Global Engineering Capability Review

Ethiopia case study:

An emerging manufacturing centre

Ethiopia's Engineering Index scores

Knowledge = 64th
Labour force = n/a
Engineering industry = 84th

Infrastructure = n/a
Digital infrastructure = 95th
Safety standards = n/a

Ethiopia’s political and economic landscape is in the midst of a remarkable transformation. Since coming to power in early 2018, the prime minister, Abiy Ahmed, has overseen rapid political liberalisation, brokering peace with neighbouring Eritrea, liberating tens of thousands of prisoners (including all detained journalists) and filling half of his cabinet with women. He has pledged to hold free elections in 2020 and has appointed a prominent opposition activist to lead the electoral commission. The Norwegian Nobel Committee decided to honour him with the Nobel Peace Prize in December 2019. However, he has been censured for his silence following incidences of ethnic tension, and for shutting down Internet access in times of public protest. [77]

In the past decade Ethiopia has generated the fastest GDP growth in Africa. Although this has brought greater levels of prosperity to the country, it may result in wider inequality. In seeking to maintain rapid growth, the government has begun to open up the economy to foreign investment, and to allow private-sector-led liberalisation, initially in manufacturing, telecoms and logistics. This programme is being conducted cautiously and in stages, beginning with regulatory reform and a larger role for business in job creation. Mr Abiy has also moved the country away from its state-led development model. Most notably, he has sought to combat the country’s ongoing debt and currency weaknesses by renegotiating Chinese loans and has requested financial and technical support from the World Bank. [78]

Making the move

Ethiopia’s growth model revolves around transitioning from an agrarian to a manufacturing economy. The government is investing over US$1bn in 30 industrial parks by 2025 that it hopes will position it at the forefront of manufacturing in Africa. [79] Foreign direct investment has also been channelled to these parks, and various state-owned businesses have been sold to foreign investors, including Chinese firms. The country is further encouraging foreign investment in its manufacturing sector by offering lower labour costs than current manufacturing hubs such as India, Bangladesh and China. This has already borne fruit in garment manufacturing, with clothing companies including H&M, Guess and J Crew establishing manufacturing centres. The government also seeks to benefit from the technology transfer that foreign businesses bring to industrial parks and has introduced tax relief programmes to attract such investment to the country. In theory, this would help Ethiopian engineers to learn transferable skills, although many industries that process raw materials are largely automated.

Ethiopia has also improved its road and rail infrastructure to match the country’s good flight connectivity, prompting a recent research paper to predict that Ethiopia could become the manufacturing hub of Africa. [80] Underpinning this effort is the administration’s emphasis on manufacturing as a central part of its growth strategy. As a means of incentivising manufacturing and import substitution, attention has been particularly focused on producing the inputs required for industrial processes.

Local workers, foreign companies

Ethiopia’s emergence as a manufacturing powerhouse requires advancements in R&D and industrial production. The recent boom has largely been led by foreign firms, and there is a particular need to develop local skills in industrial and chemical engineering. Quite apart from the value of Ethiopian projects to the national economy, foreign firms still need local skilled workers. However, skills develop in part from training on the job, and such considerations may need to be factored into the negotiation of contracts.

As the country’s economy has grown, the chemicals industry has increased in importance as a supplier for other domestic industries such as textiles, leather, food and agriculture. Although Ethiopia has made progress in this area, the chemicals industry remains underdeveloped, constrained by a shortage of financial support and skilled labour, as well as by antiquated technology. [81] The manufacturing sector has a number of problems of its own, including power shortages, foreign-exchange constraints, irregular supply of domestic raw materials due to weak industrial links, poor Internet services, and weak logistical support that leads to high transaction costs. Ethiopia needs to boost capability in industrial engineering to mitigate these issues. [82]

Some of our expert interviewees characterise the recent boom in manufacturing as rushed. Corners have been cut, and standards have not risen at the same pace as economic activity. The government has tried to create sectoral institutes with the aim of identifying and plugging skills gaps, but the education system tends to focus on quantity rather than quality. Our expert interviewees criticised the engineering curriculum, which does not provide opportunities for hands-on application of theoretical concepts or internship opportunities, suggesting that it fails to provide adequate work experience.

As the economy has grown, the chemicals industry has increased in importance as a key supplier for the domestic food, agriculture, leather and textiles sectors

Quite apart from the value of Ethiopian projects to the national economy, foreign firms still need people with capabilities from the country. But these develop in part from training on the job, and this may need to be factored into the negotiation of contracts

Women come to work at Hawassa Industrial Park, chinese-built for the Ethiopian government to attract foreign investors with low rent and tax free to establish a textile industry and create thousands of new jobs

Cut from the finest cloth

Developing a skilled labour force is critical to strengthening the country’s engineering and fabrication capability, productivity and quality. Progress, along with a better investment climate, will facilitate stronger competitiveness and structural transformation. The skills gap may be narrowed by developing and implementing more effective training programmes. The manufacturing sector’s success will depend on such changes, along with improved access to finance, land, and infrastructure for firms. [83]

Ethiopia’s Federal Technical and Vocational Education and Training (TVET) Agency is tasked with strengthening the labour force. Its overall objective is 'to create a competent, motivated, adaptable and innovative workforce', along with technology accumulation and transfer in order to promote economic growth. [84] Its challenge is to meet labour market demand for skilled workers, which requires overcoming a record of poor-quality training. A current project seeks to develop the skills needed to strengthen international trade, and to improve the quality of and promote inclusion in the education system. [85] However, there are challenges to delivering a quality education both at the technical level (which TVET supports) and at the university level, where engineering graduate quality is often called into question by employers. As an expert noted, university graduates often compete with technical graduates for jobs in Ethiopia’s manufacturing centres, raising questions about workplace preparedness.

Times are changing

Ethiopia is undergoing dramatic political and economic change. Alongside a programme of political liberalisation, the government is advancing the transition from an agrarian to a manufacturing economy. The light manufacturing industry is surging, in part thanks to the development of numerous industrial parks around the country, where industries such as textiles, leather processing and cosmetics are clustered based on the availability of natural resources. Foreign investment has held up well in the face of political uncertainty, taking advantage of Ethiopia’s supply of cheap labour and good transport links. However, some areas of infrastructure, such as electricity and Internet supply, remain poor. A domestic skills gap also hampers local projects and engineering employment. Ethiopia’s engineering training needs to do more to give graduates practical expertise.

The generally good academic training in engineering needs to do more to give graduates practical expertise for the country's booming processing industries