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University of Applied Sciences, Münster - Department of Business Economics -

Manufacturing of foreign companies in Ethiopia and Kenya - Economic & social impacts

Bachelor thesis

By Fredrik Utesch

Advisor: Prof. Dr. rer. pol. Nina V. Michaelis

Handover date: 07.06.2014

Abstract Very few studies have been conducted on foreign manufacturing in Kenya and even less on the sector in Ethiopia. No study has compared the two countries regarding the manufacturing of foreign companies and their impacts on the social and economic level. Thus, this bachelor thesis shall be a first step to closing the existing gap through analysis in this research area. Additionally, this thesis will provide lists with information on the foreign companies operating in the two selected East African countries. I conducted the thesis through online research, as I was unable to conduct local research in Ethiopia and Kenya. All information was gained through online presence of the Ethiopian and Kenyan government and its associated institutions. I also used papers and databases from international organizations and journals. To gain more detailed information about the current activity status of the foreign companies, I analyzed Newspapers with references to the foreign companies, as well as the companies’ websites, if existing. Because it was not always possible to get the newest information through online presences I also contacted companies directly, although this yielded no response. My results indicate that in Kenya 57 foreign manufacturing companies are operating, whereas in Ethiopia there are only 40 companies. Foreign manufacturers are mainly active in the compound sector of apparel, leather and shoe products. In both countries the share of companies operating in this sector is almost 50 percent. Where in Ethiopia 11 sub-sectors of manufacturing are covered by foreign companies, in Kenya there are 8 sectors. In both East African countries, Ethiopia as well as Kenya, the continent where the owners of most foreign manufacturers come from is Asia.

In Kenya most foreign

manufacturing companies come from China, while in Ethiopia SaudiArabian companies have the strongest position. As foreign direct investment in both countries is export oriented, this brings in foreign II

currency for the two East African nations, which strengthens their economy. Furthermore, in both countries, know-how spillovers take part and jobs for locals get created. The largest amount of people profiting from foreign companies in the countries manufacturing sectors are the less educated and non-educated population. Most foreign companies in manufacturing operating in Ethiopia and Kenya focus on labor intensive business sectors and want to benefit from the large amount of cheap labor existing. However, labor costs in Kenya reached already a higher level, compared to Ethiopia, where labor costs are one of the lowest in the world. This thesis demonstrates how the manufacturing of foreign companies in both countries bring positive impacts with them on the social and economic level. However, the extent of this positive impact depends on the strategy of the individual company operating and the economic environment. Keywords: Foreign manufacturer; Ethiopia; Kenya; Spillover effects

III

Acknowledgement I would like to express my deepest gratitude to Professor Nina V. Michealis, who kindly accepted my request to advise me with my bachelor thesis and its pre paper. Professor Nina V. Michaelis supported me greatly throughout this process of researching and writing my bachelor thesis and the preparatory paper “Foreign direct investment in sub-Saharan Africa”. I would also like to thank Professor Jürgen Reckwerth for being the co advisor of this thesis and for his courses taught during my bachelor studies at the University of Applied Sciences, in Münster. My deepest gratitude belongs also to my family and friends who not only supported me during the good, but especially during stressful times. A special thanks goes to Yvonne Günther, Jennifer Yuan Pierson and Juliana Langer, who did the proof-reading of this thesis.

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Table of contents ABSTRACT ............................................................................................................................... II ACKNOWLEDGEMENT ............................................................................................................ IV TABLE OF CONTENTS ............................................................................................................... V LIST OF FIGURES .................................................................................................................... VII LIST OF TABLES ..................................................................................................................... VIII LIST OF ABBREVIATIONS ......................................................................................................... IX INTRODUCTION ....................................................................................................................... 1 1.

2.

3.

THE GROSS DOMESTIC PRODUCTS ................................................................................. 4 1.1.

GENERAL OVERVIEW ................................................................................................... 4

1.2.

OVERVIEW OF GDP SUB-SECTORS .................................................................................. 5

1.3.

MANUFACTURING SECTOR ............................................................................................ 7

1.4.

STRATEGY PLANS ...................................................................................................... 10

FOREIGN COMPANIES WITHIN THE MANUFACTURING INDUSTRY............................... 12 2.1.

SUB-SECTORS OF MANUFACTURING .............................................................................. 12

2.2.

COUNTRIES OF ORIGINS ............................................................................................. 16

ATTRACTIONS AND OBSTACLES .................................................................................... 19 3.1. 3.1.1.

Economic and political partnerships ................................................................ 19

3.1.2.

Size of population and labor costs ................................................................... 20

3.1.3.

Tax incentives ................................................................................................. 23

3.1.4.

Industrial Zones & Export processing zones ..................................................... 24

3.2.

4.

ATTRACTIONS FOR FOREIGN COMPANIES INVESTMENTS...................................................... 19

OBSTACLES FOR FOREIGN DIRECT INVESTMENT ................................................................ 27

3.2.1.

Investment regulations ................................................................................... 27

3.2.2.

Corruption and criminality .............................................................................. 27

3.2.3.

Transportation costs ....................................................................................... 29

3.2.4.

Lack of skilled workers .................................................................................... 30

3.2.5.

Electricity supply ............................................................................................. 31

SPILLOVER EFFECT OF FOREIGN COMPANIES ............................................................... 32 4.1.

ECONOMIC IMPACTS ................................................................................................. 32

4.1.1.

Foreign direct investment inflows ................................................................... 33

4.1.2.

Transfer of technology and knowledge............................................................ 33

4.1.3.

Higher tax income........................................................................................... 39 V

4.2.

5.

SOCIAL IMPACTS ...................................................................................................... 40

4.2.1.

Employment in the manufacturing sector ....................................................... 40

4.2.2.

Job creation by foreign manufacturing companies .......................................... 42

CONCLUSION................................................................................................................ 46

APPENDIX................................................................................................................................ X REFERENCES ........................................................................................................................ XXII

VI

List of figures Figure 1: GDP Growth Rate (real, constant 2010 US-Dollar (US$)) ....... 4 Figure 2: Foreign companies, sorted by sector .................................... 12 Figure 3: Foreign companies, sorted by country of origin .................... 16

VII

List of tables Table 1: Job creation by foreign manufacturing companies in Ethiopia and Kenya ........................................................................................... 45

VIII

List of abbreviations AGOA

African Growth and Opportunity Act

AIDS

Acquired Immune Deficiency Syndrome

CIA

Central Intelligence Agency

EPZ

Export Processing Zone

FDI

Foreign direct investment

GDP

Gross domestic product

GTP

Growth and Development Plan

ISIC

International Standard Industrial Classification of All Economic Activities

Km

Kilometer

KSh

Kenyan Shilling

Ltd.

Limited company

N.d.

Not dated

US$

United States Dollar

USA

United States of America

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Introduction Until today, China still counts as the most competitive market for manufacturing by the Global Manufacturing Competitiveness Index 2013.1 However, this might change as Chinese labor costs have been rising during the last years and a minimum wage of about €200 per month was introduced. For many companies within the labor intensive manufacturing2 sub-sectors it was time to reconsider their location of processing to stay competitive. 3 Low-income countries,4 such as Ethiopia and Kenya, with low labor costs could benefit. The two East African countries could profit from higher foreign direct investment (FDI) inflows and rising stock of foreign currency through increased export rates, as several preferential export agreements exist. One hundred million jobs could be created within the manufacturing sector in lowincome countries, only caused by the Chinese economic upscale and thus the simultaneously rising labor costs.5 Bangladesh, a competitor for the two low-income markets of Kenya and Ethiopia lost the credit of its low labor costs, as headlines about the very bad working conditions and the breakdown of a factory building with many victims became public.6 International companies manufacturing in the country then had to search for locations with a better image. The need of a paper on this topic “manufacturing of foreign companies in Ethiopia and Kenya – Economic & social impacts” is great, as very few literature currently exists on this topic. The manufacturing sectors of two neighboring countries regarding foreign 1

Deloitte (2013), p. 2. Manufacturing within this paper is correlated to the definition of the United Nations International Standard Industrial Classification (ISIC). Thus, it is defined as a “transformation of materials, substances and components into new products….Assembly of the component parts of manufactured products is considered manufacturing.” (United Nations (2008), p. 85.) See the divisions of ISIC belonging to manufacturing at United Nations (2008), pp. 47 – 51. 3 See: Norbrook, Nicholas (2014b).; Magnus, George (2012).; Lee, Felix (2013).; Erling, Johnny (2012).; 3Sat (2014). 4 Low income countries have a Gross National Income per Person of US$1,035 or less. (World Bank (2014a).). 5 World Bank (2012), pp. 4. 6 BBC News Asia (2013). 2

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companies operating were not compared before within a paper. As the manufacturing sectors in Ethiopia and Kenya are currently in their first steps of development, no official and up to date list, listing all the foreign companies operating in the manufacturing sector, is currently available. This thesis is not only significant for economics to see the importance of foreign manufacturer for the two countries but also in the business realm, to see which companies are already on the market and in which manufacturing business sectors. Furthermore, no specific research on investments of foreign manufacturers economic and social impacts on the comparing level of these two markets exist. The first chapter of this thesis will present an overview of the development and composition of both countries’ gross domestic products (GDP). It will highlight the development of local manufacturing as well as further sectors (agriculture, services, industry) of GDP within Ethiopia and Kenya, to show the importance of the sector in the past and has in the present. In chapter 2, the thesis will firstly give an overview of investments conducted by foreign companies in both manufacturing markets. Moreover, in this part, the foreign manufacturing companies and their businesses conducted will be broken down to the sub-sector levels of manufacturing and the companies divided by their countries of origin. Correlations and differences will be shown to reveal the countries different attractions for foreign companies. The third part of this paper, shows the attractions and obstacles both markets and foreign manufacturing companies have to face by investing in these countries. On the one hand attractions as tax incentives and low labor costs will be examined and on the other hand obstacle of investments as high transportation costs and lack of skilled labor will be analyzed.

