Title:-Impact of Chinese Direct Investment in Ethiopian Economy

Author: Yoseph Nurlign

Student Id: Gdw2018376

Major: International Executive Masters of Business Administration

Supervisor: Ass .Professor Cui Xin

 School of International Education

University Of International Business and Economics (UIBE)

May, 2019
ACKNOWLEDGEMENT
First and foremost, praises and thanks to the Almighty God and his mother Virgin Mary, for His
showers of blessings throughout my research work to complete the research successfully.

I would like to express my deepest and sincere gratitude to my research supervisor, CUI XIN
(ASS.PROFESSOR).

Besides my advisor I would also like to thank my family and friends for supporting me and
bearing with me throughout this process.

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Abstract
This paper has measures the impact of Chinese foreign direct investment (FDI) on economic
growth in Ethiopia based on annual time series data from 2010 up to 2018. It, in particular,
examines how FDI affects GDP growth, employment rate, and investment motivation. Chinese
Foreign Direct Investment (FDI) into Africa is on the rise and Ethiopia is at the forefront of this
trend. On request of the Government, the World Bank surveyed 69 Chinese enterprises doing
business in Ethiopia with a 95-question survey in May/June 2012. The survey covered various
aspects of the foreign direct investment climate in Ethiopia, including infrastructure, sales and
supplies, land, crime, competition, finance, human resources, and questions about general
opportunities and constraints for doing business in Ethiopia. This report summarizes the results
of the survey and provides policy suggestions in light of the analysis; the report also provides
some broader background of the expected benefits of FDI into Ethiopia as well as current
policies and approaches to promote incoming investment. Addressing identified obstacles could
help Ethiopia to take better advantage of foreign investors in order to accelerate the shift from a
predominantly low-productivity agriculture-based economy towards a higher-productivity
manufacturing and export-based economy. Experiences in successful countries around the world,
and especially East Asia show that foreign investment is instrumental to facilitate such a
structural transformation and to maintain sustained and broad-based economic development.
This study recommends five main areas for policy adjustments to facilitate foreign investors
coming into Ethiopia: adjust customs clearance procedures and trade regulations; facilitate
currency convertibility and increase transparency of the exchange rate policy; improve tax
administration consistency and efficacy; execute impartial labor regulation and increase the
supply and quality of skilled workers.

FDI assumes positive significant impact, implying the crowding out an effect of FDI on domestic
investment. Other major determinants of economic growth that I controlled in this finding show
expected a sign and statistical significance. Export and absence of war and drought increase

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growth, whilst import remains insignificant. Results in this study imply the need for the
government to build infrastructure and invest in human capital to avoid any lags in utilizing the
benefits of FDI. Besides, the government should be able to create the right environment to
realize the benefit from spillover effects of between domestic investment and FDI.

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KEY WORDS
FDI –foreign direct investment

LDCS – least developed countries

IPDP – industrial park development plan

USD – united states dollar

MDG –millennium development goals

LDCs –least developed countries

SNNP –southern nation and nationality people

USD –united states dollar

IPDC –Industrial Park Development Corporation

CEO –chief executive officer

CCECC - China Civil Engineering Construction Corporation

DDIP –dire dawa industrial park

CCCC - China Communications Construction Company

DIP –debirebirhan industrial park

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Table of Contents

Abstract........................................................................................................................................................i
ACKNOWLEDGEMENT............................................................................................................................i
KEY WORDS..............................................................................................................................................i
1. INTRODUCTION.......................................................................................................................................1
1.1. Background of the study...................................................................................................................1
1.2 Statement of the problems................................................................................................................1
1.3 Objectives of the Study......................................................................................................................1
1.3.1 The specific objectives are:.........................................................................................................1
1.4 Study area..........................................................................................................................................1
1.5 Organization of the paper..................................................................................................................1
2. Literature review.....................................................................................................................................1
2.1 Theoretical Review and Empirical evidence of FDI............................................................................1
2.3 Economic benefits of Ethiopia from Chinese investment......................................................................1
3. Methodology and data sourcing...............................................................................................................1
Ethiopia net FDI inflows.............................................................................................................................1
4 Chapter four..............................................................................................................................................1
4.1 Finding of the paper...............................................................................................................................1
4.2 Economic benefits of Ethiopia from Chinese investment......................................................................1
4. 3 Role of Industrial Parks in Ethiopia' Industrial Strategy......................................................................1
4.3.1 Prioritizing industrialization in growth and transformation................................................................1
4.3.2 Contribution of Chinese firms in Ethiopian industrial parks...............................................................1
4.4 Kilinto industrial parks..........................................................................................................................1
4.5 Diredawa industrial park........................................................................................................................1
4.6 Adama industrial park...........................................................................................................................1
4.7 Arete industrial park..............................................................................................................................1
4.8 Deberebirhan industrial park.................................................................................................................1

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5. Contributions of Industrial Parks in Ethiopia...........................................................................................1
5.1 Stimulating investment and creating employment.................................................................................1
5.2 Facilitating export growth and foreign exchange earnings....................................................................1
5.3 Developing industrial clusters through forwarding /backward linkages................................................1
5.4 Eliciting knowledge transfer and technology spillover..........................................................................1
5.5 Establishing connections to the global value chain................................................................................1
5.6 Fostering Sustainable Growth and social equality.................................................................................1
5 Chapter five..............................................................................................................................................1
5.1 Conclusion and recommendation...........................................................................................................1
Reference.....................................................................................................................................................1

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1. INTRODUCTION
1.1. Background of the study
Foreign Direct Investment (FDI) affects the economic growth of developing countries positively
through the transfer of capital, know-how, and technology (Li and Liu (2005). It increases
activity not only in FDI beneficiary firms. The effect can spread to other firms in the country and
sectors through technology spillover, human and capital formation and increasing competition,
thus raising productivity for the whole economy. FDI can accelerate growth in the ways of
generating employment in the host countries, fulfilling saving gap and huge investment demand
and sharing knowledge and management skills through a backward and forward linkage in the
host countries (Frenkel, Funke et al. (2004)). Some points which support the concept that FDI
promotes growth are explained by, Agrawal and Khan (2011):

1. FDI acts as a vehicle for the transfer of advanced manufacturing technologies from the
Developed countries (DCs) to the Less Developed countries (LDCs),

2. FDI increases competition in the host country’s markets,

3. FDI helps the host countries improve their foreign exchange reserves (or balance-of-payments
position) by increasing exports.

4. FDI brings along with it the management know-how needed to run the facilities,

5. FDI provides the financial resources needed by the host country,

6. FDI enhances the training and employment opportunities for the people of the host country,

7. FDI reduces the burden of imports on the host countries through import substitution,

8. FDI acts as a catalyst for increasing domestic savings and investment.

As a result of these benefits, many developing countries, like Ethiopia, are now actively seeking
for promoting FDI by trying to create a favorable environment for it. Some of the measures taken
include economic and political reforms aiming at macroeconomic and political stability,
investment in infrastructure and human capital and liberalization of trade (Haile and Assefa

1
(2006)). Ethiopia carried out major economic reforms in 1992. The country introduced an
increased ingenuousness by undertaking trade liberalization, removing trade barriers and
promoting the inflow of FDI.

1.2 Statement of the problems

The United Nations’ Millennium Development Goals (MDG) Declaration outlines eight
commitments to be reached by developing countries by 2015. The achievement of these Goals
will contribute to improved human development and notable poverty reduction. However,
realizing these goals requires a significant level of capital investment. A major source of this
capital investment for LDCs is Foreign Direct Investment (FDI). The gap between investment
and saving in Ethiopia is very wide due to the low level of income and domestic savings (Getinet
and Hirut, 2006). Realizing the inadequacy of the domestic capital, the country has opened
several economic sectors to foreign investors.

The government has also issued several investment incentives. Since 1992 market-oriented
economic reforms have taken place and emphasis has been given to attracting FDI (Ethiopian
Economics Association, 2004). Especially for the agricultural sector, regulations on investments
have been relaxed significantly. No minimum capital is required anymore; foreign agricultural
activities are exempted from the payment of customs duties and taxes on imports of capital
goods. According to the export orientation of the foreign investor, they are exempted from
income tax for a certain time period.

Foreign investments are also exempted from the payment of sales and excise taxes for export
commodities. As a result, there has been a significant increase in the inflow of FDI in Ethiopia.

Studies conducted in order to investigate the impact of FDI on poverty reduction are cross
country analyses, but the role of FDI depends on both the economic and social conditions of a
country. Since countries differ in their socio-economic conditions, country-specific studies are
crucial. Therefore, this study explores both analytically and empirically the relationship between
foreign direct investment and poverty reduction through growth in per capita income. There are
studies that show the importance of FDI for LDCs in order to bring a fast rate of growth.
However, most of these studies are regional analysis and not country specific.

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1.3 Objectives of the Study
The general objective of the study is to assess the contribution of foreign direct Investment to
poverty reduction in Ethiopia.

1.3.1 The specific objectives are:

• To investigate the relationship between FDI and poverty reduction in the country;

• To examine whether there exists a causal relationship between FDI and poverty and

• To forward some policy implications that are expected to improve the Contribution of FDI in
order to ensure it benefits Ethiopia.

1.4 Study area

The study area of my paper focused on Ethiopia. Ethiopia is the oldest independent country in
Africa. It is located in the north-eastern part of Africa and bordered by Sudan and South Sudan to
the west, Eritrea to the North, Djibouti, and Somalia to the east and Kenya to the south. Ethiopia
has two major seasons encompassing dry and wet seasons. The dry season prevails from October
through May and the wet season runs from June to September. Since 1995, Ethiopia is divided
into nine ethnically-based regional states and two administration cities (refer to table 3 in the
appendix). It is now more than two decades since Ethiopia started to build a market economy
after 17 years (1974-1991) of a state-centered and controlled economy (CIA World Factbook).

