The Reporter (Addis Ababa)

25 January 2014

Ethiopia: Government Industry Zone Attracts Major Foreign Companies

Several multinationals are vying to be part of the new government-developed industrial zones that are being established in Addis Ababa, and in other areas around the country.

Some 20 foreign companies are setting up in the Bole Lemi industrial zone on the outskirts of Addis Ababa, which on completion will be the first of its kind constructed by the government. The Eastern Industry Zone, developed and owned by a Chinese firm some four years ago, paved the way for the government to realize the potential in the area.

The Ministry of Industry (MoI) is the authorized public office tasked with developing industry zones in the country. The blueprint of the country's economic development - the Growth and Transformation Plan (GTP) - set out for a handful of huge industrial zones to be constructed in the country. However, the Bole Lemi industrial zone, located to the east of Addis Ababa, is the only project to have materialized in the GTP period.

According to the MoI, around 20 foreign companies have secured factories at the site. The initial phase has seen the government develop some 156 hectares of land, out of which five companies have already started to installing machinery on a 38 hectare portion. The Taiwanese George Shoe Corporation Private Limited Company, best known as the George Gloria Group, is a large Chinese shoe manufacturer, poised to finalize installation of its factory in about two months' time. It has leased two sheds on a site of approximately 16.6 hectares. O.K. Kaul, general manager of the George Shoe Corporation, said that shoe production will commence in May. He added that the company has devoted some 150 million birr as an initial investment. When the factory reaches full capacity it will employ around 1,000 regular workers, with 100 percent of goods to be exported to China and the US markets. Other companies in the industrial zone include the South Korean K.E.I, the Indian Karli International and the Pakistani A.N.F garment factories, which are all working to install machinery at Bole Lemi. According to the MoI, five firms are behind schedule with regards to pre-arranged agreements. It is rumored that George Shoe is unhappy with the quality of the sheds so far constructed, and there have been additional problems with the temporary supply of power and water. Despite this some 5,000 local employees will be offered job opportunities when the five companies switch to full operation. The development of the five sheds at Bole Lemi has already cost the government some 349 million birr, and the remaining 15 factories will require an additional 1.76 billion birr. For the second phase of the Bole Lemi development some 186 hectares of land is required, with the zone expected to be completed by next year. In a related news, the Chinese owned Eastern Industry Zone (EIZ) is furious about the delay to tax holidays the government had promised to give to the company. According to Jiao Yongshun, assistant director of EIZ, it has been four years since EIZ received a tax holiday, and the Zone had agreements with MoI regarding support and taxation issues. The problem stems from the fact the Ethiopian Revenues and Customs Authority (ERCA) considers EIZ as a developer or land leaser, and not as a manufacturer. EIZ has alleged that it was promised tax holiday favors before it established its operation. The Ethiopian Investment Board has told EIZ that it is currently not entitled to enjoy tax holidays unless some rules are amended.

The issue of land is also creating a headache for EIZ, as it continues negotiations with the Oromia Regional State Government, which had promised the Chinese company an additional 260 hectares to develop. EIZ claim to have initially been assured 500 hectares of land. Currently 233 hectares has already been leased by some 20 companies, and EIZ has been praised for creating 50,000 jobs. Expatriating profits in foreign currencies, Yongshun added, is the other challenge facing Chinese companies. Investment law clearly states they can expatriate profits in foreign currency, but they are required to wait until the government extends the amount of money in foreign currency that they want take out. One of the companies stationed in EIZ is Huajian, the renowned Chinese shoemaker. Nara Zhou, representative of Huajian, told The Reporter that the company has customers like Mark Fisher and the Toms brands. Yet Nara said the company is frustrated by the lack of quality production and the low efficiency level of the workers here. She said that customers are complaining about the poor quality. Huajian produces 7,000 pair of shoes a day and generates some USD 1.3 million per month, employing some 3,500 workers. Meanwhile, the MoI plans to erect industrial zones in the eastern and northern parts of the country, namely Dire Dawa and Kombolcha. In Addis, aside to the second phase of the Bole Lemi zone, Kilinto is the other huge industrial project to come into play. However, all plans are on hold as feasibility studies are carried out and external finances awaited. The World Bank is believed to be working to leverage the funds the government desperately requires.

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