2

Finally, after the manufacturing sub-sectors foreign companies are active and their reasons for the movement of the manufacturing plant towards Ethiopia and Kenya got analyzed, the impacts and spillover effects on the economies as well as the population will be highlighted. Questions regarding the benefits and upcoming problems for the population and economy will be answered. The bachelor thesis conclusion reveals the different inducements of both countries for foreign investors operating within the subindustries of the manufacturing sectors. The importance of the foreign companies manufacturing in the two selected countries and their economies and population will be compared.

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1. The gross domestic products 1.1.

General overview 10,00% 9,00% 8,00% 7,00% 6,00% 5,00% 4,00% 3,00% 2,00% 1,00% 0,00%

00-09 (a)

2010

2011

2012

2013e

2014f

2015f

2016f

Ethiopia

7,50%

8,60%

7,90%

7,80%

7,00%

7,20%

7,00%

7,10%

Kenya

3,60%

5,80%

4,40%

4,60%

5,00%

5,10%

5,10%

5,30%

Sub-Saharan Africa 4,40%

5,10%

4,60%

3,50%

4,70%

5,30%

5,40%

5,50%

* a= average; e= estimate; f= forecast Source: Own illustration. Data retrieved from World Bank (2014b). Figure 1: GDP Growth Rate (real, constant 2010 US-Dollar (US$))

The Kenyan GDP growth rate is considered as relatively equal to the average of sub-Saharan Africa, as the forecast for 2014 - 2016 by the World Bank Group reveals. And also in the years from 2000 ongoing, the overall GDP growth rate of the Republic of Kenya (further stated as Kenya) had no larger deviations. Seen on the time line of 2010 until 2016, the GDP never went below 4.4 percent of annual growth (real) and will be up to 5.3 percent in 2016. 7 As numbers for the period until 2012, are also available from the Kenyan government, numbers from both sources coincide. In April 2014, the Kenyan Ministry of Devolution and Planning published revised and new numbers for its GDP growth, the estimation for 2013th GDP growth had to be corrected from 5 percent to 4.7 percent growth. 8 Compared to Kenya’s GDP growth rate (real) and the subSaharan African average, the Federal Republic of Ethiopia (further stated as Ethiopia) revealed a higher growth since the beginning of the century. From the year of 2000 until the World Bank’s latest forecast for 2016, Ethiopia’s GDP shows an annual growth rate of above 7 percent

7 8

World Bank (2014b). Kenyan Ministry of Devolution and Planning (2014), p. 31. 4

(real). However, numbers from different sources do not always coincide. Statistics for the GDP growth rate (real) are in Ethiopia also available from its National Bank, which has its basis on the Ethiopian fiscal year (starts on the 8th of July and ends on the 7th of July)9. Albeit, the calculation on the fiscal year cannot be the reason why data differs, as the World Bank considers it in its statistics as well. The World Bank numbers, for instance the year 2013, are summarized from to the 3rd and 4th quarter of 2012 and the 1st and 2nd quarter of 2013, and equal the Ethiopian Nation Bank calculation of the financial year 2012/13. 10 For the countries fiscal year of 2009/10, the Ethiopian National Bank published a growth rate of 10.6 percent, which is 2 percent higher than the number published by the World Bank for 2010. For the following two fiscal years of 2010/11 and 2011/12, a growth of 11.3 and 8.8 percent was realized regarding the Ethiopian National Bank, respectively. 11

1.2.

Overview of GDP sub-sectors

Comparing both countries GDP sub-sectors of agriculture, industry, manufacturing and services regarding the percentage share on value addition on the countries total GDP, differences get revealed. On the one side, in Kenya, the service sector was with 52.7 percent the strongest sector in 2012, followed by the agricultural industry with 29.9 percent and the industry sector with 17.4 percent. Manufacturing industries only reached a share of 10.4 percent and did not gain a higher share than 12.3 percent since 2000. However, despite Kenya’s agricultural value added share on GDP is by 29.9 percent much smaller than the service industries sector, the country largely depends on agriculture. The sector employs 60 percent of total employment (15 percent of formal employment) and has a 65 percent share on the country’s exports.12

9

Federal Government of Ethiopia (2009), p. 3. World Bank (n.d.). 11 National Bank Ethiopia (2013), p. 5. 12 Kenyan Institute for Public Policy, Research and Analysis (2013a), p. 74. 10

5

Kenya: GDP sectors, value added (% of GDP) 60,0% 50,0% 40,0% 30,0% 20,0% 10,0% 0,0%

2004

2005

2006

2007

2008

2009

2010

2011

2012

Agriculture

28,0% 27,2% 26,8% 25,0% 25,8% 27,2% 25,1% 28,5% 29,9%

Industry

28,2% 19,1% 18,5% 18,5% 19,8% 18,7% 18,6% 17,6% 17,4%

manufacturing 11,2% 11,8% 11,5% 11,5% 12,3% 11,3% 11,3% 11,0% 10,4% Services, etc.

53,7% 53,7% 54,8% 54,8% 54,4% 54,2% 56,3% 53,9% 52,7%

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Conversely, Ethiopia shows a different view. The country still significantly relies on the agriculture sector, regarding the value added share on the country’s GDP. With 48.8 percent in 2012, it has the highest share, followed by the service industry with 41.1 percent and the industry sector with low 10.1 percent. However, the country has an even lower share of value addition on its GDP from the manufacturing sector. Within the years of 2000-2012, it never reached a higher share than 6.4 percent (2001).14 Moreover, analyzing the development of the GDP sub-sectors in Kenya it can be seen, that almost all industries stayed equal (rage of +/-2 percent) during the time period of 2004 to 2012. However, the industry sector lost 8.8 percent on value addition, measured in percentage of the country’s total GDP. In Ethiopia the industry sector also decreased by 3.9 percent within the same period. Albeit, other sectors also realized some development. Where the manufacturing sector as well showed a downward trend with 2.1 percent loss regarding 2004 figures, agriculture increased its share of value addition by 5.7 percent from 43.1 percent in 2004. 15

13

World Bank (2014d), rows 149245, 149754, 149879, 150356. World Bank (2014d). 15 World Bank (2014d). 14

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Ethiopia: GDP sectors, value added (% of GDP) 60,0% 50,0% 40,0% 30,0% 20,0% 10,0% 0,0%

2004

2005

2006

2007

2008

2009

2010

2011

2012

Agriculture

43,1% 45,6% 46,8% 46,4% 49,4% 49,6% 45,6% 45,6% 48,8%

Industry

14,0% 13,0% 12,7% 12,6% 11,1% 10,4% 10,3% 10,6% 10,1%

manufacturing 5,7% Services, etc.

1.3.

5,1%

4,8%

4,8%

4,3%

4,0%

4,2%

3,9%

3,6%

42,8% 41,5% 40,6% 41,0% 39,5% 40,0% 44,1% 43,9% 41,1%

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Manufacturing sector

Regarding statistics from the Kenyan Ministry of Devolution and Planning, the manufacturing sector’s contribution to GDP was 9.5 percent in 2012 and revealed a decrease in 2013 by 0.6%. Despite the throwback on the GDP’s contribution of the sector, its growth rate is rising. From revised 3.2 percent in 2012 to 4.8 percent in 2013.17 The Kenyan Institute for Public Policy, Research and Analysis stated that in 2008 the contribution was already up at 10.8 percent, however, since then it has been declining steadily. The largest sub-sector contributor to the manufacturing sectors growth in 2012 was the manufacturing of motors and vehicles, with an annual growth rate of 16.9 percent. Followed by the paper and paper products sub-sector and textiles with 11.9, respectively 10 percent annual growth. The food processing segment within manufacturing, which holds a paramount position within Kenya’s manufacturing and overall economy revealed a decrease of 0.3 percent annual growth. 18 As was further stated, that the decline can be reasoned by the strong competition through imported products, the dependence on the agriculture sector through the large share of agro16

World Bank (2014d), rows 89303, 89812, 89937, 90414. Kenyan Ministry of Devolution and Planning (2014), pp. 33, 34. 18 Further manufacturing sub-sectors by annual growth 2012: Beverages and tobacco: 3.8 percent, plastic products: 7 percent, electrical equipment: 8.6 percent. 7 17

processing, and thus the drought period in 2012. Moreover, the presidential elections with diverse uncertainties in 2012 led to precautions within companies and increase of counterfeit products are reasons to mention. The value added manufacturing sector increased by 8.3 percent

