Wednesday, June 12, 2024
Money TalksIndustrial parks teeter on the edge as export markets calm

Industrial parks teeter on the edge as export markets calm

Protracted war casts a dark cloud over industrial parks

A bustling crowd of Adama Industrial Park employees made their way to the Commercial Bank of Ethiopia (CBE) branch inside the park’s immaculate and meticulously maintained compound on May 2, 2023. Even though their monthly salary ranges from 1,500 to 8,000 birr, they typically deposit a portion of it in the bank. The employees go to a large cafeteria for lunch, where they consume the same Enjera and wot as the investors and management.

However, within the factory sheds of the park, the silence of the majority of the machines, warehouses, and export packaging docks has become the new normal as a result of the two-year conflict in northern Ethiopia, which halted exports.

Five years ago, when Qian Anhua decided to bring Antex Group, a Chinese fashion behemoth, to Ethiopia, everything was rosy and a dream come true.

He established Antex Textile Ethiopia Plc. and rented 11 factory sheds in Adama Industrial Park. The cost of opening the park in 2018 was USD 140 million.

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“I first considered Burma, Cambodia, and other countries for the investment. But after I visited Ethiopia, I decided to settle my business here. The kindness of these people really moved me. The landscape is beautiful, and the weather is perfect,” Anhua, founder and general manager of Antex Ethiopia, said.

Anhua claims his initial plan was to establish one large garment factory that could employ 20,000 individuals. “I chose Adama due to its size as a city. Then I leased all of the park’s sheds.”

Over the past five years, he has invested over USD 40 million in the sheds at Adama to improve the power, water, and other infrastructure and service provisions that were lacking when the park opened.

The company manufactures all fashion-designed apparel, sportswear, swimwear, underwear, and other textile and garment items. All of its products are exported to the US, European, and Australian markets.

Initially, the company intended to generate a half-billion dollars annually once reaching full capacity in five years. However, Antex only managed to generate USD 30 million in export revenue in the last three years.

In recent years, expectations have diminished significantly. After the US revoked Ethiopia’s privilege under the African Growth and Opportunity Act (AGOA), Antex lost its international clients, with the company ceasing exports.

“After COVID-19, things went crazy. The Tigray war hurt us too much. All our customers stopped buying from us. It is a big challenge,” says Anhua.

Currently, only seven of Antex’s factory sheds in Adama IP are operational. Two of the initial 11 facilities rented were returned to the Industrial Parks Development Corporation (IPDC), and two remain inactive.

“We stopped exporting completely after the AGOA ban. We have 4,500 workers, and we are struggling not to lay them off. We are utilizing only 40 percent of our installed capacity,” Tigist Gemechu, operational and administrative director at Antex Ethiopia Plc., said.

She says the government had recently given orders to produce military uniforms, diverging from the past trend where it used to place these orders abroad. “But since our exports dropped due to AGOA, the government has started to order locally. So we are substituting the currency the government used to import military uniforms. Though we are not generating forex for now, we are saving the government’s forex,” she said.

The company exported 2.4 million items in 2021 and only 1.3 million pieces in 2022 and 2023, following the AGOA ban, according to Tigist.

Particularly, the government’s decision to substitute the import of military uniforms has given industrial parks like Adama a new line of business. If not, these parks could have been shut down.

Antex produces uniforms for the Ethiopian National Defense Force (ENDF), regional police forces, federal police, and prison guards in massive quantities. Tigist notes that other industrial parks are also receiving orders for military uniforms, so there is competition in the market. In spite of this, she asserts that Antex is unique because it possesses machines and equipment for every stage of the production of military uniforms.

“We do raincoats, logos, embroidery, and others for the military uniforms. All seven of our factory sheds currently active are engaged in producing military uniforms for the Ethiopian government. The output is high,” added Tigist.

