The reason why Ethiopia is cheaper in labor cost than other African countries is because the timing of opening the market and receiving structural adjustment delayed from other countries and because the conservative policy by the national government is effectively controlling the cost. In other words, economic liberalization has just started. International trade is regulated and restricted, and the domestic market is not yet affected by international competition. There are still many state-run companies and the state yet controls telecommunication, finance, and aviation industries.
Perhaps due to this situation, the internet connection is poor in Ethiopia, which is rare in African countries. It is said that the government conducts censorship and regulates transmission of SMS. Even once a law was passed that offering a criminal penalty to Skype users (later, the government announced that Skype usage between individuals were exempted from this regulation). From my experience, it is true that the Facebook is accessible, but crowd-oriented services are often hard to access.
In Ethiopian cities, we find photographs of the former Prime Minister Meles Zenawi, who deceased suddenly in 2012, put up here and there as if they are poplar singer’s bromide photographs. Although formally Ethiopia is a democratic society, in reality, it is under one-party dictatorship. The population is organized to the end through agricultural cooperatives. The national government has a lot of large infrastructure investment cases and is very eager to invite foreign investments because the government desperately needs foreign currencies. However, the investors need to invest in the way the government desires in order to get incentives prepared by the government. Free economy and socialism are mixed in patches in the present Ethiopia.
The former Prime Minister late Meles Zenawi overthrew the socialist government and came into power in Ethiopia as a fighter of reform. Since his appearance, free economy was promoted and privatization of state-run companies was put in place. He managed to secure funds for large infrastructure development in order to set up the Ethiopian industrial base such as large hydro power plant construction and development of railways which extend to harbors.
In the late 1980s, when China began to play a role as a part of global supply chain by shifting from the planned economy to the open economy, the wage level was about 5,000 Japanese Yen per month. This is exactly the same level as that in Ethiopia now. At that time, infrastructure in China was underdeveloped and shipping between Shenzhen and Guangzhou took 12 hours. CEO of Huajian, a Chinese company which receives contracts of OEM for foreign name-brand shoes, says that the current Ethiopia is similar to China 30 years ago.
She continues, ”Infrastructure is not well developed and the country is full of people looking for job opportunities. Productivity of factories is low and the level is about one third of that in China before the workers receive training. However, Ethiopia has a great potential. We have chosen Ethiopia not just as a low-cost production base but by considering possible changes of the global supply chain for coming 10 years.” Huajian already operates a factory in Ethiopia but has a plan to hire up to 30,000 workers in Ethiopia by 2022, which will exceed 25,000 workers hired in the factory in China.
At present, productivity of Huajian factory in Ethiopia has reached about 70% of that in China. At the factory producing smart phones mentioned before, a Chinese system to increase productivity is introduced. It is the system like the one at a factory in China that measures individual worker’s output and raises his/her salary based on the achievement. At this moment, easy-going Ethiopians do not seem to have a competitive mind to beat others and acquire higher wages. But this should be also changed gradually.