(2011: KSh292.4 billion; 2012: KSh316.7 billion)

regarding the Kenyan Institute for Public Policy, Research and Analysis, which is 5.1 percent points more than the annual percentage growth analyzed by the World Bank for 2012, with 3.2 percent. 19

Kenya: Manufacturing sector, growth rate (%) Percentage changes at constant prices 2001

7,0%

6,3%

6,3%

6,0% 5,0%

4,5%

4,0%

3,5%

3,4%

3,1%

3,0% 2,0%

1,3%

1,0% 0,0% 2006

2007

2008

2009

2010

2011

2012

20

With focus on the absolute growth, the latest numbers published from the National Bank Ethiopia (fiscal year 2011/2012) show a growth rate in manufacturing of 11.8 percent. The manufacturing industry is, according to the National Bank of Ethiopia, included within the GDP’s sub-sector of industry. 21 As the Ethiopian Investment Agency stated on its British embassy website, the main and largest sub-sector of Ethiopia’s manufacturing industry is textile, followed by sectors as agriculture, food and beverages, paper, cement, chemicals and leather goods. As the country has redundant and cheap labor as well as the basic required raw material, cotton, this sector mainly attracts

19

Kenyan Institute for Public Policy, Research and Analysis (2013a), pp. 77, 78; World Bank (2014d), row 149878. 20 Kenyan National Bureau of Statistics (2013), p. 10. 21 National Bank Ethiopia (2013), p. 8. 8

investors.22 (Confirmed through my research, these are the sectors most foreign manufacturing companies are being active, currently. 23) Regarding exports, the World Trade Organization reveals in March 2014, that the agriculture sector was the largest export sector with 84.3 percent. Manufacturing hold a share of 9.9 percent (US$297 million, current prices) on the country’s exports, which placed Ethiopia’s total exports at 0.02 percent of the global exports by value. 24

Ethiopia: Manufacturing sector, growth rate (%) 16,0% 14,0% 12,0% 10,0% 8,0% 6,0% 4,0% 2,0% 0,0%

13,7% 11,6%

12,1%

2010

2011

7,0%

average 2000-09

2012

25

Comparing the Ethiopian and Kenyan manufacturing export shares, it gets visible, how much the two countries differ, as they both follow an export strategy within this sector to gain foreign currency. Kenya’s manufacturing industry share on its total export is not only about 26 percent higher but has already reached another level of value with US$2,208 million (current prices). However also in Kenya, the main export goods are from the agriculture sector, which leads the country’s export list with 52.7 percent of total. Thus, Kenya has a 0.03 percent share on worldwide exports by value.26

22

Embassy of the Federal Democratic Republic of Ethiopia (n.d.). See appendixes: Foreign manufacturing companies in Ethiopia (1/2) and Foreign manufacturing companies in Ethiopia (2/2). 24 World Trade Organization (2014a). 25 United Nations (2014b), p. 212. 26 World Trade Organization (2014a); World Trade Organization (2014b). 23

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1.4.

Strategy plans

The Kenyan government developed a policy plan to further widen exports, strengthen the economy on social and economic levels and on the long term achieving the status of an upper middle income country. Currently, the country is declared as in low income country. Thus, the country developed and started the “Kenyan Vision 2030” in 2008. 27 It is divided in several medium term plans, whereby the progress gets analyzed better and adaptions on goals and policies can be made easier. The first medium-term plan was enacted for the time period of 2008 and 2012 and already yielded first intermediate results. Followed, by the second medium term plan, which counts for the period of 2013 to 2017.28 Fort the first medium term plan, the manufacturing sector should reach an annual contribution to the country’s GDP by 10 percent. However, as revealed earlier, the sector currently has only a share of 9.2 percent (2008: 10.8 percent), despite its average growth rate of 3.16 percent within the first medium term plan. A Kenyan independent research institute suggested the government for the new medium-term plan to improve the manufacturing sectors current situation. Incentives for foreign investors should be given, to attract FDI inflows and foreign investments. Those investments can further generate linkages to local manufacturers and could also boost the country out of the low-value manufacturing exports segment to highervalue.29 Ethiopia has a similar plan. As the Kenyan government, the country sets up a strategy plan to achieve a higher income level and enlarge its exports. Albeit, the Ethiopian government firstly aims the level of a middle-income country by 2025. Further, with its “Growth and Transformation Plan” (GTP), which is set up for the period of 20102015, the country first of all wants to strengthen its economy and set high growth targets of 11 to 15 percent annually. 30 However, the aimed 27

Kenya Vision 2030 (2014). Government of the Republic of Kenya (2013), pp. 2, 3. 29 Kenyan Institute for Public Policy, Research and Analysis (2013a), pp. 77-86. 30 African Development Bank (2011), p. 1. 28

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growth rates were set very optimistically, as they got enacted after several years of receiving double digit growth rates. The tremendous growth rates went back to about 7 to 8 percent in 2010 and the following years. Though, this numbers were not reached so far. To achieve the aim of higher export rates from its industry and manufacturing sector, the Ethiopian government plans to set incentives for foreign investors and sees potential in the manufacturing of textile, leather goods and garments, as well as in the country’s largest sector of employment: agriculture. 31

31

Embassy of the Federal Democratic Republic of Ethiopia (n.d.). 11

2. Foreign companies within the manufacturing industry Within the third chapter of the bachelor thesis I want to analyze the foreign manufacturing companies and their activities in Ethiopia and Kenya. The analysis is based on my own research, conducted online. Foreign companies holding a joint venture with the local government or private businesses in Kenya, respectively Ethiopia are also included. I further included local companies that have strong connections to sister companies located abroad, as they are influenced largely through this foreign co-operation. 2.1.

Sub-sectors of manufacturing Apparel, Leather, Shoes Agro processing Chemicals, Paint Beverages, Food, Confectionery Dart Metal, Steel Tiles Cement Tires Plastics Pipe production Gaseous products

Wooden products (Cork, Matches, Paper,… Assembling (Car, Mobile phone) 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 Companies Ethiopia Kenya

*Some companies operate in several business segments. Source: Own illustration. Based on own research32 Figure 2: Foreign companies, sorted by sector

Regarding my personal conducted online research, between March, 21st and May, 13th 2014, in Kenya 57 foreign owned businesses conduct manufacturing operations and in Ethiopia 40. In both countries the manufacturing sub sector with the most foreign companies 32

Please find the list of foreign companies attached as appendixes: Foreign manufacturing companies in Ethiopia (1/2); Foreign manufacturing companies in Ethiopia (2/2); Foreign manufacturing companies in Kenya (1/2) and foreign manufacturing companies in Kenya (2/2). 12

operating in, was the compound sector of apparel, leather and shoe products. Within this thesis, the sector includes the garment, fabrics, textile and apparel zipper industries, as these are all related and partly on each other dependent industries. In Kenya 27 foreign owned companies manufacture within this sector and in Ethiopia 19, which is 47 percent, respectively 48 percent on the total amount of foreign manufacturing companies. In Kenya, regarding research of Phelps, N.A., Stillwell, J.C.H., Wanjiru, R. in 2008, this is a decrease by 8 companies.33 Most of the foreign companies operating within this sector in both countries established their business after the launch of the African Growth Opportunity Act (AGOA) by the United States of America in 2000. In 2001 both countries were declared eligible for tax free apparel exports to the U.S. market. The first phase of AGOA was from 2000 until 2008 and was then prolonged until 2015. The aim of the USA by the establishment of AGOA was, to support the sub-Sahara African countries to open their markets and strengthen their economies. 34 In Ethiopia 14 out of 19 companies started their business after the year of 2000 in this sector, whereby it was not possible to gain the starting date of operation for three companies. Within the Kenyan companies owned by foreigners in this sector, 21 out of 27 companies started operations after 2000, whereby here it was not possible to find the start date of the operations for five countries. All of these 21 companies established their business within the years of 2001-2004 and are operating since. Compared to the same sector in Ethiopia, were most companies in the apparel, leather and shoe products manufacturing sector started businesses in 2007 and later, this was quite a fast reaction in Kenya, just after the AGOA establishment in 2000. As the AGOA got extended in 2008 for seven years, until 2008, it can be assumed, that the foreign companies, which moved to Kenya directly wanted to benefit from

33 34

Phelps, N.A., Stillwell, J.C.H., Wanjiru, R. (2008b), p. 72. Department of Commerce, United States of America (n.d. b).; Department of Commerce, United States of America (n.d. a). 13

