The belt and road and Chinese enterprises in Ethiopia: Risks and opportunities for development

Calabrese, Linda; Huang, Zhengli; Nadin, Rebecca Research Report The belt and road and Chinese enterprises in Ethiopia: Risks and opportunities for development ODI Report Provided in Cooperation with: ODI Global, London Suggested Citation: Calabrese, Linda; Huang, Zhengli; Nadin, Rebecca (2021) : The belt and road and Chinese enterprises in Ethiopia: Risks and opportunities for development, ODI Report, Overseas Development Institute (ODI), London This Version is available at: https://hdl.handle.net/10419/280287 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/4.0/ Report The Belt and Road and Chinese enterprises in Ethiopia Risks and opportunities for development Linda Calabrese, Zhengli Huang and Rebecca Nadin August 2021 Readers are encouraged to reproduce material for their own publications, as long as they are not being sold commercially. ODI requests due acknowledgement and a copy of the publication. Foronline use, we ask readers to link to the original resource on the ODI website. The views presented in this paper are those of the author(s) and do not necessarily represent the views of ODI or our partners. This work is licensed under CC BY-NC-ND 4.0. How to cite: Calabrese, L., Huang, Z. and Nadin, R. (2021) The Belt and Road and Chinese enterprises in Ethiopia: risks and opportunities for development. ODI report. London: ODI (www.odi.org/en/publications/the-belt-and-road-and-chinese-enterprises-in-ethiopia-risks-andopportunities-for-development). Photo: Worker in a garment factory, Ethiopia. © Davide Scalenghe (www.davidescalenghe.com) Acknowledgements This report is the outcome of a study by Linda Calabrese and Rebecca Nadin (ODI) and Zhengli Huang (Tongji University). The authors are grateful to Judith Tyson, Dirk Willem te Velde (ODI) and Lauren Johnston (SOAS University of London) for their comments and feedback on an earlier draft. Responsibility for the final content rests with the authors alone. The views expressed should not be attributed to ODI. About the authors ORCID numbers are given where available. Please click on the ID icon next to an author’s name in order to access their ORCID listing. Linda CalabreseID Research Fellow with the International Economic Development Group, ODI. A development economist by training, she works on trade and investment, industrialisation and economic transformation. Her research interests include Chinese outward investment and the Belt and Road Initiative, and she leads ODI’s work on China–Africa. She has extensive experience in East Africa, working as an economist with various government and research institutions. Zhengli Huang Post-doctorate researcher at Tongji University, Shanghai. She has worked as Research Associate at the University of Sheffield in the UK and the Chinese University of Hong Kong. She was Luce Visiting Scholar in Trinity College in the US. She has a rich fieldwork experience through working in UN-Habitat’s slum upgrading projects, her role as Project Manager in building a school in Nairobi’s informal settlements, and various research projects on Chinese infrastructure development in Africa. Her work focuses on African urbanisation and China’s impact on urban development, especially on housing, urban governance and development finance, and geographically covering Ethiopia and the East African region. Rebecca Nadin Director of ODI’s Global Risks and Resilience programme and the Head of ODI’s Global China 2049 initiative. She manages a team of policy analysts and experts exploring the risk emerging from intersecting global challenges such as climate change, transnational crime and geopolitical volatility. A China policy expert with a focus on China’s emerging geopolitical strategy, national security and climate policy, her current focus is on understanding the potential environmental, social and political risks and/or opportunities that may arise from China’s evolving global outreach for host countries and other key stakeholders. Contents Acknowledgements / i Display items / iii Acronyms / iv Executive summary / 1 1 Introduction / 3 2 Ethiopia’s development trajectory / 5 2.1 Ethiopia’s development context / 5 2.2 Challenges arising: Covid-19 in Ethiopia / 10 2.3 Looking forward: Ethiopia’s development plans / 11 3 Chinese enterprises in Ethiopia / 18 3.1 Sectoral analysis of Chinese investment / 18 3.2 Typologies of Chinese enterprises / 19 3.3 Emerging trends in Chinese investment in Ethiopia / 20 4 Drivers and risk narratives of Chinese enterprises / 22 4.1 Drivers of Chinese enterprises in Ethiopia / 22 4.2 Risk narratives of Chinese investors / 25 4.3 Risk appetite of Chinese investors / 29 5 Risks and opportunities in Ethiopia–China investment relations / 32 5.1 Reliance on China as a source of foreign investment and infrastructure financing / 32 5.2 Debt sustainability / 33 5.3 Potential crowding out of domestic investors / 35 5.4 Spillovers from foreign investment / 36 5.5 Opportunities to contribute to Africa’s economic integration: building the African Continental Free Trade Area / 36 6 Conclusions and recommendations / 39 References / 42 Appendix Chinese loan commitments to Ethiopia, 2000–2018 / 49 Display items Figures Figure 1 Gross value-added by sector at constant 2015 prices / 6 Figure 2 Employment by sector / 6 Figure 3 Exports by sector, 2000–2017 / 7 Figure 4 Total exports and imports / 7 Figure 5 Foreign direct investment (FDI) flows by sector, 2014–2018 / 9 Figure 6 Gross value-added by sector (industry only), at constant 2015 prices / 10 Figure 7 Ethiopian exports to and imports from China, 2000–2018 / 13 Figure 8 Ethiopian exports to China (left) and imports from China (right), 2018 / 13 Figure 9 Chinese foreign direct investment flows to Ethiopia / 14 Figure 10 Chinese loan commitments to Ethiopia, 2000–2018 / 15 Tables Table 1 Chinese investment projects by sector, 1999–2017 / 19 Table A1 Chinese loan commitments to Ethiopia, 2000–2018 / 49 Boxes Box 1 Ethiopia’s industrial park development model / 8 Box 2 Chinese digital infrastructure in Ethiopia / 16 Box 3 The origin of the Eastern Industrial Zone / 21 Box 4 Heightened political risk: the Tigray conflict / 28 Box 5 Risks along the Ethiopia–Djibouti railway / 37 Acronyms AfCFTA African Continental Free Trade Area AGOA African Growth and Opportunity Act BRI Belt and Road Initiative CAD Fund China–Africa Development Fund CCECC China Civil Engineering Construction Corporation Ltd. CDB China Development Bank CREC China Railway Engineering Corporation DAC Development Assistance Committee DSSI Debt Service Suspension Initiative EIC Ethiopian Investment Commission EIZ Eastern Industrial Zone EPRDF Ethiopian People’s Revolutionary Democratic Front ERC Ethiopian Railway Corporation ETB Ethiopian birr eWTP electronic World Trade Platform Eximbank Export-Import Bank of China FDI foreign direct investment HLMZ Huajian Light Manufacturing Zone ICT information and communications technology IMF International Monetary Fund IPDC Industrial Park Development Corporation LRT light rail transit MOFCOM Ministry of Commerce, People’s Republic of China MoU memorandum of understanding ODA official development assistance OEM original equipment manufacturer PPP public–private partnership SASAC State-owned Assets Supervision and Administration Commission of the State Council SME small and medium-sized enterprises SOE state-owned enterprise TPLF Tigray People’s Liberation Front ZTE Zhongxing Telecommunication Equipment Corporation 1ODI Report Executive summary China’s Belt and Road Initiative (BRI) has the potential to open up new development pathways through infrastructure development, stimulating investment and job creation and promoting economic transformation in host countries. Through its five areas of cooperation (infrastructure connectivity, trade, financial cooperation, policy and people-to-people exchanges), the BRI can be an engine for growth and development. However, this is not a given – as a powerful external change agent, the BRI also has the potential to increase a range of economic, environmental and political risks within host countries. These risks are not separate and distinct, but rather dynamically interconnected (Opitz-Stapleton et al., 2019). Ethiopia has a close economic and political relationship with China, and is the recipient of a large amount of investment by large and small Chinese enterprises, as well as lending by the Chinese government, policy and commercial banks, and state-owned enterprises (SOEs). These investment and lending flows create both risk and opportunities. The risks are two-fold: to the Ethiopian development process, and to Chinese investors themselves. This report seeks to join the two, articulating the risk perceptions and appetite of Chinese investors, and the potential impact these will have on Ethiopia’s economic development. There is a huge diversity of Chinese enterprises operating in Ethiopia. Differences among them include their ownership (public, at the central state or other levels, or private), their size and the sectors where they operate. They are also driven to invest in Ethiopia by different factors, and perceive different risks in different ways. The report explores underlying vulnerabilities giving rise to Chinese investors’ concerns, based on a review of the literature and interviews in Ethiopia in 2019 and additional material collected to understand the impact of Covid-19 and of current political unrest. The report shows that Chinese investors are concerned about economic and political uncertainty in Ethiopia affecting not only investors’ profitability, but also the personal safety of their staff. Economic challenges relate to high production and transport costs and the challenges of accessing foreign exchange, which is a problem for virtually all Chinese businesses in the country. Assessing the situation of other foreign (nonChinese) investment was beyond the scope of this work, but it is likely that such challenges will similarly affect these investors. These challenges are not only a problem for the firms themselves – they also affect Ethiopia’s development path. More broadly, the report also identifies the opportunities that the relationship with China, and more specifically with a wide variety of Chinese firms, offers to Ethiopia in terms of job creation, increased production and exports and infrastructure development, both nationally and regionally. At the same time, it highlights the potential risks in terms of a potential overreliance on China and debt sustainability. Given Ethiopia’s reliance on China as a source of investment and finance, issues affecting Chinese firms may have a deep impact on Ethiopia’s future development. In this sense, addressing these issues would be beneficial to the Ethiopian economy more broadly. 