Made in Ethiopia? A Story of Chinese Outsourcing

Hawassa Industrial Park is one of many new examples sprouting all around Ethiopia of new industrialization. In a mere 2 years, the park opened and already has 1,400 locals employed. The drought ridden, landlocked African country has begun to transform itself into a more developed version of itself, and employing citizens in new clothing factories. The country has attractive qualities and reasons why the developed world would be inclined to outsource work here, including tax incentives, ultracheap labor, and infrastructure investment. Specifically, China has taken a special interest in this country and has now stepped into a sort of middle-man role for producing widely popular fashion staples. Since 2014, Ethiopia has opened three additional industrial parks alongside Hawassa, and it plans eight more by 2020.

Perhaps China is smart to get in on the outsourcing game to Ethiopia. Industrialists are exempt from income tax for the first five years in business and absolved from other taxes on importing capital goods and construction. Ethiopia as a country is able to afford this generosity largely in part because of the loans granted to them by the Chinese government.

This work has also caused many problems among the Ethiopian workers. While there are more jobs available for producing the clothes and shoes that are eventually outsourced, the working conditions are very poor. There are untrained people being yelled at and even hit to produce more products. In response, the workers end up working slower and need breaks in order to make it through the day. Many people try to quit but there just are not better options. One other option for working is shaping cow manure to produce fuel. One lucky worker ended up getting a job as a hotel receptionist. She recalled stories of workers making less many than her being abused in the workplace. The article says that as demand for product out of these factories increases, wage will too. Unfortunately, the wages are locked in at low numbers for now.

While the working conditions are not ideal, the outsourcing of production to Ethiopia has greatly helped transform farms to populated areas. While the farmers may have gotten screwed over, many people benefitted. The jobs are not ideal, but they are a form of income for citizens. There are pros and cons to this outsourcing for Ethiopia as a country, but the production cost benefits that major companies across the world receive from this method of production forces this labor.

  • Who’s responsible for the labor to be safe and well-maintained?
  • How responsible are the major companies for making sure that a production factory in Ethiopia is safely run?

https://www.bloomberg.com/news/features/2018-03-02/china-is-turning-ethiopia-into-a-giant-fast-fashion-factory

Banks Pflager & Chris Dupont

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11 Responses to Made in Ethiopia? A Story of Chinese Outsourcing

  1. the prof says:

    This is a neat article, it gets at both the economics and the people that are mere abstract entities in economics models.

  2. mesisklism19 says:

    China is definitely intelligent in its outsourcing to developing, but stable, nations like Ethiopia. Most of the West has been outsourcing to India, which has made that country a Chinese economic rival. Thusly, finding their own service base which won’t lead to supporting a newfound economic rival is beneficial to the chinese government. Ethiopia has always been in the forefront of the African economy, and this spurred development in the 5 year exempt tax plan may put it on-par with South Africa and Nigeria.

    The issues arising among Ethiopian workers are unfortunately indicative of many nations in their big push to industrialization. It seems these growing pains can be managed by the Ethiopian and AU governments, which are relatively efficient compared to the rest of the continent.

  3. rietanob18 says:

    In response to the question of who is responsible for the labor to be safe and well-maintained, the answer is, in my opinion, of course, the Ethiopian government. The government has a responsibility to protect their people and to have their citizens best interests in mind. Despite the benefits of having outside investment into Ethiopia, their are clearly negatives as well because of poor working conditions. The government has an obligation to help their citizens, and providing them with a working opportunity is not enough if that working opportunity is one for extremely low pay and with bad conditions. Furthermore, production companies are responsible for making sure that the working conditions are good as well. Many may recall the Nike ‘sweatshop’ issue, or the Starbucks’ issues from an accusation that their workers in outside farms were working in hard conditions. Not only should companies care about helping protect their workers for the sake of morality, but also to protect their image. Nike and Starbucks’ images were both tarnished during these accusations. Everyone should care about quality working conditions — offering the benefits of outside investment and increased pay is not enough if the conditions are poor.

  4. John Gaugin-Rosenthal says:

    Improved government regulations on labor and higher wages may cripple the industry altogether, so it isn’t surprising that countries to which labor is outsourced stand down. Without their own industries and domestically-produced goods (for which this may be a start), this can be expected. While this may be a one-sided deal for now, it may establish a foundation for Ethiopian manufacturing and could provide the skills for/encourage domestic manufacturing. For now, I think that these industrialization endeavors could guide urbanization and, if well-planned, could generate efficient cities capable of offering agglomeration and scale economies.

