Ethiopian economy grows with Chinese investment

Ethiopia agriculture (photo: AgriFin)

Ethiopia’s growth rates surprise, as political and economic cooperation with China proves to be beneficial for both nations. However, some have voiced concerns about persistently high levels of Chinese investment in Ethiopia.

China’s foreign direct investment (FDI) in Ethiopia reached $58.5 million in 2010, from practically zero in 2004, according to a World Bank Survey published in 2012. This officially makes Ethiopia China’s number one FDI destination in Africa. On top of this, China was the largest import and export trading partner of the East-African country in 2011.

In the past 10 years, Ethiopia has reached high figures of economic growth, averaging 10.7% per year. If Ethiopia keeps growing at these levels for the foreseeable future, the country could attain middle income status by 2025.

Relations between China and Ethiopia will only strengthen under the newly elected president, Mulatu Teshome, an alumnus of both Beijing Language and Culture University and Peking University (PKU), as he has a good understanding of China and speaks the language. The president-elect received his Bachelor’s, Master’s and Doctoral degrees at PKU, writing his doctorate in international law under Professor Zhao Baoxu, a renowned political scientist in China.

Continued bilateral relations between China and Ethiopia show the structural changes in both China and Ethiopia’s economies, as both countries are developing rapidly. With China’s economic changes, it is losing its competitive advantage in the field of cheap labour, moving into higher-skilled manufacturing and service sectors. This change will free up large amounts of jobs in low-skilled manufacturing globally, for which Ethiopia is able to offer the labour, as it has a very large population available.

Positive political relations between the two will provide support for this growing and mutually beneficial economic relationship. Mulatu Teshome participated in talks in October with the Vice Minister of the International Department of the Communist Party of China, Ai Ping. During these talks, the president re-emphasized the importance of relations with China to continue the contribution to Ethiopia’s growth, as the relationship between the two nations has to be mutually exclusive.

The president specifically mentioned the construction of roads, railways, the telecommunication sector and in the hydroelectric power sector as crucial for Ethiopia. On top of these sectors, cooperation between the two nations is also likely to continue in the agricultural sector. Tefera Deribwe, Ethiopia’s Minister of Agriculture, discussed different methods for strengthening the agricultural cooperation with China’s Minister of Agriculture, Han Changfu.

China has sent experts to Ethiopia, and will continue to do so, to train Ethiopian development agents. In different regions, Chinese experts have exchanged knowledge and set up an agricultural demonstration and training center, which they hope will serve other countries in Africa as well.

The same goes for the industrial sector. Sisay Gemechu, the Ethiopian State Minister of Industry, has announced his aim to have more Chinese manufacturers in Ethiopia. Ethiopia has expressed gratitude towards China for contributing to the infrastructure, and an agreement has been signed by the China Association for Development of Industrial Zone and the State Minister of Ethiopia to conduct a study on Ethiopia’s economic development zones.

Throughout these sectors, Ethiopia faces challenges to make the most of investment from China as a development partner. For example, it is doubtful whether Ethiopia has a highly enough trained workforce to be able to successfully absorb investment and develop economically as a result, and there are concerns that China may be exploiting Ethiopia’s cheap labour force and their natural resources.

On top of this, technology provided by Chinese companies may not fit within Ethiopia’s existing production methods, especially in the agricultural sector. It is crucial that Chinese investment in agriculture is done with in-depth understanding of Ethiopia’s agricultural situation. There are also concerns about the large amounts of Chinese contract labor being employed over local workers, as job creation is a benefit from Chinese investment that Ethiopia and many other African nations eagerly await.

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Categories: Economics, Sub-Saharan Africa

Author:Margaux Schreurs

Margaux is a graduate from the London School of Economics and Political Science with an MSc China in Comparative Perspective with a focus on a comparison between North Korea and China. Having grown up in Singapore, she travels widely in Asia and has spent extended amounts of time in China and Vietnam, and speaks both Chinese and Vietnamese. She has a BA Development Studies and Economics from the School of Oriental and African Studies with a regional focus on East and Southeast Asia, and focuses mainly on these regions as a freelance writer. As a recipient of the Chinese Government Scholarship, she is studying Chinese at Beijing Language and Culture University, in preparation for further academic research in China.

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  1. Ethiopian Economy Grows With Chinese Investment | Oh China. - November 21, 2013

    […] http://globalriskinsights.com/2013/11/19/ethiopian-economy-grows-with-chinese-investment/ […]

  2. China develiping Ethiopia’s telecom infrastructure despite setbacks - The Atlantic Post - December 22, 2013

    […] climbed to $58 million in 2010 from nearly zero in 2004. According to Global Risk Insights (GRI), “this officially makes Ethiopia China’s number one FDI destination in Africa [and makes […]

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