 State structure of Ethiopia

Map Flag Name Population Area Population Capital

squre km per km
1 Addis 5,000,000 526.99 5,198.49 -
-
ababa
2 Afar 3,787,908 72,052.78 19.58 Semera
3 Amhara 31,000,000 154,708.96 111.28 Bahir
dar
4 Benishangul 1,005,000 50,698.68 13.23 Asosa
gumuz
5 - Dire dawa 440,000 1,558.61 219.32 -

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 6 Gambela 409,000 29,782.82 10.31 Gambela

7 Harari 232,000 333.94 549.03 Harar

8 Oromia 35,000,000 284,537.84 95.45 Adama

9 Somalia 6,518,000 279,252 15.90 Jijiga
10 SNNP 25,000,000 105,476 142.06 Hawassa

11 Tigray 5,056,000 53,638 94.26 Mekele

Figure 1.1: Ethiopia Regions

Source: from Google (internet)

1.5 Organization of the paper

This paper is organized in five chapters. Chapter two reviews related literature about the impact
of FDI on economic growth. Chapter three describes the methodology and data sources. Chapter
four presents the main findings of the study and results. Chapter five makes a conclusion and
provides recommendations.

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2. Literature review
2.1 Theoretical Review and Empirical evidence of FDI
The theoretical explanation of FDI is related to the traditional theories of International trade that
is based on countries comparative advantage and differences in factor endowment. Ricardo's
theory of comparative advantage states that specialization and free trade will bring gains to both
countries by engaging in international trade. Unlike absolute advantage, every country may
possess some sort of comparative advantage in some products it produces. A firm source its
supplies from other countries other than domestically can significantly benefit if it sources its
supplies from countries which have a comparative advantage in their production. The gains for
the firm would be in the form of low prices and efficient supply due to the country that exports
the products. The Heckscher-Ohlin (HO) theory explains that the source of comparative
advantage comes from its factor endowments because the differences in factor endowment mean
different in autarky prices.

According to Mamo (2008), theories of FDI can be split into two groups; Micro level
determinates of FDI and Macro level determinants of FDI. The micro-level theories of
determinates of FDI try to provide an answer to the question of why multinationals companies
(MNCs) prefer opening businesses in foreign countries rather than exporting or licensing their
product. The Macro levels of determinants of FDI clarify on the host countries situations that
determine the inflow of FDI. This chapter mainly provides the literature about why are an
investment in developing countries, why a direct investment is needed and its impacts on the host
country`s growth. Kevin panel data analysis indicates the effect of FDI on economic growth in
47 African countries over the last two decades (1980–2000) and shows FDI exerts a positive
impact on growth in Africa. He also explained the causes for the flow of FDI in host countries
like trained human capital and an attractive investment climate stemming from a developed
infrastructure, lower country risk and stable macro environment in countries. These results
confirm his hypothesis that foreign aid, as well as domestic and foreign investment, is effective
and growth-enhancing only in a good policy environment. But, because Africa receives only a
small portion of FDI, foreign aid and domestic investment still account for a greater effect on
growth (Lumbila (2005)). Regression results reveal that corruption does not matter in the case of
FDI: countries where corruption is perceived to be high still benefit from a positive impact of

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FDI on growth. FDI inflows are more strongly positively related to improvement in human
development when FDI policy restricts foreign investors from entering some economic sectors
and when it discriminates against foreign investors relative to domestic investors. The
relationship between FDI and improvement in human development is also more strongly positive
when corruption is low (Reiter and Kevin (2010)).

Lumbila (2005) argued also the amount of FDI directed to Sub-Saharan Africa (hereafter, Africa)
also increased significantly, reaching US$148 billion in the year 2000 against only US$32 billion
in 1980

Admas (2009) analyze by his study on the impact of foreign direct investment (FDI) and
domestic investment (DI) on economic growth in Sub-Saharan Africa for the period 1990– 2003
that I positively and significantly correlated with Economic growth. His study also found that
FDI initially has a negative effect on DI and subsequently positive effect in the later periods for
the countries studied. He concluded that the determinants of the FDI have the net crowding out
effect. The review of the literature and findings of the study indicate that the continent needs a
targeted approach to FDI, increase the absorption capacity of local firms, and cooperation
between government and multinational enterprise (MNE) to promote their mutual benefit.

By studying the effect of foreign direct investment (FDI) on economic growth in a cross country
regression framework, utilizing data on FDI flows from industrial countries to 69 developing
countries over the last two decades, Borenszteina, De Gregoriob and Lee (1998) analyzed that,
FDI is an important vehicle for the transfer of technology, contributing relatively more to growth
than domestic investment. Their study suggested that the host country should have sufficient
absorptive capability of the advanced technologies available for FDI contribution to the host
economy.

A time series study on the impact of FDI in China and India shows a positive impact on
economic growth. According to the suggested result, growth in India and China is mainly
depending on trade liberalization policy by each country made in the 1990s and the consequent
upsurges inflow of foreign capital to both these countries. In 1975, China was at equivalence
with India in GDP, yet 33% lower in its GDP per capita ($146 versus $220). But over the years
China developed more rapidly than India and surpassed India in terms of GDP per capita in

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1984. The study also investigates the reasons how China has grown more rapidly than India by
utilizing FDI (Agrawal and Khan (2011)).

After analyzing the data from 11 countries in East Asia and Latin America, using econometric
techniques such as unit root and cointegration tests, Ram and Zhang (2002) provide evidence
that FDI promotes economic growth in countries with a liberalized trade regime and a workforce
with higher job skills and education. According to Ram and Zhang (2002), FDI provides ready
access to the world markets and acts as a conduit for the host country to participate in the
globalization process (Ram and Zhang (2002)).

Using a panel data on 84 countries covering the period of 30 years from 1970 to 1999, Li and Liu
(2005) find that it is an increasingly endogenous relationship between FDI and growth,
especially since the mid-1980’s(Li and Liu (2005)).

By using cross-section data relating to a sample of forty-six developing countries

Balasubramaniam, Salisu and Sapsford investigate that, FDI plays in the growth process in the
context of developing countries characterized by differing trade policy regimes. The paper tests
the hypothesis advanced by Jagdish Bhagwati, and they concluded that according to which the
beneficial effect of FDI, in terms of enhanced economic growth, is stronger in those countries
which pursue an outwardly oriented trade policy than it is in those countries adopting an
inwardly(Balasubramanyam, Salisu, and Sapsford(1996)).

Borensztein, De Gregorio, and Lee used cross-country data for 1970–79 and 1980–89 to study
the FDI to growth connection and the possible complementarity between FDI and the host
country’s human capital. They investigated that the higher productivity of FDI holds only when
the host country has a minimum threshold stock of human capital and suggested that “FDI
contributes to economic growth only when a sufficient absorptive capability of the advanced
technologies is available in the host economy.” (Bornstein, De Gregorio and Lee (1998)

Several studies are focused on the case of developing countries and the major part of the
pressures on the determinants of FDI. Which shows, how the host country should prepare its
home before guests are coming in? In addition, several studies showed the significance and
positive effect of FDI on economic growth. Using a multiple regression approach, I investigate
the effect of FDI for economic growth of Ethiopia. The time period is taken from 1974 to 2011.

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The thesis first proposes a growth model taking into account various factors that promote output
(GDP). These factors are mainly identified by literature review parts.

2.2 Ethiopian foreign investment policy

In Ethiopia, as in most other jurisdictions, one of the major issues for foreign investors is access
to foreign exchange (forex). Because of the country’s negative trade balance, the availability of
forex is highly restricted by laws and strictly regulated by the central bank, the National Bank of
Ethiopia (NBE).

It is this forex shortage, among other reasons, that forced the Ethiopian government to adopt an
investment policy that favors foreign and domestic export and manufacturing investments, which
can generate foreign currency or reduce the foreign currency that the country pays for its
imports. This policy can easily be demonstrated by the government’s recent construction of a
number of industrial parks that focus on manufacturing and exports and the call for investors to
carry out investments in the parks. The stated goal of this policy is to make Ethiopia the
manufacturing hub of Africa.

This article provides information regarding foreign investment and forex regulation in Ethiopia,
which is essential for existing and potential investors in Ethiopia.

2.2.1 Overview of the investment regime

The Investment Proclamation No. 769/2012 (as amended) and the Investment Incentives and
Investment Areas Reserved for Domestic Investors Council of Ministers Regulation No.
270/2012 (as amended) (Investment Regulation) are the principal legislations that regulate
foreign investment in Ethiopia.

 There are four categories in Ethiopian investment law:

 Areas of investment reserved exclusively for government;
 Areas of investment reserved exclusively for joint investment with government;
 Areas of investment reserved for Ethiopian nationals; and
 Areas of investment open to foreign investors.

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In general, foreign investment is actively encouraged in most sectors of the economy except in
areas like banking, insurance, broadcasting services, postal services, import and export and
small-scale businesses, among others. These investment areas are reserved for either the
government or Ethiopian nationals. The manufacturing sector and commercial agriculture are
open for foreign investment, with different government incentives available. Regarding areas of
investment open for foreign investors, there are no local content or indigenization requirements.
However, investment in the logistics sector requires a minimum of 51% local ownership.

