While working in Ethiopia recently I witnessed first-hand the phenomenal transformation the county is bringing about through attracting industrial growth in sectors such as garment and apparel production and light manufacturing. Ethiopia’s GDP rate has averaged an impressive 10% for the past decade, the highest in Africa.
International Monetary Fund Managing Director Christine Lagarde shakes hands with a worker as she tours a shoe factory at the Eastern Industrial Park December 14, 2017 in Addis Ababa, Ethiopia. IMF Staff Photo/Stephen Jaffe (Creative Commons).
Government policy and investment is enhancing industrial growth
The government is partly enabling this economic transformation through investment in a series of low-carbon industrial parks, located in several cities throughout Ethiopia. The largest, seen as a flagship, is Hawassa, around 300km to the east of Addis Ababa, which will cover 300 hectares when completed. Others include Boli Lemi in Addis, Dire Dawa and Mekele. There are also Industrial Parks that have been created through private sector investment agreement between China and Ethiopia, the most notable being Eastern IP, north of Addis Ababa. Industrial tenants are increasingly investing in Ethiopia as production costs in China, Vietnam and other Asian countries continue to rise. They include some household names and the largest tenant at Hawassa is PHV, the US owner of brands such as Calvin Klein and Tommy Hilfiger.
Despite recent political challenges in the country, industrial growth looks set to continue to strengthen, with the government planning to create several more industrial parks in the coming years. This new wave of industry has the potential to create hundreds of thousands of jobs and the majority of workers are young rural inhabitants and particularly young women between the ages of 18 and 30. Attracting workers to urban centres brings with it a complex set of issues, not least the challenges of decent accommodation, infrastructure, safety and security.
Accommodating workers is a crucial bottleneck
Working with Coffey to review progress on the urbanisation pillar of the DFID-funded Ethiopian Infrastructure Advisory Facility (EIAF), being implemented by McKinsey, I’ve been focusing on the bottleneck of accommodation. Housing for workers who often move from rural areas to cities to work in the Industrial Parks is a critical issue; it has the potential to derail the government’s industrialisation strategy if not thought through properly. There is a dire housing shortage for existing population, let alone the 1 million jobs that the Government is aiming to create through industrial parks in the coming few years.
While it wishes to copy a mode of ‘plug and play’ industrial parks in China, Vietnam and Malaysia, the Government of Ethiopia can’t afford to provide accommodation for the parks and the majority of companies don’t see this as their duty (although there are notable exceptions of Asian companies taking a long term view and investing millions of dollars in appropriate accommodation for their workers.) As a result, unplanned and informal housing, unsupported by infrastructure, is developing rapidly on the periphery of many of the cities hosting industrial park and other solutions such as multiple tenants per room are contributing to very poor living conditions. EIAF is working with the Industrial Parks Development Corporation and the Ethiopian Investment Commission to develop financing and delivery models that can be replicated across the parks, to solve this problem.
Innovative solutions are necessary, to finance worker accommodation
It seems that there are various solutions to develop appropriate worker accommodation through private financing and public-private partnership. Generally, it seems that land is needed free of charge from the government to make this viable, due to the low wages of industrial park workers and the long timeframe it would take to pay back investments via rental income. Several international donors are interested in providing seed capital for these investments in accommodation and hopefully in a short time, some viable and scalable solutions will emerge. It’s crucial for the sustainability of industrial parks, the secondary cities they are part of and the upward momentum of FDI and industrial employment in Ethiopia.
Andreas Beavor is a Co-Founder of UrbanEmerge and a consultant in urban and regional development and inclusive economic growth.