Ethiopia pushes to sustain industrial park boom to power manufacturing growth

Ethiopia's government is pressing ahead with efforts to sustain momentum in its sprawling network of industrial parks, a cornerstone of its manufacturing and export strategy. This is even as questions grow over whether the projects are generating enough returns to service the loans used to build them.

Over the past decade, Ethiopia has poured billions of dollars into industrial parks and special economic zones designed to attract foreign investors, create jobs and shift the economy toward export-led manufacturing. Today, the country has more than 20 such parks, which together account for more than half of Ethiopia's manufactured export earnings.

At Bole Lemi Special Economic Zone on the outskirts of Addis Ababa, one of the country's flagship hubs, more than 35 factories are in operation. Among them is Gelila Manufacturing PLC, a footwear producer capable of making 2,000 partially hand-made, export-quality shoes.

For workers like Tekleberhan Nigusse, the benefits are tangible.

"I started by preparing raw materials. Over time, I learned from senior colleagues and developed the skills to operate this machine. Now I work independently," he said. "Factories like this don't just provide jobs, they also teach valuable skills. They also pay better than many other factories, and I believe I benefit in many ways."

The Industrial Parks Development Corporation, which administers 14 industrial parks and special economic zones, says the model is delivering results.

"We have more than 300 investors, where 40 percent of them are foreign direct investment, especially from China, India and other countries," said CEO Fesseha Yetagesu. "We are able to export more than $1.5 billion worth of exports from these industrial parks. We created tens of thousands of jobs. Currently we have close to 90,000 employees in our parks."

He added that industrial parks now dominate Ethiopia's manufacturing exports. 

"In the past six months, the Industrial Park Development Corporation owned industrial parks in special economic zones. We were able to export more than 50 percent of the exports from the manufacturing sector,” he said.

Much of the industrial park expansion, however, was financed through external borrowing, including Eurobonds and loans from institutions such as the World Bank. Yetagesu said the government expects the parks to repay those loans through land leases and rentals to investors.

"The investment was huge," he said. "So, this was financed by different financial institutions, loans from these institutions. So, we are expected to pay that loan through renting and leasing of our land for investors. In that sense, we are doing a good job now. In the past two, three years, we have had positive growth."

However, some economists remain unconvinced. They argue that while the parks are boosting exports and employment, their financial returns are still insufficient to cover the cost of non-concessional borrowing.

"The government has clearly announced, since the home-grown economic reform program started, that it's not going to take non-concessional lending," said Tewodros Mekonnen, a country economist with the International Growth Centre. "Because mostly the non-concessional lending that came, for example, for industrial park development and others, did not really produce the return it needed to, you know, to pay back the commercial loans in time, which put a strain on the overall debt sustainability of the country."

Across Africa, development financing is shifting away from expensive commercial loans toward more concessional funding, a trend Mekonnen says Ethiopia is now following.

"Increasingly, countries, when they were bilaterally going into the commercial loans or in non-concessional loans, that was verydamaging to their debt sustainability," he said. "So, they sort of reverted back to more concessional."

Still, he noted that the issue is less about the source of financing than its terms. 

"I would not say they don't want bilateral lending," he said. "If a bilateral creditor is willing to make the loan concessional, of course, they would be happy to take that loan."

As Ethiopia presses ahead with its industrialization drive, the government says its focus is now on consolidating gains from the parks while improving efficiency, productivity and investor retention.

Edited by CGTN Africa reporter Marion Gachuhi