AGOA from the beginning, whereas the foreign companies, which established businesses in Ethiopia waited until the prolongation took place. For Kenya, Phelps, N.A., Stillwell, J.C.H., Wanjiru, R. further assumed, that with the expiration of AGOA, companies, which only have one facility in Kenya will not stay in the country afterwards, but leave for another market with greater incentives.35 In Kenya, 70 percent of the foreign owned companies operate within the two strongest business sectors of apparel, leather and shoes and the sector of agro-processing. Together, both segments cover 40 out of 57 foreign owned companies. However, foreign companies in Kenya are not active in the country’s largest sub-sector contributor to the manufacturing sectors growth in 2012. This was, as stated before, the motor and vehicles manufacturing industry. Whereas in Ethiopia, no foreign company is operating within the manufacturing sub-sector of agro-processing, the second largest business sector covered by foreign manufacturers is the manufacturing of wooden products, as cork, matches, paper and wooden furniture. Five companies under foreign ownership operate within this sector. Together with the strongest sector of apparel, leather and shoe products, it covers only 60 percent of the overall sectors, foreign companies are doing business in. Foreign manufacturing companies in Ethiopia are co-responsible for the countries strong manufacturing growth in its fiscal year of 2011/12, as they have large plants in operation in the apparel, leather and the shoe products sector. The textile sector36, revealed the country’s highest growth rate within the manufacturing sub-sectors. Foreign companies operating in Ethiopia, thus have a wider spread over diverse manufacturing sub-sectors (11 different sectors) as they have in Kenya (8 different sectors). Four companies in Ethiopia and Kenya are in manufacturing sub-sectors the only foreign owned 35 36

Phelps, N.A., Stillwell, J.C.H., Wanjiru, R. (2008), p. 79. The textile sector belongs regarding my definition for this thesis to the compound sector of apparel, leather and shoe products. 14

manufacturers. Since in Ethiopia, this exists in the manufacturing sectors of pipe, tires, tiles and chemicals/ paint manufacturing, in Kenya it exists also in the tiles, but further in the dart, metal/ steel and cement manufacturing sub-sectors. Five companies are operating in Kenya’s apparel manufacturing sector with Kenyan governments or private business shares in the company. These are the Sahara Stitch Export processing zone (EPZ), Protex Kenya EPZ Limited Company (Ltd.), Chandhu EPZ, Falcon Apparels and the Storm Apparels companies. One further company, the Kenya Fluorspar EPZ Ltd. firm operates in the manufacturing subsector of fluorspar and holds an 20 years leasing contract from the Kenyan government.

In Ethiopia, regarding the online research

conducted, three companies hold a joint venture with Ethiopian private businesses and further two have a joint venture business with the Ethiopian government. Except one company, which is in the soap manufacturing business, all further focus on the apparel manufacturing sector.

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2.2.

Countries of origins

China United Kingdom India Sri Lanka USA Germany Taiwan Switzerland Unknown United Arab Emirates Netherlands New Zealand Italy France Canada Japan South Korea Turkey Saudi Arabia Pakistan Kenya 0

2 Ethiopia

4 Kenya

6

8

10

12

Companies

*Some companies are from more than one country Source: Own illustration. Based on own research. 37 Figure 3: Foreign companies, sorted by country of origin

Analyzing the two East African countries of Ethiopia and Kenya regarding the foreign manufacturers country of origins, China is placed as the home country most foreign investors in the manufacturing sector are coming from. In Ethiopia, Saudi Arabia is among ten companies placed as country where most foreign investors in the manufacturing sector in Ethiopia come from. However, six of the ten companies are subsidiaries of the MIDROC Ethiopia Technology Group, which belongs to the Saudi Arabian MIDROC Group. China is placed second in Ethiopia with eight companies. In Kenya, China is placed as major home country of foreign manufacturers, directly followed by the former colonist, the United 37

Please find the list of foreign companies attached as appendixes: Foreign manufacturing companies in Ethiopia (1/2); Foreign manufacturing companies in Ethiopia (2/2); Foreign manufacturing companies in Kenya (1/2) and foreign manufacturing companies in Kenya (2/2). 16

Kingdom and India.38 Germany is placed fourth. However, in the Ethiopian manufacturing sector, Germany does not have any company operating. Within the Ethiopian manufacturing sector, the foreign major home countries of operating companies are after Saudi Arabia with 10 and China with eight companies, Turkey with six and Japan, as well as Pakistan and Kenya with each having three companies of its origin investing in Ethiopia’s manufacturing sector. Saudi Arabia and China together already make up 45 percent of all companies investing in the manufacturing sector of the country. With Turkey the three top home countries of this sectors investment have a share of 60 percent. Thus, the country has to be wary of not becoming dependent on the political and economic relations with these countries, as thus they could suffer huge losses within this sector. In Kenya’s manufacturing sector, the four major investment home countries of China, India, Sri Lanka and the United Kingdom have 31 companies conducting their business in the country. This stays for 54 percent of the total amount of foreign manufacturing companies. In comparison to the top two countries, which already have almost 50 percent, respectively, of the top three countries holding 62 percent, Kenya reveals a higher diversification of countries, where foreign manufacturing companies come from. This could mean a higher protection of the country regarding possible occurrence of problems on the international relations level. In Kenya 14 to 17 countries have companies operating in the Kenyan manufacturing sector. For three countries, it was not possible to find data regarding the companies’ country of origins. However, they are foreign origin. Ethiopia, has 11 different countries, who have companies operating in the Ethiopian manufacturing sector. The Asian continent is in both countries the leading home continent of foreign firms investing in the manufacturing sector. However, in Ethiopia it has a much deeper presence with 85 percent to 38

British Empire (n.d.). 17

49.1 percent in Kenya. Where in Kenya then, companies from Europe are placed second by 33.3 percent of the total foreign companies investing, in Ethiopia, Africa is ranked second with three companies operating. All three are from Kenya, whereby one is a joint venture with an Ethiopian company. From Europe only one company, Pittards Ltd. from the U.K., operates in the manufacturing sector. From the North American continent, the Ethiopia Crown, Cork & Can Manufacturing Industry Company, a joint venture between the Ethiopian government and an U.S. company, operate in the Ethiopian manufacturing sector. In Kenya, Europe is the home continent of 6 companies operating in the countries manufacturing sector, representing a share of 10.5 percent. 39 Kenya, already home of the worldwide largest multinational companies from diverse sectors, as Coca-Cola, Cadbury, Nestle, Bayer, Unilever, Henkel and Beiersdorf, is a step ahead Ethiopia regarding its development of attracting large-scale companies.

39

For more details please see appendixes: Foreign manufacturing companies in Ethiopia (1/2); Foreign manufacturing companies in Ethiopia (2/2); Foreign manufacturing companies in Kenya (1/2) and foreign manufacturing companies in Kenya (2/2). 18

3. Attractions and obstacles To ensure the achievement of gaining economic progress, the governments of Ethiopia and Kenya set up specific incentives and regulations regarding foreign investments. Both countries have topics and strategies where they coincide, but also different approaches. Ethiopia for instance sets up restrictions for investment of foreign companies in some of its business sectors, while Kenya is completely open. However, in Ethiopia, the manufacturing sector is open for foreigners, as revealed in this thesis. 40

3.1.

Attractions for foreign companies investments

3.1.1. Economic and political partnerships Ethiopia and Kenya are members and profiteers of diverse economic and political partnerships. Both oriented manufacturing industries benefit from the “AGOA”, enacted by the USA and Ethiopia additionally from the European Unions’ developed “Everything-ButArms” agreement. Regarding these two agreements a lot of products can be exported to the American and European markets without paying import duties or underlying quotas. Next to this two agreements, a lot of products, which are manufactured in Ethiopia underlie the United States of America’s “Generalized System of Preference”. This means that they have lower tariffs for products than other nations. 41 In regards to the topic of foreign investor protection, a governmental assurance against expropriation got introduced.42 The

Ethiopian

government

has

economic

partnership

agreements with 19 countries from Asia, Europe and Africa, Northern and Southern America, which could be advantageous for foreign manufacturing investors as they could benefit

from economic

40

U.S. Department of State (2012). Ethiopian Investment Agency (2012b). 42 World Bank (2012), p. 24. 41

19

agreements, as published in October 2012. 43 Ethiopia is currently within its process to gain the status as a member of the World Trade Organization (WTO), albeit, as stated in January this year by the Ethiopian Minister of Trade, the process might probably not been succeeded before the end of 2015, as Ethiopia currently does not intend to open specific sectors. 44 Kenya, as a member of the WTO, is inter alia a member of the WTO’s “Most Favored Nations Agreement”, which makes it easier for Kenyan products to enter foreign markets. Moreover, it’s a member of the East African Community (EAC) partnership and the agreement of Common Markets for Eastern & Southern Africa (COMESA). Where the EAC has the position of a custom union, within COMESA, Kenya as well as Ethiopia enjoy tax free arrangements to some of the agreement members. The ACP/ Eu Contonua Partnership agreement offers the chance to export diverse manufactured goods to Europe without paying tariffs and underlying any quota. 45

3.1.2. Size of population and labor costs Regarding population, Ethiopia is with its estimated 96 million people the second largest country of sub-Saharan Africa, just topped by Nigeria (estimated 2014: 177 million). Moreover, with an annual population growth rate of 2.89 percent, Ethiopia is expected to grow to be an even more populated country. The Central Intelligence Agency of America estimates the population of Kenya to be 45 million people for 2014. It is projected that the overall country’s population will increase by 2.11 percent from 2013. 46 Next to the amount of potential labor, it is the cheap labor offered in Ethiopia and Kenya that makes it an interesting spot for foreign manufacturing companies. Labor intense manufacturing business can 43

Ethiopian Investment Agency (2012a). Fekade, Berhanu (2014a). 45 Export Promotion Council (n.d.). 46 CIA (2014a), pp. 2, 4.; CIA (2014c), pp. 2, 3.; CIA (2014b), pp. 3, 4. 44

