (EBA), a scheme that removes tariffs and quotas for all exports to the continent.
African Continental Free Trade Area (AfCFTA) is also there.
“An attitude that AGOA has brought special economic advantages to Ethiopia should be reconsidered carefully,” he opines.
“After all, if the trade privilege eligibility criteria’s are all about human rights and related factors, we have been working to convince the US that the most who suffer from its expulsion of Ethiopia are lower-income employees,” Sandokan describes.
“Investors might relocate their factories to some other nations,” he forecasts.
“We are working to fix the possible outcomes against our citizens following AGOA’s withdrawal,” he assured. Policy and procedural amendments can be implemented as well.
As far as market destinations are concerned, there are companies who are supplying their finished products to local market and export destinations. These companies export 25 percent of their products to the US and 30 percent to Europe. “Therefore, actually speaking not all the companies will relocate from Ethiopia”. Investors, however, should have to expand their customer-base and looking for alternatives to sell their products through a tariff rates of 8 to 32 percent, according to Sandokan. “In that sense, the exaggerated narrative of immediately losing jobs and industrial parks relocation should to be reevaluated”.
Challenges faced by local investors
Provision of finance is the foremost challenge local investors are facing. A law has enacted five years ago, which allows investors to get a finance of 85 to 100 percent loan financing, though it was poorly implemented.
From technology side, the government has identified areas to lend a hand for local private sector. But he goes on: “They have implementation pitfalls from their sides”.
The government is also revising the criteria which only allow investors with garment producers to join industrial parks.
Ethiopia’s economy is vastly— 85 percent based on the agricultural sectors. Its primary exports are massively agri-products. In this regard, the government intends to unlock the potential of the sector.
Integrated-agro industrial parks are not administered under the IPDC, though supports will be provided to them in different ways.
Yirgalem, Bulbula and Burie are specialized in integrated agro-industrial parks.
There’s an Indian industrial park that deals with organic avocado processing facility in Jimma Industrial Park, which is administered under IPDC. That factory has a significant market potential. But, the supply shortage is main hindrance for the factory. The same thing is happening in Yirgalem.
“We have to intervene to solve the supply-side dilemma then unlocking the market potential,” Sandokan said.
Incentives to local investors
Foreign Direct Investment (FDI) is an integral part of an open and effective international economic system and a major catalyst to development. Even, the most-sophisticated industrial nations first attracted FDI and gradually started boosting local investors’ involvement in their economy.
Developing countries, emerging economies and countries in transition have come increasingly to see FDI as a source of economic development and modernization, income growth and employment. Countries have liberalized their FDI regimes and pursued other policies to attract investment.
They have addressed the issue of how best to pursue domestic policies to maximize the benefits of foreign presence in the domestic economy.
Likewise, most of the investors in Ethiopia’s industrial parks are foreign ones—a proposal relies on the government’s long-term plan.
Expansion of FDI is not a mistake as foreign investors bring technology, skills and market opportunities, says Sandokan, adding that local investors should have to be equally provided with supports and incentives.
For Sandokan what the IPs brought about is the most important question. Foreign investors brought world-class technologies such as modern treatment plants and dedicated power sub-station. For facilities like electric power the government spends significant expense if they weren’t brought that up, he uttered.
Services such as banking, customs services and policy regimes like trade laws are put in place in special ways for those who seek to engage in manufacturing industries, whether they are from local or global investors.
For both investors, incentives such as duty-free privilege of 10 years and 15 years of duty-free for those who are park developers have been facilitated.