Chapter 1 Introduction
Nowadays, it becomes quite apparent how overseas investment & cooperation can enrich countries lifespan and boost their economical level.
In line with this, there is no secret at all when speaking about the fact how China has approached East Africa, especially Ethiopia in the last years and nowadays the so- called Sino-Ethiopian relationship has become one of the strongest and most durable partnerships in Africa.
The so-called Chinese-Ethiopian political and economic ties have gained pace over the last two decades and further cooperation and interchangeable businesses will occur in the following years.
In the year 2006, China has started with specific involvement and making Ethiopia to its main trade partner. When speaking about figures it is evident how Sino-Ethiopian businesses and cooperation have expanded.
Several studies have started exploring Ethiopia’s economic and social transformation but still, the presence of Chinese in Ethiopia could also carry certain risks and China could easily benefit out of it.
China’s engagement has been assessed differently from research paper to articles, say- ing natural resources are being exploited while democracy in Ethiopia has been under- mined.
Therefore in the following paper, it will be examined if certain approaches and in- volvement of the Chinese in Ethiopia evolve to a win-win cooperation rather than a neo-imperialism and authoritarian capitalism as stated in various research articles. Moreover, it will be analyzed with the help of hypothesis and diverse research methods what the exact intention behind the Sino-Ethiopian relationship is?
Indeed the focus will be aimed at various discussions regarding aspects of Sino- Ethiopian relations & socio-economical engagements.
With the help of hypothesis and specific research methods, Chinese engagement will be analyzed and examined if it is an advantage for Ethiopia or rather a jeopardy for the East African country.
1.1 Material 3
1.1 Material
The material being used in this academic paper are mostly from business articles & newspaper stating the current situation about both countries.
Most of all articles have different opinions on this topic. Due to the fact that the Sino-Ethiopian relationship had begun in the late ’90s, it is still an on-going topic with daily novelties, therefore, published books capturing this topic are scarce. Additionally, most of the economic data are not updated.
With the help of several exchanges with analysts, stakeholders, diplomats and in- habitants access to essential information about the Sino-Ethiopian relationship and development could be generated to a certain degree.
1.2 Limitations
It’s a fact that Chinese companies or investors who have operated a lot in Ethiopia must be all registered in the Ministry of Industry and those who don’t operate need to be delisted.
Even though it happens after the use of different research paper & articles that some companies won’t be delisted and this could lead to inaccuracy of Chinese FDI enter- prises in Ethiopian statistics.
Not only the inaccuracy of data such as different annual details and the fact of not being up-to-date are reasons for limitations, including political instabilities within the country causing state of emergencies.
Because of this Ethiopia had been charged with crimes against human right which hampers the situation and leads to minor access to essential information about the country and its economic and social development.
Therefore it was quite difficult and dangerous to undertake interviews with analysts, stakeholders or even governmental counterparts about the recent state of affairs.
In addition to that interview outcomes needed to be kept confidential and anonymous.
4 Chapter 1 Introduction
5
Chapter 2 Hypothesis
2.1 China making an effective contribu- tion and turning Ethiopia into a fast- fashion factory
The bilateral exchange between China and Ethiopia had begun in 1970 when the for- mation of the Republic of China started establishing diplomatic relations with the emperor of Ethiopia, Haile Selassie.
Both countries started visualizing their economical connections once the system of gov- ernment appeared to be identical.
To be more accurate both regimes corresponded to be republic, therefore, it surely facilitated the formal diplomatic and economic relations.
In 1988, China and Ethiopia have formed the joint Ethiopian-China Commission (JECC) including economic and cultural cooperation but also agreements on secu- ritization and promotion of investment.
Starting from 1990 China has aimed to foster their relationship with Ethiopia in terms of being involved in projects such as joints venture, infrastructure development and other humanitarian assistance to the East African country.
Additionally, an economic forum was created where mutual interests such as invest- ment fields between both countries were discussed and analyzed.
This development is justified because both parties became reliable trade partners where China is now Ethiopia’s largest both export and import partner.
However China’s investments in terms of projects leading to a contribution of Ethiopia’s economical status must be examined and correspondingly evaluated.
How the whole process of intervention of Chinese in Ethiopia in regards to the eco- nomic, trade cooperation and which factors must be improved and changed to fulfill cross-border activities, all that will be analyzed with the help of survey reports, case studies, parameter of analytical models such as FDI and its assisting fields, and findings of authoritarian personalities of both countries via expert interviews.
6 Chapter 2 Hypothesis
2.2 China primarily concerned with ac- cessing Ethiopia’s raw material & opening up new sales markets?
From time to time and article to article it is said that the strategic approach of Ethiopia had been focused on the Chinese demand to open up new markets and develop the country to a high degree.
Oftentimes you read based on various sources that China approaches Ethiopia on an equal basis and offers multiple aid projects to evolve the country and foster stability to expand the level of businesses.
Interesting here is to use a literature comparison as a method to analyze if the Chinese really consider developing Ethiopia or they rather look for themselves and try to exploit the country.
The theory has been made quite a few times that Chinese primarily seek for a way to benefit the most out of businesses with Ethiopia and care less about the country’s development.
Accordingly comparing literature from Ethiopia, the Western World, and China with the help of newspapers, media reports and published books will show how Ethiopia perceives the involvement of China and how the others debate about it.
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Chapter 3 Research Method
The above-mentioned hypothesis will be analyzed and evaluated through specific re- search methods.
The evolution of China’s investment as foreign direct investment in Ethiopia will be analyzed through a time series analysis covering different sectors and influential deter- minants that have shaped Ethiopia ever since.
The methods being used to obtain certain outcomes vary from Enterprise surveys, covering a broad range of business-related topics to case studies specifical measuring performances and development.
Often case studies are based on surveys because it delivers access to various datasets including different parameters affecting a country’s economic and social development Especially in this topic, all methods being used are linked to each other hence reflecting the impact of China’s involvement in Ethiopia.
3.1 Regression analysis
The Regression analysis is a way of examining the Chinese contribution of foreign direct investment towards the economic growth of Ethiopia from the early ’90s until nowadays.
According to the recent Investment Report in 2019, China increased its investment in Ethiopia notably in textile, construction, telecommunication sectors, commodities and renting of agricultural land [1].
Empirical analysis will be used to track different events within the time series analysis by also analyzing different determinants of FDI and its correlation in several sectors (see section 2.1).
3.2 Opinion survey as Case study
Mentioning the foreign direct investment, China is well-known in creating special zones with specific economic goals such as attracting investment, procure employment result- ing in establishing an Ethiopian Industrial Zone.
8 Chapter 3 Research Method
The division into different sector is preferably represented by the so-called Ethiopian Industrial Zone, mainly initiated by China.
To gather information about the operations of EIZ-based companies and certain ex- periences of local employees the China-Africa Research Initiative has come up with a research method in form of an opinion survey being used to evaluate the investment activities of China such as working conditions, on-the-job training and how do the local workers perceive and apply skills transfer.
On the basis of opinion surveys with local workers from Chinese companies operating in the EIZ, the sample size corresponded to 204 employees who got interviewed [2]. The employees were divided into two working surroundings from where they got hired. On the one hand by zone developers and operators, on the other hand by resident enterprises in the manufacturing sector.
The survey was conducted by two Ethiopian students during lunch break or even after work due to busy work schedules (see section 2.1).
3.3 Comparative study of literature
In this section, various perspectives from China, Ethiopia, and the Western World will be compared and confronted through media reports, press reviews and published books. This will help to conclude if the different perceptions of the countries are assessed ob- jectively or it is rather representing a way of China primarily concerned with assessing Ethiopia’s raw material and opening up new sales markets (see section 2.2).
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Chapter 4 Results
4.1 Evolution of FDI
The Sino-Ethiopian relationship did not happen yesterday it rather took a while until it showed any impact.
According to the research paper from Monika Thakur, it is said that part of China’s strategy was to focus on the following fields in assisting Ethiopia: infrastructure growth, FDI, information and communication technology [p.4][3].
The country has maintained relatively steady economic growth averaging 10.6 % GDP growth per year between 2005 and 2015.
In 2010 a Growth and Transformation Plan was set up by the Ethiopian government to maintain a fast-growing economy, including all respective sectors that shape the country’s socio-economic development.
With the help of the Growth and Transformation Plan and Ethiopian Industrial De- velopment Strategic Plan, structural transformation by increasing the share of the industrial sector to 27 % of GDP by 2025 (13% as of 2012) and manufacturing sector to 17 % (4% as of 2012) will be guarantee [4].
According to the mentioned sectors, the umbrella term is foreign direct investments which can be divided into 6 functional sectors managing various areas like industry, business, import-export trade, logistics, living places, and nature.
According to the World Bank survey the foreign direct investment from the Chinese in Ethiopia raised from 2004, stating almost no investment, to 2010 stating US$58.5 million [5].
This is where we focus on various datasets from responsible agencies such as the Ethiopian Investment Agency who observe various aspects of FDI affairs and its assist- ing fields assisting Ethiopia, author Monika Thakur mentioned.
Especially when speaking about FDI, Ethiopia has maintained its top rank in East Africa attracting economically advanced countries such as China.
Due to cheap labor, particularly favorable land and growing market, Ethiopia becomes very attractive to plan new projects in various sectors.