The investment laws contain a number of guarantees and protections to foreign investors and
their investments. They, among others, safeguard investments against unlawful expropriation.
They also guarantee investors’ rights to remit funds (profits, dividends, proceeds of share
transfers, etc.) out of Ethiopia in convertible foreign currency at the prevailing rate of exchange
on the date of remittance.

Regarding the permissible investment modalities, both foreign direct investment (FDI) and
portfolio investment are recognized by Ethiopian investment law.

2.2.2 Restrictions on investment in the financial services sector

The financial services sector in Ethiopia is generally not open to foreign investors. According to
the Investment Regulations and the financial laws, the majority of financial services (banking,
insurance, micro-credit and saving services) are exclusively reserved for Ethiopian nationals. In
other words, foreign investors cannot fully or partly own businesses that provide these services
in Ethiopia. They can, however, engage in capital goods leasing services.

2.2.3 Forex-related regulatory requirements for foreign investors

As stated above, there are various forex-related regulatory requirements for foreign investors
(including private equity investors) in Ethiopia, which are the preconditions for the repatriation
of forex from the country. There are exchange controls on injections and withdrawal
(repatriation) of capital to and from Ethiopia. Any capital inflow by foreign investors is
recognized and registered at the Ethiopian Investment Commission (EIC) at the initial stage of
investment, including investments made through a concessionary or a partnership agreement
with the government or with an autonomous institution, and similar treatment is accorded to

9
ploughed-back profits. The initial capital investment should be deposited in one of the
commercial banks in Ethiopia and only upon presentation of a certificate of deposit can a branch
or subsidiary company be registered by the EIC. It is important to comply with this requirement,
as subsequent requests for repatriation of profits and dividends and other payments depend in
large part on compliance with the requirements of the EIC and the NBE.

Foreign investors are guaranteed to make the following remittances out of Ethiopia in
convertible foreign currency at the prevailing exchange rate at the time of remittance:

 Profits and dividends accruing from investment;

 Principal and interest payments of external loans;
 Payments related to technology transfer agreements;
 Proceeds from the sale or liquidation of an enterprise;
 Proceeds from the transfer of shares or of partial ownership of an enterprise to a
domestic investor; and
 Compensation paid to an investor under the investment laws.

Expatriates employed in an enterprise may remit, in convertible foreign currency, salaries and
other payments accruing from their employment in accordance with the foreign exchange
regulations or directives of the country.

Any foreign loan to local Ethiopian companies (including a loan from a foreign shareholder)
shall also be subject to the NBE’s approval, which requires certain conditions to be met.
Payment of interest on foreign loans and the principal loan is allowed only if the NBE approves
the foreign loan in the first place. If the NBE has not approved the loans, it will not authorize the
repatriation of interest and principal payments on the loans or credit facilities. Where a loan
contract is entered into without fulfilling the above requirements, foreign exchange for the
repayment of the loan may be denied.

In order to approve a foreign loan, the relevant NBE directive requires that debt-to-equity ratio
may not exceed 60:40 of the foreign capital (equity from the shareholders).

2.3 Economic benefits of Ethiopia from Chinese investment

 Technology transfer
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  Reduction of the unemployment rate
 Foreign currency exchange etc…

3. Methodology and data sourcing

The data set has been collected from the World Bank, United Nations Conference for Trade and
Development (UNCTAD), Ethiopian investment commission and National Bank of Ethiopia. I
have chosen a secondary data source. Because it is the most reliable source of data and used by
almost every researcher. On the other hand, the databank from World Bank offers various data
arrangement tools, as a result, required data can be arranged in the desired format and direct
excel file can be downloaded. The Frequency of dataset is annual and covers the time period of
1974-2011. All data used in the estimation are in real terms at constant 2005 price and
manipulated for use in terms of levels or growth rates in empirical and descriptive analysis. Data
inconsistency across sources was the major challenge faced in the study, but a maximum effort
has been made. The data from UNCTAD and the World Bank have nearly similar data sets.

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Ethiopia net FDI inflows
12

10

0
2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006

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4 Chapter four

4.1 Finding of the paper

Major findings of the study include the growth of FDI from China to Ethiopia from zero in 2004
to about USD 60 million in 2010 and how Chinese FDI in Ethiopia is motivated by the desire to
take advantage of the current state of the economy, which the Bank says is growing at a rate of
10Pct in the past few years. According to the study, this increasing Chinese FDI is also
motivated by the incentive provided by the governments of China and Ethiopia, political stability
in the country Aand the idea of using Ethiopia as a strategic launching pad for Chinese expansion
in the rest of Africa.

In Ethiopia, the World Bank survey under discussion offers a figure of USD 58 million in 2010
and USD 74.3 million in 2009 as Chinese FDI in the country. This is consistent with that of the
Chinese Ministry of Commerce. However, if the World Bank didn't fail to go a bit further, it
would have discovered figures that were much less in the previous periods; just USD9.7 million
in 2008 and USD 13.2 million in 2007, USD 23.9 million in 2006 and USD 4 million in 2005.
Thus, the average annual figure since 2005 is just USD 18.3 million. In Ethiopia, the Chinese
FDI as a percentage of the total FDI flow to the country since 2005 is just 6.9Pct. So the question
is: does the FDI survey under analysis deserve all the resource and attention of the World Bank if
the objective is to understand the Chinese investment engagement in Ethiopia? I do not think so.
This will take me to my next critique of the study.

The second major problem with this World Bank survey relates to the implicit undertone that it
gives about Chinese investment in Ethiopia. The study implicitly suggests that ‘this is the
Chinese investment engagement situation in Ethiopia’. If one wants to understand Chinese
investment engagement in Ethiopia, I believe one has to study what I call Chinese Quasi-FDI in
Ethiopia, not the Chinese FDI in Ethiopia using the standard or ‘traditional’ definition of FDI as
the World Bank did.

What I would like to call Quasi-FDI could be understood as follows. In addition to direct
investment, Chinese firms are also active in major investment activities that are being carried by
the governments of Africa such as Ethiopia, especially in infrastructure. We may not take such
investment as FDI as such since it is an investment that is basically carried by the government of
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Ethiopia or any African country in question with Chinese financing. However, given that most of
these projects wouldn't have been realized without Chinese or other emerging South economies'
financing and engagement, we may refer to them as Quasi-FDI. As can be inferred from the
Ethiopian case, such investments are generally more important in showing the Chinese
investment engagement in Ethiopia, and also in the continent at large, than the level of FDI using
the official or standard definition noted. In Ethiopian case, for instance, the Chinese official FDI
averages to just about USD18 million per annum, between 2005 and 2010, as we noted above. In
this sense, the official figures of FDI greatly understated the actual investment engagement of
Chinese entities in Ethiopia, where the Chinese Quasi-FDI in Ethiopia is over USD6.5 billion in
major infrastructure projects that are underway since 2009 alone. This makes the Chinese FDI
studied by the World Bank 0.00000028Pct of the Chinese Quasi-FDI in Ethiopia - Yes you read
it right! 6 zeros before 28!

In Ethiopia, the Chinese are involved nearly in all power generation projects, except some
handled by an Italian firm named Salini, irrespective of the financier of the project. By 2009 the
value of such projects is estimated at about USD 1.7 billion. This is in addition to power
transmission projects and the government’s universal access program which together amounts to
about USD 373 million. This figure must have gone even larger by 2013.

In the transport/road sector, Chinese companies have totally dominated the Ethiopian scene. In
general, there were about ten Chinese firms engaged in the construction of roads throughout the
country in 2009/10. These firms were engaged in about 60 Pct. of the road works being carried
out in the country. The over 2,000 km national and about 30 km Addis Ababa railway
construction is totally dominated by Chinese firms that brought with them financing. By 2009
the total value of Chinese projects in the road sector has reached over USD 0.6 billion. The
railway deal with China is estimated at USD3 billion, USD2.1 billion for the national project and
about USD0.5 billion for light city rails in Addis Ababa. The same goes in delivering
telecommunication technologies.

Invariably Chinese firms that won big contracts are seen remaining in Ethiopia by opening
offices and local subsidiaries of their company in the course of their first project in Ethiopia. The
Bank survey, hopefully, have included these in the data (not reported). In fact, the investment
data in the last five years shows a growing number of Chinese-Ethiopian joint ventures too,

14
although I was hoping the Bank survey would say a lot about this as it is the main channel for
technology transfer and local ownership. Unfortunately, we can't see the details of this
phenomenon in the survey, except its share which is about 15Pct. It is curious to note in passing,
however, that the more the Chinese firms work with the Ethiopian private sector the more they
found dealing with government problematic, as can be read from the survey graphs.

Before concluding this article, however, I hasten to add that surveying about FDI using the
standard definition as done by the World Bank in the report under analysis is legitimate research
and scientific practice. So, there is nothing wrong with it as long as you have the luxury of
spending resources and time on a comparatively less important issue with regard to Chinese
investment engagement in Ethiopia. In the context of the latter view, definitely, the priority given
by the bank to the pure FDI study if not outright wrong is not impressive. More importantly, it
may also give a wrong signal about the issue under analysis - Chinese investment engagement in
Ethiopia.

4.2 Economic benefits of Ethiopia from Chinese investment

For the last five years, Ethiopia has achieved a high and sustained rate of growth. The presence
and conduct of China’s foreign direct investment in Ethiopia since 2000 is fast becoming one of
the fronts in reshaping Ethiopia’s economic architecture. Given the fact that Ethiopia has been
the major beneficiary of Chinese investment and cooperative development projects, the question
that needs to be pondered is: can some of Ethiopia’s spectacular growth rate be attributed to the
Chinese investments? More specifically, have the Chinese cooperative investment footprints
enabled the Ethiopian economy to master highly valued technology and generate productive
employment or have the various Chinese investments destined Ethiopia’s economy to be
dependent on the Beijing Consensus model?

