Ethiopia is unique in a varied economic landscape in Africa

“Africa is the new growth continent.”

That was a headline in the newspaper Kristelig Dagblad in August 2015, and similar positive tones have featured in both domestic and foreign media and among various observers of African conditions over the years.

Several African countries have experienced significant economic growth since the turn of the millennium, but the trend has been stalled in several places on the continent in recent years.

It is generally difficult to obtain a clear picture of the African economy, which was otherwise often done in the past. This is according to Associate Professor Lindsay Whitfield, head of the Center of African Economies at Roskilde University.

"There is not just one African economy. There are certain similarities because the African countries have had similar historical conditions, such as colonization, which has created special economic structures that have been difficult to break out of, but lately, the economies have evolved differently. Some are doing better than others, but I think that overall things are going more downhill than the euphoria has led many to believe” she says.

Lindsay Whitfield divides the African countries into three main categories. Countries that are dependent on natural resources, countries not dependent on natural resources, and countries that are affected by political crises or conflicts that can hamper economic growth and which may overshadow whether or not one's economy is based on a dependence on natural resources.

Several of the countries in the first group, whose economies are based on certain products such as oil or cocoa, had high growth rates in the good years after 2000, but these countries are particularly affected by international economic conditions. This applies to countries such as Nigeria and Angola, whose economies are largely dependent on oil.

On the other hand, countries that are not dependent on natural resources are not as vulnerable to fluctuations in international prices, and several of these countries have managed to maintain high growth rates.
 

Ethiopia is unique

One of those countries is Ethiopia. Lindsay Whitfield, in collaboration with Senior Researcher Cornelia Staritz from the Austrian Foundation for Development Research, have researched e.g. the development of the apparel and textile industry in Ethiopia.

"In five years, there will probably be a “Made in Ethiopia” in the neck of much of our clothes," says Lindsay Whitfield.

The country has a special combination, with an actual industrial policy and the presence of foreign investors in the industry, which creates good conditions for economic growth.

"Ethiopia is a country that actually has an industrial policy, unlike the vast majority of countries in Africa. That makes Ethiopia unique. The country is the best functioning example in that group of countries and stands out clearly different from many other countries” says Lindsay Whitfield, continuing:

"A country needs an industrial policy for strong local businesses to exist at all. That’s why Ethiopia has local businesses, while countries like Kenya, Tanzania and Uganda don’t, or only have a few. It’s also impossible to benefit from the experiences learned from foreign companies if you have no local businesses” she explains.

At the beginning of the noughties, the Ethiopian government identified the apparel and textile industry as a driving force for an industrialization process and they recognized the need for an active policy in this area.

The government’s policy has emphasised the importance of exports and there has been a focus on creating favourable conditions for local businesses, but along the way, the government has found that local businesses have not had the necessary know-how or technologies to establish a position in the international market.

So the most recent efforts have been to attract foreign companies and investors who can help develop local businesses through trade, knowledge sharing and inspiration.

Ethiopia's development has been reinforced by some trade agreements with Europe and the United States, such as the African Growth and Opportunity Act (AGOA), which provides tax-free access to the US market.

"This development would have been impossible without AGOA, and if AGOA is lost, which will happen at some point, it will be essential to have established an industry that is sustainable and competitive without the trade deal" explains Lindsay Whitfield.
 

The world economy changes

Although the Ethiopian model is not without barriers, it has many advantages that other countries could learn from.

"The Ethiopian model can be copied, but it cannot be copied in every country, because if everyone begins doing the same thing at the same time, the model loses its value" says Lindsay Whitfield.

And although the model appears more sustainable than is the case in many other countries, it risks being overtaken by global developments.

"I think everything will change with automation ten years from now. That will have a greater impact than how individual economies develop. Besides, we may already have seen that the globalized market, with long global production chains across the world, may have peaked, because what will happen when countries like China and India begin to look inward towards their own domestic markets? Then some of these fragmented global production chains will collapse, and we may see markets become more regional than global” Lindsay Whitfield predicts.

Lindsay Whitfield is associate professor at Department of SocialnSciences and Business. She is teaching at  International Bachelor in Social Sciences, International Studies and Global Studies.

Special industrial parks

One of the means of attracting foreign companies has been to establish special industrial parks, where suppliers and subcontractors can meet within a demarcated area where facilities, such as electricity, water and infrastructure were guaranteed. This is intended to reduce delivery times and production costs, because time and costs for export have been one of the competition parameters where Ethiopia has lagged behind compared to, for example, Asian countries.

Industrial parks can bring foreign and local businesses closer together.

The Ethiopian government's policy and other favourable conditions have led several foreign investors and businesses to establish themselves in the country and become part of the apparel and textile industry. This includes PVH Corp., which is behind internationally renowned brands such as Tommy Hilfiger, Calvin Klein and H&M.

The industrial parks in Ethiopia are so new that it is still too early to assess their effect.

Research projects on Ethiopia, Madagascar and Kenya

Lindsay Whitfield's research is part of the research project “African-owned Firms Building Capabilities in Global Value Chains (AFRICAP)” at the Center of African Economies at Roskilde University.

The research project includes the apparel and textile industry and the flower industry in countries such as Ethiopia, Madagascar and Kenya, and aims to investigate the industrialization of the African countries in relation to the global production networks.

The Center of African Economies publishes a series of working papers, which are based on, among other things, interviews with companies and other actors in the countries concerned.