Reports dealing with international investment and trade activities such as the United Nations Conference on Trade & Development have ranked Ethiopia as the third-largest
10 Chapter 4 Results
recipient of foreign direct investment in Africa, within the Investment Report of 2013 [6]. Hence, a dataset of the FDI development in Ethiopia shows the figure of 914,62 mil US dollars a year later in 2014 evolving to approximately 2000 mil US dollars in 2017 as maintained by the statistical data from China-Africa Research Initiative of Johns Hopkins University[7]. As part of the FDI development, a Chinese Investment group managed to construct a private industrial zone in Ethiopia where Chinese FDI is mostly directed to the manufacturing sector.
Analog to the supply of many foreign companies the following appraisal based on Ethiopian Investment Agency and Ethiopian Investment Commission will focus on the trends of agricultural FDI being in the pre-implemented or already implemented status. From 1992-2012, approximately 41,823 domestic private projects were under pre- implementation, whereat 4079 FDI projects were under implementation, among them 1377 FDI projects were under operation [p.501][8].
From the very start of Chinese foreign investments until today, projects which have been under pre-implementation showed an increasing trend, including projects that were eventually implemented.
This is mainly for the simple reason that industrial parks or to be more accurate zones have been created in a country with an immense surface of 1104300 sq. km, according to the World Bank[9].
The higher the surface of a country is the more FDI inflows is happening, the distribu- tion of FDI flow to Ethiopia by sectors will be shown after depicting the determinants of FDI inflow.
Personalities such as country economists of both countries Ethiopia and China, con- sultants from China including the guidance of the country director for Ethiopia were responsible for the survey report.
On the analogy of the FDI growth over the last years, there are many determinants that can influence the FDI inflow in Ethiopia.
Regarding a journal from the Academy of Business and Retail Management written by author Habtamu Legese Feyisa, it is essential to analyze the major determinants of foreign direct investment in Ethiopia [10].
To begin with, we focus on minerals, oil, and gas which are setting the basic terms for Ethiopia according to planning& implementation of mutual projects with China. There are various minerals such as gold, silver, tantalum, iron, salt which all might be scarce in China, raising their incentive to approach a country like Ethiopia and foster business.
Furthermore, gemstones such as emerald, ruby, sapphire, and most important indus- trial minerals like coal, marble, potash to be capable of launch projects in the manner of Ethiopian Industrial Park, etc.
Many African countries provide various minerals however the knowhow to make use of it in terms of trading is often misleading.
The above-mentioned Chinese-owned Eastern Industrial Zone is a place where indus- trial minerals are applied correspondingly, such as the creation of new business ideas. In addition to that, Ethiopia is well known for being a fast-growing country not rep- resenting oil as the main source, but rather industrial minerals like coal, marble, and other essential minerals allow the industry and manufacturing sector to supply con-
4.1 Evolution of FDI 11
sumer goods hence developing further coordinative projects with China.
A country like Ethiopia with its natural resources results in being very attractive to countries like China, where the fact cannot be denied that it might lead to a certain exploitation of natural resources.
Hence, the case of potential exploitation will be analyzed referring to the second hy- pothesis but for now, we focus on the investments being made including country-specific projects.
4.1.1 Politic stability as determinant of FDI
Ethiopia is located in the Horn of Africa which means the infrastructural issues that come with cross-border projects are immense due to controversial relations with a few neighboring countries.
Especially in border areas of Ethiopia and neighboring country Kenya violent conflicts, smuggling over resources and disputes over ethnicities become more frequent.
This will give China hard times, but policy recommendations defined by international organizations must reduce cross-border intergroup conflict, hence the enhancement of livelihoods of borderland communities must be provided.
China is seeking methods to justify peace in crucial areas where cross-border project might suffer by playing an active role in global security governance.
Opening military bases in neighboring countries of Ethiopia, like Djibouti and Sudan are used as methods to combine commercial and humanitarian interests in the region and prevent cross-border projects from violent and corruptive occurrences[11].
The effect of this method will be analyzed subsequently.
As a result, political stability must be considered as a determinant of FDI.
After the Prime Minister who was in charge for over 20 years has passed away, the regime was taken over by a new leader, namely Abiy Ahmad.
In general, Ethiopia has around 13 different ethnicities where discrepancy is inevitable and could easily lead to altercations and repetitive civil war.
Back in 1980, Ethiopia’s economy tended to collapse due to the communistic, so-called Derg regime which caused a civil war, as a result, there was no political stability within sight.
Nevertheless, the new prime minister managed to approach the neighboring country Eritrea which resulted in declaring peace.
This led to more political stability as a consequence the probability that another war could take place has reduced and internal tensions in the country have pacified. During cooperation in terms of projects with China, a safe business partner is key to long-term plans.
Most politically instable countries face trade restrictions such as sanctions on trade which force them to develop with their know-how and capital, thus leading to dimin- ishing achievements especially for developing countries like Ethiopia.
Surely after Ethiopia managed to conclude peace with their neighboring countries trade policy was loosened and higher Chinese FDI achieved.
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4.1.2 Correlation in Agricultural sector
After observation of pre-planned and already implemented Chinese projects in Ethiopia, it is visible how loosened trade policy and productivity share a strong correlation. According to a book about trade, there is a connection between trade liberalization on economic growth boosting growth in real gross domestic product [12].
In line with this source, correlation between trade policy and growth will be analyzed to see how free trade can lead to enhancement of growth and productivity.
To mention an appropriate example, we refer to an article on Ethiopia and China’s economic relations where China managed to initiate zero-tariff policy on agricultural imports and Ethiopia surely gained out of it [13]. As a result, there was massive growth in Ethiopia’s sesame and coffee exports to China which led to a strong correlation in terms of loose bilateral trade policy and high productivity.
In the following figure, Ethiopia’s development in export of sesame will be shown thus how loosened trade policy led to a higher productivity by increasing trade with China.
Figures 4.1: Ethiopias exports of sesame in million US dollar [p.232][13]
This figure implies that China transformed from being a net exporter to a net importer after cooperating with Ethiopia and its vast resources in agriculture over the last 15 years.
Nowadays the share of exporting sesame seeds and coffee raises, even more, the fact that China is the main recipient for these resources.
Ethiopia’s goal is to effectively use the export of sesame to possibly repay Chinese loans in the future which were provided to enlarge the Ethiopian infrastructure.
In both tables, Ethiopian products are displayed that have been exported and imported the most during 2016, where also most of the cross-border projects have
4.1 Evolution of FDI
13
1.7 bn USD of products exported in 2016
Coffee, whether or not roasted or decaffeinated 41.5 %
1.7 bn USD of products exported in 2016
Dried leguminous vegetables shelled
14.4 %
Gold or platinum
7.5 %
Meat of sheep or goats
5.7 %
Figures 4.2: Products Exported [14]
19.1 bn USD of products imported in 2016
Oil
41.5 %
Vehicles for transport of good 14.4 %
19.1 bn USD of products imported in 2016
Medicine 7.5 %
Palm Oil
5.7 %
Figures 4.3: Products Imported [14]
been implemented.
Important here, is that China’s goal is to have an impact on Ethiopia by enlarging their trade spectrum from bilateral to multilateral trade that becomes visible by Ethiopia’s active role in free trading with other countries.
When looking at the proportion of each resource, coffee is still the most essential one, whereon other countries do rely on and Ethiopia relies on importing oil from others. Therefore the correlation between trade and productivity does play a big role in Ethiopia’s cross-border actions in line with various recipients and consumers.
So far, by the illustration of both tables, the amount of exporting goods is tremen- dously lower than importing goods, linked to the fact that Ethiopia still depends on China, but they are on the right path to expand their business environment.
Thus, actors involved in the sesame marketing chain based on the national agricultural marketing strategy play an essential role.
When a trade partner like China needs to be involved assemblers also known as local traders must cooperate and exchange with international traders to proceed with the sesame or coffee deal.
On the one hand, local traders won’t have the experience to approach sophisticated clients and on the other hand, farmers can’t produce large amounts of sesame.
As an analytical model, we review the sesame value chain and evaluate the performance of participants along the chain.
Interestingly is how did the business of essential good in Ethiopia develop to reach the status of repaying their debt by exporting high amounts of sesame or coffee?
14 Chapter 4 Results
Actors Farmers Assemblers Regional Exporters Traders
Figures 4.4: Major actors in the sesame marketing chain [15]
The farmers in Ethiopia are basically in a weak bargaining position which means they can’t supply large amounts of goods also due to lack of market information.
With the support of China and the regular exchange in the form of import and export more market information on both sides, especially for Ethiopians is guaranteed.
In the Ethiopian Industrial Zone initiated by Chinese farmers will get educated to sell and manage sesame or other essential goods properly including the selling of high volumes and how to reduce the negotiation time among different stakeholders.
The regular process in the value chain is that producers sell to a local recipient and this recipient sells to a larger client such as the Chinese clients[16].
The Chinese will have an eye on certain value chain components to stimulate the process of exporting sesame via a value chain.
After reviewing the figure concerning Ethiopia’s export the amount of exporting sesame increased consequently, the value chain has been implemented efficiently.
However, the Chinese are aiming to adjust the value chain to accelerate the process even though the export of sesame-seed in Ethiopia increases proportionally.