8ODI Report The growth in inflows of foreign investment into Ethiopia is the result of active efforts to promote investment, especially by the Ethiopian Investment Commission (EIC), which has sought to attract foreign capital towards manufacturing through an ambitious industrial park programme (see Box 1). Manufacturing investment has comprised more than half of total FDI over recent years (Figure 5). Box 1 Ethiopia’s industrial park development model The Ethiopian model of industrial development relies heavily on industrial parks. Given Ethiopia’s large infrastructure gaps, an approach to industrialisation based on industrial parks is sensible, as it allows for the building of infrastructure specifically targeted at production – namely the parks themselves and the transport infrastructure connecting them to the rest of the country – without having to address the whole country’s infrastructure deficit at once. Currently, the country has 14 industrial parks which are at least partly operational, with more under construction (EIC, 2021). Some are government-built through the Industrial Park Development Corporation (IPDC), while others were established by private investors (such as the Eastern Industrial Zone, discussed in more detail in Chapter 3). One flagship example is the Hawassa Industrial Park. Located near Lake Hawassa, 275km from the capital, Addis Ababa, this is a 300-hectare eco-park, mostly powered by hydro-electricity and built around energy and water conservation principles. Mainly centred on textile and garment products, the park aims to work in collaboration with the newly built Hawassa University. Ethiopia’s industrial parks Mekelle IP Kombolcha IP Debre-Berhan IP Ayisha IP Dire-Dawa IP Arerti IP Adama IP Adama Hnuan Eastern Industry ZoneHawassa IP - Phase I Hawassa IP - Phase II Himma - IP Bole Lemi 1 Bole Lemi 2 Kilinto IP Huajian IP Bahir-Dar IP Note: IP = industrial park Source: EIC (2020) 9ODI Report Figure 5 Foreign direct investment (FDI) flows by sector, 2014–2018 Source: UNSD (n.d.) 3 One example of infrastructure development at the regional level is the Lamu Port– South Sudan–Ethiopia Transport (LAPSSET) Corridor, which will link Kenya with Ethiopia, Uganda and South Sudan. Plans for the project, estimated at $25 billion, include a railway, a highway, a crude oil pipeline and a fibre-optic cable connecting the four countries, as well as airports, resort cities, an oil refinery, a port in Lamu and other projects. Another example is the Berbera corridor, a trade corridor that follows a historical trading route connecting Berbera Port in Somaliland with the Ethiopian hinterland. Despite strong foreign investment in the manufacturing sector, in recent decades industrial growth has been driven by construction. This, in turn, has promoted growth in construction material manufacturing, in particular cement, a sector dominated by Ethiopian (rather than foreign) firms (Oqubay, 2016). As an integral part of government developmental programmes, infrastructure development and the construction sector have attracted robust public expenditure, serving as a catalyst for Ethiopia’s rapid economic development.3 The National Urban Development Policy, which encouraged infrastructure development to enhance rural– urban links and housing construction in urban areas, became operational in 2005. Infrastructure development policies have also contributed to stimulating growth in the domestic construction market and a significant increase in employment in the sector. Growth in the construction sector continued to surge as the government began promoting manufacturing. The construction of sugar factories in the Southern region, and the promotion of the nationwide industrial parks programme (see Box 1), opened up opportunities for foreign construction companies, including Chinese entities. 10 ODI Report Figure 6 Gross value-added by sector (industry only), at constant 2015 prices Source: de Vries et al. (2021) 4 Over the period 2000–2018, Chinese financiers agreed to loan commitments to Ethiopia worth $13.7 billion (CARI and BU GDPC, 2021). Ethiopia receives financial support through aid and lending. Net aid received from Development Assistance Committee (DAC) members stood at $4,810 million in 2019, or 5% of gross national income (GNI). The US, the United Kingdom (UK), Germany and the European Union (EU) are major DAC donors (OECD, n.d.). China is not a DAC member, and therefore this data does not include Chinese aid. In terms of lending, Ethiopia has a total debt of $29 billion owed to a wide range of lenders, including China, the World Bank and countries in the Middle East (Eom et al., 2018). Data from the Debt Service Suspension Initiative (DSSI) shows that China is the largest creditor in Ethiopia, with outstanding debt of $8.7 billion (32% of Ethiopia’s total external debt).4 The World Bank is close behind, at 31%. Higher interest rates for Chinese loans mean that China made up 42% of debt service due in 2020 (Brautigam et al., 2020). In summary, the Ethiopian economy preCovid-19 has experienced growth and structural transformation since the turn of the century, with a growth of services exports and of investment in the construction sector. However, some areas of fragility remain, as shown by the low growth of goods exports and the limited investment in other sectors. Growth may also be affected by the Covid-19 pandemic, as discussed in Section 2.2. 2.2 Challenges arising: Covid-19 in Ethiopia Environmental, socio-political and economic risks are not separate and distinct, but rather dynamically interconnected. For example, health emergencies can generate political tensions, which in turn can exacerbate political vulnerabilities, and create economic risks if they drive away investment (Opitz-Stapleton et al., 2019). This interconnection is visible in the case of the Covid-19 outbreak. 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 2000 2005 2010 2015 2018 Ethiopian birr (million) Mining Manufacturing Utilities Construction 11 ODI Report The first confirmed case of Covid-19 in Ethiopia was reported on 13 March 2020. The government declared a five-month state of emergency from April to September 2020, closing land borders, banning inter-regional public transport and public gatherings, closing schools and entertainment venues and requiring social distancing. As the rate of new infections started falling the authorities gradually eased several of these measures. As of March 2021, most restrictions had been lifted. At the time of writing, elections had been postponed from 29 August 2020 to 21 June 2021 as a result of the pandemic (IMF, 2020a; Africa News, 2021). The Ethiopian economy has faced challenges as a result of Covid-19. Among the most impacted sectors, especially at the beginning of the pandemic, was air transport. Ethiopian Airlines suspended dozens of flights (though it also partnered with Alibaba’s electronic World Trade Platform (eWTP) to deliver emergency personal protective equipment and vaccines across the continent (Johnston, 2020). Flower exports fell due to lower demand from the country’s main market, Europe, and because of air travel restrictions (fresh flowers are exported by plane) but the sector has since recovered. Womenowned businesses, mostly present in sectors such as trade, tourism and hospitality, were disproportionally affected (Abebe et al., 2020b). Not being resource-rich, Ethiopia has at least not suffered from declining commodity prices, and in fact benefited from lower oil prices at the beginning of the pandemic. The International Monetary Fund (IMF) estimated that, in 2019/2020, growth was subdued but did not suffer excessively as two of the main sectors of the economy, agriculture and construction, remained resilient. The 2021 GDP growth forecast for Ethiopia, as of April 2021, was 2.0% y/y (IMF, 2020b). 2.3 Looking forward: Ethiopia’s development plans The Ethiopian government has actively sought to develop its export-oriented manufacturing sector, with a bold industrial policy in three phases (Balchin and Calabrese, 2019). In the first phase, from the early to mid-2000s, the government focused on incentivising local investment aimed at production for export, primarily by providing preferential credit and offering favourable land lease rates through access to land schemes. In the second phase, from 2008, there was a clear shift in emphasis towards attracting foreign investors. The third phase has focused on channelling foreign investment into specialised industrial parks, in particular supporting foreign firms willing to foster links with domestic counterparts (Staritz and Whitfield, 2017). After two five-year plans, termed ‘Growth and Transformation Plans’, running from 2010 to 2020, the government unveiled a new 10-year plan, ‘Ethiopia 2030: The Pathway to Prosperity’. Aiming to make Ethiopia ‘an African beacon of prosperity’, the plan’s ambition is for the country to achieve middle-income status and reach a per capita income of $2,220 by 2030. The plan seeks to achieve this via targeted economic growth of 10.2% over the period. Regarding structural transformation, the plan sets target growth rates for each sector, with the industrial and in particular manufacturing sectors having much higher targets than others. The plan sits within the broader context of government reforms, including the Home Grown Economic Reform mentioned above, which aims to address the economic imbalance created by government-funded large-scale infrastructure development. It includes macroeconomic, sectoral and structural reforms: 12 ODI Report • Macroeconomic reforms aim at improving tax administration, public finance and budgeting systems, improving the inflow of foreign currencies and remittances, financial stability and financial inclusion, and debt management (in particular reducing commercial loans and seeking to tilt the balance towards concessional loans). • Sectoral reforms are targeted towards the agriculture sector, manufacturing, the mineral sector, tourism and information and communications technology (ICT) as sources of growth. • Structural reforms entail rethinking the role of the government and the private sector in driving growth. Specific interventions entail improving transport and logistics, implementing an import substitution strategy, reforming the investment and job creation landscape, strengthening the role of the private sector and expediting the privatisation of large SOEs and the liberalisation of priority sectors. In summary, the Ethiopian economy has exhibited strong growth, and further plans for development point in a positive direction. However, the economy remains undiversified and it is therefore vulnerable to shocks such as Covid-19 or political unrest. 5 A Comprehensive Strategic Cooperative Partnership is one of the closest types of partnership established by China with other countries or organisations. ‘Comprehensive’ indicates cooperation in the economic, technological, cultural and political domains; ‘strategic’ means that cooperation is not only important, but also stable and long-term; and ‘partnership’ indicates that the two parties cooperate on the basis of respect, trust and equality, for a relationship that is mutually beneficial (Li and Ye, 2019). 2.4 Ethiopia–China relations 2.4.1 Political and economic relations Ethiopia and China have a close political relationship. The two countries established diplomatic ties in 1970, and in May 2017 their relationship was elevated to a Comprehensive Strategic Cooperative Partnership.5 Since the 1970s the two countries have signed almost 60 agreements and memoranda of understanding (MoUs), including on economic and technological cooperation, trade, investment, taxation, transport and defence. In 2018 the two countries signed an MoU on cooperation within the framework of the Silk Road Economic Belt and the 21st Century Maritime Silk Road Initiative (Ministry of Foreign Affairs, n.d.). China is an important economic partner for Ethiopia. As shown in Section 2.1, it is the second-largest importer of Ethiopian goods (after the US), and the largest source of Ethiopian imports – over 24% of the goods imported by Ethiopia in 2018 came from China. At least since 2000, Ethiopia has consistently imported more from China than it exported (see Figure 7), leaving the country with a negative trade balance vis-à-vis China. In terms of the composition of these trade flows, Figure 8 shows that Ethiopian exports to China are dominated by agricultural products (mainly oil seeds) and are largely undiversified. 