The Chinese investors seem to have carefully engineered their entry strategy into Ethiopia. With
considerable oscillation and no discernible trend before 1991, China devised trade and biddings
on government-sponsored contractual projects, mainly infrastructural landscape, to gain access
and expand into Ethiopia's downstream resources. With a wave of privatization and structural
reforms that gained momentum in Ethiopia spurred a flurry of various types of foreign direct
investments that originated from the Southern Countries (i.e., China, India, South Africa, etc.).

15
For example, from 1992 to 2005, Chinese investments in Ethiopia got organized under the
wholly owned type of organizational structure (i.e., 86 percent wholly-owned compared to 12
percent in joint-ventures) in order for Chinese companies to acquire upstream assets. In recent
years, the presence and conduct of China's foreign direct investment in Ethiopia is fast becoming
one of the prominent features of the Ethiopian economic landscape either by infrastructure in
exchange for access to natural resources or by denoting Chinese development assistance or
providing favorable lending and capital contribution.

However, though Ethiopia intends to use Chinese cooperative investment as a means of

enhancing its regional development, the inflow of Chinese investment has not been equally
shared. Geographically, most of the Chinese Cooperative investments are located within the
Addis Ababa and Oromia Regional State. While 78 of the wholly owned Chinese companies are
located in the Addis Ababa Regional Zone and about 9 percent are situated in the Oromia
Regional State, without any significant catching up by the other regional zones. In addition, of
the 103 joint-venture companies, 53 percent are situated within the Addis Ababa region while 30
percent have resided within the Oromia Regional State. In addition, 22 percent of the small- and
medium-sized state-owned Chinese Enterprises operating in Ethiopia is fully operational while
the remaining 78 percent (647/828) are partially or yet to be fully implemented. To fully
implement the various investments, Chinese investors have employed 44 percent
(52,714/119,670) as full-time workers and 56 percent (66,956/119,670) as temporary workers.

Ethiopia's main objectives for allowing Chinese investment to operate in the country are to have
access to high technology, to increase employment, to acquire know-how, to increase foreign
exchange through export, and to benefit from both backward and forward linkages. Thus, the
four Sino-Ethiopian Cooperative Investment case studies given above are analyzed in terms of
their effects on

1) Ownership and Human Capital

2) Production Management and Operations,

3) Export effects

4) Technological Transfers

16
5) Efficiency

6) Foreign Exchange effects

7) Local Content requirements and spillover effects, and

8) Environmental effects of the Sino-Ethiopian investments. However, since the analysis is based
on four case studies, it needs to be underlined that the results of these case studies are
anecdotally based and are not sufficient to generalize about characteristics of the entire Sino-
Ethiopia Cooperative investments. Also, it needs to underline that host countries will not be able
to capture the full benefits associated with foreign direct investment until they reach a certain
threshold level in terms of educational attainment, provision of infrastructure services, local
technological capabilities, and development of local financial markets, thus the analytical
outcome of this study needs to consider tentative.

 There is a significant increase in FDI inflows into the country

Ethiopia is one of the top FDI destinations in Africa

It accounts for 18.5 % of all FDI jobs in the continent

The top 6 FDI origins are:

• China

• Turkey

• India

• South Arabia

• Netherlands

• UK

The Ethiopian government's firm commitment and transformational leadership with a remarkable
performance in economic growth and social development coupled with the ongoing progress in
national image building have helped to attract FDI.

17
Ethiopia welcomes more Chinese investment in its industrial parks

• Ethiopia welcomes more Chinese investment in its industrial parks

• China's fast economic transformation over three decades and called on Chinese firms to boost
their involvement in Ethiopia's manufacturing sector.

• Ethiopia has registered double-digit economic growth for the last decade and is striving to
become the manufacturing hub in Africa, with the involvement of extensive Chinese capital

 File photo was taken on Dec. 8, 2018, shows Jimma Industrial park in Jima, Ethiopia.
(Xinhua/Michael Tewelde)

• Ethiopia to commission 6 Chinese-built industrial parks before the end of July 2018.

CEO of Ethiopia Industrial Park Development Corporation (IPDC), said Kilinto, Dire Dawa,
Bole Lemi 2, Bahir Dar, Arerti and Debre Birhan industrial parks are expected to be
commissioned before the end of the current 2018/19 fiscal year.

Debre Birhan and Arete industrial parks are being constructed by China Communications
Construction Company, while Dire Dawa and Bahir Dar industrial parks are being constructed
by China Civil Engineering Construction Corporation.

18
Kilinto and Bole Lemi 2 industrial parks are currently being constructed by China Tiesiju Civil
Engineering Group and CGC Overseas Construction Group respectively.

Ethiopia has invested around 1.3 billion U.S. dollars in the construction of around a dozen
industrial parks, which it sees as a key strategy of achieving Ethiopia's industrial ambitions

Ethiopia has so far built and commissioned five industrial parks and with the anticipated
commissioning of six more industrial parks in 2018/19, Ethiopia's industrialization ambitions
will receive a massive boost.

With Ethiopia attracting large-scale investment in the export-oriented manufacturing sector,

especially from Chinese firms, the country sees improving the efficiency and speed of the
logistics sector as key to meeting national manufacturing revenue goals.

Ethiopia plans to increase the number of operational industrial parks from the current number to
around 30 by 2025, as part of its efforts to make the country a light manufacturing hub and
lower-middle-income economy in the same period.

 INVESTMENT OPPORTUNITIES AND CHALLENGES

19
  Ethiopia is the 2nd fastest growing economy in the world and is expected to keep the
growth momentum in the coming years

4. 3 Role of Industrial Parks in Ethiopia' Industrial Strategy

4.3.1 Prioritizing industrialization in growth and transformation

4.3.2 Contribution of Chinese firms in Ethiopian industrial parks

Ethiopia plans to commission six industrial parks, which are constructed by Chinese firms,
before the end of July 2018/2019. CEO of Ethiopia Industrial Park Development Corporation
(IPDC), said Kilinto, Dire Dawa, Bole Lemi 2, Bahir Dar, Arerti and Debre Birhan industrial
parks are expected to be commissioned before the end of 2018/19 fiscal year.

20
Debre Birhan and Arete industrial parks are being constructed by China Communications
Construction Company, while Dire Dawa and Bahir Dar industrial parks are being constructed
by China Civil Engineering Construction Corporation.

Kilinto and Bole Lemi 2 industrial parks are being constructed by China Tiesiju Civil
Engineering Group and CGC Overseas Construction Group respectively.

Ethiopia has invested around 1.3 billion U.S. dollars in the construction of around a dozen
industrial parks, which it sees as a key strategy of achieving Ethiopia's industrial ambitions.

Ethiopia has so far built and commissioned five industrial parks and with the anticipated
commissioning of six more industrial parks in 2018/19, Ethiopia's industrialization ambitions
will receive a massive boost," Name told Xinhua".

Our industrial parks are facing energy supply shortages. To solve this problem IPDC is
conducting studies on ways industrial parks can generate their own energy.

Name added Ethiopia is working to solve the logistics problems of firms, which have established
factories in industrial parks.

With Ethiopia attracting large-scale investment in the export-oriented manufacturing sector,

especially from Chinese firms, the country sees improving the efficiency and speed of the
logistics sector as key to meeting national manufacturing revenue goals.

Ethiopia plans to increase the number of operational industrial parks from the current five to
around 30 by 2025, as part of its efforts to make the country a light manufacturing hub and
lower-middle-income economy in the same period.

 Ethiopia to commission Chinese-built industrial park by end of February

 RSS Feedback Print Copy URL Large image More Source: Xinhua |
2019-02-07 19:46:55 | Editor: Huaxia
 ADDIS ABABA, Feb. 7 (Xinhua) -- Ethiopia is to commission the Chinese-built Debre
Birhan industrial park by the end of February, state media outlet Amhara Mass Media
Agency (AMMA) reported on Tuesday.

21
  Debre Birhan industrial park constructed by China Communications Construction
Company (CCCC) at a cost of 71 million U.S. dollars is expected to create job
opportunities for about 1,000 Ethiopians once it starts operations, reported AMMA.

 Stretched on 75 hectares of land, Debre Birhan industrial park will have eight industrial
sheds ready to accommodate prospective investors once it's fully commissioned.

 Speaking to Xinhua recently, Lelise Name, CEO of Ethiopia Industrial Park

Development Corporation (IPDC), said Ethiopia aims to commission six industrial parks,
including Debre Birhan industrial park, before the end of the current fiscal year 2018/19,
in July.
 "Ethiopia has invested around 1.3 billion U.S. dollars in the construction of around a
dozen industrial parks, which it sees as a key strategy of achieving Ethiopia's industrial
ambitions," said Name.
 "Ethiopia has so far built and commissioned five industrial parks and with the anticipated
commissioning of six more industrial parks in 2018/19, Ethiopia's industrialization
ambitions will receive a massive boost," Name told Xinhua.
 With Ethiopia attracting large-scale investment in the export-import-oriented
manufacturing sector, especially from Chinese firms, the country sees improving the
efficiency and speed of the logistics sector as key to meet national manufacturing revenue
goals.
 Ethiopia plans to increase the number of operational industrial parks from the current five
to around 30 by 2025, as part of its efforts to make the country a light manufacturing hub
and lower-middle-income economy in the same period.