This will be done by focusing on specific fields in the value chain such as Research & Technology Development, input production supply, distribution on-farm production, post-harvest handling, and market [17].
4.1 Evolution of FDI 15
Value Chain Component
Initiated by Chinese
Research&Technlogy Development
- – Expand areas/land where growing of sesame seed can be conducted
- – Enhance tools to mitigate risk of disadvantaged weather conditions
- – Develop infrastructure for sesame research
- – Generate tools prevent pests towards sesame
Input production, supply and distribution
- – Expand capacity of seed growers
- – Diminish path to reach potential customer
- – Reinforce connection among value chain participants via
- contractual agreements
- – Face to face exchange with neighboring countries
- – Access to input for small and medium-sized farmers must
- be provided
Post-harvest handling market and on-farm production
- – Sesame post-harvest technologies among farmers and other stakeholders must be provided
- – Contracts components like legal framework, compliance and tax aspects must be considered
- – Be aware/prepared for seasonal changes
- – Strengthen and improve performance and support for
- commercial sesame farmers
Table 4.1: Specific fields in value chain [17]
The above-mentioned value chain components are a few of many important topics that reflect the current status of China in terms of leading the world exports during the last 5 years.
In fact, all the new technologies being provided in the field of the sesame value chain in Ethiopia will be revised and most of all are already implemented.
The challenge is to get all participants on the same boat even if it’s a smallholder farmer or a commercial farmer because no matter how much the value chain will be narrowed down the farmer will set the tone in the sesame-export value chain.
This means the needs and expectations of all types of farmers must be satisfied to proceed with long-term plans to improve value chain components.
Comparable with other infrastructural and agricultural projects initiated by the Chi- nese so-called in-house training will again be provided to keep all participants updated and transfer know-how.
In the Research and Development field, input and capacity are built and fostered by the Chinese where the Ethiopian continued to grow to forecast demand, promote and distribute seed from farmer to potential consumer.
Developing infrastructure does not only mean improving the current infrastructure in Ethiopia whereby many projects like the Ethiopian Industrial Zone become part of the country’s advanced economical steps.
It means to improve the market infrastructure including modern storage facilities like warehouses, nurturing of plants and confidential availability of transport [p.43][16]. This is all in progress whereas in some regions of Ethiopia the resources are still miss- ing to establish warehouses and the connection to bigger clients does not operate as
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smoothly due to lack of communication network.
In these fields, certain strategic interventions have been conducted also with the sup- port of China to diversify the export market and satisfy sesame farmers of the country. To shorten the value chain certainly means that less transaction costs occur compared to transaction costs of commodities with the longer value chain.
Nevertheless, all responsible market participants in such a process must be considered and to shorten parts of the regular value chains means cutting a few of participants involved in the value chain.
A win-win situation can be ensured for both countries: First of all, the Chinese help the Ethiopian to use all potential land and respective tools to grow, distribute and export sesame seeds on a high-level standard.
All the export initiated by an efficient and effective value chain will help the Ethiopians to repay their loans used for projects in different sectors.
The respective turnover on increasing export and businesses abroad will further on flow into Ethiopia’s GDP and the country will move towards an export leader in Sub- Saharan Africa.
After reviewing all value chain components and looking at Ethiopia’s transformation a certain know-how transfer must be provided to implement changes. The exponen- tial increase of exporting commodities like sesame and respective impact on Ethiopia’s GDP will be shown afterward in the results.
4.1.3 International Communication and Technol- ogy Sector
In the upcoming field, it’s interesting to see how the International Communication and Technology Sector has been developed.
As above-mentioned with the sesame value chain due to lack of communication of net- working in some regions essential resources cannot be produced in large amounts and transported to a potential consumer.
Looking at this assisting field communication and technology it’s evident that this aspect is one of already established and rising components in the Growth and Trans- formation Plan of Ethiopia.
However, the real question or topic is by how much the Chinese shaped the ICT, In- ternational Communication and Technology sector?
Mentioning the Growth and Transformation Plan is a way of measuring it because it can be considered as a value chain aiming to realize a structural transformation and sustain accelerated growth in specific sectors within the period 2015-2020.
In general, the objectives of GTP are illustrating different stages which will also be backed up by the Chinese to fulfill the conditions of the plan thus enhancing the pro- ductivity of agriculture, manufacturing sector, and communication technology sector. Again, political restrictions such as sanction prevent from using communication and technology tools to exchange with other countries.
After a couple of years of political stabilization including modifications in the regime advanced projects have been realized.
4.1 Evolution of FDI
17
Access
Use
Skills
- Households with a computer (%)
- Households with Internet acess (%)
- International Internet bandwith (bit/s) per Internet user
- Individualsusing the Internet (%)
- Active mobile- broadband subscriptions (per 100 inhabitants)
- Mean years of schooling
- Secondary gross enrollment ratio (%)
- Tertiary gross enrollment ratio (%)
Table 4.2: 3 stages of IDI [20]
In the communications and technology sector, the Chinese have managed to build communications satellite broadcasting channels and streaming services from all over the world [18].
Research will be held between the Ethiopian Space Science Institute and China Rocket Company where a deal was signed concerning jointly built communication satellite[18]. Proposed by Chinese experts in the field of communication and technology and reg- ular exchange with the Ministry of Innovation and Technology of Ethiopia the use of in-house training will take place by transferring Chinese expertise to the Ethiopians. Once again, the focus here is a lab or factory, a so-called TRANSSION Holding where the communication connection has been fostered by using a diversified global hi-tech conglomerated which is specialized in mobile communication and further communica- tions tools[19].
The method is used to keep Ethiopians posted with technological changes and tools to be on the same page as Chinese.
Regular exchanges are taking place in the lab and innovative topics will be discussed and additionally conducted.
According to this, we look into the IDI, which reflects the ICT development index that combines 14 indicators. The objectives of the IDI are the level and evolution over time of ICT developments in countries like Ethiopia [20].
The IDI can be clustered into three stages in the evolution towards an information society to analyze what development in the ICT field for Ethiopia was achieved and where improvements are needed.
The clustering of the ICT Development Index will help to reflect changes taking place in Ethiopia including different levels of development.
This gives China the necessary overview to put effort in the fields where improvement must be undertaken.
Analog to many research papers and articles it is said that in 2018 fifty-four million people use cell phones in Ethiopia. However, it is one of the countries with low Internet penetration and according to the ICT development index (IDI), Ethiopia is ranked at 170 out of 176 countries, in the year 2017 [21].
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Due to other research articles even neighboring countries like Kenya and Djibouti are ahead of Ethiopia in IDI. This index is basically for the overall online information en- vironment having access to both online transactions and governmental news.
Thus, the so-called Export-Import Bank, also known as China Exim-Bank provided US3$ billion to the government-owned Ethio-telecom for considerable improvement. Nevertheless, access to the internet for inhabitants or companies is limited due to doubts from the government and unprogressive networking.
It is easy to say that Ethiopia’s overall online information did not improve in the last years but what were the real issues about it.
First of all, the regime of Ethiopia is sharing similarities with China wherein internal information won’t be spread across the world vastly. The fact that IDI as index covers many indices for the respective Web Index, Ethiopia ranks 57th out of 61 in the study [22].
One of the reasons why Ethiopia is one of the low performers is that news about the country itself should not be shared with others through social media platforms related to its history of conflict and state control.
After the election of the new prime minister, the government of Ethiopia is looking out for the national scores on these indices regularly and seeking ways like concluding partnerships with China.
After a research paper made possible by analysis from the International Development Research Centre, it is said that efficient telecommunication systems are based on ade- quate budgets and efficient administration [22].
Similar to other sectors but intensified in the ICT sector is that Ethiopia still lacks highly skilled and experienced experts dealing with complex ICT networks and lack of human resources in the ICT concerning how to implement socio-technical projects including connections to market and its regulations.
The method being used by Chinese was mainly to get into face-face discussion or train- ing to run a series of comprehensive courses concerning the broadcasting sector for planning, policy, and regulation [22].
In the meantime, a training on IT-enabled services has been provided including an expansion of communication capacities by creating innovative labs in both urban and rural areas of Ethiopia.
China manages to transfer Ph.D. and Master programs in telecommunications and computer engineering from China to Ethiopia to educate students purposeful.
This is a major step in terms of building technical and hands-on expertise for everyone in using, implementing and advancing of networks including the development of poli- cies [p.48][22].
3G or 4G as mobile broadband internet are accessible but once elections or political instabilities are happening, a complete shutdown for all social and communication plat- forms might occur. This issue of political intervention is more or less unpredictable and can’t be navigated by the Chinese.
Furthermore, it becomes quite challenging once the Chinese try to figure out how to expand the internet bandwidth throughout the country because the best access you can get is so far as in the capital city.
According to the International Telecommunication Union, less than 1 % of Ethiopia’s
4.1 Evolution of FDI 19
85 million have access to the internet on mobile phone.
In numbers, Ethiopia has one of the lowest smartphone ownership rates at only 4 per- cent according to a Pew survey [23].
In line with this, the most remarkable deal corresponded to Ethiopia when they close a partnership with Chinese telecom giant ZTE to expand its mobile phone network. This deal certainly affects all inhabitants nationwide to gather 3G internet access and upgrade existing networks to new technology, pointed out by acting head of Ethio- Telecom, in a BBC article[24].