13 ODI Report Figure 7 Ethiopian exports to and imports from China, 2000–2018 1,000 2,000 3,000 4,000 5,000 6,000 7,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $ million Export Import Source: UNSD (n.d.) Figure 8 Ethiopian exports to China (left) and imports from China (right), 2018 Source: The Growth Lab at Harvard (n.d.) Leather and skins Ores, slags and ash (4.90%) Industrial machinery (0.71%) Footwear (2.38%) Cottons (0.71%) Electrical machinery and equipment (13.98% ) Iron and steel (5.52%) Articles of iron or steel (5.35%) Aluminium (1.35%) Plastics (3.74%) Rubber (1.85%) Mineral fuels, oils and waxes (2.41%) Wood (0.79%) Vehicles (4.01%) 14 ODI Report In terms of the composition of these trade flows, Figure 8 shows that Ethiopian exports to China are dominated by agricultural products (mainly oil seeds) and are largely undiversified. Ethiopian imports from China, on the contrary, are diversified and cover all sectors – mainly garments and textiles (including inputs to the textile industry), but also machinery, plastic products, iron and steel. In terms of investment, Ethiopia is the fifth largest destination for Chinese FDI stock on the African continent, after South Africa, the Democratic Republic of Congo, Angola and Zambia 6 FDI to construction contracting is low because this is rarely financed through FDI, but rather through other sources such as lending, as will be shown later in this chapter. (MOFCOM, n.d.). As noted above, a full breakdown of investment in Ethiopia by country is not available. However, Chinese sources provide data on Chinese FDI flows to Ethiopia, shown in Figure 9. Over the period 2003–2019, Chinese FDI stocks in Ethiopia grew more than 500-fold, from less than $5 million to over $2.5 billion (ibid.). Almost 70% of China’s FDI to Ethiopia in the period 1998–2016 was directed towards manufacturing, followed by construction contracting (13%)6 and real estate, machinery rental and consultancy (12%) (Ergano and Rambabu, 2020). A breakdown of Chinese investment by sector is provided in Chapter 3. Figure 9 Chinese foreign direct investment flows to Ethiopia Source: Data compiled by the China-Africa Research Initiative based on MOFCOM (n.d.) 2.4.2 The BRI in Ethiopia Many of the infrastructure projects under construction or recently built in Ethiopia are financed and/or built by Chinese actors. China has been heavily involved in developing Ethiopia’s infrastructure at the city, state and federal level. The signing of a China–Ethiopia MoU on the BRI in 2018 signals both countries’ commitment to infrastructure development. Chinese actors also finance Ethiopia’s infrastructure through lending. When looking at loan commitments, Ethiopia was the second largest 50 100 150 200 250 300 350 400 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 $ million 15 ODI Report recipient of Chinese loans in the period 2000–2018, after Angola (CARI and BU GDPC, 2021) – however, it should be noted that loans committed may not correspond to loans disbursed. Over the period 2000–2018, China committed to disbursing $13.7 billion in loan commitments to Ethiopia, as shown in Figure 10 (a full list of commitments and the projects they have financed is provided in the Appendix). Comparing loans with investment, Chinese FDI stock in 2018 amounted to $2.5 billion, five times smaller than loan commitments up to that year. This is to be expected, given that infrastructure projects are very large and require much more financing than FDI projects. Figure 10 shows that loan commitments have been volatile, probably because they have 7 Commitments are different from disbursements. For commitments agreed in any given year, finance is then disbursed during that year and the following, likely in several instalments. In some cases, only part of the promised sum is disbursed. been linked to the signing of large contracts. The peak in 2013 corresponds to a number of large commitments for the Ethiopia–Djibouti railway, a power transmission project and a telecommunications project.7 The main lending institutions were China Export-Import Bank (Eximbank), with 56% of loans, followed by Chinese telecommunications companies, both partially state-owned, such as Zhongxing Telecommunication Equipment Corporation (ZTE, 17%), and private, such as Huawei (6%); Chinese SOEs; commercial banks; and China Development Bank (CDB). These loans mainly went to finance infrastructure projects, primarily transport (35%), power (24%), communications (22%; see Box 2) and industry (15%). Figure 10 Chinese loan commitments to Ethiopia, 2000–2018 Source: CARI and BU GDPC (2021) In terms of types of loan commitment, the majority of these comprise of commercial loans (38% of the total) and suppliers credits (30%), followed by preferential export buyers’ credit, concessional loans and other forms of finance (CARI and BU GDPC, 2021). Of these loan commitments, only 20% can be classified as official development assistance. 1,000 2,000 3,000 4,000 5,000 6,000 2001 2002 2003 2004 2005 2006 2007 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $ million 16 ODI Report Box 2 Chinese digital infrastructure in Ethiopia Ethiopia’s telecommunications industry is a monopoly controlled by the state-owned Ethio Telecom (formerly the Ethiopian Telecommunications Corporation). Liberalisation of the sector, kickstarted in 2019, seems to be stalling (Zelalem, 2020). In the early 2000s, Ethiopia’s telecoms network was deemed inadequate to sustain the country’s growth plans. In 2005 the government launched a bid to construct a backbone network for the entire country. The aim of the project, which became known as the ‘Millennium Plan’, was to rapidly expand telecoms capacity in Addis Ababa and 13 other cities, laying 2,259 km of fibre-optic cable. Several global companies participated (including Huawei and a Chinese SOE), and China’s ZTE won the bid. ZTE was favoured because of three factors: the financial support provided by CDB in the form of export credit; low prices; and its willingness to share technology and train a large number of local communications personnel (Zao, 2012). ZTE has set up a communications institute with Ethio Telecom to train 3,000 Ethiopian telecoms engineers (Meester, 2021). The Millennium Plan was Ethiopia’s ICT project in financial terms, with loan commitments of $1.9 billion (CARI and BU GDPC, 2021). Other projects have since been carried out by both ZTE and Huawei to expand the network. In 2019, the Ethiopian government signed an MoU with Alibaba Group to join the eWTP, allowing Ethiopian small and medium-sized enterprises (SMEs) to sell on the Chinese market. The MoU includes provision for digital capacity-building, and for building a comprehensive digital hub in the country (Yang, 2019). The digital hub is primarily aimed at providing smart logistics and services, conducting crossborder trade, and helping SMEs penetrate markets in China and other parts of the world. Private sector initiatives include Ethiopia’s emerging tech hub, Sheba Valley, operating in partnership with Chinese technology start-ups (Meester, 2021), and manufacturing investments such as those by Transsion/ Tecno, a Chinese telephone manufacturer, which set up its first African operation in Ethiopia in 2011 (Mulupi, 2013; Dahir, 2018). China’s presence in the Ethiopian telecoms and digital space has not gone unnoticed. In 2018, newspapers and press agencies announced that the African Union headquarters in Addis Ababa was being hacked by China. The building was fully financed by the Chinese government, and its IT system built by Huawei (Sherman, 2019). According to press sources, African Union servers were sending data back to China each night, and the buildings were bugged with cameras and microphones (Kadiri and Tilouine, 2018; Reuters, 2018). Although accusations were denied by Huawei, and the case was never fully resolved or clarified, it is often cited as a cautionary example of the security risks associated with the use of Chinese digital technology. In 2019, the African Union signed a deal with Huawei to collaborate on a range of technologies, including broadband and cloud computing, 5G and artificial intelligence (Solomon, 2019), signalling that the partnership with Huawei remains strong. 17 ODI Report 2.4.3 Covid-19 and Ethiopia–China relations Ethiopia has been one of the recipients of China’s support against the Covid-19 pandemic. As emphasised by Chinese and other media sources, China has provided masks and thermometers, as well as vaccines from Sinopharm (Reuters, 2021; Xinhua, 2021a). Covid-19 has led to some disruption in economic relations between the two countries, and flight connections have been suspended several times (Derrick, 2020). Other economic activities have operated as usual, and Chinese companies have continued to invest and take contracts in the country. BGI Ethiopia, a subsidiary of Chinese biotech company BGI Genomics Co. Ltd., began producing Covid-19 test kits in 2020 (Xinhua, 2020).In January 2021 the Ethiopian government asked China to provide debt relief to some projects (CARI, 2021). At the time of writing, this was still under discussion. While it is too early to assess the impact that Covid-19 will have on Ethiopia, it seems that Ethiopia–China economic relations are weathering the storm. In summary, this chapter has provided an overview of the Ethiopian economic and political context, and the importance of China as an economic partner. Chapter 3 dives deeper into the types of Chinese investor in Ethiopia, to enable a better understanding of the impact they are having and the role they are playing in shaping the country’s development trajectory. 24 ODI Report of production, may choose to upgrade their technology to save on labour costs, rather than to relocate to Africa (Xu et al., 2017). Policy drivers The economic impetus for outbound investment from China was accompanied by a series of policies encouraging the relocation of Chinese investment. The ‘Going Out’ strategy initiated by the central government in 1999 was the first of these efforts. The policy stimulated a steep growth in outbound FDI from China. The 2006 Forum on China–Africa Cooperation Summit in Beijing marked the beginning of a series of policies promoting economic cooperation between China and Africa. The summit saw the commitment of $5 billion in loans to African countries, and the founding of China Africa Development Fund (CAD Fund), a leading financial institution facilitating Chinese FDI in Africa. Annual FDI flows from China to Africa surged from $75 million in 2003 to $2.7 billion in 2019.18 Other financial institutions to support Chinese investment in Africa have been established over the past decade, including the Silk Road Fund and the China-Africa Production Capacity Cooperation Fund. These initiatives and institutions created by the government not only promote China–Africa cooperation, but also regulate expanding Chinese investment in Africa. In a way, the BRI can be seen as a continuation and rebranding of the ‘Going Out’ strategy, albeit with a clearer policy impetus to create a platform for ‘mutual benefit’ and economic cooperation. The BRI includes a much stronger component of cultural and social exchange with other countries. For example, scholarships offered to young people from African countries have been increasing steadily since the initiation of the BRI, pointing to more active social exchange and a 18 Data compiled by the China Africa Research Initiative based on MOFCOM (n.d.). 