4.4 Kilinto industrial parks

Kilinto Pharmaceutical Industrial Park set to open in 2018/2019.
22
The Kilinto Industrial Park, which is being constructed by the China Tiesiju Civil Engineering
Group, is set to become operational mid-2018.

The park is a valuable addition to the ongoing transformation of Ethiopia’s healthcare sector,
which is part of the country’s push to develop the national pharmaceutical industry to reduce its
dependence on imports. According to a paper presented by Ethiopian Investment Commission
(EIC) Commissioner Fitsum Arega and Minister of the Ethiopian Ministry of Trade Mebrahtu
Meles, the country purchases 80% of its medicine and medical equipment from abroad. Local
pharma companies are able to provide only 90 of the approximately 380 products on the national
list of essential medicines. And of these, around 20% are produced with imported components.
China and India are among Ethiopia’s most active generic drug suppliers.

Located south of Addis Ababa, the 337ha, mixed-use Kilinto Industrial Park will be used by the
textile, agro-food, electronics and pharmaceuticals sectors. The park will be developed in two
phases: the first in collaboration with the World Bank and the second with the China Tiesiju
Civil Engineering Group. Unlike other sectors, pharma is new to Ethiopia, and to develop the
sector, the government has been discussing possible tax incentives – but has yet to outline them
in detail. The park is expected to attract multinational pharma companies and will also help the
local industry to grow.

23
Certain foreign investors have announced plans to build new factories or expand existing ones.
In September 2016, Kilitch – an Indian company with its Kilitch Estro Biotech branch in Addis
Abeba – submitted a proposal to build a factory in a zone it leased for 45 years in the special area
of Oromia. The company has yet to provide details on the size and cost of the project. In June
2016, the Chinese company Humanwell Healthcare signed on for a USD 90m project in the
Hagernaraim Kesem district (in the region of Amhara, 65km north of Addis Abeba), with
construction set to begin next year.

Local companies are also growth-oriented. Addis Pharmaceutical Factory is looking to extend
production: it is building a new factory and is set to launch 60 new products, which will bring the
company’s portfolio to 150 drugs. This growth is possible thanks to an agreement with London-
based 54 Capital, which in January 2016 purchased 40.7% of Addis Pharmaceutical Factory for
USD 30m. Ethiopian Pharmaceuticals Manufacturing (EPHARM) – a former state company
purchased by Medtech Ethiopia in 2005 – is on the verge of wrapping up its USD 100m-
expansion plan announced in 2015.

The Ethiopian pharma industry brings in approximately USD 500–800m annually and has
profited from the country’s economic growth, the improvement of medical care and a new health
insurance regime introduced in 2016. According to government forecasts, the sector could grow
as much as 25% in the next four years, reaching over USD 1bn by the end of 2018.

The Kilinto pharmaceutical industrial park south of Addis Ababa is set to begin operation in June
this year following a $204 million investment aimed at expanding Ethiopia’s pharmaceutical
industry and reducing the country’s reliance on imports.

Local companies are able to supply just 90 of the approximately 380 essential drugs, meaning
that Ethiopia is forced to import around 80% of its needs in terms of drugs and medical
equipment. China and India are two of its main trading partners for supplies of generic drugs.

Kilinto will cover a total area of 207 hectares and will include 18 kilometers of paved roads,
basic social services, green spaces, warehouses, showrooms, and car parks.

The Kilinto Park will not only attract pharmaceutical multinationals but will also serve to expand
the local industry, which is currently worth between $500 million and $800 million per year.

24
According to government forecasts, the sector may grow by up to 25% over the next four years
and pass the $1 billion mark by the end of 2018. However, Ethiopia is still well short of the goal
set in 2010 of reaching 50% of its pharmaceutical autonomy by 2015.

4.5 Diredawa industrial park

Dire Dawa industrial park constructed by China Civil Engineering Construction Corporation
(CCECC) at a cost of 51 million U.S. dollars, is expected to host investors in textile and leather
sectors, and construction input sectors, reported FBC.

25
Stretched on 14,500 hectares of land, Dire Dawa industrial park will have 15 industrial sheds
ready to accommodate prospective investors once it's fully commissioned. The industrial park is
also expected to create employment opportunities to about 40,000 Ethiopians.

Speaking to Xinhua recently, Zhu Lei, Deputy Manager of the Industrial Parks Group under the
China Civil Engineering Construction Corporation (CCECC) Ethiopia Office, said the industrial
park has an environmentally friendly waste discharge system.

CCECC has already constructed and commissioned Hawassa, Kombolocha, and Adama
industrial parks, while it has completed 70 percent of construction work for Bahir Dar industrial
park.

CCECC was also a co-constructor of the 4 billion U.S. dollars Ethiopia-Djibouti electrified rail
line which started commercial operations earlier this year.

According to the report from Ethiopian News Agency, the park is expected to inaugurate in two
months time. Keyria Ibrahim, the speaker of the house of federations, has visited the park which
is placed in 14, 500 ha plot of land.

The Industry park holds15 sheds and the entire infrastructure that a park needs, according to
ENA.

The first phase of the Dire Dawa Industrial Park, which is built with the cost of 51 million
dollars, is expected to create over 15,000 jobs.

Aiming at becoming a middle-income industrialized nation by 2025, Ethiopia has built many
industrial parks and industry Zones throughout the regions, to attract investment in various
industries.

Ethiopia strives to be the hub of light manufacturing industries in Africa, placing an ambitious
plan to develop world-class industrial parks with fascinating hard and soft infrastructure.

Last year, according to reports from Ethiopian Investment Commission three industrial parks in
Ethiopia, Hawassa, Bole Lemi, and Eastern Zone had generated 248 million US dollars, from the
export of various products in the last fiscal year.

26
In 2016, Ethiopia stood second in terms of attracting foreign direct investment in the textiles and
garment industry next to Vietnam.

Chinese firm to build $220m textile plant in Ethiopia

Dire Dawa for a textile plant that will be built with an investment of $220 million.

Dire Dawa mayor's office said Chinese firm Wuxi No 1 Cotton Mill will build the textile plant
which will lie on 40 hectares of land.

The construction of the textile plant will take 30 months and is expected to employ 3,000
Ethiopians once commissioned.

The plant will be located inside Dire Dawa Industrial Park (DDIP) that is currently being
constructed by China Civil Engineering Construction Corporation (CCECC).

DDIP, currently being built at a cost of $159 million on 159 hectares of land, is expected to
attract industries specialized in textile, apparel, and agro-processing.

The Ethiopian government is financing the construction of the industrial park which is expected
to be commissioned later this year.

The textile plant's cornerstone laying ceremony was held in the presence of Liu Yu, economic
and commercial counselor at the Chinese embassy in Ethiopia and Ibrahim Usman, mayor of
Dire Dawa city administration.

With a mostly young population of about 100 million the second largest in Africa after Nigeria,
Ethiopia is betting on investments in industrial parks including from Chinese firms to help meet
the demands of the job market and keep the nation stable and prosperous.

4.6 Adama industrial park

Ethiopia’s Adama Industrial park has started exporting its products, with Chinese textile firm
Antex Group turning the first in the park to start exporting its swimwear to Europe. Antex and
another firm have begun operations, while three others will do soon, according to Lelise Name,
chief executive officer of the Industrial Park Development Corporation (IPDC).

27
The park, located 93 kilometers southeast of Addis Ababa in the Oromia region, was officially
inaugurated last 2018/2019 October.

Antex, which is expected to generate $100,000 from its first export consignment from the park to
Europe, has created jobs for 1,500, according to group chairman Qian Anhua. The number is
expected to reach 10,000 when the company goes fully operational.

The firm has raised its capital to $50 million from $5 million, according to a report in an
Ethiopian daily.

The first phase of the park built at a cost of $147 million covering 102 hectares was
commissioned by the IPDC. (DS)

The company is expected to generate 100,000 U.S. dollars from its first export to Europe,
according to the report. The Chairman of the Group Qian Anhua indicated that the company has
created jobs for 1,500 individuals. The number is expected to reach 10,000 when it goes fully
operational.

The first phase of the park that lies on 102 hectares, built at a cost of 147 million dollars was
commissioned by the Industrial Parks Development Corporation.

The report also stated that Antex has increased its capital to 50 million U.S. dollars from five
million U.S. dollars. It is also stated that Antex is working in eight sheds that it rented within the
industrial park.

Adama Industrial Park is officially inaugurated last October. Located 93 kilometers southeast of
Addis Ababa in Oromia Region of Ethiopia, Adama Industrial Park is one of the several
industrial parks the east African country has been building across the nation over the past few
years.

Inaugurated about two years ago, Hawassa Industrial Park was the first to go operational and
ambitiously plans to export textiles worth one billion dollars in a year when all in the Park start
producing at their full capacity.

28
4.7 Arereti industrial park

• File photo shows a construction worker at the Arete Industrial Park, Ethiopia,
March 23, 2017. (Xinhua/Michael Tewelde)

The Industrial Park, located 140 km east of the capital city Addis Ababa, is designed and being
built by China Communications Construction Company (CCCC), one of several industrial parks
the government is building across the country with a view to making the horn of Africa nation a
manufacturing hub.

Alemu, an assistant to a site manager at the industrial park, says the experience gained from a
Chinese mentor is the reason he is braving the heat and working at the site.

“Our skin colors may differ, but we feel like we’re one people. My mentor, a hardworking and
efficient carpenter who has returned to China, is the one that’s motivated me to work here,” he
says.

29
Woody Lau, Business Manager at CCCC says Arerti Industrial Park, is expected to employ about
400 persons when the first phase incorporating a ceramic plant is finished at a cost of tens of
millions of U.S. dollars.