Many dealerships have happened, but this is a long-term plan showing China’s growing positive influence in Ethiopia.
Here again, the above-mentioned technology lab where regular exchanges and in-house has been be provided outlines a major step in terms of developing the International Communication and Technology Sector and increase the percentages of telecommuni- cation users.
After regular exchanges between the Ethiopian Space Science & Technology Institute and the China Academy of Space Technology a satellite that is going to be launched by China will be commanded and guided in Ethiopia at the Entoto space observatory facility.
This is exactly the location where statistics about ICT development index (IDI) are being made and what further input will be needed to generate a valuable outcome in this specific sector.
As further input by 2012 Ethiopia had rolled out approximately 16000 km fiber cable resulting in an expansion of broadband networks in several parts of the country, even rural areas. Chinese companies recognize the huge surface of Ethiopia and is aiming at improving the connection throughout the whole country.
According to a few articles, it is East Africa’s only space observatory facility located on the 3,200-metre hills if Entoto outside of Addis Ababa[25].
Before the election of Abiy Ahmed, the Ethiopian Embassy and Chinese Embassy had announced back in 2016 to get into a partnership on a project for cooperation between China and Africa in information and communication technology.
The so-called African Information Super Highway also considered as joint construction which was signed in forms of a memorandum between both parties strengthens the ICT sector and was a huge success for both sides because the network channel was not only narrowed down to Ethiopia but rather beyond the country fostering networking connections across the whole African continent [26].
With the help of the 3 stages in IDI, the Chinese focused on launching in the year 2019 the first-ever satellite to provide changes in the technology and communication field also in fields like climate and weather [25].
One must consider that the biggest player for telecommunications service provider, Ethio Telecom is state-owned and as already mentioned holds a monopoly over the internet and mobile phone services.
However, evidence through statistics shows how the Ethiopian ICT sector has expanded through Chinese methods allowing inhabitants to witness an upgrade from 3G to 4G network and further possibilities to communicate via different social networking plat- forms.
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At least through Chinese involvement in this specific sector a fiber-optic cable that passes through the neighboring country, Sudan is being used to connect to its interna- tional gateway.
In the past until up to now, regular disconnections and network congestion are the main causes of low penetration rates in the country.
In the following table, the effect of China’s involvement in advancing the underdevel- oped telecommunication infrastructure will be displayed.
The table shows how both Internet penetration and mobile penetration has developed over the years.
Key Access Indicators
Internet penetration (ITU)
2016
15.4%
2015
11.6%
2011
1.1%
Mobile penetration (ITU)
2016
51%
2015
43%
2011
16%
Table 4.3: Availability and Ease of Access [27]
For an emerging country like Ethiopia and their political circumstances, a major development is reflected from 2011 till 2016.
Especially the highest percentage share in 2016 indicating approximately 16 % is due to commerce platform agreements between China and Ethiopia to enhance the communication sector. Proposed by the founder of Alibaba and well-known investor Jack Ma, a gateway for Ethiopia joining the digital world, modernizing the Information Communication and Technology has been created which increased both Internet penetration and mobile penetration rate of Ethiopian inhabitants.
This led to the following effects such as mobile services expansion, the establishment of an IP bearer network, introducing an automated “Next Generation Call” Center and expanding rollout payphones and e-cards.
In numbers through projects between China and Ethio-Telecom fiber-optic network has been rolled out to 10000km, the number of fixed-lines has been increased to 4.4million to attain mobile population coverage of 85% [22].
This affects Ethiopian inhabitants by boosting the suboptimal communication rate in Ethiopia, hence the number of mobile subscribers increased from 1.2million in 2007 to 17.5million in 2012 representing an essential breakthrough in the ICT sector.
After exchanging with Ethiopians witnessing China’s contribution in developing a robust ICT sector many react on the high cost in using the internet and respective telecommunication platforms.
Speaking about the satisfaction of the consumers, the opinions of inhabitants are biased. Important here is to analyze what effect all ICT partnerships have implicated on the inhabitants of Ethiopia. The OECD uses the price basket methodology refers
4.1 Evolution of FDI 21
to dominant players in the ICT sector that represent 50% market share.
Analog to the OECD pricing basket method the pricing of domestic fixed and mobile services remains very low in Ethiopia wherein the monopolistic telecommunication provider Ethio Telecom must deliver one of the cheapest sets of mobile tariffs in East Africa [22].
Before 2003 international fixed-line price remained constant but then through a devaluation of the Ethiopian currency local and international fixed-line tariffs were brought down in US$ terms.
Although a devaluation has happened inhabitants claim to pay high prices ranging from US$2 to US$5 for international calls lasting 3-5 minutes.
China has managed to expand the broadband network in Ethiopia, raised the penetration rates but the fact that the monopolistic Ethio Telecom and its prices are not cost-oriented rather are set arbitrarily forces the inhabitants to pay in excess for all services[22].
China is for one thing used to enterprises like Ethio Telecom that are state-owned companies due to similar circumstances such as state-holding enterprises in their country.
Accordingly, the influence of China in the Ethiopian ICT sector was positive because the penetration has increased and will further increase plus the broadband network in Ethiopia has technologically advanced due to projects obtaining infrastructural enhancements.
A sector like ICT can always be connected to opportunities like job vacancies for inhabitants meaning the homepage of Ethio telecom is always looking for young qualified applicants.
At the homepage itself, key responsibilities and required qualifications of applicants are displayed quite professionally comparable with developed countries.
According to the world bank findings concerning trends in Ethiopia’s dynamic labor market, since 1999 the overall labor force participation rate in Ethiopia has increased, including women in the workforce realizing a jump of 6 % points from 71.9 to 77.8 % by 2013[28].
4.1.4 Infrastructure growth as determinant of FDI
To fairly evaluate the allocation of Chinese development assistance considered as direct investment we initially look at the aid projects which have been already completed over the last years.
Starting with the China Associate (Group) Co., Ltd. which is specialized in pharma- ceutical manufacturing and trading business.
This firm was initially founded as a joint venture by 78 Chinese pharmaceutical facto- ries conclusively represented by 48 factories as shareholders [29].
Over the last 20 years, these Chinese companies have strengthened business connec- tions with pharmaceutical companies based in Ethiopia.
Even though China is not part of the OECD and on top of that it does not participate in the OECD Reporting System, various datasets can be retrieved to figure out how
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the Chinese play a major role in the development of Ethiopia’s infrastructure.
The first completed aid project taken out from the database was collected from the Ministry of Commerce in China.
Interestingly is that the Chinese community is vastly growing due to actions from the Chinese Chamber of Commerce in the capital city of Ethiopia, Addis Ababa[5]. Compared to a lot of east African countries the infrastructure in Ethiopia is quite ad- vanced thanks to several projects initiated by the Chinese such as the 470-mile electric railway starting from the capital city Addis Ababa to the port of the neighboring Dji- bouti.
This was a specific contribution of the Chinese covering a 2.5bn dollar project financed by a Chinese bank and constructed by Chinese companies fostering the public trans- portation system in Ethiopia.
According to Reuters, China and Ethiopia had agree on restructuring a railway loan linking the Ethiopian capital Addis Ababa with the neighboring country Djibouti [30]. In a regular exchange between the Counselor Office of the Chinese Ministry of Com- merce and the Ethiopian Agriculture Works Corporation, it is considered to be an important commodity that has been already in place and further add-on projects will be planned [31].
It is a milestone for the East African country because this infrastructure program is considered as the first electrified transnational railway in Africa providing services such as transport of commodities or the opportunity for tourists using convenient pub- lic transportations.
Analog to the electrified transnational railway the topic of obtainable electricity re- mains to be part of the infrastructural growth of Ethiopia.
To assess what the Chinese firms contribute towards the region of Sub-Saharan Africa in terms of enhancing the electricity condition the Enterprise Survey data will be used. In this survey business owners and top managers of several firms were interviewed capturing different topics disrupting the development in Ethiopia. As an appropriate indicator within the survey, the percentage of electric shortages in Ethiopia are going to be reflected and confronted to Sub-Saharan Africa.
4.1 Evolution of FDI 23
Indicator Ethiopia Sub-Saharan Africa
Percent of firms experiencing electrical outages
80
76.2
Number of electrical outages in a typical month
8.2
8.3
If there were outages, average duration of a typical electrical outage (hours)
5.8
6.4
If there were outages, average losses due to electrical outages (% of annual sales)
6.9
7.8
Table 4.4: Enterprise Survey on Ethiopian Infrastructure [32]
After reviewing the table, it is evident that the percentage of firms based in Ethiopia experiencing electrical outages is tremendously high, stating 80%.
Following these electrical outages are also affecting the annual sales of firms in Ethiopia especially for firms mainly relying on electricity.
This issue of having electrical outages belongs to the daily issues of both Ethiopian companies and the inhabitants facing it. In the next table, electric outages influencing business in Ethiopia will be shown followed by the intentions of the Chinese fixing arising problems.
In line with these infrastructural issues, the State Grid Corporation of China recently announced to invest another $ 1.8bn in Ethiopia’s electricity transmission[33]. Although not all electric installations & the population can be compensated in Ethiopia whose demand for power is approximately 30% per year.