19 Interviews with Chinese investors, Addis Ababa, November 2019. more marked soft power approach by China. It is, however, worth noting that some of the largest infrastructure investments by China in Africa were initiated years before the BRI, including the Ethiopia–Djibouti railway, construction of which started in 2011. Therefore, the BRI should not be regarded as the ‘driving force’ for infrastructure construction by China in African countries (or elsewhere), but as a facilitator for Chinese SOEs to explore emerging markets. Chinese government policy initiatives have smaller effects on investment from the private sector. Most private Chinese investors in Ethiopia, especially medium-sized and small ones, feel that they receive very little direct support from government programmes, including the BRI. The Chinese government has various tools with which to intervene in the management of SOEs, but has limited ways to influence the activities of private Chinese investors abroad. Financial support from government institutions is usually inaccessible for SMEs. At the same time, however, SOEs and their business activities in Africa are important benchmarks for the investment decisions of private enterprises. Many Chinese private investors entered the African market by serving Chinese SOEs, or used the presence and success of SOEs to gauge the potential profitability of new markets they were interested in.19 4.1.2 Pull factors Politics and policies in Ethiopia Ethiopia is a favoured investment destination for Chinese enterprises not only because of the supply of cheap labour and its geopolitical importance in the Horn of Africa, but also for the stability and policy consistency of its previous government (though the country is currently 25 ODI Report experiencing a period of instability). Over the past two decades, the Ethiopian government has adopted a five-year planning system targeting poverty reduction and economic growth. These plans are based on research on the development model of East Asian countries by Ethiopian political leadership. Since the 1990s, the Ethiopian government has facilitated study trips to East Asia, including mainland China and Hong Kong. As such, there are affinities between Chinese investors and Ethiopia’s politics and policies, deeply influenced by the learning and research process and dramatically distinct from other sub-Saharan African countries. From 2011 onwards, Ethiopian policies started to focus more on structural transformation. The Growth and Transformation Plan I (2010–2015) and II (2016–2020) aimed to build an exportdriven, labour-intensive manufacturing sector. The construction of over a dozen national industrial parks is part of this effort to create a favourable environment for FDI in manufacturing, as discussed above. In summary, Chinese companies and individuals are driven out of China and into Ethiopia by a variety of factors, both political and economic. Different firms are influenced by different factors based on their ownership structure and the sectors they operate in. Similarly, their risk narratives and appetite vary based on these factors, as discussed in the following sections. 4.2 Risk narratives of Chinese investors 4.2.1 Monetary risks: forex shortage and inflation One of the main constraints facing foreign investors in Ethiopia is the country’s narrow economic base, which creates macro-level challenges including forex shortages and inflation risks. A shortage of forex reserves has been an enduring issue in Ethiopia, undermining efforts to attract FDI in the manufacturing sector because most raw materials for production have to be imported with forex payment. The Ethiopian government has introduced strict restrictions on the use of forex in offshore procurement. Manufacturers have to queue up for their allowance of US dollars for importation to be issued from the National Bank, sometimes waiting for months and even a year, slowing production. The adverse effects of forex shortages are exacerbated by persistent and volatile inflation, which leads to considerable price differences between contracts and the actual procurement of supplies for production and construction. As such there is a vicious circle whereby insufficient forex leads to delayed importation, which in turn increases production costs, slowing down productivity and exports, and generating less forex income. This has become the leading risk narrative for Chinese investors as local incomes in Ethiopian Birr (ETB) do not flow out of the country easily and any foreign capital invested in Ethiopia is virtually locked inside the domestic market. Recent policy changes in Ethiopia, described in Chapter 2, suggest that Ethiopian government authorities are aware of the economic challenges linked to monetary risks, and are aiming to address them (see Section 2.3). 4.2.2 Economic risks Besides monetary risks at a macro level, economic risks for Chinese investors stem from cost-control challenges related to relocation of production. These challenges include the rising cost of relocating human resources and company assets, 26 ODI Report high logistics costs and the lack of skilled labour, resulting in low productivity and high turnover. These affect the manufacturing sector in particular. Many private Chinese investors relocated their businesses from Chinese or Asian markets in response to rising labour costs. The relocation of managerial-level staff, the importation of manufacturing equipment and the maintenance of company assets, including imported equipment and property acquired in Ethiopia, are some of the largest cost components for investors, and are often unexpectedly high.20 Investors in manufacturing also face high transport costs. The infrastructure gap and the low capacity of public services may have contributed to logistics costs. Freight costs between Ethiopia and the port in Djibouti City, for example, have been cited as ‘even higher than the freight cost between Djibouti and China’.21 Planned national rail and highway networks are expected to reduce logistics costs, but political instability and the effects of the pandemic mean that the benefits of these investments have yet to be seen. Low labour costs are one of the main attractions for foreign investors in Ethiopia’s manufacturing sector. However, Chinese investors have found that low labour productivity offsets this advantage. High turnover of workers and high training expenditure have also hindered business expansion. Pay strikes and ethnic tensions have affected productivity in factories, and posed threats to the safety of employees. For example, Huajian’s industrial zone housed more than 3,000 local workers in 2018, but after a series of violent clashes in early 2019, this number 20 Interviews with Chinese investors, Addis Ababa, November 2019. 21 Ibid. 22 Interview with a Huajian manager, Addis Ababa, November 2019. 23 Interviews with Chinese investors, Addis Ababa, November 2019. 24 Ibid. nearly halved. Many workers were not able to return to work due to safety concerns, and stable productivity was hard to maintain.22 Some Chinese investors have also been involved in legal disputes with their employees, a situation they were not prepared to face.23 4.2.3 Social and political instability The investment appetite of Chinese investors in Ethiopia has been dampened by rising social and political instability in the country. The resignation of Desalegn as Prime Minister and chair of the previous ruling party, the Ethiopian People’s Revolutionary Democratic Front (EPRDF), created a wave of panic among Chinese investors in 2018. Desalegn’s resignation was seen as a sign of the collapse of the EPRDF. Given the close relationship between the Communist Party of China and the EPRDF, especially the core political power, the Tigray People’s Liberation Front (TPLF), Chinese investors feared that they would be caught up in the political battle between the ruling party and its opponents. Although the liberal policies promoted by Abiy have had positive effects, Chinese investors generally feel that the investment environment is not as encouraging as before. Changes in the structure and leadership of some major government agencies, including EIC and the Industrial Park Development Corporation (IPDC), raised concerns that the new regime would stop promoting the development of industrial parks and infrastructure projects, two areas where Chinese companies have invested heavily.24 Besides rising concerns regarding inconsistency 27 ODI Report in development policies, Chinese investors also found themselves facing competition from firms from other countries, including the United Arab Emirates (UAE) and the US, as a result of Abiy’s economic reforms.25 Another growing concern is that political stability has led to inter-regional conflict, or conflicts between the federal and local governments, making it difficult to invest in some parts of the country. Insecurity in oil-producing districts in Somali Region is one example. Production in Chinese industrial parks has suffered frequent interruptions caused by regional and ethnic conflicts. 4.2.4 Governance capacity The Ethiopian government has put in place a series of policy reforms to promote economic activity. However, Chinese investors widely believe that the government has limited capacity to implement these changes. First, the government’s ambitious plan to build over a dozen industrial parks in just a few years was criticised as unrealistic, and disregarded the real needs of manufacturing investors in the country. The government has regulated the location and size of industrial parks, but has yet to find more effective economic strategies, such as sectoral tax incentives and upstream–downstream links to promote investment for groups of firms connected along industrial clusters or value chains in the parks. Second, the government has been unable to coordinate different sectoral plans and strategies. For example, the industrial parks are not planned in line with the transport network in the country. The largest park, Hawassa Industrial Park in 25 Part of the new Prime Minister’s economic reforms was to open new sectors and SOEs to FDI, including the logistics sector, real estate and the national telecommunication company. As interviews and official announcements from the Prime Minister’s office have shown, there is increasing competition between companies from China, the US and other countries in these areas. Southern Province, is 300 km from the nearest railway station, and the planned national rail network will currently not connect to Hawassa. This means that the two largest government expenditures in the past decade, the Hawassa park and the Ethiopia–Djibouti Railway, are not planned in an integrated manner. Third, there is a lack of coordination between federal and local government. All of the industrial parks are currently planned and implemented by the federal government; local government has no incentive or financial capacity to participate in industrial development, while having to