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Tanzania and Ethiopia – Cracking the growth and jobs conundrum

Merrell Tuck-Primdahl's picture

Growth to job creation to poverty reduction — that would be the ideal dynamic to get countries like Tanzania and Ethiopia on the track toward middle income country status. Yet, a trip to both places earlier last month that was focused on the promise of light manufacturing for Africa made it clear that the production line to prosperity can only be set up with the right incentives, with a smart but selective helping hand from the government.

In Dar es Salaam, one obstacle to the dream of gleaming production lines employing keen young Africans was electricity. During my three days in that fair port city where boats with cloth sails ply the harbor alongside giant container vessels, I experienced no less than six power outages.

As Everist Maembe, Managing Director and owner of Tanzania Meat Products (2002) Ltd said, that is simply not good enough when the sanitary quality of meat is at stake. Mr. Maembe’s small, spanking clean operation, in the heart Dar and tucked in alongside a gas station and the equivalent of a strip mall in America, was tidy and ready for churning out dried meats, stuffed sausages, vacuum packed steak cutlets and other products. But on the day we visited him, his butchers were idle and the slicing, stuffing and grinding machines — some purchased from Germany — were silent. He’d purchased a 150K V8 diesel generator at great expense when he’d started up the facility, not realizing that it was far too expensive to run given the volume of meat he was able to process. Until he can buy a smaller generator, he will be operating around two days a week. Luckily he has real estate and other business endeavors that help him subsidize his meat operation.

The tour of Mr. Maembe’s operation was in sharp contrast to what we saw at the Eastern Industrial Zone, around 30 kilometers from Addis Ababa. There, thanks to the industrial zone,  as well as incentives like income tax holidays for investors, over 500 employees are working in the  production of footwear for Huajian Company. They have gotten a crash course in how to master the assembly line from a work tour to China and, back in the zone, they earn a wage that’s considerably higher than the local average, but still well below their counterparts in factories in China. They have free dorms and meals, all of which seems to be a step up from working in the informal sector selling goods by the roadside or eking out a living on subsistence farms. They are surrounded by a clean set up where electricity transmission is self contained and power is fairly reliable, the water supply is steady, and sanitation facilities are top notch.

Cynics would say that Africa has been sporadic testing ground for industrial promotion for a long time and that the track record of government facilitated factories hasn’t been good. They might add that one-off showcase facilities like the Eastern Industrial Zone will be a ‘flash in the pan’ once the goodies in the form of tax breaks, good leasing terms on land and so on are withdrawn.

However, the optimists whom I was traveling with would say this time is different and that success can breed success. Certainly the executives from Huajian think they can expand fast and successfully.

There are several broader reasons for seeing the glass half full. Africa has a big youthful population and a strong impetus to find them productive jobs. In addition, there is a current window of opportunity in the form of rising labor costs in China and other East Asian countries, where an exodus of jobs is under way. Unless African countries move quickly to capitalize on the shift, they may be edged out by other low-income countries. Finally, several African countries — including Ethiopia and Tanzania — are growing at a healthy clip, so they are poised to enter into more competitive subsectors and start making the transformation out of agriculture.

My impressions didn’t come from naïve first-timers to the continent. They came from researchers and economists who have walked factory floors from Vietnam to China to Ethiopia to Tanzania. Their book, Light Manufacturing in Africa: Targeted Policies to Enhance Private Investment and Creat Jobs’, drills down with surveys and micro data to analyze the potential and constraints of the apparel, leather products, agribusiness, wood products and metal products subsectors in five countries — Ethiopia, Tanzania, and Tanzania in Africa and China and Vietnam in East Asia. China is used as a benchmark and Ethiopia as a comparator.

As noted by Professor Howard Pack of the Wharton School, the book “presents an innovative approach to industrialization and job creation in Africa”.  Heavy on pragmatism and real life lessons, it seeks detailed survey information from people like Mr. Maembe, who copes daily with frustrations like where to find the best meat and how to transport it efficiently, how to get affordable inputs like packing materials for meat that will be sold at supermarkets, and getting sufficient collateral from banks who for reasons of past mishaps are inherently distrustful of local meat operations.

One of the book’s recommendations — develop plug-and-play industrial parks — can solve the frustration of unreliable electricity supply. Such a ‘plug and play’ approach entails setting up a standalone park where basic infrastructure is supplied on site. As the book details, Ethiopia adopted the approach when  Huajian Company established an operation at the Eastern Industrial Zone, 30 kilometers from Addis.

In Tanzania, when asking local businessmen and officials when they expected the energy shortage to be solved, most laughed and told us never.  This shows that if one relies on the traditional approach and waits until the critical problem of electricity shortage is solved nationwide (or even for all of Dar), Africa may have to wait for a very, very long time to industrialize and inroads against poverty will stall.

Government and market failures will not disappear overnight, but research to understand the critical setbacks local entrepreneurs face every day, and to identify creative ways other countries have dealt with them can be profoundly useful. Such practical knowledge can help transform Sub-Saharan African economies into engines of robust, sustainable growth. 

If the recommendations in the Light Manufacturing in Africa book take hold, eventually, the giant container ships sailing from Dar es Salaam’s port will no longer be departing the harbor in Dar half empty — instead their holds will be filled with apparel, leather, wood products, agribusiness byproducts, and metal goods made by proud Africans, Everist among them.

Comments

Submitted by Anonymous on
Interesting comparison. Despite the lack of property rights, strangulation of access to technology, and poor business environment, the Chinese enterprenuers seem to find a way to make something work in Ethiopia. The primary reason for Africa's backwardness is lack of incentives, lack of property rights, denial of access to technology, corruption, and of course lack of security that is hampering the continent's growth. These elements are particularly painful in the case of Ethiopia, where the government controls not only access to technology, but everything inlcuding every sq. ft of land, and major factories. Removing these impediments and avoiding unnecessary esclation of tribalism in order to divide conquer may ameliorate Ethiopia's status as the least developed within Africa and the likely hood of exploding as another Yugoslavia. The unelected ruling class in Ethiopia governs by using brute force instead of creating a win win situation for businesses and all of its citizens. At least there is hope at the end of the tunnerl with the Industrial zone.