Ethiopia Using Chinese Model for Value-Added Exports

March 16, 2020 (EIRNS)—Ethiopia is using the Chinese model to advance its economy from being merely an exporter of raw materials to processing materials (adding value) domestically prior to export, developing an industrial base in the process. With China’s help, Ethiopia has now created 10 Special Economic Zones (SEZ) in two years for processing everything—from coffee to cattle—prior to export, thus transforming itself from a simple exporter of “raw materials” and raising the productive capability of workers and the entire domestic economy. Chinese companies have continued to aid in construction of industrial parks in Ethiopia.

To use one example, coffee—what a March 13 article for the China Africa Project website calls the report in the country’s “most important” Export—Melange Coffee Roasters opened last summer to grind and roast beans in Addis Ababa, buying grinders from Turkey. Using this strategy, the African company, Melange, is now looking to export powdered coffee to the world market, immediately starting with China and South Africa. Similar examples exist in flour, with the creation of a domestic biscuit manufacturer, and other agricultural products, “from pulses to cattle products are processed domestically into secondary products first, rather than exported in their raw forms,” writes author Pippa Morgan.

This focus on Ethiopia by the Chinese was detailed in a 2017 report from the Fudan University School of International Relations and Public Affairs, “Development and Industrialization of Ethiopia, Reflections from China’s Experience.” From the start, the Fudan study rejected the British Empire free-trade model, referring to the “Washington Consensus,” as the deadly IMF/World Bank conditionalities became known in 1989.

“Mainstream contemporary economics identifies institutions (property rights and free markets) as the key, and advises liberalizing institutional reforms (the ‘Washington Consensus’). However, the most successful cases of industrial development in the post-World War II period have not followed Washington Consensus prescriptions, Japan, the four ‘Asian Tigers’ (South Korea, Hong Kong, Singapore, and Taiwan), and later China all transformed from low- to middle- or high- income economies over just a few decades,”

stated the Fudan report. Morgan goes on to summarize that these countries “were all able to grow extremely quickly by developing industrial manufacturing jobs. Meanwhile, many countries in Africa and Latin America continued to rely mainly on primary products and did not see the same developmental success.”

Will Ethiopia succeed in what Morgan calls “its sizeable ambitions”? It’s too early to tell, she says, “although its approach makes sense on paper, it hasn’t been plain sailing in practice.”  Its industrial parks have suffered from lack of consistent electrical power on the one hand and the country lacks foreign exchange. She concludes:

“However, employment in the agro-processing sector has been growing steadily. ... Importantly, Ethiopia, like many other countries in the region, enjoys structural advantages (such as a large, young population and low wages) that underpinned the early decades of China’s rapid growth, which suggests its potential is great. If Ethiopia can realize this potential, its China-inspired economic strategy could be a compelling model for other African countries.”