contribute heavily towards land compensation and housing provision. In Hawassa, for example, the local government regularly complains about rising housing costs in the city, growing migration and increasing pollution and solid waste from the industrial park. 4.2.5 Security risks Crime has been rising steeply in Ethiopia since the collapse of the previous regime. This is very disturbing for Chinese investors, not least because Ethiopia was previously considered one of the safest countries in sub-Saharan Africa in which to work and live as a foreigner. At least one Chinese manager was killed and several others were injured during a robbery in Oromo region in 2019. Other investors are experiencing difficulties in managing their businesses as containers are hijacked on roads in the north of the country. In November 2020, the Chinese Embassy in Ethiopia facilitated the evacuation of more than 600 Chinese investors and employees from the Tigray region following the outbreak of conflict between the federal government and local armed forces 28 ODI Report (see Box 4). The continued stand-off in Tigray is discouraging further investment. Testimony to the nervousness of Chinese investors is an MoU 26 See: https://eng.yidaiyilu.gov.cn/zchj/qwfb/12479.htm. 27 Interviews with Chinese investors, Addis Ababa, November 2019. signed by the Chinese and Ethiopian governments in March 2021 to safeguard ‘the safety and security’ of major BRI development projects (Xinhua, 2021b). Box 4 Heightened political risk: the Tigray conflict In November 2020 conflict broke out in Tigray region in north-east Ethiopia between the Federal National Defence Forces led by the government and the regional government led by the Tigray People’s Liberation Front (TPLF). Armed clashes were still being reported at the time of writing, leading to loss of life, displacement and disruption to basic services. The clashes are a symptom of ongoing conflict within Ethiopia’s federal system. The TPLF was the leading party in the Ethiopian People’s Revolutionary Democratic Front (EPRDF), which governed the country for 27 years. The EPRDF began to dissolve after Abiy took office in 2018. Abiy’s political reforms included the founding of a new political coalition, the Prosperity Party, ousting the TPLF. According to a United Nations Office for the Coordination of Humanitarian Affairs (OCHA) situation report for March 2021, more than 60,000 people have sought refuge since the conflict began (OCHA, 2021). Communications and travel links are temporarily blocked and foreign investors have withdrawn from the region. Crowding in refugee camps could lead to a recurrence of Covid-19 and to the spread of other diseases. 4.2.6 Environmental risks Domestic development experience in China and experience of legal disputes in other investment destinations have contributed to a growing awareness of environmental risks among Chinese investors and the Chinese government. The latter has made efforts towards ‘Greening the BRI’ in recent years.26 As a negative impact of the booming construction and manufacturing sectors in Ethiopia, air quality has declined and industrial pollution has become an increasing concern among Chinese investors.27 Chinese interviewees mentioned that, in addition to being a threat to the Ethiopian population and affecting quality of life in Ethiopia, environmental issues could hold back industrial development and damage the reputation of Chinese investment in Ethiopia in the long run. Among Chinese investors, there is growing consensus that more practical environmental regulations should be put in place in order to sustain FDI-led industrial development in the country. 29 ODI Report For most infrastructure projects, an Environmental Impact Assessment report is required during the feasibility study phase. However, this assessment document remains a formal requirement with little practical implications. Enforcement of environmental restoration after projects are implemented is also weak.28 With regard to the manufacturing sector, the Ethiopian government has not identified a clear environmental evaluation strategy for increased industrial investment. Although there are some environmental impact controls in Hawassa Industrial Park, there are concerns that the scale of construction of industrial parks will cause serious pollution and over-consumption of underground water, in the absence of timely legislative reform on environment conservation. 4.2.7 Covid-19 The Covid-19 pandemic has had a significant impact on Ethiopia’s economy, pushing up food prices and leading to job losses and stagnating productivity. A number of Chinese business owners have reportedly suspended their activities in Ethiopia, but a significant number of projects are still running, albeit some at lower capacity.29 As the Chinese economy started to recover at the end of 2020 (Tanjangco et al., 2020; 2021) and vaccination programmes became available in China, expatriates working for SOEs started to return to Ethiopia. The weak outlook for global trade means that there is not going to be a rapid rebound in the manufacturing sector, though productivity in some Chinese factories has shown signs of recovery since the beginning of 2021.30 The possible production of a billion 28 Ibid. 29 Interviews with Chinese investors, February 2021. 30 Interview with EIZ manager, February 2021. Chinese vaccine doses (Ma, 2021), as well as accessibility to such vaccines in Ethiopia, is a positive sign for Chinese investors. There may also be new opportunities. For example, during the Covid-19 outbreak and recovery phase, Alibaba’s eWTP partnership with Ethiopian Airways is intended to last well beyond the pandemic, but the pandemic may have pushed it forward more quickly and intensively (Johnston, 2020). The pandemic also coincided with the launch of the African Continental Free Trade Agreement, which is intended to deepen trade integration between African economies. 4.3 Risk appetite of Chinese investors 4.3.1 Risk appetite of Chinese SOEs By virtue of their ownership structure, Chinese SOEs adopt a different risk management system to private enterprises. For SOEs in the construction sector, contracts are largely signed on Engineering, Procurement and Construction terms, and risk evaluation is usually based on a cost–benefit analysis. In comparison to construction projects in China and in developed markets, projects in Ethiopia are not considered ‘investment-intensive’. This does not mean that Chinese companies make effortless profits in the Ethiopian market, however. Nor does state ownership mean that there will be bailouts when investments fail. Most Chinese SOEs in Ethiopia are operating as subsidiaries and rely on head offices back in China for fiscal management. In this way, their risk appetite largely depends on the financial capacity of the parent company. 30 ODI Report When competing for large-scale infrastructure projects, Chinese SOEs’ risk appetite also depends on their capacity to mobilise finance from state institutions, especially Eximbank. As described in the previous chapter, Eximbank provides the largest loan programmes to infrastructure projects in Africa. The administrative procedures involved in issuing loans for infrastructure development in African countries are complex and highly regulated (Brautigam, 2009). In reality, Chinese contractors play a major role in driving projects forward and engaging with Eximbank. Contractors identify potential projects and participate in the bidding process, while functioning as the intermediary between the borrowing government and the Chinese bank. Loans from Eximbank to recipient countries are issued with back-up from the state insurance entity Sinosure. Once the loan commitment is secured, financial risks are removed from the contracting SOEs because Eximbank makes direct payments according to the deliverables set out in the contract, while the borrowing government is in charge of repaying the loans. In such a financial model, investment risks are not evenly distributed among different stakeholders. The terms work in favour of the contracting SOEs, which undertake the project and are paid but carry very little financial risk. This is because, in case of challenges with repayment, the burden falls on the financier or on the borrowing government, but not on the contracting SOE, which is merely the service provider. However, SOEs also face some risks. Because the financiers rely on information provided by contractors to validate feasibility studies, they encourage SOEs to share the burden of timely loan repayment with the borrowing country. However, in many cases, the financial and economic returns of infrastructure projects fall short of expectations and the promises of initial plans and feasibility studies. In these situations, the SOEs are left with no option but to manage the infrastructure projects themselves after construction. This has been the case in the two largest infrastructure projects financed with Eximbank loans, the Ethiopia–Djibouti Railway and the Addis Ababa Light Railway Transit (LRT) project. On completion of the railway in 2017, the contracting SOEs from China, the China Railway Engineering Corporation (CREC) and China Civil Engineering Construction Corporation Ltd (CCECC), formed a joint venture to manage the railway while training Ethiopian Railway Corporation staff, with a six-year exit plan. As the contractor for the project, CREC made similar plans for the LRT in Addis after its completion in 2015. Shenzhen Metro, a Chinese company with extensive experience in managing urban railway projects, was introduced to the Addis LRT project by CREC, and the two formed a joint venture to operate the LRT between 2015 and 2019. 4.3.2 Risk appetite of Chinese private enterprises Chinese private enterprises usually have limited access to finance from the Chinese state. Their risk appetite depends on financial capacity, and the sector they are engaged in. Investors in catering services, for example, are smaller in scale, and face considerable competition. Investors in manufacturing are generally larger, and their risk appetite often depends on market conditions. Investment in the apparel industry in Ethiopia is driven by both local and external markets, while steel producers largely depend on growth in the domestic construction sector. 31 ODI Report As discussed above, smaller business owners are more flexible in changing investment direction. When facing hazardous losses, they can switch from one sector to another, or relocate their business from one place to another. Larger investors prefer to manage risks by diversifying their investment into new sectors and markets. For example, investors in the construction sector try to increase their risk tolerance level by expanding into the real estate sector. Some real estate developers who invested in Addis Ababa are trying to find new investment opportunities in other regions in Ethiopia, with some eventually venturing into other sectors, such as construction and manufacturing. As the largest private manufacturing investor from China in Ethiopia, Huajian has been actively seeking to expand into other African countries to manage risks. In summary, this chapter has highlighted the huge variety of Chinese enterprises present in Ethiopia. These Chinese firms have different risk narratives and risk appetites depending on a number of factors, including their ownership and the sector they operate in. This affects the way in which they influence and shape the Ethiopian development process, as discussed in the next chapter. 