Investors operating within the industrial parks also requested that the government accept factory shed lease prices in local currency, as they do not export or generate foreign currency. However, the IPDC failed to reach consensus. The agreement, officials say, requires investors to pay in hard currency. Officials argue that the government cannot repay the loan used to construct the industrial park unless investors generate foreign currency.

IPDC is even considering increasing shed lease costs, according to The Reporter’s sources.

Developed and managed by the IPDC, the country’s 13 public industrial parks provide a range of business opportunities.

Currently, investors in industrial parks are also requesting permission to sell their goods in the domestic market, as the export market is somewhat stagnant. As a result of the conflict in Ethiopia and the loss of AGOA privilege, foreign investors in other industrial parks in Ethiopia have already left, while Adama IP is performing relatively better.

Despite the challenges posed by ongoing conflict, a lack of foreign currency to import inputs, a lack of manpower, and a high turnover rate, Anhua says he never considered leaving Ethiopia.

Exporters are unable to compete on the international market due to the extremely high cost of industrial inputs on the domestic market.

The investor asserts he cannot leave Ethiopia because he has made too many investments here. According to him, this has caused him to have conflicts with his family over the past two years. “My family and I own the entirety of Antex Group. My family wanted to close the business in Ethiopia, but I resisted under tremendous pressure,” he said, adding that he cannot spend a dime without his family’s approval.

“I am still losing money on this project. I am fighting with my family to stay patient. I am asking for a last chance,” said Anhua. “I am spending USD 400,000 from my own pocket every month to import inputs.”

The prolonged conflict in Ethiopia has become a significant deterrent for foreign investors, Anuha claims. He asserts that the greatest challenge in Ethiopia is social instability. “It is a threat to all of us. The conflict of the past five years is extremely discouraging to me. When I hear about a conflict in Ethiopia, my heart stops.”

This decade is the last opportunity for Ethiopia and Africa to industrialize and catch up with the rest of the world, according to him. “Whether you speak Amharic, Oromifa, Tigrigna, or another language, all the people are Ethiopian. We have to compromise. If there is a crime, let the court handle it. If Tigray committed a crime, let that go to court, not to Parliament. The Parliament’s job is to argue about how to develop the economy.”

He asserts that society relies on the elite, and they “must lead society in the right direction.” He contends that Ethiopia, despite claiming to follow China’s development path, does not adhere to what China did correctly.

“China has never had conflict or war in the past four decades, internally or externally. But 40 years ago, everybody in China was fighting each other, just like Ethiopia now. Even now, the US is pushing Taiwan to fight China. But China kept everything quiet. Who is benefiting from the Ukraine-Russia war?” he asked.

“Everybody gives you problems, but you must maintain peace inside and outside. You can disagree, but you must not fight,” he said, adding, “All the ethnic groups in Ethiopia have different ideas. But after all, they have one bigger family and one country. So their ultimate interest is one, which is developing Ethiopia.”

The greatest impediment to industrialization, structural transformation, and economic development in Africa, according to Anhua, is conflict and instability. Besides achieving peace, he cites infrastructure construction as China’s greatest accomplishment over the past four decades.

“If Ethiopia wants to emulate China, it must take these two steps. Ethiopia has expansive, gorgeous, and fertile land. However, it is devoid of development. There is a daily food shortage. Why not develop the land? “Do not wait for someone else to develop it for you,” advised Anuha.

Before the cultural revolution, he claims, the Chinese were also engaged in interethnic conflict. “After the 1980s, we ceased fighting and shifted our focus to economic development. Every developing economy must study China’s successes and avoid its failures. The Ethiopian elite must steer society in the right direction, Anuha adds.

However, he concurs that developing nations must also maintain positive relations with all global powers, striking a balance and avoiding war at all costs. “You keep the markets open. Maintain security’s silence. The investors will arrive on their own, motivated by self-interest. We must disregard what politicians say and concentrate on economic development.”

Ethiopia, he says, must liberalize its markets to attract a variety of investors. “However, FDI will not arrive unless peace is maintained and infrastructure is built,” concluded Anuha.

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