20

benefit and gain advantage to competitor markets, where labor costs are on a higher level. Ethiopia, with its estimated 45.65 million strong labor force, in total, holds a paramount position. 47 About 5 percent are employed in the industry sector, (includes the manufacturing industry) 10 percent in the sector of services and 85 percent in agriculture. Kenya’s work force was estimated to be at 18.39 million, however as it is also in Ethiopia, the biggest share works in the informal sector. Just 2.127 million people work in Kenya’s formal sector, where they earn regular wages. 75 percent worked in agriculture, were 25 percent were employed in the industry and service sectors. Both countries show a similar age structure, with a very young population. The median age in both countries is below 20 years, which is also due to the high Acquired Immune Deficiency Syndrome (AIDS) rates.48 The authoritarian government of Ethiopia plans to grow to one of the world’s work benches within the manufacturing sector. Average salaries shall be placed between US$27/ month and US$53/ month within the sector of industry to attract foreign companies. 49 However, as the country does not have a minimum wage set for the private business sector, companies looking for even lower labor costs could find their target country in Ethiopia. 50 Working hours in the country count as eight hours a day and 39 hours a week. Every hour above is set as overtime.51 Ethiopia’s land is entirely owned by the government, however, foreign companies received lately very long lasting contracts (99 years) for very cheap and comfortable conditions. 52 Regarding the targeted salary of employees in the Ethiopian manufacturing sector, Kenya cannot compete. As the average wage for an employee, in 2012, in the manufacturing sector was at KSh249.800/

47

African Development Bank (2011), p. 10. CIA (2014a), pp. 3, 7; CIA (2014b), pp. 3, 7; BTI (2014b), p. 15. 49 GTAI (2013b), p. 5. 50 Doing Business (2014), p. 97. 51 Ethiopian Investment Agency (2012c), p. 13. 52 BTI (2014a), p. 10. 48

21

year53 (US$237/ month, Exchange rate: May 25th, 2014) 54. The average in the textile sector is currently US$150/ month, which is threefold, respectively twofold as high as the average wages in Bangladesh and Cambodia with wages in between US$50 and US$ 75.55 Thus, the Ethiopian government, with its targeted salaries of between US$27/ month and US$53/ month56 are on the lowest end and could compete globally

regarding

its

perspective

labor

costs.

The

Kenyan

manufacturing industry, however, is losing attractiveness for foreign companies, looking for the lowest costs and less for the highest skilled workers and best technology. With a previous rise of its minimum wage more than 1,000 employees lost their jobs after the raise of the minimum wage and factories removed, respectively closed businesses. 57

The higher wage in Kenya is inter alia reasoned through the existing worker unions and the minimum wage for all business sectors. Differences in the minimum wage exist between cities and more rural areas, as well as between the different kinds of jobs. 58 The minimum wage of Ethiopia, which normally gets raised every year, stayed stable in 2014, so far. The annual raise of the minimum wage could lead to a wage-price spiral. Thus, the result would be a rising inflation rate, as production- and further, product costs would increase, caused by higher labor costs.59 However,

Kenya

attracts

foreign

companies

and

their

investments through its larger working hours, compared to Ethiopia. Kenyan working hours are from Monday until Saturday and 45 hours. As in Ethiopia, workers generally work overtime. As a survey from 2006, regarding a Chinese manufacturing company operating in Kenya highlighted, it is normal to work 4-6 hours a day on overtime, in 53

Kenyan Ministry of Devolution and Planning (2013b), p. 22. Yahoo (2014). 55 Maina, Zipporah (2014). 56 GTAI (2013b), p. 5. 57 Maina, Zipporah (2014). 58 Kambi, Samwel Kazungu (2013); Exports processing zones authority (2012), p. 3. 59 Reckwerth, J. (2013), chapter 3, p. 19, slide 17. 54

22

average. To get the overtime paid, the supervisor of the exampled Chinese company “Sinolink Garment Manufacturing” demands from his workers monetary and sexual favors. The reason for the overtime and at the same time the claim of the company to resist on the non-paid overtime, are from the employees point of view the very high targets to meet and from the employers point the slow work of the employee and that the company already need to pay the supervisors because of their “slow” work.60 However, this might not be the case in every foreign company, but is stated as an example.

3.1.3. Tax incentives Another attempt, to further accelerate the growth rate of foreign investors in the manufacturing sector are tax incentives. Foreign companies investing in Ethiopia and Kenya benefit from an exemption of tax payments for several years. In Ethiopia, foreign companies profit after the expiration of the tax exemption from an income tax allowance of 30 percent for three more years in specific areas of the country. 61 Further income tax benefits are set up for foreign manufacturers which export products or services, as they for example gain an additional exemption for two years for at least 60% of their products. 62 Despite for very few products (semi-processed hides and skins: 150% tax) there is no export tax existing for goods. Moreover, raw materials purchased for the production of export goods, do not succumb duties. Furthermore, “Franco valuta” imports are allowed for exporting companies. 63 “Franco

60

Worker Rights Consortium (2006), p. 10. Selected areas, as noted in the “Federal Negarit Gazette”: The State of Gambela People, the State of Benshangul/Gumuz, the State of Afar (except in areas within 15kilo meters right and left of the Awash River), the State of Somali, Guji and Borena Zones of the State of Oromia or South Omo Zone, Segen Area Peoples Zone, Bench-Maji Zone, Sheka Zone Dawro Zone, Kaffa Zone or Konta and Vasketo Special Woredas of the State of Southern Nations, Nationalities and Peoples.“ (Federal Negarit Gazette (2012b), p. 6648.) 62 Federal Negarit Gazette (2012b), pp. 6649, 6650. 63 Ethiopian Investment Agency (2012c), p. 30. 23 61

valuta” is defined as the payment of imported goods in foreign money and is normally prohibited in Ethiopia.64 Also in Kenya, foreign companies which invest in the countries manufacturing sector benefit from diverse tax incentives. Next to a 10 year tax holiday, the companies benefit from a 25 percent discount on the normal tax rate. Moreover, companies in the manufacturing sector can import the machinery and further materials for the manufacturing process needed tax free. Companies located in the EPZ’s gain further tax and regulation exemptions.65 With these attractions, foreign companies which are interested in investing in the countries manufacturing sector shall be attracted to move their production from abroad to the Export processing zones of Kenya.

3.1.4. Industrial Zones & Export processing zones Within

the

Ethiopian

GTP,

the

government

is

currently

establishing its first national governmental operated industrial zone, called Bole Lemi industrial zone. It is located in the east of the capital of Ethiopia, Addis Ababa. Another, industry zone (Eastern Industry Zone) has been established four years ago and is owned by a Chinese company.66 As determined by the Ethiopian Ministry of Industry, within this private industrial zone only Chinese companies with specialization on the segments of textile, apparel, building materials, mechanical manufacturing and agriculture processing are allowed to operate. One of these companies is the largest Chinese Shoe manufacturer company – Huajian. It produces 2,000 pairs of shoes each day for international brands in Europe and the United States of America and had around 600 employees in 2012, most of them Ethiopians. 67

64

Ethiopian Embassy (2014). Yulu, Teresia M. (2011).; Institute of Economic Affairs (2012). 66 Abebe, Bewket (2013). 67 World Bank (2012), pp. 25-28. 65

24

At the governments Bole Lemi industrial zone, which is only established for firms focusing on the export business, companies from Asia have already rented manufacturing halls in advance. Examples are the Taiwanese George Shoe Corporation Private Limited, the South Korean K.E.I, the Indian Karli International and the Pakistani A.N.F garment factories. They profited from a cheap lending rate of one dollar per square meter. The Ethiopian government invested largely within its first industrial zone and an expansion is already planned. Furthermore, within the GTP, Ethiopia plans to set up several industrial zones next to the first operating one.68 However, problems are rising between the Chinese company of the Eastern Industry Zone and the Ethiopian government, as the government refuses the Chinese company’s claim for tax holidays.69 The Kenyan counterpart of the Ethiopian industry zones are the export processing zones (EPZ). EPZ’s are part of the Kenyan Vision 2030 plan and several new plans shall be built within the program. The aim of the enlargement is the attraction of FDI, strengthening of the country’s industry sector, an increase in jobs creation and a higher share of exports.70 In 2012 Kenya had 47 EPZ’s with 82 companies operating and 35,929 employees. This is an increase by 5 EPZ’s from 2010’s existing 42. 71 The Kenyan EPZ’s contributed to 7.72 percent of Kenyan exports, which is an up turning trend since 2009, when it contributed 6.94 percent.72 70 percent of the total output of the companies located in the countries EPZ’s is exported to the US-market within the African Growth and Opportunity Act. 73 EPZ’s had a share of 4.25 percent of the countries manufacturing value output and a contribution of 12.77 percent to the sectors employment, both regarding 2012. Since 2008, there was no higher share reached regarding the

68

Abebe, Bewket (2013). Fekade, Berhanu (2014b). 70 Exports processing zones authority (2011b), p. 10. 71 International Trade Center (2014); Kenyan Institute for Public Policy, Research and Analysis (2013a), p. 81. 72 Kenyan Institute for Public Policy, Research and Analysis (2013a), p. 81. 73 Institute of Economic Affairs (2012). 25 69

manufacturing sectors employment contribution by the EZP’s. The EPZ’s had a contribution of 2.75 percent on the country’s GDP, which is a marginally decrease to 2011 of 0.01 percent. Most firms acting within the EPZ’s are active in the sectors of garments (26.83 percent) and agro-processing (21.95 percent). The involved garment companies also have the highest shares of local jobs with 79.71 percent, exports 53.07 percent and total sales 48.94 percent within the country’s EPZ’s. 74 Only two of the 47 EPZ’s were public owned, the vast majority was private in 2012. Most EPZ’s, 20, are located in Mombasa, as it has a favorable position as it is on the coast and is the major port of the country. Further 8 zones are located in Nairobi, the capital of the country and 5 in Kilifi, which is, as Mombasa, located on the coast. Overall 47 EPZ’s, 55.3 percent were located on the coast in 2012. In 2012, 50 percent of the companies were owned by foreign companies, 25.6 percent by residence and 24.4 percent by joint ventures. The share of foreign owned companies decreased regarding 2011 by 1.9 percent.