Nevertheless, this investment is surely the right approach to ensure and foster infras- tructural growth in Ethiopia.
So far Ethiopia managed to develop 60 gigawatts of renewable energy and has about 4.5 gigawatts of installed capacity covering a population of more than 100 million citi- zens. As a comparison, Germany uses 60 gigawatts of renewable energy, showing that Ethiopia took major steps to decrease infrastructural issues and sustain energy access. A further consequence of avoiding electricity shortages is the method of rationing elec- tricity of homes and industries in Ethiopia.
In fact, China invests in quite long-term and likewise sophisticated projects, however, the basics need to be fulfilled by the Ethiopians.
Therefore, electrical applications need to operate smoothly to make projects like the electric railway perform flawlessly and contribute towards infrastructural advances of Ethiopia.
According to Reuters and the source Xinhua, a Chinese newspaper article, rationing of electricity has already been started in Ethiopia [34].
Due to an incident this year wherein ongoing energy shortage in hydroelectric dams led to production issues a strategic plan concerning electric savings was created.
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Indicator Ethiopia Sub-Saharan Africa
Percent of firms experiencing water insufficiencies
80
76.2
Number of water insufficiencies in a typical month
8.2
8.3
Table 4.5: Enterprise on Ethiopian infrastructure [32]
Here again, we are referring to the results of the survey depicting the average duration of having an electrical outage which appeared to be almost 6 hours.
As a matter of fact, having a generator wherein electricity has been saved over a couple of months, a job or many projects depending on electricity can still be continued and executed.
Besides, Ethiopia benefits from saving electricity with the help of a generator such as selling a surplus of electricity to neighboring countries or even countries that seek electrical accessibility.
This method can be considered as a profit-seeking way of dealing with countries all over the African continent and evolving to a major player as distributor of electricity and power grids.
A hydroelectric dam not only needs to maintain electrical accessibility and connection but also water which is the main component to launch projects and long-term busi- nesses.
However, for Ethiopia being a third world country, water as a natural resource is barely adequate.
As the indicator “percent of firms experiencing water insufficiencies” in the table il- lustrates, it lies at 80% which is certainly a drawback for long-term projects and the potential progress of the East-African country.
The Export-Import Bank of China is funding for a cross-border water project including Ethiopia and its neighboring country Djibouti, once again [35].
This project was planned in 2003 and it took a while until it was underway.
After a severe start in 2003 and tough loan agreement between the Chinese, the Ethiopian and its neighboring country Djibouti, in 2015 the cross-border water project was implemented.
Following this, a water pipeline from Ethiopia to Djibouti was built offering a volume of 100,000 cubic meters of drinking water.
Thus, the cross-border project aligns with the Ethiopian trading business, wherein a correlation exists increasing the country’s productivity. 4.1.2
This whole project will give Ethiopia a huge advantage in their current economic situ- ation, boosting the agriculture sector and other respective sectors.
In other words, the access to essential resources such as electricity and water needed for pharmaceutical projects and projects determine the level of infrastructure and their
4.1 Evolution of FDI 25
linkage to natural resources
The Chinese consider building huge projects and once infrastructural issues are solved, thus would imply to get better access to natural resources.
In CCTV news a resident of Ethiopia’s capital city mentions the positive takeaways of the cross-border water project.
She is saying before the water project was implemented there was only 2-3 times access to water.
Now after the implementation residents use the access to water for essential tasks in household work and other essential duties of life where water is vitally important. This helps the residents using water for essential tasks in household work and other essential duties of life.
The effect of cross-border trade in general for Ethiopia will be measured through the National Bank of Ethiopia, wherein researchers used time-series data on the Export and Import of Ethiopia with its neighbors during different periods.
The total export value of Ethiopia that also comes with cross-border trade amounts 2.2 billion dollars and imported 8 billion dollars, resulting in a negative trade balance of 5.8 billion dollars [36].
The cross-border project did affect Ethiopia in their bilateral trade by the time the project has been implemented in 2015 until now.
As China became the main recipient for resources after efforts in the enhancement of value chain components had been made, the export of essential resources like coffee and sesame increased.
The project is part of Ethiopia’s economic development, the most recent exports are led by coffee which represents 32.5% of the total exports of Ethiopia followed by sesame seeds accounting for 15.9%.
Not only will the number of exports increase, but also trades with neighboring coun- tries across the East African area will raise.
The used method of China establishing military bases around Ethiopia’s neighboring countries did affect cross-border trades over the last years. Due to China’s involvement in controlling cross-border trades by securing a smooth flow of trade, Ethiopia earns 290 million U.S dollars from energy export in 2019 after the electricity transmission and distribution line was completed[37].
Not only resources like electricity and water ensure sustainable economics but also en- suring sustainable peace with its neighboring countries Kenya, South Sudan or Djibouti are key measurements because many Chinese projects have the intention to connect Ethiopia with its neighbors.
In a cross-border project, the intention is still to enhance bargaining among several business partners wherein Ethiopia earns approximately about 80 million U.S dollars of revenue with selling 100 megawatts energy to Sudan conclusively 80 megawatts of energy to Djibouti [37].
There is still instabilities and repetitive civil wars in areas like South Sudan, but the effect of cross-border trade is visible and has a significant effect on Ethiopia’s economic development.
Even though Ethiopia is considered an underdeveloped country, it ranks as 129th largest export economy in the world which is a great achievement for a threshold country [36].
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4.1.5 GDP as a determinant of FDI and further measurements
In 1995, around 35 million Ethiopians, approximately 60% of the population were liv- ing in extreme poverty at the threshold of 1.25 dollars per day at purchasing power parity (PPP)[p.13][38].
The PPP GNI, also known as gross national income converted to international dollar using purchasing power parity rates is an important measure to comprehend Ethiopia’s economic development and spending capacity.
After Chinese involvement over the last decade, Ethiopia has succeeded in reducing the amount of poverty even though the population has increased from 57 million to 83 million.
It is often stated that Ethiopia belongs to the 20 fastest growing economies which will be measured by the GDP per capita (PPP).
With the help of the International Monetary Fund, the development of Ethiopia’s GDP per capital can be traced and respectively measured.
As already mentioned in the previous chapter bilateral trade started in 1992 where many Chinese projects had the status of being “pre-implemented” but the ones which have been implemented were around 2012 up to nowadays.
Analog to a global database, which strongly partners up with the World Bank and International Monetary Fund, it is stated that PPP data was reported at a record low of 18,050.923 Intl (international) million dollars in 1992 [39].
Interestingly is that during 1992 no real project was implemented rather bilateral ne- gotiations were underway between China and Ethiopia and from Ethiopia’s perspective no targeted investment had been conducted.
The evolvement of GDP per capita for Ethiopia stagnated in the late ’90s due to the after-war impact, also in the subsequent years, Ethiopia did not perform better than other African countries, even though GDP in general increased. Interesting here is how did the GDP per capita develop compared to other African countries, with identical conditions including potential Chinese investments?
4.1 Evolution of FDI 27
Figures 4.5: GDP per capita in select African countries [40]
The graph shows how Ethiopia’s GDP per capita performed below average compared to other African countries from early 2000 until 2017.
To analyze the GDP per capita is part of the evolution because analog to most of the results, Ethiopia’s GDP is growing however GDP per capita must be considered to see if inhabitants get wealthier.
In numbers, Ethiopia has stated approximately an average of 735 $ as GDP per capita, whereas neighboring countries like Kenya or Nigeria have twice as much on average GDP [41].
One of the reasons is certainly how Ethiopia has lost plenty of manpower within the last 10-15 years. In articles and news, it is often mentioned that lots of Ethiopians flee out of the country to seek better educations opportunities, resulting in better living standards.
The UN Refugee Agency has always dealt with the issue of Ethiopian leaving the coun- try and how high the number of Ethiopian refugees in another country is.
If that’s the case, then there is a correlation between GDP per capita in the country, education and employment opportunities.
Analog to the Ethiopian history of long-lasting wars and political instabilities, lots of professionals used to escape the country.
Moreover, many young Ethiopians seek asylum in the western world to get educated by reformed universities.
They do believe that studying abroad opens more job opportunities, having a brighter future.
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The fact that Ethiopia had never been colonized no western education has been used as fundament to create further education system, that simplifies the argument of Ethiopian studying abroad.
Before all educational systems in Ethiopia were religiously based, meaning only public church schools did offer education to students with religious assimilation [40]. Through external influences, other African countries had already educational facilities where manpower was kept and further used to increase GDP per capita annually. Consequently, the more educated people or in general people leave the country, the less manpower will be provided leading to decreases in GDP per capita, visible in the graph.
Following the specific refinements and advances that Chinas has made to enhance Ethiopia’s status quo, the GDP per capita and its weak performance do belong to the past.
With China’s projects plan, foreign direct investment within the special economic zones, many opportunities have been created and further are going to evolve.
Referring to the evolution of FDI and new opportunities that have been created, with the support of China to get access to essential resources and make use of it to foster the country, fewer people leave the country.
This can be measured through the fact that China managed to offer plenty of univer- sity partnerships, hence the number of Ethiopians students enrolled in a degree and non-degree programs in China tripled from 2011 to 2829 in 2016 [40].