32 ODI Report 5 Risks and opportunities in Ethiopia– China investment relations 31 Some studies put this higher; see for example Nicolas (2017). The previous chapter analysed some of the risks to Chinese enterprises operating in Ethiopia. In this chapter, we highlight how the dynamics discussed above also present risks for the Ethiopian development process. We highlight the economic, political and social challenges deriving from Chinese economic engagement with Ethiopia, and show how these challenges are interconnected. 5.1 Reliance on China as a source of foreign investment and infrastructure financing China is one of Ethiopia’s most important economic partners, and its investment and lending provide large sources of finance to the Ethiopian economy. Given the scarcity of data, it is difficult to give a precise overview of how China compares with other countries in its economic engagement, but it is clear that it is very important. As noted above, this is especially the case for Ethiopia’s construction and infrastructure sector, one of the main drivers of growth (World Bank, 2019a; see also Chapter 2). It also holds true for the manufacturing sector, which was at the core of the previous government’s development strategy and remains a considerable source of employment and, when export-oriented, of foreign exchange. As discussed earlier, Chinese actors play a dual role as constructors (and sometimes financiers) of industrial parks, and as investors and manufacturers in these zones. Chapter 4 showed how Chinese enterprises in Ethiopia are concerned with a wide range of issues: high production costs and inflation, difficult access to foreign exchange and political instability and insecurity. Each of these issues could drive Chinese enterprises out of Ethiopia. This would, in turn, have major implications for job creation. As shown in Table 1, Chinese FDI in Ethiopia has created over 80,000 direct permanent and temporary jobs.31 This figure does not include indirect employment, or jobs in infrastructure construction not recorded as FDI. Research conducted in the manufacturing and construction sectors shows that the overwhelming majority of these jobs (around 90%) go to Ethiopian workers, with the remaining 10% or less allocated to Chinese citizens or other foreigners (Oya and Schaefer, 2019). Challenges to steady job creation could generate larger issues for a country like Ethiopia, with a substantial and young population that needs to find employment. Reliance (or over-reliance) on a single source of investment and infrastructure financing and construction can have negative impacts on development in Ethiopia. If Chinese investment and financing decrease or stop for any reason outside the control of Ethiopian actors, this may endanger economic growth, and with that job creation, political stability and poverty reduction. Moreover, as Chinese firms invest heavily in export-oriented manufacturing, a decrease in investment may mean a decline in foreign 33 ODI Report currency entering the country. While Ethiopia has other sources of foreign investment and infrastructure financing, China is one of the most important, if not the main, source. Ethiopia’s development strategy accounts for this, and the country does not exclusively rely on China as a source of capital. For instance, the US and the EU remain the largest markets for Ethiopia’s exports. The US, the UK, Germany and the EU are large donors involved in several flagship projects, including industrial parks, and market access to the US is crucial to the country’s nascent manufacturing sector. In the infrastructure sector, and specifically for the development of its rail network, Ethiopia relies on Chinese finance and contractors for the Ethiopia–Djibouti Railway, and on Turkish contractors and a mixed group of European and Turkish financiers for other routes (Chen, 2021). Therefore, while Chinese presence in Ethiopia is crucial, its role in the country’s development should not be overstated. 5.2 Debt sustainability Ethiopia’s low savings rates cause a savingsinvestment gap, which means the country struggles to finance its infrastructure. The World Bank estimates Ethiopia’s infrastructure financing deficit at $3.5 billion per year across various sectors, particularly power and energy (Foster and Morella, 2010). Like many other countries, Ethiopia finances its infrastructure through lending, but in some cases the debt thus incurred can become a problem. If excessive debt does not allow the government to provide the infrastructure and services the economy needs, investors may decide to leave the country (and new companies may not invest in the first place). However, if the country defaults on its debt, this may trigger even more dramatic economic consequences, which may also drive investors away. One of the most widely cited challenges relating to relations between China and Ethiopia is that of debt sustainability. Concerns with public debt linked to Chinese infrastructure are often debated using the concept of ‘debt-trap diplomacy’, suggesting that China seeks to entrap countries by lending at unsustainable levels and then gaining their assets by way of repayment (Chellaney, 2017). While this narrative has been debunked in the literature (Jones and Hameiri, 2020; Singh, 2020), there are many negative consequences to accumulating excessive amounts of debt. When borrowing externally, countries expose themselves to several financial risks (Bandiera and Tsiropoulos, 2019): • Risks from repayment of investments: for example, if an external event reduces the expected revenue from a project and triggers additional expenses for the government – if, for example, as a consequence of Covid-19 revenues from toll roads fall. • Risks from financing terms, such as refinancing, liquidity and currency risks, which could result in a higher debt burden and higher debt service for the government. • Risk from collateralised debt financing, which could lead the government to lose some of its assets if it cannot repay its debts. • Default risk, a concern for both the lender and the borrower. Countries also face operational risks, such as those linked to default or breach of contract clauses (Bandiera and Tsiropoulos, 2019). There are also broader consequences for a country’s development pathway. Large debt service repayments may prompt the government to reduce other development or social spending. The country’s creditworthiness is also at stake. If investors doubt a country’s ability to service its debt, they can demand higher returns to 40 ODI Report needs to be filled, infrastructure projects need to be planned and executed in synergy with other national structural transformation plans, including industrial park development and urban development schemes. This suggests several recommendations for both the Ethiopian government and Chinese stakeholders, with the support of other development partners. Recommendations for the Ethiopian government: • Focus on mitigating the economic and financial risks faced by investors, especially companies operating in manufacturing, and in particular on export-oriented sectors. – In the short term, the most urgent task is to ease restrictions on access to foreign exchange, to allow producers (both domestic and foreign) to import the inputs they need. – In the longer term, infrastructural issues and other problems causing high production costs need to be addressed. Ethiopia’s approach of developing industrial parks is a step in the right direction, as it eases bottlenecks for productive sectors. However, work on industrial parks is not well coordinated with other infrastructure plans; this coordination needs to be strengthened. – Particular attention needs to be paid to foreign exchange-earning sectors, such as export-oriented manufacturing and agribusiness. Increasing exports is crucial to improving debt sustainability. Again, this is already part of the government’s approach, but the support provided to these sectors needs to be stepped up. • Strengthen screening of new lending. This includes improving screening of the financial impact of infrastructure projects in relation to growth, and the feasibility of the repayment schedule. • Consider new infrastructure financing modalities, such as PPPs, with regard to the potential advantages, as well as the downsides. The Ethiopian government has developed a PPP framework (Mengiste, 2020) and has a number of PPP projects in the pipeline. The main idea behind PPPs, which could be helpful in Ethiopia’s case, is to reduce the financial burden and the risks that infrastructure projects pose for the government. However, the government should also bear in mind that PPPs require very careful planning if they are to be beneficial. As complex arrangements that are difficult to manage, PPPs may not be suited to countries where the government has limited resources to dedicate to their preparation; they create large risks for public institutions; and historically, they have often ended up being more expensive than public procurement (Hall, 2014; Romero, 2015; Trebilcock and Rosenstock, 2015; Jomo et al., 2016). Therefore, while PPPs may provide an alternative option to current financing models, this option needs to be assessed carefully, on a case-by-case basis. • The Ethiopian government needs to strengthen its ability to plan, design and develop infrastructure. The fact that some infrastructure projects have faced a number of challenges in planning and implementation, and that they are not well integrated with each other, suggests limited capacity in this area. Other countries 41 ODI Report faced with similar challenges have adopted innovative solutions (see, for instance, the Project Bank developed by the Myanmar government).32 These could be studied and adapted to the Ethiopian context. • Support the creation of links between Ethiopian and foreign firms to foster knowledge and technology transfer. This is already taking place to some extent, under the policy framework set up by the government. Further encouraging the development of joint ventures through incentives and support programmes may enhance the beneficial outcomes of these partnerships. – This can be done via support and matching programmes, both on the Ethiopian side (identifying suitable firms, and building their capacity to partner with or supply foreign investors) and on the Chinese side (supporting Chinese firms in understanding the ways in which they can build long-term relations with Ethiopian firms). – Access to capital for Ethiopian firms should be improved through facilitating lending for upgrading through dedicated programmes (concessional lending, matching grants, etc.). 32 See www.irrawaddy.com/news/burma/myanmar-launches-online-project-bank-development-projects.html. Recommendations for Chinese financing institutions: • Align financing programmes to the growth model and priorities of recipient countries. This requires a thorough understanding of the development priorities of the government, and the creation of diversified financing models for different development programmes. This can be achieved through a better-planned and bettercoordinated approach by Chinese financing institutions, with the Ethiopian government. • For infrastructure development projects, optimise financing programmes by engaging diverse expertise (beyond engineering specialists) to include planning, social and environmental issues during the feasibility study process, and by developing a long-term monitoring system for the projects they finance. They should also engage appropriate expertise to ensure that these projects support economic development in the borrowing country. • Work alongside the Ethiopian government to create a coordination structure for bilateral cooperation in various sectors, including large-scale infrastructure, to ensure that infrastructure programmes are planned and implemented to facilitate the country’s structural transformation strategies. 