With more Chinese private companies reaping the benefits of AGOA, some question whether the US is losing out. Not necessarily.
By Mima Nedelcovych, President & CEO of the Initiative for Global Development |
Ethiopia’s footwear industry has long been known for producing fine-quality leather shoes and products. With reliable power sources, affordable labor and a fast-growing economy with a forecasted GDP growth of over 10%, it is no wonder that international companies and suppliers are flocking to Ethiopia to tap into this market.
Through the African Growth and Opportunity Act (AGOA), the US-Africa trade law that provides eligible African countries with duty-free and quota-free access into the US market, leather shoes exported from Ethiopia have simply exploded. Under AGOA, shoe exports jumped from $630,000 to nearly $7m between 2011 and 2012, a more than tenfold increase, according to statistics from USAID.
Ethiopia has the largest livestock herd in Africa and, indeed, one of the largest in the world. Local companies have been producing raw materials and leather products for export, dating as far back as the 1930s.
A new class of Ethiopian entrepreneurs are taking advantage of AGOA to operate in a world-class space. SoleRebels, an Ethiopian eco-friendly footwear manufacturer, has transformed itself from a small enterprise into a global footwear company with projected yearly sales of $15m or more in revenue. But for the most part Ethiopia’s homegrown businesses do not yet have the scalable manufacturing capacity to supply a US market.
So, who’s taking advantage of AGOA’s duty-free access to the US market? Interestingly, it’s Chinese investors. Chinese companies are stepping in to fill the void in Ethiopia’s manufacturing sector.
The Huajian Group, a Chinese footwear manufacturer that opened up a factory outside the capital, Addis Ababa, is a perfect example of Chinese investors taking advantage of AGOA. Huajian has committed to investing $2m over a 10-year period to build ‘Shoe City’, a global shoe-manufacturing hub in the country.
Chinese private-sector investments are providing a boost to the economy by creating jobs, building local capacity, and increasing funding for public services. Truth be told, it’s helping pull many out of poverty in an environment of a bulging young population in search of employment.
With more Chinese private companies reaping the benefits of AGOA, some question whether the US is losing out. Not necessarily. It is up to US companies to choose what part of the value chain they wish to focus on. If they are focusing on the downstream role of buyers, branders and sellers of the shoes into the US market, so be it.
By providing the necessary infrastructure and reliable power, Ethiopia is enabling the Chinese to move some of their manufacturing offshore from China to lesser-cost production sites. In the end, Ethiopia is the ultimate winner. And AGOA has accomplished its mission of stimulating growth of the African private sector by opening US markets to African-made products.
US companies stand to benefit from lucrative new business opportunities to either invest in and scale up Ethiopian companies, or enable that to happen by providing profitable access to the US market for quality and competitively priced products.
Years ago, US business had little choice but to deal primarily with government officials. The African private sector was primarily structured for commerce and had very little capacity for manufacturing and industry.
US businesses today can find solid partners in Ethiopian small and medium-sized businesses, and certainly can find common ground with their Chinese counterparts in Ethiopia.
Chinese manufacturing companies produce leather goods at lower costs; US companies and markets have access to low-cost, high-quality goods; and Ethiopians gain new jobs and experience a boost in their economy. Ethiopian companies will also benefit from a transfer of knowledge and technical expertise to prime their business for the international market. A win-win for everyone.▄
Source: The Africa Report
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