According to the program, these people will get back to their country to make use of their competence and expertise than can both kept and spread around the country. The country has maintained relatively steady economic growth averaging 10.6% GDP growth per year between 2005 and 2015 [42].
In 2017 the data reached an all-time high of 198,104.479 Intl million dollars. The world bank analysis states that industry mainly construction and services, also represented in the Ethiopian Industrial Zone set up by the Chinese, do contribute the most in the increase of GDP [43]. Followed by a strong broadband growth averaging 9,9% during 2007 to 2017/2018 which is double compared to a regional average of approximately 5,4% [43].
Corresponding to the overall growth of Ethiopia’s economy real gross domestic product growth has risen to 7.7% in 2017/2018 due to increased private consumption and public investment.
Ethiopia has boosted its overall growth by laying the foundations for achieving middle- income status in the following years.
Especially the public sector increases a lot concerning the GDP due to several projects with China, where the Ethiopian public expenditure rose extremely [44].
From the early 90’s to the 21st a huge transition has happened increasing GDP per capita more than fivefold, from 136 US dollars to 768 US dollars [43].
High costly projects where credits are needed to finance public capital outlays increase the most. Public investment and consumption are key elements of the Growth and Transformation Plan wherein the focus lies on ensuring rapid and sustainable growth by developing and implementing mega-projects consisting of different sectors . Nevertheless, in the evolution of foreign direct investment including all investments
4.1 Evolution of FDI 29
for new and upcoming projects, the national debt of Ethiopia has increased to around 43.97 billion in 2018, which signifies 59% of GDP [45].
With more involvement of Chinese in Ethiopia, investments will certainly increase, meaning that the national debt raises proportionally.
For an emerging country, the relation from national debt to GDP growth is quite im- portant, wherein Ethiopia is facing a huge amount of debt.
The repayment risks of Ethiopia are increasing, hence leading to the decision of China reducing the scale of investment and consequently extending the repayment period. Still, there is no other way except for operating in red to achieve the desirable middle- income status including a better living standard.
In 2018, Ethiopia became the first country in Africa being capable of restructuring its Chinese debt [46].
According to this many other discussions about national debt increase and repayment risks between China and Ethiopia are being held, to avoid further accumulation of debts.
Additionally, there is high inflation and limited access to foreign exchange that under- mines the expansion of private consumption, both will ease in the future [47].
The more jobs will be created, and people correspondingly employed, the lower the poverty rate and to that effect, the higher the private consumption in Ethiopia. With that being said, in early 2000 Ethiopia had one of the highest poverty rates in the world marking 44%, according to the WorldBank [48].
After the expansion of infrastructural areas and cooperating with several Chinese man- ufacturing companies, the proportion of people living below the national poverty line has reduced to approximately 25% nowadays and the share of the population without education has also reduced from 70% to 50% [48].
Referring to the Chinese investments including its assisting fields such as infrastructure growth, FDI, information and communication technology living standards measured by electricity, piped water and water in residence have improved from 2000 to 2011 im- mensely which are part of China’s strategy in extending the soft power in Ethiopia. One effect that comes with increasing economic growth is to educate people to reduce poverty both in urban and rural areas by also influencing Ethiopian elites.
In February 2010, the so-called Confucius Institute based at the Ethio-China Polytech- nic College offers free training to 24 Ethiopian diplomats and officials from 19 different ministries [49].
Subsequently, in 2011, the Confucius Institute started cooperating with further Ethiopian universities by providing Chinese language teaching centers, as a result, the number of trained students rose by 47, to 118 in 2008 [p.12][3].
The effect here is that students expand their scope of knowledge and once they have a certain degree of education, they offer free teaching to others with eager to learn in universities on diverse fields such as agronomy, sports, and information technology including a definite payment of 200 dollars per month [50].
This gives an incentive to learn from the experts, induce knowledge of exchange among adaptive students so that everyone is going to benefit from it.
In the early 1990s, there were no public universities and nowadays the number of public universities increased to 30, including the number of private universities, also known
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as higher education institutions, rose to 60 [40].
All these partnerships between China and Ethiopia are based on behalf of the Ethiopian education system that fosters the country these days to be sophisticated and less de- pendent on experts from abroad.
Overall, Ethiopia’s GDP in numbers grew but many factors must be considered and analyzed such as manpower, educational level, and knowhow transfer to describe a country’s development.
Following this, China’s face-to-face trainings and a high amount of newly established universities and schools must consider both inhabitants living in urban and rural areas. A certain balance must be provided, to keep the labor force in the country and perform better than neighboring countries.
According to the World Bank and World Education Reviews, 72 % of surveyed students were on full scholarships and another 11 percent on partial stipends that enables stu- dents coming from low-income backgrounds to witness the active promotion of China’s academic exchange with Ethiopia in schools and universities [40].
4.2 Results of Case Study
The fact that the special economic zone, also known as EIZ plays a major role in the development of foreign direct investment, the opinion survey reflects information about the operations of EIZ-based companies and the current sentiment of local employees. As in one of the previous chapters mentioned, 204 local employees within the EIZ got interviewed see section (3.2).
The fact that the Ethiopian Industrial Zone is divided into different sectors, zone de- velopers/operators (n=12) working in the construction sector and resident enterprises (n=192), working in the manufacturing sector got interviewed [2].
Among the 204 employees, 142 are male and 62 are female, considering that not all female employees were interested in getting interviewed or they were exhausted from work [2].
In China and the western world, the proportion of men working in industrial zones is also higher than female, even so at least 1/3 of 204 that have been employed were female.
In developing countries, the roles between men and women are clearly defined, mean- ing men tend to work physically and women are responsible for the household. The Chinese-based companies do take applications of both genders seriously, resulting in equal job opportunities as 1/3 of all surveyed employees are female.
According to the table, the age band ranges between 16 and 28. Especially the youth is responsible for economic development in Ethiopia, as the majority start at young ages.
In 2016, the EIZ has managed to settle in 64 enterprises, of which 31 are already in operation [p.11][2]. Therefore, the target group is young Ethiopians who shape the country’s economic development. According to the evaluated survey, 80 % of the sur- veyed employees, meaning 163 started their first job in the EIZ [p.15][2]. Only 34 made the experience from other Chinese companies having a short-term contract and
4.2 Results of Case Study 31
Demographic
Item
Sample Size
Gender
Male
142
Female
62
Age
16-20
71
21-24
100
25-28
33
Marital Status
Single
161
Married
43
Education Achievement
Primary
19
Secondary
70
Federal Institute (B.Sc. or M.Sc.)
93
College
3
Unknown
19
Table 4.6: Opinion survey in EIZ, own creation based on China-Africa Research Initiative
[2]
16 personas worked for an Ethiopian company apart from the industrial zone.
By the demographics of educational achievement, the contribution of EIZ to the em- ployment is displayed. Approximately 10% out of 204 started their first job after finishing primary school in the EIZ, wherein the highest number of laborers, stating 70 who had been interviewed were graduates from secondary school, together with uni- versities offering dual education system, stating 90 laborers.
This is a way of working and meanwhile studying, which is a great opportunity to combine theory and practice at once.
In the industry sector, a Chinese based company called Yangfan Motors displaying a car assembler that has recruited several students majoring in mechanical engineering as interns [p.15][2].
According to the numbers, the Chinese-based companies do make demands in terms of application requirements.
The recruitment process works through job advertisements and respective face-to-face
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interviews [p.15][2].
Employees with a bachelor’s or master’s degree have a higher chance of getting hired than applicants with a less value degree or even no degree. In addition to this, the effort of doing know-how transfer will be reduced once more students apply for the job fulfilling the requirement.
For all sectors, within the regular working week training sessions are provided by Chi- nese. A company like Linde Garment, that is exporting to European markets, higher quality standard is expected, thus longer training sessions for local employees are pro- vided [p.15][2].
This is one of the reasons why a few of the interviewed employees got exhausted be- cause the training sessions were considerably long.
This reflects how China is using its approach to train themselves and what brought them to the top, wherein sacrifices are inevitable. Nevertheless, out of all the interviewed workers, training was considered helpful, including all skills transfer. Chinese expertise was evaluated by the Ethiopians as very competent in professional skills [p.20][2].
The working conditions vary from sector to sector meaning employees in the service sector work the most, on average 10.6 hours followed by workers in the manufacturing sector working from 9.5-10.1 hours per day [p.15][2].
Most of the surveyed employees did not complain about poor working conditions, more about the fact that the salary is not enough to cover household expenses, predomi- nately in apartments around the EIZ [p.22][2].
Therefore many Ethiopian employees tend to live outside the special economic zone, at affordable rent prices.
Most of the companies in the EIZ with large numbers of workers tend to provide trans- portation such as shuttle buses waiting for the employees outside their firm [p.17][2]. The largest employer in the EIZ is in the manufacturing sector, namely Huajian Inter- national Shoe City [p.15][2].
In general, the interview is not covering the whole labor force in the EIZ, however, the manufacturing company is recruiting most workers depicting a disadvantage in terms of diversification of work.
In other words, the level of competition is higher, resulting in job shortages.
Hence, the EIZ is already representing different sectors, however, other companies from different sectors must also recruit employees to diversify properly meaning a high job variety provided. Out of all interviewed employees, the feedback was positive, even though improvement in terms of job diversification, increase in wages and the goal of the work-life balance must be undertaken.
