Ethiopia has emerged as a pivotal player in the African economic landscape, creating conducive environment for the development of Special Economic Zones (SEZs). These zones are designed to stimulate economic growth, attract foreign investment, and foster industrialization. With a combination of strategic location, government support, and a growing market. Ethiopia is well-positioned to harness the potential of SEZs to propel its economic ambitions.
Situated in the Horn of Africa, Ethiopia’s geographical location offers significant advantages for trade and investment. It serves as a gateway to the burgeoning markets of East Africa, including neighboring countries like Kenya, Sudan, and Somalia. The country’s access to the Addis Ababa-Djibouti railway and a developing road network enhances logistics and transportation, making it easier for businesses to connect with regional and global markets. This strategic positioning is a key factor that attracts companies looking to establish manufacturing and distribution hubs in the region.
The Ethiopian government has demonstrated a strong commitment to developing SEZs as part of its broader economic strategy. The establishment of the Ethiopian Investment Commission (EIC) emphasizes the government’s intention to create a business-friendly environment. Policies aimed at simplifying investment procedures, providing tax holidays and ensuring regulatory support are integral to attracting both domestic and foreign investors.
The “Ethiopian Industrial Park Development Proclamation” is a significant step in this direction, allowing the government to designate specific areas as industrial parks, thus facilitating the establishment of SEZs. These parks are designed to focus on sectors such as textiles, garments, agro-processing, and manufacturing, aligning with Ethiopia’s goal of becoming a middle-income country by 2030.
Infrastructure is critical for the success of SEZs, and Ethiopia is making substantial investments in this area. The government is focused on improving transportation networks, energy supply, and telecommunications, all of which are essential for industrial operations. The construction of industrial parks equipped with necessary utilities, such as electricity and water, further enhances the attractiveness of SEZs for investors.
The development of the Grand Ethiopian Renaissance Dam is also expected to significantly boost the country’s energy capacity, ensuring a reliable power supply for industries within these zones. Such infrastructure improvements create a solid foundation for businesses to thrive and contribute to the overall economic development of the country.
Ethiopia boasts a youthful and increasingly skilled workforce, which is vital for the success of SEZs. The government is investing in education and vocational training programs to equip the population with the necessary skills for various industries. This focus on human capital development not only meets the labor demands of businesses but also contributes to the long-term sustainability of economic growth.
Additionally, the presence of a large pool of labor at competitive wages makes Ethiopia an attractive destination for manufacturing and assembly operations. Companies can benefit from lower labor costs while accessing a workforce that is eager to learn and adapt to new technologies.
The government in its 10 years perspective economic growth plan emphasized the expansion of manufacturing to take part in the industrial parks. The main role of the sector among others, to attract foreign investment, boost export, substitute import, create job opportunities to thousands, create link with the agriculture, enhances innovation and to pave the way for the expanding of self-sustained private sector led economy.
As it is understood Ethiopia is the most populous country next to Nigeria with more than 120 million. This indicates that the nation has huge potential to boost the economy through creating job opportunity for millions. Currently, more than 80% of the labor force is engaged in subsistence farming which makes the role of the rural labor to the economic growth insignificant.
The engagement of the rural labor in the economy is seasonal which is in the rainy and harvesting seasons. This clearly indicates that huge labor force is detached from economic engagement for many months hence, to utilize the labor force effectively and efficiently shifting this force from farming to the non-farming should be taken as a way out. In these regard it is believed that the manufacturing sector is one of the viable sector which can absorb the rural labor.
In the last two decades and a half, it is proved that Ethiopia registered double digit economic growth. In addition, both in the first and the second growth and transformation plan also economic progress was witnessed. But the growth did not bring structural change that means the role of the growth for the expansion of manufacturing and for shifting the rural labor to the non- farming sector is insignificant.
Therefore, more emphasis should be given to the ongoing expansion of manufacturing sector. In the past, the government to support the expansion, it devoted its finance, labor and time for the expansion of energy sector because it is unthinkable expanding manufacturing without supplying sufficient energy. Considering the vitality of the energy the government for the last decades aggressively engaged in developing energy plants from various sources including from hydropower, wind, solar and geothermal and currently the nation generates 5,600 megawatt electric from water, 404 megawatt from wind, 25 megawatt from burnet waste heat could harvest energy. When the ongoing construction of the GERD and the Gilgel Gihbe IV hydropower dams accelerates the nation’s power generation capacity and shortage of supply of energy to industries will be minimized.
Long ago, Ethiopia has embarked on upgrading its industrial parks to special economic zones to attract Foreign Direct Investment (FDI) to create enabling environment to jobs creation, and enhance trade and productivity.
To facilitate the country’s aspiration, the Special Economic Zone Proclamation defines new criteria for industrial parks to become SEZs, including a minimum of 50 hectares of land and other infrastructure requirements.
In its letter communicated to Industrial Parks Development Corporation (IPDC), the Ethiopian Investment Commission revealed that it has upgraded these ten of the 13 industrial parks managed by IPDC to the Special Economic Zone.
After thoroughly evaluating the status of the industrial parks, the Ethiopian Investment Board decided to upgrade 10 of them to Special Economic Zones as they met the necessary criteria.
While the potential for SEZs in Ethiopia is substantial, there are challenges that need to be addressed. Issues such as bureaucratic inefficiencies, corruption, access to finance, and regulatory hurdles can hinder investment. The government must continue to streamline processes and foster a transparent business environment to overcome these obstacles.
Moreover, ensuring environmental sustainability within SEZs is crucial. As industries develop, it is essential to implement policies that promote responsible practices to mitigate negative impacts on the environment and local communities.
Recently, Japan Dev’t Institute regarded Ethiopia as conducive to develop Special Economic Zones.
The CEO of Industrial Parks Development Corporation of Ethiopia (IPDC), Fisseha Yitagesu (PhD) stated that his corporation is looking to tap into the vast experience of the Japan Development Institute (JDI) in developing special economic zone in his country. The IPDC chief disclosed the intent to work closely with JDI during his meeting recently with the chairman of the Institute, Shoichi Kobayashi.
On the occasion, both dignitaries agreed on the importance of enhancing investment flows into Ethiopia’s special economic zones.
The IPDC CEO mentioned the importance of working in cooperation with the institute to increase the flow of investment in the Ethiopian special economic zones run by the corporation.
Shoichi Kobayashi, on his part, emphasized Ethiopia’s untapped potential for SEZ development, stressing that JDI’s extensive experience in developing SEZs across the globe would be invaluable to Ethiopia’s growth.
In response, FIsSeha reaffirmed the IPDC’s readiness to fully leverage the expertise JDI has gained from consulting on over 350 SEZ projects in more than 75 countries worldwide.
The Japan Development Institute (JDI) is an independent think tank/consulting firm, specialized in international development. It was first established in 1982 as the World Consultant Service (WCS) and later changed its name as JDI after merging with the think tank of the Institution of Engineering Consulting Firms Association, Japan (ECFA) in 1997. With its experienced experts from numerous disciplines and the network with its associate institutions and experts in the world, JDI provides a broad range of consulting services in the field of development, carries out practical studies, and proposes concrete projects and strategies.
BY ABEBE WOLDEGIOURGIS
THE ETHIOPIAN HERALD WEDNESDAY 5 FEBRUARY 2025