  5. ahny19 says:

    I agree with rietanob that the Ethiopian government is to be held responsible for ensuring the well-being and safety of their laborers. Although there has been increasing accountability on behalf of the private sector and a trend of corporate responsibility in the past decade, governments must not rely on international companies to provide humane working conditions but must be proactive in ensuring a sufficient labor market. It’s certainly challenging for emerging economies who rely heavily on the capital and investment of developed countries to spur economic growth, yet, there is certainly merit in prioritizing the livelihood of domestic citizens. As the recent U.S. tax reform intends to incentivize companies to repatriate funds back to America to increase domestic capital expenditures, I’m interested to see how developing nations similar to Ethiopia may be affected. I consider it possible and even likely that American corporations withdrawing capital overseas may have an adverse effect on economic development for emerging economies.

  6. pezzij19 says:

    I definitely see what a lot of my other classmates are saying about the government ensuring that rights are respected within the workplace but only to an extent. Of course, beatings and such should not be permitted. But if these regulations go to a higher minimum wage or burdensome red tape, then it might hurt more than it helps. There are many reasons why Ethiopia is an attractive investment for foreign corporations: the Ethiopian government wants to industrialize, they have the totalitarian regime to control the economy, there is a large population, and there is a lot of potential in Addis and the country’s geography. But the underlying reason why countries are looking to outsource to Ethiopia is the cheapness of their labor and production. If the government does too much in affecting the workplace, it might truncate investment.

  7. herndono20 says:

    I agree with our classmates on the point of China being opportunistic with their outsourcing to Ethiopia. China has found much success in the past, however they have left several countries with socio-economic issues that are often overlooked by an abundance of jobs and industrialization.

    Workers are extremely undercompensated and mistreated in the workplace while foreign investors reap the benefits of cheap labor. It seems as though the Ethiopian government is willing to overlook these negative externalities in light of industrialization.

    Opportunity for more jobs will always appeal to countries that struggle with trade and independence as an economy. From a utilitarian approach, the situation in Ethiopia seems to benefit many people in urbanized areas at the expense of those working in the agricultural sector, but should that be the approach taken?

    I think the workplace conditions should be regulated through Ethiopian policy to try to protect workers from abuse, and to compensate workers for inflation and increased productivity. Of course this kind of policy is difficult to implement when Ethiopia excepts so many grants from the Outsourcing country keeping them afloat.

  8. reamest18 says:

    In response to the proposed questions regarding how responsible major companies should be for the treatment of Ethiopian workers, I think they definitely have a duty to make sure that their goods are sourced in a positive manner. Particularly in the US, many major corporations like Nike have come under attack when consumers were made aware of the ‘sweat shops’ that produced popular tennis shoes. In the wake of these revelations, companies have responded through corporate social responsibility initiatives. The following article tells how Nike responded. (http://www.businessinsider.com/how-nike-fixed-its-sweatshop-image-2015-6)

    Overall, these companies should be more aware of how workers are treated as it can help shape their reputation.

  9. nshimyumukizas18 says:

    I also agree with Ben and John that the Ethiopian Government also has a role in overseeing corporate social responsibility and human rights. The Ethiopian government has a lot of incentives to attract these FDI such as 10-15 years tax exemption and 60-80 years land lease (Ethiopian Investment Commission). However, there is no mention of what the Ethiopian government expects from these international companies regarding human rights. The government should put in place certain rules to help the workers. Another option would be the creation of workers’ unions to fight for their rights.

  10. aidanchandless says:

    China using Ethiopia to produce products with their cheap labor is the exact same thing that we do with China. We use the cheap Chinese labor to produce products at a lower cost, allowing companies to sell these products at a greater margin in the US. The working conditions of the Ethiopian workers is an issue that the Ethiopian government must solve. The working conditions in Chinese factories are notoriously bad, so we cannot expect that China will care how the working conditions are for Ethiopian workers. If the Ethiopian government sees this as an issue, then they should work on passing labor laws to protect the rights of laborers.

    • the prof says:

      I’ve been in numbers of Chinese factories, long hours but “working conditions” in the narrow sense are fine. Consider too the alternative: dawn to dark outside on a farm. A mere 12-hour day, and with a roof over your head? Wow!!

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