“We’re building another industrial park in Mekelle city, capital of Tigray regional state, 783 km
north of Addis Ababa, as well as the 220 km Mekelle-Woldiya electrified rail line,” he says,
emphasizing the multi-sectoral nature of CCCC’s projects in Ethiopia.

CCCC is not new to building projects that have had strategic changes to Ethiopia, with its
trademark finished project being Ethiopia’s first toll road the Addis-Ababa Adama expressway
inaugurated in April 2014.

Chinese companies including CCCC are engaged in activities ranging from building industrial
parks, setting up leather factories, constructing rail lines and roads.

The Ethiopian government is relying on help from Chinese firms to give employment
opportunities to its predominantly young population, boost knowledge transfer and earn much
needed hard currency for its fast developing economy.

With a mostly young population of about 100 million the second largest in Africa after Nigeria,
Ethiopia is betting on investments in industrial parks including from Chinese firms to help meet
the demands of the job market and keep the nation stable and prosperous.

Chinese-built industrial park to boost Ethiopian economy, employment

The Arete Industrial Park, currently under construction and part of Ethiopian government's drive
to build special economic zones where domestic and foreign companies can use local labor to
manufacture and export goods.

The industrial park, located 140 kilometers east of the capital city Addis Ababa, is designed and
being built by China Communications Construction Company (CCCC), one of several industrial
parks the government is building across the country with a view to making the horn of Africa
nation a manufacturing hub.

Alemu, an assistant to a site manager at the industrial park, says the experience gained from a
Chinese mentor is the reason he is braving the heat and working at the site.

30
"Our skin colors may differ, but we feel like we're one people. My mentor, a hardworking and
efficient carpenter who has returned to China, is the one that's motivated me to work here," he
says.

Woody Lau, business manager at CCCC says Arerti Industrial Park, is expected to employ about
400 persons when the first phase incorporating a ceramic plant is finished at a cost of tens of
millions of US dollars.

"We're building another industrial park in Mekelle city, capital of Tigray regional state, 783 km
north of Addis Ababa, as well as the 220 km Mekelle-Woldiya electrified rail line," he says,
emphasizing the multi-sectoral nature of CCCC's projects in Ethiopia.

CCCC is not new to building projects that have had strategic changes to Ethiopia, with its
trademark finished project being Ethiopia's first toll road the Addis-Ababa Adama expressway
inaugurated in April 2014.

Chinese companies including CCCC are engaged in activities ranging from building industrial
parks, setting up leather factories, constructing rail lines and roads.

The Ethiopian government is relying on help from Chinese firms to give employment
opportunities to its predominantly young population, boost knowledge transfer and earn much
needed hard currency for its fast developing economy.

31
4.8 Deberebirhan industrial park

Photo of debirebirhane industrial park

The Ethiopian government has invested $71 million for the construction of DIP,
located in Amhara Region around 170 kilometers from the Capital Addis Ababa. DIP
has eight sheds built on 44,000 square meters of land. The Park has a total of 75
hectares, which will soon expand to 1,000 hectares having textiles, and agro-
processing sections, according to Gedu Andargachew, head of Amhara Region of
Ethiopia.
The inauguration of DIP is crucial for the development of the manufacturing sector in
the Amhara Region along with the recently inaugurated Kombolcha Industrial Park,
and Bahir Dar Industrial Park, which will be inaugurated soon, and the under-
construction Arete Industrial Park.
The companies that will initially start production within DIP will create jobs for
13,000 employees in the textiles industry. Gradually the Park is expected to operate in
two and three shifts doubling and tripling the number of employees.
A total of 111 households mainly smallholder farmers are voluntarily displaced for
the construction of DIP after getting compensation, according to Mr. Gedu.

32
Recalling that Ethiopia is celebrating the 123rd anniversary of the victory of
Ethiopians over Italian invasion, Prime Minister Abiy said: "…like our grandparents
have paid a heavy price for the independence of Ethiopia, today we are willing to
make any sacrifices to assure unity and equality of Ethiopia."
President Uhuru on his part stressed the need for unity and collaboration to lift the
people of East Africa out of poverty and lead to prosperity.
"If we are united we will prosper. If we are united we will be peaceful. If we are
united, we will be strong enough to face any enemy in any direction. I bring to you,
the people of Ethiopia, a message of peace, a message of love and a message of
unity," President Uhuru said, stating that the people of Kenya, Ethiopia, Somali,
Eritrea or Sudan are the same and needs to work together.
“I was honored to join Ethiopians on the momentous occasion when they celebrate
the historic defeat of colonial forces by their brave warriors led by Emperor Menelik
II in 1896 near the town of Adwa in the Tigray Region,” President Uhuru twitted.
Currently, there are several industrial parks are operational in Ethiopia creating jobs
for over 64,000 people, according to the latest information obtained from Ethiopian
Investment Commission, which indicated that several others are under-construction
 Industrial parks in Ethiopia create 64,000 jobs
The five industrial parks built by the government are Hawassa, Kombolcha, and Bole
Lemi, Mekele, and Adama industrial parks. Collectively the five state-owned
industrial parks have currently created jobs to 45,000 Ethiopians.
While the four private industrial parks are Eastern, Huajan, Velocity and George
Shoe, in which some companies are already producing products while expansion
work of the parks is simultaneously underway.
Most of the owners of the companies operating in the parks are foreign, according to
the statistics obtained from the Ethiopian Investment Commission.
The government of Ethiopia plans to create jobs for hundreds of thousands of people
when the existing parks and seven additional state-owned under- construction
industrial parks go fully operational.

33
The additional seven state-owned under-constructions are Dire Dawa, Debre Birhan,
Arerti, Kilinto, Jimma, Bahir Dar, and Ayisha industrial parks.
In recent years unemployment has been a serious concern for the government of
Ethiopia, which among others forced the regime to embark on the current reform.
The country launched construction of state-owned industrial parks a few years ago
after securing a loan from Eurobond.
Industrial parks are factory sheds equipped with the necessary facilities including,
one-stop shop services to investors such as electricity, water, customs, immigration
and the like.
In related development companies in the recently built Kombolach Industrial Park
(KIP) has gone operational and began exporting their products. “Three foreign
companies have already started exporting their products,” says Mekonnen Hailu,
Public Relations Director at Ethiopian Investment Commission.
He stated that in the past six months the three foreign companies have created jobs for
a total of 1,500 youth. Reports show that employees in Ethiopia’s industrial parks are
being paid less than a dollar a day, which is resulting in high level of employee’s
turnover.
The companies that gone operation in KIP includes, South Korean Pungkook, which
known for its Mike Kourse (MK) brand of ladies leather bags. The other two
companies are Carvico Ethiopia of Italy, which produces sport wears from synthetic,
and Saytex Spinning of China, which converts cotton into thread.
From their test production, the three companies have exports products worth $1.67
million, according to Mr. Mekonnen. He further stated that a company from the
United States, Trybus, has also completed installing machines and is set to start
producing suits.
In addition, another South Korean company, Syang, has also concluded an agreement
to start production of textiles in KIP, which is built in the Amhara region’s
Kombolacha city. Built on 75 hectares of land, KIP has 13 industrial sheds. Dedicated
to apparel products, when fully operational it is expected to create jobs for 20,000
people.

34
 Mr. Mekonen says currently most of the companies in industrial parks are providing
transport and meal allowance for the employees in addition to their basic salaries.
Some people have been suggesting the need for Ethiopia to set a minimum salary to
protect factory employees from labor exploitation.
Reports show that women represent the majority of the employees working in the
labor-intensive industrial parks such as those producing textiles and leather products.
Last fiscal year of Ethiopia concluded July 7, 2018, Ethiopia’s aim was to generate
$998 million from manufactured goods export.

 China–Ethiopia relations
Ethiopia has an embassy in Beijing and the People's Republic of China has an embassy in Addis
Ababa. By 2016-2018, Chinese direct investment (FDI) in Ethiopia had reached US$4 billion
and bilateral trade had grown to $5.4 billion.

Chinese premier Zhou Enlai visited Ethiopia in January 1964.[9] The Ethiopian emperor Haile
Selassie visited Beijing in October 1971, where he was received by Mao Zedong.[10] Qian
Qichen, China's vice-premier and minister of foreign affairs, visited Ethiopia in July 1989,
January 1991 and January 1994. Chinese president Jiang Zemin visited in May 1996. [11]

In June 2001 the Ethiopian deputy foreign minister visited Beijing, where he expressed support
for the "One China" principle in the dispute with Taiwan. [12] In December 2003, Chinese
premier Wen Jiabao visited Ethiopia to attend the opening of the China-Africa Cooperation
Forum. In December 2004, the heads of the Ethiopian and Chinese legislatures met in Beijing
and in a joint statement said that the two counties wish to expand all aspects of cooperation. [13]
In May 2007, China's Assistant Minister of Commerce Wang Chao visited Addis Ababa and

35
signed a debt relief agreement worth US$18.5 million. [14] In February 2008, the Chinese
minister of construction met his counterpart in Addis Ababa and reemphasized the commitment
of the two governments to cooperation. The Ethiopian minister welcomed the involvement of
Chinese construction companies in improving Ethiopian infrastructure.[15] In November 2008
the chairman of the standing committee of China's National People's Congress visited Ethiopia
where he met senior Ethiopian officials and political leaders including President Girma Wolde-
Giorgis and discussed ways to strengthen economic cooperation.