It is well established that, Chinese tend to have a different mentality in teaching, where on the hand this special economic zone led to their economic takeoff and rapid urban- ization and on the other hand more time is needed for some Ethiopians to fully adopt China’s mentality.
Ethiopia as a country is going to benefit from it, thus more jobs will be provided, and inhabitants help developing their country with the support of China.
4.3 Comparison of Literature 33
4.3 Comparison of Literature
After reviewing and analyzing all economical, diplomatic and strategic approaches in- cluding the respective contribution, hence the positive aspects of China’s influence do outweigh the negatives referring to the development of Ethiopia.
Nevertheless, the interesting part is how different perspective perceives the Sino- Ethiopian relation, thus leading to a more concrete statement about how the influence of the Chinese on Ethiopia can be evaluated.
Different perspectives show how affected countries adapt to changes and if there’s a real benefit out of it or rather a propagandized reaction of either the Chinese, Ethiopia itself or the western world.
4.3.1 Western perspective
Back in the year 2015, it was a quite memorable speech from former U.S president, Barack Obama in Ethiopia addressing the delegation at the organization’s new head- quarter built and financed by Chinese.
After the announcement of Chinese premier Li Keqiang saying that he expects a trad- ing volume for Ethiopia of approximately 100 $ billion [51].
Both empowered countries, the US and China were competing for more influence in Ethiopia. According to a profound article by “Quartz Africa” China has already put more activities in a place surrounded by huge amounts of investments.
The fact that China and Ethiopia share many similarities the article insists that this relieves trade relations and further cooperative activities. The very first beginning of approaches happened when both imperial backgrounds ended, and both countries be- came republics. Both countries witnessed an era of imperial history where already a few formal diplomatic relations between countries were established.
Western sources claim that it displays one of the aspects why China can incorporate businesses with Ethiopia a lot easier than the countries located in the western world. As stated in the Business Day article: “Both countries feel secure about their pasts and have a defined vision for their futures [. . . ]”[52].
As the article emphasizes both countries share similarities which are attributable to their history including the change of regime, the historical kingdoms, and dynasties both have witnessed and represented. Visitors go to each of both countries and pay homage to the people being in charge decades ago. Once people show interest in the historical background of both countries they might recognize how Ethiopia and China share similarities and that a certain historical connection between them exists. Indeed, in the same article issues are being mentioned which aggravate Chinese joint venture projects in Ethiopia.
Affected is the ICT sector which is one of the assisting fields of China regarding their foreign direct investment. The expansion of the network in the country is underway and connection to other countries via the social platform, for example, has been im- proved through the support of China. Nevertheless, Ethiopia’s internet is among the least free in the world, as outlined in the “Quartz” article [53].
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A nonprofit organization called Freedom house has ranked Ethiopia ahead of only Iran, Syria and China, out of 65 countries concerning access to the internet and release of country-specific information.
Compared to all other countries in the continent, Ethiopia has positioned itself as the worst of any. Anti-government protests are blamed for this poor ranking. The western world gained the most attention when an Ethiopian marathon runner made up a ges- ture used by protesters at the Olympics.
As a consequence, Ethiopian authorities have shut down all connections on the social media, mobile and internet platforms. According to the western world, this is de- picting a risky situation because over and over six-month state of emergency has been declared, imposing a ban where no posts or access to information about the protests on social media are allowed. In addition to that counter-terrorism laws have been passed putting pressure on journalists and are even sentencing journalists who post or spread country-specific information. Additionally, most of the western articles claim that the government-owned EthioTelecom uses its monopoly on internet access which is limiting access to telecommunication for people living in rural areas. According to the “Quartz” article, Chinese investment in the International Communication and Technology sector is only helping EthioTelecom maintaining its hold on the sector and continue censoring and surveilling citizens [51].
Starting with the youth as a target group, because they tend to leave the country it is most likely the young generation.
The guardian has analyzed that almost 200 young Ethiopians across the Red Sea in circumstances of aggravation to reach the Gulf because they see no hope in their coun- try due to political insecurity and lack of job possibilities [54].
China offers the Ethiopian youth to get scholarships when considering studying in China.
The students will be selected through a Confucius Institute, a Chinese government- affiliated language and culture center being established in Ethiopia. On top of that Chinese companies provide the construction, foster telecommunication network, and equipment for Ethiopians.
This western article implies that China already stands for an alternative to the West and that China’s position in the country seems to be deep-seated. The western views state mainly that China is going to benefit from all partnerships and long-term plans provided to Ethiopia however the western world must react if they want to catch up with the Chinese. As stated by an article from CNN, cars drive through the city on smooth Chinese roads, cranes, sewing machines and tourists arrive at the Chinese- upgraded airport while using modern built railways [55].
Mostly in the Ethiopian capital city, you’ll recognize many signs outlining the plan for Chinese constructed roads in Addis.
Most of the articles emphasize how the capital city has been radically transformed and huge skyscrapers including the 46-story glass tower will be the tallest in Ethiopia by 2020, give the city a different flavor that has never been seen before. In line with this, a journal about Chinese perspectives published by a French author outlines that Ethiopia mainly exports resources to China and focuses on buying equipment and ma- chines from China [56].
4.3 Comparison of Literature 35
The article is acknowledging all Chinese actions in Ethiopia where many projects have already been realized and contributed to the economic development.
Beyond that other western sources, it is mentioned that Ethiopia’s arm is being twisted by the influence of China related to giving high amounts of loans.
The western world fears the debt-trap diplomacy where China can use this strategy to put pressure on Ethiopia. This will certainly lead to a new way of colonialism by giving the East-African country no feasibility of repaying their debt.
As in Forbes mentioned collectively the countries would need to spend 130-170 $ billion per year to meet all infrastructural needs. Consequently, one of the afore-mentioned huge water projects ended up costing Ethiopia nearly a quarter of its total 2016 budget [57].
For Ethiopia, the EU as a whole was the largest traditional donor in 2009, ahead of the United States.
As stated in the western journal, European & U.S donors in terms of financial flows to Ethiopia wouldn’t go beyond development assistance for instance loans or export credits [p.17][58].
On the one hand, western countries see Ethiopia as a potential target for future trades and economic advantages but on the other hand, due to political instabilities, it is according to the west not a secured place to conduct business.
Speaking about the political instabilities the shutdown of the government in the ICT sector was one of the main burdens but also the negative events on one of the largest floricultural companies in the world, Esmeralda Farms. Esmeralda Farms has been located in southern America and mainly steered by the U.S. In fact, the company has managed to gather 150 ha of land available in Ethiopia and they have imported flowers from Ethiopia that generated 30-40% of their turnover [59].
In 2016 the company’s land had been attacked by rebels and destroyed resulting in economic damage and Esmeralda Farm backed out of a bargain.
Due to this incident and politic instability as criteria, the western world seems to be quite skeptic in terms of further investment actions in Ethiopia.
The western perspective is generally not satisfied with the fact that China is putting lots of effort to establish further long-term alliances with Ethiopia, however, they do fear Ethiopia in terms of political instability.
4.3.2 China’s perspective
China’s perspective is based on a win-win scenario case for both sides.
All the partnerships and cooperation between both countries will help foster each other and develop both economically and socially.
According to the article “The Diplomat”which is mainly reporting from the Asia-Pacific region, stated that the West needs to stop complaining and start engaging in Africa [60].
While China is all over Ethiopia with plenty of cooperative projects, western countries complain about the conditions in Ethiopia and the way China is operating businesses. Analog to the article “The Diplomat” tensions such as trade war or rivalry by com- peting for new businesses between China and the western world, especially China-U.S
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relationship reappear.
In the article all accomplished projects and infrastructural zones are being mentioned which the Chinese managed to build, while the U.S has placed a major player in retail businesses whereby global investors could not run their business.
The article is being considered as a type of propaganda mechanism in favor of China with mentioning all malfunctioned manufacturing business from the U.S. Analogue to the main Chinese article “Xinhuanet” mentioning Sino-Ethiopia cooperation it is said that Ethiopia hopes to attract investment from Chinese enterprises under the so-called Belt and Road Initiative (BRI)[61].
The long-term business cooperation between both countries will be continued to boost the achievement of sustainable development goals and foster expanding sectors like information and communication technology and light industries. The most preferable term is “long-term” meaning that China considers long-run projects in Ethiopia even though Ethiopia might not be able to repay the provided loans immediately.
This is one of the decisive differences between China and the Western world that China also tolerates expanding the repayment period of Ethiopia from 10 to 30 years.
The extension of the repayment period is one of the main topics in all different types of sources because it shows how China contemplates to operate and implement projects for extended periods.
Western sources say that China puts Ethiopia into a serious debt trap and that this problem won’t be discussed between responsible parties.
According to the South China Morning Post, Ethiopia and China are in serious talks about the debt situation wherein lots of loans for the Belt and Road Initiative are be- ing provided. The article emphasizes the statement of Ethiopian ambassador to China, Teshome Toga Chanaka where is defending the trade and infrastructure plan including that all investments are worth it [62].
In addition to that, the Ethiopian ambassador rejects all criticism that the plan is a debt trap and he insists on signing the Belt and Road Initiative which covers all projects initiated by Chinese.
