Policy in Ethiopia

generated the most FDI jobs (employment as a result of FDI). In Tanzania, the sector was the largest FDI job creator during 2008 and 2009, with an average of 36,303 jobs per year (43 percent of all FDI jobs created). In Uganda, the manufacturing FDI jobs created in 2012 accounted for 23 percent of full-time jobs and 79 percent of part-time jobs in the country. In Ethiopia, manufacturing FDI created 28 percent of all FDI jobs between 2008 and 2014. China, Germany, India, and the United Kingdom created the most job opportunities for SubSaharan Africa through greenfield projects between 2003 and 2014. Among investor groups, new partners (China and India) and intraregional partners (such as South Africa and Kenya) created jobs comparable to the number of jobs created by the region’s traditional partners (Germany, the United Kingdom, and the United States) (Chen, Geiger, and Fu 2015).

Links to input industries must be built to attract FDI to transform manufacturing. For instance, Ethiopia, arguably a standout in the nascent stages of industrial transformation, has focused its industrial policy on reducing dependence on imported inputs in highly prioritized manufacturing industries—textiles and leather products (box 6.3). This policy stance helps generate better links to domestic supplier industries. Policies that promote the

BOX 6.3

Investment and Global Value Chain–Oriented Industrial Policy in Ethiopia

Since the early 2000s, Ethiopia has implemented an industrial policy strategy that aims to industrialize the country through global value chains. The country is attracting investment in its labor-intensive manufacturing industries, such as leather products and apparel, to assist its export promotion strategies. As part of its strategy, Ethiopia has put in place a range of financial incentives, including duty-free access to imported inputs and reforms to land leasing. These financial incentives are expected to boost exports. For instance, duty-free access to imported inputs is available only if final products are exported.

The strategy seems to be generating quick employment creation and increased export earnings. However, few links to domestic firms have been created. Export earnings have grown, but exports are dominated by foreign firms. For this strategy to work and for Ethiopia to successfully integrate domestic firms into global value chains, complementary policies should aim to make domestic manufacturing firms internationally competitive. Strategic policies should also be implemented, such as bargaining with foreign investors to create links and transfer technology to the domestic economy. This approach can take the form of creating explicit supplier programs and rewards for foreign companies that make extra efforts to help build the capacity of local suppliers.

Note: This box draws heavily on Hauge (2020).