42 ODI Report References Abebe, G., Bundervoet, T. and Wieser, C. (2020a) The short-run economic impact of summer 2020 protests in Addis Ababa: a brief look at the evidence from a high-frequency phone survey. Washington DC: World Bank Group (https://documents.worldbank.org/en/publication/documentsreports/documentdetail/669751608613046664/Monitoring-COVID-19-Impacts-on-Firms-inEthiopia-Results-from-a-High-Frequency-Phone-Survey-of-Firms). Abebe, G., Bundervoet, T. and Wieser, C. (2020b) Does the Covid-19 pandemic affect womenowned firms differently? Washington DC: World Bank Group (https://documents.worldbank.org/ en/publication/documents-reports/documentdetail/669751608613046664/Monitoring-COVID-19Impacts-on-Firms-in-Ethiopia-Results-from-a-High-Frequency-Phone-Survey-of-Firms). Acker, K., Brautigam, D. and Huang, Y. (2020) Debt relief with Chinese characteristics. Working Paper 39. Washington DC: China Africa Research Initiative, School of Advanced International Studies, Johns Hopkins University (www.ssrn.com/abstract=3745021). African Development Bank (2018) African development outlook 2018. Abidjan: African Development Bank. Akamatsu, K. (1962) ‘A historical pattern of economic growth in developing countries’ The Developing Economies 1: 3–25 (https://doi.org/10.1111/j.1746-1049.1962.tb01020.x). Anna, C. (2020) ‘Ethiopia enters 3rd week of internet shutdown after unrest’. The Washington Post, 14 July (www.washingtonpost.com/world/africa/ethiopia-enters-3rd-week-of-internet-shutdownafter-unrest/2020/07/14/4699c400-c5d6-11ea-a825-8722004e4150_story.html). Balchin, N. and Calabrese, L. (2019) Comparative country study of the development of textile and garment sectors: lessons for Tanzania. Report. London: ODI (https://odi.org/en/publications/ comparative-country-study-of-the-development-of-textile-and-garment-sectors-lessons-fortanzania/). Balchin, N., Booth, D. and te Velde, D.W. (2019) How economic transformation happens at the sector level: evidence from Africa and Asia. Report. London: ODI (www.odi.org/publications/11305how-economic-transformation-happens-sector-level-evidence-africa-and-asia). Bandiera, L. and Tsiropoulos, V. (2019) A framework to assess debt sustainability and fiscal risks under the Belt and Road Initiative. Policy Research Working Paper WPS8891. Washington DC: World Bank (http://documents.worldbank.org/curated/en/723671560782662349/A-Framework-toAssess-Debt-Sustainability-and-Fiscal-Risks-under-the-Belt-and-Road-Initiative). Barber, L. and Pilling, D. (2019) “My model is capitalism”: Ethiopia’s prime minister plans telecoms privatisation’. Financial Times 24 February (www.ft.com/content/433dfa88-36d0-11e9-bb0c42459962a812). BBC – British Broadcasting Corporation (2021) ‘Covid-19: China’s economy picks up, bucking global trend’. BBC News, 18 January (www.bbc.co.uk/news/business-55699971). Brautigam, D. (2009) The dragon’s gift: the real story of China in Africa. Oxford: Oxford University Press (https://global.oup.com/academic/product/the-dragons-gift9780199550227?cc=us&lang=en&). 43 ODI Report Brautigam, D. and Hwang, J. (2019) China-Africa loan database research guidebook. Washington DC: Johns Hopkins University School of Advanced International Studies (https://static1.squarespace.com/static/5652847de4b033f56d2bdc29/t/5d1cc758bb4a5800014da fa1/1562167129838/Guidebook+July+2019+Update+.pdf). Brautigam, D., Huang, Y. and Acker, K. (2020) Risky business: new data on Chinese loans and Africa’s debt problem. Briefing paper 3. Washington DC: China-Africa Research Initiative, Johns Hopkins School of Advanced International Studies. Calabrese, L. and Tang, X. (2020) Africa’s economic transformation: the role of Chinese investment. Report. London: ODI (https://degrp.odi.org/publication/africas-economic-transformation-therole-of-chinese-investment/). CARI (2021) Global Debt Relief Dashboard. CARI (www.sais-cari.org/debt-relief). CARI and BU GDPC – Boston University Global Development Policy Center (2021) ‘Chinese loans to Africa database version 2.0’. Online database (https://chinaafricaloandata.bu.edu/). Chellaney, B. (2017) ‘China-Pakistan water pincer against India: as part of CPEC, mega-dams are planned in Gilgit-Baltistan’. Times of India, 16 May (https://timesofindia.indiatimes.com/blogs/toiedit-page/china-pakistan-water-pincer-against-india-as-part-of-cpec-mega-dams-are-planned-ingilgit-baltistan/). Chen, Y. (2021) Laying the tracks: the political economy of railway development in Ethiopia’s railway sector and implications for technology transfer. Working Paper 43. Washington DC: SAIS CARI. Dahir, A.L. (2018) ‘A low-profile, Chinese handset maker has taken over Africa’s mobile market’. Quartz Africa, 30 August (https://qz.com/africa/1374404/chinas-transsion-dominates-africasphone-market-with-tecno-itel/). De Soyres, F., Mulabdic, A. and Ruta, M. (2019) Common transport infrastructure: a quantitative model and estimates from the Belt and Road Initiative. Policy Research Working Paper 8801. Washington DC: World Bank. de Vries, G., Arfelt, L., Drees, D. et al. (2021) The Economic Transformation Database (ETD): content, sources, and methods. WIDER Technical Note 2/2021. Helsinki: United Nations University World Institute for Development Economics Research (https://doi.org/10.35188/UNU-WIDER/ WTN/2021-2). Derrick, E. (2020) ‘Ethiopian Airlines China flight ban extended until end of the year’. Simple Flying, 3 November (https://simpleflying.com/ethiopian-airlines-china-flight-ban-extended/). Edwards, L. and Jenkins, R. (2015) ‘The impact of Chinese import penetration on the South African manufacturing sector’ Journal of Development Studies 51(4): 447–463 (https://doi.org/ 10.1080/00220388.2014.983912). EIC - Ethiopian Investment Commission (2020) Ethiopian investment report 2019. Addis Ababa: Ethiopian Investment Commission (www.investethiopia.gov.et/images/Covid-19Response/Covid19Resources/publications_May-20/EIC-Investment-Report-2019.pdf). EIC (2021) Government and private parks. Addis Ababa: Ethiopian Investment Commission (www.investethiopia.gov.et/index.php/investment-opportunities/other-sectors-of-opportunity/ government-and-private-parks.html). 44 ODI Report Eom, J., Brautigam, D. and Benabdallah, L. (2018) The path ahead: the 7th forum on China-Africa cooperation. Briefing Paper 1. Washington DC: Johns Hopkins University School of Advanced International Studies (https://static1.squarespace.com/static/5652847de4b033f56d2bdc29/t/5c467 754898583fc9a99131f/1548121941093/Briefing+Paper+1+-+August+2018+-+Final.pdf). Ergano, D. and Rambabu, K. (2020) ‘Ethiopia’s FDI inflow from India and China: analysis of trends and determinants’ Journal of Economic Structures 9(1) (https://doi.org/: 10.1186/s40008-02000211-7). Foster, V. and Morella, E. (2010) Ethiopia’s infrastructure: a continental perspective. Country Report. Washington DC: World Bank Group (http://citeseerx.ist.psu.edu/viewdoc/download?doi=1 0.1.1.452.1866&rep=rep1&type=pdf). Gebre, S. (2021) ‘IMF backs Ethiopia’s plan to rework debt under G-20 framework’. Bloomberg, 23 February (www.bloombergquint.com/business/imf-backs-ethiopia-s-plan-to-rework-debtunder-g-20-framework-kli8bne2). Gereffi, G. (1999) ‘International trade and industrial upgrading in the apparel commodity chain’ Journal of International Economics 48(1): 37–70 (https://doi.org/ 10.1016/S0022-1996(98)00075-0). Getachew, S. (2020) ‘The internet is back on in Ethiopia but there’s every chance it’ll be off again soon’. Quartz Africa, 24 July (https://qz.com/africa/1884387/ethiopia-internet-is-back-on-butoromo-tensions-remain/). Hall, D. (2014). Why public–private partnerships don’t work: the many advantages of the public alternative. PSIRU Research Report. London: University of Greenwich. Hirt, N. (2019) ‘Stalled peace and blocked reforms in Eritrea’ . ISPI, 20 September (www.ispionline.it/en/publication/stalled-peace-and-blocked-reforms-eritrea-23971). Huang, Z. and Chen, X. (2016) ‘Is China building Africa?’ European Financial Review, 22 June (www.europeanfinancialreview.com/is-china-building-africa/). Hung, H. (2016) The China boom: why China will not rule the world. New York: Columbia University Press. Hurley, J., Morris, S. and Portelance, G. (2019) Examining the debt implications of the Belt and Road Initiative from a policy perspective. Washington DC: Centre for Global Development (https://systems.enpress-publisher.com/index.php/jipd/article/view/1123). IMF – International Monetary Fund (2020a) Policy responses to COVID19 – policy tracker Washington DC: IMF (www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19). IMF (2020b) World economic outlook: a long and difficult ascent. Washington DC: IMF. IMF (2020c) Staff report for Article IV consultation and requests for a three-year arrangement under the Extended Credit Facility and an arrangement under the Extended Fund Facility – debt sustainability analysis. Washington DC: IMF. International Crisis Group (2019) Keeping Ethiopia’s transition on the rails. Report 283. Brussels: International Crisis Group (www.crisisgroup.org/africa/horn-africa/ethiopia/283-keepingethiopias-transition-rails). IOM – International Organization for Migration (2020) Ethiopia national displacement report 6: site assessment round 23 & village assessment survey round 6: August–September 2020. Addis Ababa: IOM (https://dtm.iom.int/reports/ethiopia-%E2%80%94-national-displacement-report-6august-%E2%80%94-september-2020). 