75

In 2014, the Kenyan Ministry of Industrialization and

Enterprise Development announced, that it plans to set up an EPZ with the scale for 100 companies and being only open for the textile sector. Major international companies, as “VF Corporation” and “Philipp-Van Heusen” (PVH) already visited Kenya for an introduction into the project. 200,000 jobs shall be created by solely this EPZ until the end of 2016.76 Comparing both countries by the amount of export oriented business zones existing, Kenya is already some steps ahead of Ethiopia. Where Ethiopia is just planning its’ second zone, Kenya is in the progress of establishing its 48. However, for Kenya, with its favorable location on the Indian Ocean it is easier to attract foreign investors for its export zones, if compared to Ethiopia, all other factors would be equal. Moreover, it needs to be taken into consideration that 74

Kenyan Institute for Public Policy, Research and Analysis (2013a), p. 81. Exports processing zones authority (2013), p. 12 - 24. 76 Wahito, Margaret (2014). 75

26

the Kenyan government set up its strategic, export oriented plan in 2008, where Ethiopia’s government enacted its strategy plan two years later.

3.2.

Obstacles for foreign direct investment

3.2.1. Investment regulations The Ethiopian government did not establish any regulations regarding a minimum threshold of shares on a company in joint ventures.77 However, there are capital requirements existing for foreign investors. Thus, for joint ventures it is required to at least invest US$150,000 and without a joint venture it is US$200,000. 78 Another, more complex obstacle for foreign companies investing in Ethiopia state the high burden existing within the administrative tasks. The low share of the industry sector (manufacturing is not solely revealed by the National Bank of Ethiopia) on total GDP is caused by problems within the process of improvement in the sectors of infrastructure, finance and a lack of skilled workers.

79

As in Ethiopia, in Kenya there exists a

threshold value for a foreign investment. The minimum investment is at US$500,000. Further regulations for foreign companies investing in Kenya are as followed: The investment must create jobs for Kenyans, generate an income for the Kenyan government and bring in new technology.80

3.2.2. Corruption and criminality Ethiopia is seen as a political stable spot on the African continent with a low rate of criminality and with high security levels. The country is located in the horn of Africa, and is also seen as relatively uncorrupt 81

77

Ethiopian Investment Agency (2014). Federal Negarit Gazetta (2012a), p. 6579. 79 GTAI (2013b), p. 5. 80 Nyamwange, Mathew (2009), p. 6. 81 Ethiopian Investment Agency (2012c), p. 3. 78

27

compared to the other less developed countries. However, the data is provided by the Ethiopian Investment Agency, which belongs to the Ethiopian government, and therefore numbers should be seen critical. The “Status Index” of the German Bertelsmann Foundation, which measures the alteration towards democracy of 129 countries worldwide, placed Ethiopia only on rank 111 and Kenya on rank 59 from 129 countries, in 2014. The bad position of Ethiopia was mainly caused by the authoritarian oriented political system of the countries’ government. The government, led by the Ethiopian People’s Revolutionary Democratic Front (EPRDF) since 1995, follows the vision to reach political stability through authoritarian leadership and non-political participation. Albeit, despite the authoritarian leadership, the “Status Index” for Ethiopia reported a political stable environment for investors. Albeit on the other side, it is also stated that corruption within the service and governmental is on a high level. In the sector of potential foreign investments, the government conducts measures against corruption to stay more attractive.82 Kenya, the southern neighboring country, achieved a much better place, as it has a multi-party system with regularly held elections. However, the country faces a large problems with corrupt politicians and high level officials. It also has an underfunded military and police force, which leads to a growing number of terrorist groups and thus increasing assaults. As seen in this year’s spring several terrorist attacks hit the country, probably by members of the terror organization “Al-Shabaab”. Further, in autumn last year, the same terrorist group started an assault on a large shopping center in Kenya’s capital. Nairobi.83 The situation showed, how overwhelmed the private security services and police were and most probably are, within the country. For foreign companies and especially their workers, thus possible assaults need to be taken into consideration, by investing in the country. 84

82

BTI (2014a), pp. 1, 5, 10. The Economist (2014).; Howden, Daniel (2013). 84 BTI (2014a), pp. 1, 5, 11. 83

28

3.2.3. Transportation costs Ethiopia plans to invest, within the Ethiopian Growth and Transformation plan, largely in the country’s infrastructure. 85 Such is really needed. The country is especially dependent on the infrastructure connections to its neighboring countries and their ports, and such is caused by its land locked position. Kenya, with its access to the open ocean has a better position. The country has with its major port in Mombasa a strategic important trade hub for the East African countries as Uganda, Burundi and Rwanda.86 Ethiopia is the largest landlocked country in the world and relies on good relations with its neighboring countries which have access to the ocean.87 These neighbors are Kenya, Somalia, Djibouti, Eritrea and Sudan. The Ethiopian government invests largely in its infrastructure sector, to overcome the deficits existing and improve the connection to its small, but for gaining ocean access important neighboring country, Djibouti.88 The neighboring country holds a paramount position for the Ethiopian economy, as most Ethiopian import and export activities run through its port.89 However, paved roads only had a share of 13.67 percent (6.064 kilometer (km)), regarding the Central Intelligence Agency (CIA) Fact Book.90 Next to roads, the railway transportation plays a crucial role for the import and export of goods. As the Ethiopian Investment Agency stated in its Investment Guide 2013, the old railway connection between the Seaport of Djibouti and Addis Ababa will be replaced with an electrified one. To bypass the obstacles of the transportation on land and ship, air transportation holds an important position. As a result, Ethiopia has a good cargo service to over 40 locations worldwide.91 Customs clearance in Ethiopia varies from 5 to 30 days. This volatile

85

GTAI (2013b), p. 11. Nyamwange, Mathew (2009), p. 6. 87 CIA (2014), pp. 2. 88 BTI (2014a), pp. 23, 24. 89 Ethiopian Investment Agency (2012c), pp. 8, 9. 90 CIA (2014), p. 11. 91 Ethiopian Investment Agency (2012c), pp. 8, 9. 86

29

duration is caused by the lack of skilled labor within the operational service of the customs department in Ethiopia. 92 Regarding my research, the Kenyan main location for foreign companies in the sector of manufacturing is not located in the city with the countries major port, Mombasa. It is 400 km away in Nairobi and other cities of the country. 93 Thus, transportation costs on land are also in Kenya high at the moment, as roads are in bad condition. Only 7 percent (11,189 km) of the countries roads are paved. 94 However, as the

Kenyan

Ministry of

Devolution

and

Planning

stated,

the

transportation infrastructure shall be improved.95 One project, a new gauge line from the port of Mombasa to Nairobi and further to neighboring states, was just signed these days with financial help from China.96 Moreover, workers at the port are unskilled and customs clearance take up to two weeks.97

3.2.4. Lack of skilled workers Another factor, which needs to get bypassed by potential foreign investors is the training of unskilled worker and consequently the high market entry costs. Foreign companies within the manufacturing sector work within sectors, where large amounts of cheap labor is needed to stay competitive on the world market. Thus, and as their manufacturing processes are mostly not very complex, they employ unskilled, respectively low skilled labor. 98 However, to safe costs, higher levels within the companies, as the foreman position, also get handed over to local workers. Thus, to be in the position to fulfill the tasks successfully, training by the company is needed. An example for a company, which plans to handover these positions to local workers, as they are cheaper, 92

World Bank (2012), pp. 27, 28. Appendixes: Foreign manufacturing companies in Kenya (1/2) and foreign manufacturing companies in Kenya (2/2). 94 CIA (2014), p. 11. 95 Kenyan Ministry of Devolution and Planning (2013b), p. 40. 96 The Africa Report (2014). 97 Phelps, N.A., Stillwell, J.C.H., Wanjiru, R. (2008), pp. 85-90. 98 Pedro Martins (2014), pp. 29 - 32. 93

30

is the Chinese shoe manufacturer, Huajian. At the beginning of its operation in Ethiopia, the company sent employees from China to its plant in Ethiopia for several months. However, until now, there are still several Chinese foremen in Ethiopia for further training and holding higher positions. 99 This increases the labor costs of a foreign company. However, on the long term, the costs of labor, if the trained workers over take the higher positions get lower. Further, if companies train their employees, higher output can be achieved, which reduces the labor costs per item.