Agreements between the two countries include Agreement for Economic and Technological
Cooperation (1971, 1988 and 2002); Trade Agreement (1971, 1976); Trade Protocol (1984,
1986, and 1988); Agreement for Trade, Economic and Technological Cooperation (1996) and
Agreement for Mutual Promotion and Protection of Investment (1988). [11] In May 2009 the
two countries signed an agreement to eliminate double taxation, expected to boost trade and
investment.

Photo gallery

The Poli Lotus estate on the outskirts of Addis Ababa cost Chinese firm Tsehay Real Estate $60
million.

36
The Chinese-built African Union in Addis Ababa, Ethiopia, in August 2018.

The Metro train passes through central Addis Ababa

37
Best Manufacturing - Hawassa Industrial Park

38
4.9 Hawassa Industrial Park

The Hawassa Industrial Park, located in Hawassa, Ethiopia, was completed in July 2016 with
assistance from China. Sitting on 1.378 million sq meters, the park hosts 37 factories that boast
cutting-edge infrastructure and equipment. Also, the park was designed with numerous energy-
saving features.

The park is Africa’s first textile and clothing facility to feature sustainable development. Not
only that, it is expected to generate 100,000 local jobs.

CCECC Ethiopia Construction oversaw the project, while Beijing Shougang International
Engineering Technology Co. served as the lead design firm.

The facility complies with a zero-emission standard, resulting in 90% of water being recycled.
Rainwater collection and landscape pools are in place to greet the surrounding area, a strategy
which reduces local water consumption. Designed to reflect regional and cultural characteristics,
the park also has 50,000 trees and 470,000 sqm of lawn.

39
Vocational training was provided for all construction and technical employees over the nine-
month period of active construction. Other project benefits include increased employment for
those living around Hawassa, stronger local labor skills and a higher standard of living, officials
observe.

CCECC’s Zuo Wupeng notes that, in May 2015, the CCECC director signed an agreement with
Hawassa University to allow civil engineering students to gain work experience, which “ensured
the amount and the quality of local employees on site.”

For several weeks, Chinese engineers trained local employees based on their related experience
and “especially emphasized [construction] quality and safety,” Wupeng says.

“We could control the progress, safety and quality conditions in real time on site, and all
problems could get feedback and solutions in real time,” Wupeng says.

More than 2,000 local workers were active on site at the peak of construction, with only 26
management staff. According to Wupeng, the management team early on adopted a train-the-
trainers approach, speeding proficiency, and buy-in from local workers.

There were design challenges, especially in terms of discharge standards and device installation.
Specifically, when looking at the blueprints, the Chinese and Indian teams had to overcome
language barriers, which took extensive communication and prolonged planning approval,
Wupeng says.

As part of the treatment process, no pollution stormwater will be discharged directly into
Hawassa Lake, while domestic wastewater will be treated and recycled for use in toilets and
landscaped areas, Wupeng observes. Also, water polluted by textile effluent will be treated and
stored to meet the zero-discharge requirement.

Modeling Hawassa Industrial Park based on the area’s tropical savannah climate; most of the
buildings are primarily passively cooled and heated, thanks to structural alignment, structural
insulation, energy-conservation technology, structural passive ventilation, and other energy-
conservation technologies. Ancillary mechanical systems include air-conditioning and an axial
fan, Wupeng notes.

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Some of the building materials were locally purchased, including those used to finish the floors
and walls.

Contractors also bought items—water valves, ceramic basins, and lamps, among them—from
markets in Ethiopia, Wupeng says. To ensure high standards, developers supervised everything
from basic materials to electrical equipment.

Other building products were purchased from China, India, and other nations

Dire Dawa Industrial Park will be inaugurated the coming Sunday, December 16, 2018, in the
presence of Prime Minister Abiy Ahmed Ph.D. the second such event in just a week.

Located 262Km from the nearest sea outlet in Djibouti, the first phase of the park is built by the
China Civil Engineering Construction Company (CCECC) for 190 million dollars and is
expected to create over 15,000 jobs, upon full operation. It was a subject of controversy when the
construction work was awarded to the Chinese company, without a public procurement process.

Lays on a 156ha of land, Dire Dawa Industrial Park has 15 shades designated for various
industries including textile and apparel, vehicles assembly, food processing, electronics, paper as
well as allied products and chemicals.

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The Industrial Park Development Corporation is overseeing the building of 11 industrial parks
across the country with 30 billion Br in investment, of which six have been completed and
started operations. Jimma Industrial Park, which was inaugurated last Saturday, is the latest park
that is made available for operations.

5. Contributions of Industrial Parks in Ethiopia

5.1 Stimulating investment and creating employment

The establishment of industrial parks has undoubtedly helped put Ethiopia on the radar of
Foreign companies and FDI inflows have been on the rise ever since. The gap between overall
figures and FDI inflows attracted to the zone is substantial.

Take the case of the Chinese shoe producer, Huajian for example - it started producing in the

EIP in Ethiopia in 2012, and then decided to expand its production by creating its own industrial
zone in 2015. Although still in its infancy, the Huajian International Light Industry City started
operating in 2016. Capitalizing on its experience in the EIP, Huajian International Light Industry

City, which is projected to procure a US$ 2 billion investment and yield US$ 4 billion in returns
over 10 years, aims to eventually employ 100,000 workers and provide housing, hospitals, and
schooling on site.

Another positive impact is employment creation. In spite of frequent allegations about foreign
companies bringing their own labor force, in Ethiopia, a lot of international firms tend to employ
local workers, except in management positions. According to the developer of EIP, 87 percent of
the permanent workforce in Chinese firms in Ethiopia was local.

Based on an annual growth rate of at least 11 percent in the forthcoming years, the industrial
parks are expected to create 32,000 new jobs in manufacturing, mostly targeting younger
Ethiopians.

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5.2 Facilitating export growth and foreign exchange earnings
The Huajian Group has set up two production lines in the EIP, with a production capacity of
2,000 pairs per day, exporting to the US and the EU markets.

The first and the largest industrial park developed by the government, by the end of 2017 Bole

Lemi Industrial Park has hired around 11,000 workers and is operational with monthly export
revenue of USD 2 million.

According to Arkebe Oqubay, Board Chairperson of Ethiopian Industrial Park Corporation

(EIPC), Ethiopia's desire to expand its industrial parks deployment is to enable the
manufacturing sector to contribute to 20 percent of Ethiopia's GDP and 50 percent of the export
volume by 2025. Developing industrial parks is part of the Ethiopian government's plan to make
it a manufacturing hub in Africa, and factories engaged in export-oriented business in industrial
parks will have an ideal setting to export their goods.

Additionally, through its second five-year Growth and Transformation Plan (GTP-II), industrial
park development is critical to Ethiopia's aspiration to augment its domestic production of
various commodities that include cement, sugar, textile, vehicles and heavy-duty trucks, while
simultaneously adhering to international standards and quality requirements, to reduce the
dependence on imported goods. This import substitution initiative is important as the country is
facing a foreign currency shortage. In the past five year's period, Ethiopia has saved over
$2.3billion U.S. dollars due to the substitutions of products such as vehicles, spare parts, steel
products, and building elevators which used to be imported from abroad.

5.3 Developing industrial clusters through forwarding /backward linkages

Through the development of specialized/clustered industrial parks, the economies of scale and
efficiencies of industries could be enhanced and vertical integration will be developed.

Proponents of industrial parks usually argue that these schemes will benefit the local economy
because of the business linkages between foreign and local companies. Foreign investors may
purchase materials and services from the local economy, invest in infrastructure built by local

43
companies and bring new technology into the zones that will be transferred to & shared with the
rest of the economy.

However, prospects for the industrial parks in Ethiopia to build backward linkages within the
local economy are rather weak because the raw materials and intermediates needed in assembly-
type operations may not be available locally, and due to the known propensity of Chinese
companies to source inputs through their own networks. Moreover, local firms may also lack the
capacity or “absorptive capacity” to adopt any spillover that does take place.

Simultaneously, the forward linkages, which usually involve the provision of diverse ancillary
services to the zones, may be constrained by deficient infrastructure and logistics and lack of
competition in the host economy.

In Ethiopia, backward linkages are usually thought to be important in light manufacturing (T&G
and leather garment industries, for instance). The reason for such an optimistic stance is that

Ethiopia grows cotton and has a spinning, weaving, and knitting history; making local sourcing
possible (this is in contrast to what may be observed in many LDCs such as Cambodia).

Moreover, Ethiopia's industrial policy has focused on incentivizing exports and developing
domestic value chain linkages between cotton, textile, and apparel firms. (Staritz et al., 2016) As
a result, Ethiopia is not only integrated into the global value chains at the downstream end
throughput, make, and trim (CMT) activities.

A casual look at the list of Chinese companies already operating in the EIP suggests that the
chance for the emergence of major backward linkages is rather weak since companies in the
machinery or construction equipment industries tend to be dominant. Interviews with companies
showed that over 50 percent of the total material inputs and supplies used by Chinese firms in the
EIP were sourced abroad.

Nevertheless, the recent rise in the number of T&G producers is encouraging. In the leather
garment industry, some backward linkages may also be expected. Chinese leather garment
manufacturers such as Huajian are indeed reported to use local raw materials such as skins and
hides as inputs for their production. The establishment of Huajian International Light Industry

44
City, the objective of which is to serve as an Ethiopian supply chain cluster has the potential to
develop more substantial backward linkages; provided local producers are allowed into the zone
and can benefit from clustering effects.

The obstacle is that local inputs are not always up to the standards expected by the producers.

As a result, foreign final producers were induced in the past to invest in upstream activities,
posing a risk of crowding out local suppliers.