Western sources claim that China is all over East Africa but when going through differ- ent Chinese sources the impact of China on Ethiopia has brought new hope for young Ethiopians finding newly created jobs since 70 percent of Ethiopia’s population corre- sponds to the youth.
It’s a fact that in Ethiopia there’s a gap between the growing needs of young Ethiopians and the supply of resources that leads to frustration within the young-aged population. Analog to the analysis from Tegenu, Ethiopia faces 48% of the adult population being in the age group 15-29 [63].
Especially in the newspaper article called “Chinadaily” a public service platform has been shared with Ethiopia where cross-border e-commerce, training, and trade will be provided [64].
China offers a multifunction digital trade hub, where the capacity for building online training, trading programs and specialized programs for young Ethiopian entrepreneurs, business leaders, and university lecturers have been provided.
Their main goal will be to educate certainly young Ethiopians so that diverse projects such as smart logistics hub and innovations in trade finance can be implemented and
4.3 Comparison of Literature 37
further long-term plans can be steered from both sides.
Followed by the long-lasting relation since 1991 between Ethiopia and China a special partnership has been formed.
The diplomatic relations between emperor Haile Selassie and the Republic of China have already started in 1970, gradually developed and adjusted until nowadays. As a matter of fact, in most of the Chinese article, the huge difference between approaches of the western world and the Chinese world are being mentioned.
Here the diplomatic relationship between China and Ethiopia has improved in fields of politics, economy and social development, stated by Deputy Head of Mission of the Ethiopian Embassy shared in the article of China Daily [65].
Emphasized by a Chinese journal about Chinese Affairs, Ethiopia is reforming the Eu- ropean aid system but in contrast, China sees Ethiopia as an important economic and political ally in its new Africa policy.
The journal says that China’s engagement in Ethiopia goes beyond aid and builds a long-lasting relationship, a fact that pressures the EU to boost its efforts to remain an attractive partner [p.9][58].
In Chinese articles, it is claimed that despite the EU being the largest donor in terms of aid volume no real project had been implemented by the European.
The European primarily focus on assisting social sectors and support for governance reforms but establishing projects to advance the country economically is not their main focus.
That’s where China and the western world differ the most relating to different inten- tions. Speaking about real projects in “China Daily”, it is presumed that before the Chinese-built railway, another railroad was built by western countries, but no sustain- able project was being implemented [65].
In fact, based on Chinese perspectives and their intention of business cooperation with Ethiopia no project will be started and remained unfinished or even discontinued. Analog to a journal on Current Chinese Affairs, in contrast to European partners, a huge benefit is that Chinese partners do not interfere with Ethiopian domestic politics and policies [p.15][58].
In line with all economical programs in Ethiopia, China is involved by planning 14 industrial parks across the country built by China Civil Engineering Construction Cor- poration (CCECC) along with the Ethiopia-Djibouti Railway project [65]. Corresponding to all implemented and finished projects there is enough proof compared to western world accomplishments, Chinese do take their relationship with Ethiopia seriously.
Ethiopia is, in fact, more valuable for China since it can use the low labor and pro- duction costs to increase their quantity of goods and foster trade businesses and as mentioned in the previous chapters businesses between both countries evolved in re- cent years and further cooperation will follow.
However, external readers reading over Chinese journals like the “Chinadaily” which is the greatest domestic journal with all relevant information about the Sino-Ethiopian relationship, might think it is a propagandistic perspective considering China’s method implementing projects to benefit from it and making Ethiopia believe fostering it.
In fact, Ethiopia would not advance as fast as now without China’s engagement.
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Interesting here is, how does the Ethiopian media, press, and journals react to China’s influence?
4.3.3 Ethiopia’s perspective
Several discussions are being made about the China-Ethiopian relationship and if it is reflecting a win-win or win-lose scenario.
According to author Geda writing about the impact of China-Africa investment rela- tions, he’s outlining how the relations between both countries have increased in areas like infrastructure, supply of manufactured goods, telecommunication and installation of electric power grids.
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As in the chapter above-mentioned and according to Geda,Aoˆs analysis, all these as-
sisting fields contribute to the hike of Chinese foreign direct investment in Ethiopia and the growth of Chinese projects being under pre-implementation and implemented phase [p.15][66].
In the infrastructural sector many things happen but how do Ethiopians being in charge of specific projects perceive it.
Mebratu Delelegn is a director of the Operation Control Center responsible for the biggest projects the Ethio-Djibouti Railway financed by the Chinese Bank. He is em- phasizing that for this project certain manpower is missing meaning for electric and mechanical engineers need to enroll for a Master’s degree to support or rather guide such projects.
Nevertheless, he sees it as a great achievement for developing his country because economic growth has been enhanced by reducing the time of travel for tourists and freights.
In addition to that more job opportunities have been created for local stuff, for in- stance, the train between Ethiopia and Djibouti that stops at 19 stations where for each station labor force will be needed such as customer service like restaurants or ticket inspectors and engineers.
Before the implementation of projects like the railway, high transportation costs of goods compromised Ethiopia’s and China’s profitability but now shipments of goods within Ethiopia and neighboring countries are benefited.
Thus, Ethiopian acknowledge Chinese trainers who highlighted the transition from tra- ditional to new media hence motivating Ethiopian inhabitants to align in using new media or creating a platform where the audience can easily express opinions [67].
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Ethiopians realize how Chinese investors don,Aoˆt only establish infrastructural projects
they also include educating potential Ethiopian employees and this fact is also reflected in the perspective of Ethiopians.
Corresponding to one of the most common Ethiopian news articles, not only economi- cal signs of progress have been made also social-cultural advances such as an Ethiopian who has published a Mandarin-Amharic guide wherein cultural exchanges, similarities between both countries such as traditional food, behavior, etc.
Based on western articles the topic is inevitable on how China does operate businesses and the offered working conditions to local employees. Often working conditions in China are quite criticized in terms of working hours, wage and bad treatment of em-
4.3 Comparison of Literature 39
ployees, which even more affects underdeveloped countries. Interesting here is that according to African Studies and School of Oriental a comparison between Chinese and non-Chinese manufacturing companies in Ethiopia has been made.
This project was led by Carlos Oya who has made an analysis of 76 companies among 31 Chinese companies wherein also Ethiopian workers were interviewed [68].
The working conditions and wages in both countries resemble each other even if train- ing and skill development are being provided for Chinese companies in Ethiopia. There might be differences in terms of education but the right measurements to compensate for this issue are on-going.
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Researches have been made but real figures can,Aoˆt be used even so agreements be-
tween Ethiopia and China have been made on how suitable working conditions and wages are justified.
Ethiopia has here granted over three hundred visas for Chinese technicians so that they can manage to transfer know-how, train locals and initiate operation fast which leads to better working conditions including skilled-employees in the future [p.111][69].
In an Ethiopian article “addisfortune”, all industrial projects between Ethiopia and China are mentioned and in what ways they are beneficiary for the Sub-Saharan coun- try.
In the article itself, a statement is emphasized from the office of the Ethiopian prime minister saying that all agreements in the assisting fields like infrastructure will not only facilitate the uninterrupted power supply but also create new jobs [70] .
Based on the Ethiopian journal many projects are already implemented but the indus- trial park requires a power supply with the actual generating capacity of the country, as stated by the former Prime Minister Hailemraim Desalegn.
According to Meles Alem, spokesperson of the Ministry of Foreign Affairs: “China is desirous for Ethiopia to further promote its leading role in shoring up the Forum on China-Africa Cooperation (..)” [71].
Ethiopian cherish moments like loan agreements between China and Ethiopia to di- minish the shortage of water in specific regions, additionally improve the production and living standards of residents.
However, the different ethnicities seem to be a big problem in Ethiopia, especially the ethnic with the greatest proportion in the country “Tigray”.
This ethnic group belongs half to neighboring country Eritrea and the other half to Ethiopia where the specific affinity becomes quite crucial.
When looking at different local and regional Ethiopian sources the main topic is how the Chinese will also consider conducting investments in the Tigray region. For Ethiopians, the Tigray people are considered as culturally and linguistically diverse which becomes problematic when China approaches Tigray.
Therefore, in several Ethiopian articles the tension between the Federal Government of Ethiopia and the National Regional State of Tigray aggregates.
The Chinese want to spread their investment activities throughout the whole country neglecting domestic political and ethical problems. Corresponding to this intention Chinese delegates met in 2019 officials of Tigray to discuss investment projects. Af- terward in October 2019 more than 15 diplomats who attended the Tigray region to discuss further details were commanded by the Ethiopian Federal Government to re-
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turn to the capital city and discussion between those parties was prohibited [71]. Comparing Ethiopian with other perspectives it becomes quite clear that the western & Chinese perspective does not consider the whole picture. In other words, Ethiopian sources refer to the interior ethical problems in the country and it becomes more im- portant since China aims to do business with everyone in Ethiopia no matter which ethnic belongings.
Taken out from specific sources dealing with this issue the root of this political esca- lation between the ruling party and the opposed party, Tigray causes distrust from which jealousy and hate evolves and freezes economic progress in Ethiopia to a certain degree [71].
In according with articles, media and other literature Ethiopia is perceiving China’s involvement positively including leaving the country benefitting marks.
However political and internal tensions stay always an issue for undeveloped countries, which the media or press won’t disregard.