3.2.5. Electricity supply Another

challenge

for

foreign

investors

in

Ethiopia’s

manufacturing industry is the bad support of electricity. Blackouts in the rainy season can stop the manufacturing line and raise the overall costs. Further, telecommunication is on a high cost level. 100 Only 33 percent of the population have access to electricity, despite the huge potential, especially in hydropower and geothermal energy. 101 89.7 percent of the country’s electricity is produced through hydropower plants.102 However, the construction work on the US$4.8 billion Grand Ethiopian Renaissance Dam, with its approximately 700 megawatt capacity, is under construction and will start generating electricity in autumn 2015.103 In Kenya the high costs of production are caused by the dependency on electricity production by hydropower (60%). Thus, as hydro power is reliant on weather conditions, the electricity supply does also depend on it.104 Albeit, the government realized the problem for the country. To attract foreign companies in the manufacturing industry, the government plans to build special power lines for the sole use of the top 99

World Bank (2012), pp. 27, 28. World Bank (2012), pp. 27, 28. 101 Ethiopian Investment Agency (2012c), p. 7. 102 CIA (2014), p. 9. 103 Norbrook, Nicholas (2014a), pp. 51 – 54. 104 Phelps, N.A., Stillwell, J.C.H., Wanjiru, R. (2008), pp. 85-88. 100

31

200 industrial consumers. Moreover, two coal energy facilities will be constructed. With the plans turning into their operation, the currently high energy costs in Kenya can be cut.105 The expansion of its electricity volume to 5000 megawatt is planned in order to lower the currently high electricity costs.106

4. Spillover effect of foreign companies 4.1.

Economic impacts

As the United Nations Industrial Development Organization revealed in its working paper in August 2012, the investment of foreign companies within Ethiopia and Kenya have a higher positive than negative impact on the local companies. However, in both countries the highest share is “no effects”. Where in Ethiopia 431 local companies got observed, 27.4 percent showed positive impacts, compared to a share of 20.2 percent with negative influence. In Kenya, 316 companies got observed, demonstrating a similar situation, 25.9 percent positive and 19.3 percent negative.107 For emerging markets, as Ethiopia and Kenya, attraction of foreign direct investors is mainly reasoned by the fact of technology transfer, as several researchers confirmed with their independent

studies.108 They

further

highlighted,

that

next

to

technology, the transfer of knowledge is crucial. Emerging economies, which receive larger FDI inflows by value than others, have an advantage in gaining further steps of the industrialization process. Foreign direct investment leads to advanced production technologies and a higher level of managerial expertise within a country. 109

105

Kenyan Association of Manufacturers (2014). Kenyan Ministry of Devolution and Planning (2013b), p. 40. 107 Unido (2012), p. 5. 108 World Bank (2012), pp. 1, 2; Saggi, Kamel (2002), pp. 14, 16, 19; Glass, Amy Jocelyn; Saggi, Kamal (2002), p. 507; Fosfuri, Andrea; Motta, Massimo; Ronde, Thomas (1998), p. 1. 109 World Bank (2012), pp. 1, 2; Saggi, Kamel (2002), pp. 14, 16, 19. 106

32

4.1.1. Foreign direct investment inflows Foreign direct investment inflows to sub-Saharan Africa within the time period of 2000 to 2012 had an averaged share of 3.2 percent of the regions GDP. The value of the 2012 inflow amounts to US$39,521 million. This, compared to the 2011 numbers shows a decrease of US$1,684 million. Both Ethiopia and Kenya were below the sub-Saharan African average of 3.18 percent regarding the GDP. Where Ethiopia had an averaged FDI inflow of 2.5 percent of the country’s GDP within the time period of 2000 and 2012, Kenya could just reveal an averaged share of 0.6 percent within the same time range. Both countries perceive a decrease in share and value of their FDI inflows, compared to 2011 and 2012. Ethiopia still had a share of 2.1 percent FDI inflow (regarding GDP), with a value of US$626.5 million in 2011, but plummeted to 0.7 percent of the country’s GDP, valued only US$278.6 million in 2012. The neighbor country, Kenya, revealed a decrease of US$76.6 million to US$258.6 million in 2012. The countries’ share of FDI inflow regarding its GDP was already on a lower level in 2011, but decreased further from 1 percent to 0.6 percent in 2012. However, both countries revealed an increase regarding their 2000 FDI inflows with US$110.9 million Kenya and US$134.6 million in Ethiopia, respectively. 110 Most foreign companies in the manufacturing levels moved to the two selected East African countries after 2000, thus it can be assumed, that they helped the countries FDI inflows to increase during the 12 years until 2012.

4.1.2. Transfer of technology and knowledge 4.1.2.1.

Training

Saggi, approved by Fosturi et all., stated in his paper “Technology transfer via Foreign Direct Investment under Spillovers,” that there are three different kinds of ways for the spillover of technology and knowledge. First of all, if local people found 110

World Bank (2014d), rows 89651, 89652, 149591, 149592, 286787, 285788. 33

employment through a foreign company, they would obtain training regarding the technology in use within this company. By changing their employment to a local company, they transfer knowledge about work procedures as well as the technology. Even when the local company might not have the same standard of technology as the foreign one, the employees will bring the local company a higher rate of productivity. The same situation exists, if a former employee of a foreign company wants to become self-employed.111 As vice-president, Helen Hai, of the Chinese company Huajian Group said in an article by The Africa Report (issue No. 60, March 2014): “When the first South Korean textile factories opened in Bangladesh, Daewoo trained up 200 workers. After two to three years half of those had left to set up small manufacturing facilities.”112 And this is a method, Huajian is currently following in Ethiopia. 130 Ethiopian graduates from university were selected to spend one year in China to be trained by the Huajian Group. Afterwards, they went back to the Ethiopian factory and worked as managers. So, the company also reduces the higher costs on the longterm, by replacing Chinese managers with Ethiopians, who work for less.113 But, the newly skilled labor could also became self-employed, as is the case in Bangladesh with the South-Korean company. However, as the Ethiopian Premier was stated within the same Article (issue No. 60, March 2014), Ethiopian private sector banks do not or very little invest in the manufacturing and thus hinder the development of local companies and businesses.114 The foreign manufacturing companies’ aim however, is to operate profit-maximizing and as cost-effective as possible. Thus, they calculate if it is cost-effective to train their employees abroad and how they can keep their trained employees within the own company. This has large influence on the spillover effects of the foreign manufacturers

111

Saggi, Kamel (2002), p. 14; Fosfuri, Andrea; Motta, Massimo; Ronde, Thomas (1998), p. 1. 112 Norbrook, Nicholas (2014a), pp. 51 – 54. 113 Jobson, Elissa (2013). 114 Norbrook, Nicholas (2014a), pp. 51 – 54. 34

to the welfare and economy of the market invested in. On the one hand, they could pay their employees higher wages than the local competitors do, which most likely results in a lower rate of fluctuation, or, on the other hand, paying the employees the same wage as local competitors, which might result in having higher costs on trainings for the higher amount of new employees and a higher churn rate. 115 Huajian, decided for its operation in the manufacturing business of Ethiopia to pay higher wages than the local market.116 And in Kenya, the British company of “Nodor International, Kenya” did the same. Instead of paying the average wage for local workers within the Export Processing Zones of the country, it decided to pay KSh12,000/ month, which is KSh4,000 higher.117 So, the companies only have a lower level of costs on entrance training at the beginning but pay wages. However, as it is a private owned company, this should be the more productive solution for itself. With this strategy, the technology transfer through labor mobility is relatively smaller, respectively might not lead to technology transfer at all. Albeit, it still leads to a higher level of welfare than the nonmanufacturing of the company within the country. Workers, who are employed and earn higher wages within the foreign company, still produce a higher welfare for the country.118 In comparison to local companies, foreign manufacturers offer more training sessions to local staff, as Fosfuri et. all (1998) summarized after conducting research on diverse studies. 119 And this seems to be true in Ethiopia, however, in the first years after the establishment of the company expatriates are employed. In order to lower the overall costs they train local staff to overtake these positions, as they earn lower wages. 120 However, Phelps, N.A., Stillwell, J.C.H., Wanjiru, R. conducted a survey on foreign textile companies in Kenya 2008, which revealed, that most of the companies have the aim to 115

Glass, Amy Jocelyn; Saggi, Kamal (2002), pp. 496-499. Laghai, Shafagh (2014). 117 Washington, Gikunju (2010). 118 Glass, Amy Jocelyn; Saggi, Kamal (2002), p. 507. 119 Fosfuri, Andrea; Motta, Massimo; Ronde, Thomas (1998), p. 1. 120 Melik, James (2012). 116

35

improve their workers skills, but very little evidence was seen. Furthermore, the survey shows, that the main positions within the company are occupied by foreigners, claiming, that they have the international know how needed. Despite the fact that local skilled employees would be cheaper, positions in the human resources and public relations sector are given to local citizens on the upper level. 121 Non-domestic investors within the manufacturing sector do not always bring much better technology to the emerging market or are motivated to keep their equipment on the highest standards. As technology and social standards within Ethiopia and Kenya are lower than in the markets, most manufactured goods of the foreign companies are exported to, the investors mostly concentrate to cover only the local laws. Even so, they are in the position to hold the highest standards in technology, security, human resources, control of production and products, they have less interest in fulfilling those, which also leads to fewer spillover effect on the local economy.122 Companies operating abroad, especially within the manufacturing sector have even been under more public pressure, respectively customer observation, since the factory break down in Bangladesh in 2013. 123

4.1.2.2.