5.4 Eliciting knowledge transfer and technology spillover

Another potential channel for dynamic gains is through transfers of technology, or of know-how.

Most surveyed Chinese firms provide formal training programs in Ethiopia: Huajian and Lifan
have been reported to provide vocational training to its employees, including training of local
technicians in China. Skill transfers may also simply occur through labor mobility but, they
remain limited if the workers are concentrated in low-skill jobs.

A number of other factors may also limit the potential spillovers. In particular, the fact that very
limited local investors are located in the Chinese-led SEZs is one such inhibiting factor, since
local SMEs, for instance, cannot take advantage of working in partnerships with the larger firms
in the zones. Moreover, joint ventures, which could facilitate such transfers, are not frequent. As
is often the case, the tendency is for industrial parks to work as enclaves; and yet the Chinese
domestic experiences show how important it is to synchronize the zones and the local economy,
including local suppliers (and even local universities). One of the fundamental goals of FDI is to
boost local competitiveness through active interaction with advanced foreign businesses. In the
absence of such interaction, the host country cannot benefit as much.

5.5 Establishing connections to the global value chain

When China and Vietnam embarked on their development processes by joining the global value
chain, using industrial zones located next to ports was an important strategy in order to start their
apparel production industries. (Dihn et al 2012) Due to the presence of Chinese and other foreign
investors actively engaged in the apparel and garment, and footwear industries,

45
Ethiopia is seeking to make a name for itself in the world of mass-produced footwear and
garments. Under AGOA, leather shoe export from Ethiopia has reportedly boomed.

However, turning Ethiopia into an international shoe and light manufacturing hub continues to
remain elusive. Ethiopia has failed to reach the targeted 15-fold increase in textile and leather
exports to US$ 1.5 billion in the first GTP Plan that ended in 2015. One explanation lies in the
role of the domestic market, which is still important not only for domestic firms but also for
foreign-owned firms-even though the government aims at pushing the latter group solely into
exporting. (Staritz et al. 2016)

Rather than manufacturing investments, Chinese investments in infrastructure may have proven
to be more instrumental in transforming the country. The construction of new dams, for instance,
has been instrumental in guaranteeing stable power supply and making a reality out of Ethiopia's
plan of making electricity one of the country's greatest exports into reality. Similarly, the
construction of a new railway line connecting Addis Ababa to Djibouti, officially inaugurated in
Djibouti on 10 January 2017, may turn out to be a game changer: the new 750 km railway line
will turn a week-long drive through a winding pot-hole filled road into a smooth 12-hour ride to
the coast, facilitating the transport of goods to and from the Port of Djibouti and cutting costs
accordingly.

5.6 Fostering Sustainable Growth and social equality

With regards to the link to be created between the industrial parks development and green
economic growth, Ethiopia has clarified its stance and efforts on green growth. The significance
of industrial parks in green development can be assumed in two ways.

Firstly, when factories enter into industrial parks, their pollutants would be destroyed properly by
the center. Chemicals or other fluids would be released inside the industrial parks. Thus, the
factories engaged in the manufacturing sector will not pollute the environment.

Secondly, industrial parks are the foundation to develop urbanized areas which would lead to
industrialization within the country. The combination of industrial transformation and linkages
with industrial zones will lead to the expansion of urbanization. Integrated with urban master

46
plans, urbanization can be created in which huge amounts of human and capital resources are
mobilized.

Regarding the socio-economic benefits of industrial parks, they can reduce rent-seeking and
negative consequences in landholding, infrastructure, and construction matters.

It should be stressed that the main social benefit of industrial parks is the opportunity to create
immense job opportunities for women and youth. Small and medium scale industrial
development and large scale industries are geared to poverty alleviation and development.

According to GTPII, the installation or extension of industrial parks is the pathway to improving
working conditions and addressing gender equality and empowerment.

5.7 Main reasons Foreign Investment Is Still Flowing to Ethiopia

5.7.1 The size of the Domestic Market

The size of the domestic market is a fundamental determinant of FDI. The wealth and
development of a country can be used as a proxy to measure the size of the domestic market.
Most commonly, per capita income (PCI), which is an indicator of effective demand, is used to
measure the size of the local market. In addition to PCI, the GDP of a country and the population
size are also used as an indicator to measure the size of the local market. However, if a firm is
export-oriented and not market seeking, the size of the domestic market will not be an important
determinant of FDI (Root and Ahmed, 1979). A large market can help firms producing tangible
products to achieve scale and scope economies. The domestic market growth rate which is
measured in terms of population and GDP growth rate also determines the inflow of FDI into a
country (UNCTAD, 1998

5.7.2 Natural Resources

Natural resources, historically, are the most important determinants of FDI. From the 19th
century up to the eve of the Second World War about 60% of the world stock of FDI was in
natural resources. The need to secure economic and reliable sources of mineral and primary
products for the (then) industrializing nations of Europe and North America, natural resources
were the major reason for the expansion of FDI (Dunning, 1993). Birhanu (1999) noted that

47
countries that have sufficient deposit of some minerals can attract foreign investors particularly
those involved in the exploitation of natural resources.

5.7.3 Level of Infrastructure

In today's globally competitive business environment, absence and lack of efficient infrastructure
mean not only high transaction costs for those that are already in business but also a barrier to
entry for new firms. Infrastructure development has high importance for the expansion of FDI
because efficient and adequate infrastructure implies better access to natural resources and
potential market. According to Birhanu (1999), availability and reliability of telecommunication
services developed an adequate road and air transport services, reliable water, and electricity
supply facilities have paramount importance for the profitability of foreign companies and in
attracting FDI.

5.7.4 Low Labor Cost

As noted by neo-classical economists labor cost is one of the factors that affect the investment
decision of foreign investors and this fact has been proven in numerous locations. UNCTAD

(2004a) reported that the availability of cheap labor in China is taking jobs from Europe and the
United States. In addition to cheap labor, the output labor ratio (labor productivity) also
determines the inflow of FDI.

5.7.5 Inflation

Through its effect on the cost of inputs and the price of outputs, inflation reduces the real return
on investment and firms' competitiveness. Hence, countries that pursue policies that reduce
inflation rate have a better chance of attracting FDI. The Low and predictable inflation rate is
central for the long-term investment of both domestic and foreign companies. Therefore, higher
and unpredictable inflation will decrease the inflow of FDI (Birhanu, 1998).

5.7.6 Exchange Rate Variability

Frequent and erratic changes in the exchange rate of the domestic currency affect the inflow of
FDI (Goldberg and Klien, 1997). Exchange rate devaluations have a twofold role in explaining
variations in FDI. On the one hand, the real value of foreign investors’ capital increases when the

48
Host country's currency is devalued. On the other hand, frequent and continuous declines in the
value of a host country's currency would decrease FDI inflow, as it creates high uncertainty

(Accolley et al, 1997).

5.7.7 Foreign Debts

Excessive foreign debt is one source of instability and uncertainty in the macroeconomic
environment of underdeveloped countries and hence this foreign debt is likely to affect adversely
the inflow of FDI. Excessive foreign debt may signal imminent fiscal crises and foreshadow the
future economic situation in a county (Serven and Solimano, 1992).

5.7.8 Fiscal Deficits

The fiscal deficit of a government, whether it is financed through printing additional bank notes
or through taxation (which equally leads to inflation), decreases the real return on investment

(Serven and Solimano, 1992). Moreover, in many developing countries it is apparent that due to
excessive government borrowing the financial resources available for the private sector are
limited and the interest rate is high. On the other hand, the expansionary fiscal policy may be
important for the expansion of public sector investments on infrastructure (UNCTAD, 1998). In
general, the overall impact of fiscal deficit as empirically tested by different studies is
ambiguous. However, the theory postulates that there is a negative relationship between fiscal
deficit and FDI inflows (Accolley et al, 1997).

5.7.9. Geographical Proximity

Jinayu (1997) noted that in the current global economic structure, geographical proximity and
cultural and linguistic affinities are becoming one important determinant of foreign direct
investment. The IFC&FIAS (1997) study as well confirmed that FDI from developed to
developing countries is influenced by geographical proximity. For instance, while Japanese firms
tend to open subsidiaries in China and newly industrialized Asian countries, the West European
firms tend to open their subsidiary in East Europe.

49
5.7.10. Political Stability

The economic process of a country and in particular the inflow of FDI into a country can be
disrupted by unsettled, implicit or explicit, internal or external political disputes and crises.

Without stable political conditions, whatever the economic environment may be a county's effort
to create a more hospitable environment for overseas investors cannot be fruitful. Political
instabilities can delay FDI until the storm weathers away or diverts away for good (Birhanu and

Kibre, 2003).

5 Chapter five

5.1 Conclusion and recommendation

With the growing presence of China in Africa, this paper examines the impact of Chinese FDI on
the standard of living in Africa and compares it to that of Africa’s traditional partners. In general,
the results show that Chinese FDI plays a more important role in raising income per capita in this
region. These results suggest that the win-win deal China claims when investing in Africa may
hold, and Chinese investment contributes to growth in Africa. Put differently, Chinese
investment is mutually beneficial for both China and Africa. However, we find evidence that
U.S. and German investment, unlike French investment, raise income per capita more than that
of China, especially as far as the stock of FDI is concerned. The existence of evidence that
Africa’s traditional partners’ investments raise income suggests that U.S, Germany, and France
are not purely motivated by self-interest4 when investing in Africa. This study, therefore,
demystifies to some extent the common belief that self-interest is the motivation behind Western
countries’ investments in Africa. Our results are robust across different tests, including the use of
instrumental variable estimations.

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