45 ODI Report Jenkins, R. (2019) How China is reshaping the global economy: development impacts in Africa and Latin America. Oxford/New York: Oxford University Press. Johnston, L.A. (2020) ‘COVID19 pushes forward Jack Ma’s plans for a world trade revolution’. SOAS Blog, 2 July (https://study.soas.ac.uk/covid19-pushes-forward-jack-mas-plans-for-a-world-traderevolution/). Jomo, K.S., Chowdhury, A., Sharma, K. and Platz, D. (2016) Public-private partnerships and the 2030 agenda for sustainable development: fit for purpose?. DESA Working Paper 148. New York: United Nations Department of Economic and Social Affairs. Jones, L. and Hameiri, S. (2020) ‘Debunking the myth of “debt-trap diplomacy”: how recipient countries shape China’s Belt and Road Initiative’. London: Chatham House (www.chathamhouse.org/publication/debunking-myth-debt-trap-diplomacy-jones-hameiri). Kadiri, G. and Tilouine, J. (2018) ‘A Addis-Abeba, le siège de l’Union africaine espionné par Pékin’. Le Monde.fr, 26 January (www.lemonde.fr/afrique/article/2018/01/26/a-addis-abeba-le-siege-de-lunion-africaine-espionne-par-les-chinois_5247521_3212.html). Kenderdine, T. and Ling, H. (2018) ‘International capacity cooperation – financing China’s export of industrial overcapacity’ Global Policy 9(1): 41–52 (https://doi.org/10.1111/1758-5899.12509). Li, Q. and Ye, M. (2019) ‘China’s emerging partnership network: what, who, where, when and why’ International Trade, Politics and Development 3(2): 66–81 (https://doi.org/ 10.1108/ITPD05-2019-0004). Lin, J.Y. (2013) ‘From flying geese to leading dragons: new opportunities and strategies for structural transformation in developing countries’ in J.E. Stiglitz, J.Y. Lin and E. Patel (eds) The industrial policy revolution II: Africa in the 21st century. London: Palgrave Macmillan UK (International Economic Association Series): 50–70 (https://doi.org/ 10.1057/9781137335234_3). Ma, J. (2021) ‘Coronavirus: China says it can produce 1 billion doses of a Sinopharm vaccine this year’. South China Morning Post, 6 January (www.scmp.com/news/china/science/article/3116562/ coronavirus-china-says-it-can-produce-1-billion-doses-sinopharm). Marchal, R. (2020) ‘Two years already? Peace between Eritrea and Ethiopia’. SciencesPo, 25 August (http://sciencespo.fr/ceri/en/content/two-years-already-peace-between-eritrea-and-ethiopia). Meester, J. (2021) ‘Designed in Ethiopia’ and ‘Made in China’: Sino-Ethiopian technology collaboration in South-South relations. CRU Policy Brief. Clingendael Institute (www.clingendael.org/sites/default/files/2021-02/Policy_brief_China_Ethiopia_technology_ collaboration_February_2021.pdf). Mengiste, D. (2020) ‘Ethiopian public private partnership framework’. Abyssinia Law, 16 November (www.abyssinialaw.com/blog-posts/item/1964-ethiopian-public-private-partnership-framework). Ministry of Foreign Affairs (n.d.) Ethio-China relation. The Federal Democratic Republic of Ethiopia Ministry of Foreign Affairs MOFCOM - Ministry of Commerce of the People’s Republic of China (n.d.) Statistical bulletin of China’s outward foreign direct investment. Beijing: China Commerce and Trade Press. 46 ODI Report Mukwaya, R. and Mold, A. (2018) ‘Modelling the economic impact of the China Belt and Road Initiative on countries in Eastern Africa’. Presented at the 21st Annual Conference on Global Economic Analysis, Cartagena, Colombia. Department of Agricultural Economics, Purdue University, West Lafayette, Global Trade Analysis Project (www.gtap.agecon.purdue.edu/ resources/res_display.asp?RecordID=5653). Mulupi, D. (2013) ‘Chinese mobile phone company Tecno explains why it only does business in Africa’. How we made it in Africa, 21 January (www.howwemadeitinafrica.com/chinese-mobilephone-company-tecno-explains-why-it-only-does-business-in-africa/23521/). Nicolas, F. (2017) Chinese investors in Ethiopia: the perfect match? Paris: French Institute of International Relations and OCP Policy Center (www.ifri.org/en/publications/notes-de-lifri/chineseinvestors-ethiopia-perfect-match). OCHA – United Nations Office for the Coordination of Humanitarian Affairs (2021) Ethiopia - Tigray Region Humanitarian Update. Situation report. New York: OCHA (https://reports.unocha. org/en/country/ethiopia/). OECD – Organisation for Economic Co-operation and Development (n.d.) ‘Aid at a glance charts’. Paris: OECD (www.oecd.org/dac/financing-sustainable-development/development-finance-data/ aid-at-a-glance.htm). Opitz-Stapleton, S., Nadin, R., Kellett, J. et al. (2019) Risk-informed development: from crisis to resilience. London: ODI (https://odi.org/en/publications/risk-informed-development-from-crisisto-resilience/). Oqubay, A. (2016) Made in Africa: industrial policy in Ethiopia. Oxford: Oxford University Press. Oqubay, A. and Lin, J.Y. (eds) (2019) China-Africa and an economic transformation. Oxford/New York: Oxford University Press. Oya, C. (2019) ‘Labour regimes and workplace encounters between China and Africa’ in A. Oqubay and J.Y. Lin (eds) China–Africa and an economic transformation. Oxford: Oxford University Press. Oya, C. and Schaefer, F. (2019) Chinese firms and employment dynamics in Africa: a comparative analysis. London: SOAS University of London. Oya, C. and Schaefer, F. (2020) The politics of labour relations in global production networks: collective action, industrial parks, and local conflict in the Ethiopian apparel sector. IDCEA Working Paper 76. London: SOAS, University of London (www.soas.ac.uk/idcea/publications/ working-papers/file148327.pdf). Pilling, D. (2020) ‘Ethnic clashes in Ethiopia leave at least 80 dead’ Financial Times, 2 July (www.ft.com/content/78afe576-ecd7-4958-bdfd-057e31b9fbe6). Reuters (2018) ‘China rejects claim it bugged headquarters it built for African Union’. The Guardian, 30 January (www.theguardian.com/world/2018/jan/30/china-african-union-headquarters-bugging-spying). Reuters (2021) ‘Ethiopia to get 300,000 doses of Sinopharm COVID-19 shot, health minister says’. Reuters, 29 March. (www.reuters.com/article/uk-healthcare-coronavirus-ethiopiaidUSKBN2BL1TE). Romero, M.-J. (2015) What lies beneath? A critical assessment of PPPs and their impact on sustainable development. Brussels: European Network on Debt and Development. 47 ODI Report Sherman, J. (2019) ‘What’s the deal with Huawei and this African Union headquarters hack?’. Medium, 31 May (https://medium.com/dukeuniversity/whats-the-deal-with-huawei-and-a-hack-atafrican-union-headquarters-1e454c1f31a2). Singh, A. (2020) ‘The myth of “debt-trap diplomacy” and realities of Chinese development finance’ Third World Quarterly 1–15 (https://doi.org/ 10.1080/01436597.2020.1807318). Soliman, A. and Demissie, A.A. (2019) ‘Can Abiy Ahmed continue to remodel Ethiopia?’. Chatham House, 12 April (www.chathamhouse.org/2019/04/can-abiy-ahmed-continue-remodel-ethiopia). Solomon, S. (2019) ‘After allegations of spying, African Union renews Huawei alliance’. Voice of America, 7 June (www.voanews.com/africa/after-allegations-spying-african-union-renews-huawei-alliance). Staritz, C. and Whitfield, L. (2017) Made in Ethiopia: the emergence and evolution of the Ethiopian apparel export sector. Working Paper 3. Roskilde: Roskilde Universitet (https://forskning.ruc.dk/en/ publications/made-in-ethiopia-the-emergence-and-evolution-of-the-ethiopian-app). Sun, I.Y., Jayaram, K. and Kassiri, O. (2017) Dance of the lions and dragons: how are Africa and China engaging, and how will the partnership evolve?. London: McKinsey Global Institute. Tang, X. (2019a) The impact of Chinese investment on skill development and technology transfer in Zambia and Malawi’s cotton sector. CARI Working Paper 23. Washington DC: CARI, School of Advanced International Studies, Johns Hopkins University. Tang, X. (2019b) Chinese manufacturing investments and knowledge transfer: a report from Ethiopia. CARI Working Paper 24. Washington DC: CARI, School of Advanced International Studies, Johns Hopkins University. Tang, X. (2019c) Export, employment, or productivity? Chinese investments in Ethiopia’s leather and leather product sectors. CARI Working Paper 32. Washington DC: CARI, School of Advanced International Studies, Johns Hopkins University. Tanjangco, B., Cao, Y., Nadin, R. et al. (2020) Pulse 1: Covid-19 and economic crisis – China’s recovery and international response. London: ODI (https://odi.org/en/publications/economicpulse-1-covid-19-and-economic-crisis-chinas-recovery-and-international-response/). Tanjangco, B., Cao, Y., Nadin, R. et al. (2021) Pulse 2: China navigates its Covid-19 recovery – outward investment appetite and implications for developing countries. London: ODI (https:// odi.org/en/publications/economic-pulse-2-china-navigates-its-covid-19-recovery-outwardinvestment-appetite-and-implications-for-developing-countries/). The Growth Lab at Harvard University (n.d.) The atlas of economic complexity. Boston: Harvard University (www.atlas.cid.harvard.edu). tralac (2020) ‘Status of AfCFTA ratification’. Infographic. Western Cape, South Africa: tralac (www.tralac.org/resources/infographic/13795-status-of-afcfta-ratification.html). Trebilcock, M. and Rosenstock, M. (2015) ‘Infrastructure public-private partnerships in the developing world: lessons from recent experience’ Journal of Development Studies 51: 335–354 (https://doi.org/10.1080/00220388.2014.959935). UNSD – United Nations Statistics Division (n.d.) ‘United Nations Comtrade database’. New York: UNSD, United Nations Department for Economic and Social Affairs (https://comtrade.un.org/). Wolf, C. and Cheng, S.-K. (2018) Chinese overseas contracted projects and economic diversification in Angola and Ethiopia 2000–2017. IDCEA Working Paper 3. London: SOAS University of London. 48 ODI Report World Bank (n.d.) ‘World Development Indicators’. Washington DC: World Bank (https://databank.worldbank.org/source/world-development-indicators#). World Bank (2019a) Seventh Ethiopia economic update. Special topic: poverty and household welfare in Ethiopia, 2011–2016. Washington DC: World Bank. World Bank (2019b) Belt and Road economics. Opportunities and risks of transport corridors. Advance Edition. Washington DC: World Bank. Xinhua (2020) ‘Chinese companies powering Ethiopia’s investment efforts amid COVID-19’. Xinhua, 24 October (www.xinhuanet.com/english/2020-10/24/c_139462936.htm (Accessed: 23 April 2021). Xinhua (2021a) ‘China Chamber of Commerce in Ethiopia donates COVID-19 supplies to education ministry’. Forum on China-Africa Cooperation (www.fmprc.gov.cn/zfhzlt2018/eng/zfgx_4/jmhz/ t1848892.htm). Xinhua (2021b) ‘China, Ethiopia ink accord on establishing security safeguarding mechanism for major projects under BRI’. China.org.cn, 7 March (www.china.org.cn/world/2021-03/07/ content_77280556.htm). Xu, J., Gelb, S., Li, J. et al. (2017) Adjusting to rising costs in Chinese light manufacturing: What opportunities for developing countries? London: ODI (https://set.odi.org/rising-costs-chinesemanufacturing-opportunities-developing-countries/). Yang, S. (2019) ‘China’s Alibaba, Ethiopia sign MoU on eWTP to boost Africa’s digital economy’. China Money Network, 27 November (www.chinamoneynetwork.com/2019/11/27/chinas-alibabaethiopia-sign-mou-on-ewtp-to-boost-africans-digital-economy). Zao, H. (2012) ‘The Chinese telecommunications war in Africa’. Caixin New World, 7 March (https://africachinareporting.co.za/2013/03/the-chinese-telecommunications-war-in-africa-2/). Zelalem, Z. (2020) ‘Ethiopia is walking back plans to open up Africa’s last big telecom sector to foreign players’. Quartz Africa, 19 August (https://qz.com/africa/1893979/ethiopia-backs-off-ethiotelecom-privatization-for-foreign-firms/). 49 ODI Report Appendix Chinese loan commitments to Ethiopia, 2000–2018 Table A1 Chinese loan commitments to Ethiopia, 2000–2018 Project Sector Year of loan commitment Lender Borrower Finance type Value (US$ million) Interest rate Libor rate Grace period (years) Loan term (years) Status Awassa Textile Plant Equipment Upgrade Industry 2001 MOFCOM Government Zero-interest loan 1 0 – – – Signed Millennium Plan Telecom Project Phase I; II; III Communications 2006 ZTE Government Suppliers’ credit 1,900 –Libor 6M+1 310 Completed Finchaa-Amerti-Neshe (FAN) Hydropower Project (97MW) Power 2007 Eximbank Government Export buyers’ credit 116 – – – – Completed Tatek; Mugher Cement Enterprise Plant Expansion Industry 2007 Eximbank Government Export buyers’ credit 91 – – – – Completed Genale-Dawa III Hydropower Project 3x84.7 (254MW) Power 2009 Eximbank Government Export buyers’ credit 270 2.43 – 3 12 Completed Addis–Adama Expressway Phase I (80 km) Transport 2009 Eximbank Government Preferential export buyers’ credit 349 2 – 7 20 Completed Adama Wind Farm I (51MW) Power 2010 Eximbank Government Concessional loan 99 2 – 8 20 Completed Gibe III Hydropower Project 10x187 (1,870MW) Power 2010 ICBC Ethiopian Electric Power Corporation (EEPCo) (SOE) Loan (type not specified) 425 3.067 – 4 11 Completed Meskere Sq-Bole Road (4.3 km) Transport 2011 Eximbank Government Concessional loan 70 2 – 7 20 Completed