Local imitation

A second possibility of transferring technology and knowledge is imitation or reconstruction of the foreign company. Local companies can learn from the foreign companies’ successes or failures and copy their way of procedure, and technology used. However, the copy of technology is only possible if local companies have great access to the financial system, find an investor, or liquidate their capital. Foreign companies, within emerging markets, are seen as best practice examples for the local competitors, who still use older technology and

121

Phelps, N.A., Stillwell, J.C.H., Wanjiru, R. (2008), pp. 81, 83. Moran, Theodore H. (1999), p. 5. 123 BBC News Asia (2013). 122

36

less productive procedures. 124 This second type of technology and knowledge transformation could not be found in Kenya and Ethiopia within my research. This might be caused by the lack of access to the finances needed to purchase the better technology, which gets used by foreign manufacturing companies.

4.1.2.3.

Local up- and downstream linkages

A third and final way of gaining spillover effects for local companies is possible through up- and downstream linkages of local companies and the foreign firm. Within this third attempt, the local companies are either already connected as a supplier or buyer of the foreign

companies’

manufactured

products.

This

is

especially

productive, if the foreign manufacturer focuses on the export business, as seen in Mexico and its car sector, for example. 125 A strong competition within local suppliers, not only leads to a higher grade of innovation within the sector, but also to the development of the technology use. Next to that, for the foreign manufacturing company the appeal to transfer its technology know-how is higher. If only one supplier within the foreign companies’ business exists, the foreign investor would give its market competitor the same advantage, the company itself wants to gain by transferring advanced technology to the sole supplier. With a higher competition, the foreign manufacturing company can put higher pressure on its supplier to solely provide his company. To strengthen the local competition within the sector of the suppliers of manufactured goods, the government should entice local companies and business people to operate within these areas. A higher share of technology transfer to the local supplier is given, if the supplier is in a joint-venture with the manufacturing company, because the

124

Saggi, Kamel (2002), p. 14.; Fosfuri, Andrea; Motta, Massimo; Ronde, Thomas (1998), p. 1; Moran, Theodore H. (1999), p. 3. 125 Saggi, Kamel (2002), p. 14; Moran, Theodore H. (1999), p. 3. 37

foreign company has better control about the partner company’s operative business.126 “Nodor International”, a manufacturing company from the United Kingdom, operates a facility for dart manufacturing in the Athi River EPZ in Kenya. The company purchases 30 tones sisal needed from local supplier farms, weekly. As the company is operating in the East African country since 1999 and farmers can rely on the long-term stay of the company, they can increase production next to their normal amount produced, to cover the need of the British company. However, not all components needed for the dart board are sourced locally, as some elements would be more costly to produce or buy locally, than being imported.127 Despite the small share of import on the total product, a positive effect on the vertical level within the Kenyan economy is generated by sourcing most products locally, with 2,000 Kenyans working just in the supplying companies of sisal for Nodor International. Further, the company “Nutro Manufacturing EPZ Ltd.” purchases 27,000 tons/ year of maize and 8,000 tons/ year of soya beans from local farmers, by working on full capacity. And also “Olivado EPZ” a company from New Zealand, operating an agro-processing plant in Kenya, works together with more than 500 local farmers. As its business is focused on fair and organic trade, close relations are very important and the transportation and picking is all done by the company itself. So local farmers benefit only by growing the fruits on their plantation. 128 An example for a company, which is only manufacturing goods in Kenya and imports all its ingredient materials from abroad, as the local quality of fabrics is still not good enough, is the “Protex Kenya EPZ Ltd.”, a subsidiary of the Taiwanese Protex company. 129 In 2004, 20 foreign manufacturing companies of the textile sub-sector took part in a

126

Moran, Theodore H. (1999), pp. 3, 16, 19. Exports processing zones authority (2011), p. 7; Washington, Gikunju (2010). 128 Olivado (2010); Exports processing zones authority (2011), p. 7; Fiel Exchange (2004); Promasidor (n.d.). 129 Exports processing zones authority (2011), p. 8; Phelps, N.A., Stillwell, J.C.H., Wanjiru, R. (2008), p. 73. 127

38

survey of Phelps, N.A., where he came to the result that only 10 percent of the participants sourced textile materials needed locally. Thus, 90 percent of the companies sources all textile from abroad. However, only two companies did not source any other material needed from Kenyan companies and 12 companies worked together with local business services, as management consultation, auditing, banking services, etc. The claim of the companies was that Kenya’s textile industry as not large enough for producing all the garments needed and couldn’t cover the high quality requirements. So, companies often source from their mother companies or from abroad. However, they might also not been interested to build a local garment sector as the companies might not stay for a long-term and leave the country after the expiration of their tax holidays or the AGOA.130

4.1.3. Higher tax income The local government’s aim of attracting foreign companies to invest, is the higher tax income through the foreign investor itself, as well as technology and knowledge transfer to local competitors, buyers and suppliers. With the spillover effects on local businesses, they, on the long-term, can work more productive and gain a higher profit, which leads to higher tax payments and higher income for the government. 131 Moreover, by attracting foreign companies for the Ethiopian manufacturing sector, it could be observed that “first movers”, being successful in the country, enlarged the interest of similar companies to shift or extent their manufacturing business towards the sub-Saharan African country. This is currently seen within the textile sector, where the Turkish company “Ayka Textile” already set up their Ethiopian subsidiary and 50 Turkish textile companies want to follow now. 132 However, is not only suitable in Ethiopia, but is the general process of successful “first movers”. Thus, if the foreign companies aim a long-term stay, longer Phelps, N.A., Stillwell, J.C.H., Wanjiru, R. (2008), pp. 75, 89, 94 – 99. Fosfuri, Andrea; Motta, Massimo; Ronde, Thomas (1998), p. 22. 132 Ethiopian Investment Agency (2013). 130 131

39

than the time-period of the tax holiday, the country will gain great tax income. This tax income will not only be based on the corporate tax, but also on income tax from the employees. The income tax is already by the employees need already to be paid within the time-period of the company’s tax holiday. Thus, the government is not starting to benefit from the time on, after the expiration of the tax-holiday, but already from the first month of payments. Additionally, with the income of the population, the private consumer is growing and the whole economy of the county benefits from the foreign company’s investment. However, some foreign companies exploit the incentive of tax holidays. Companies move on to another country of low labor costs and tax holiday incentives for foreign companies of its kind, if the timeperiod of tax holiday is expired. Thus has been seen in Kenya with the Sri Lankan company “Tri-Star”. After the expiration of tax holidays, the company left the market behind and moved on to another market with tax relief for a specific time-period.133 The impact on the social level for Kenyans will thus, only be established for the time period, the company is conducting its business in the country, but the people will get redundant after just some few years again. The governments, who support foreign businesses, investing in the manufacturing sector, might not gain their targeted benefit from the foreign investment. The tax income of the country might not increase, if companies leave the country just with the expiration date of the tax holidays.

4.2.

Social impacts

4.2.1. Employment in the manufacturing sector The policy paper of Pedro Martins, published 2014 by the World Bank, states, that only 500,000 people were employed in Ethiopia’s manufacturing sector in 1996. This doubled in 2011 to 1 million, which was a 3 percent share of total employment. The largest share on total kept the agriculture sector with 78 percent. However, in comparison to 133

De Haan, Esther; Vander Stichele, Myriam (2007), pp. 5, 41, 42. 40

the year of 2005, regarding the amount of employees within the manufacturing sector, the number of 2011 reveals a decrease of -6.6 percent.134 With the Ethiopian government’s plan of growth and transformation, the employment rate should be increased and new jobs shall be created. During the fiscal year of 2011/ 2012 147,400 full-time and 375,657 part-time jobs got created by overall investments. The share of job-creation caused by non-Ethiopian investments was at 42,704 permanent and 120,771 part-time jobs. 604 investments by foreign companies were conducted. Compared to the two previous fiscal years, this indicated a downturn, despite the higher value of the overall projects. Since the fiscal years of 2010/ 2011 and 2009/ 2010 both revealed higher amounts of projects (952; respectively 1,413) but lower amounts of total values (Birr53,357 million; respectively Birr55,169 million) it can be summed up, that the value of projects has higher impacts on the amount of job creation as the average value of the projects.135 Kenya’s

wage

employment

within

the

GDP

sector

of

manufacturing increased by 2,200 employees, measured year on year, to 277.900 in 2012. Regarding the overall sectors wage employment, the 2012 number of the manufacturing sector shows a share of 13 percent, which had not change since 2009. More recent data is not available.136 As the numbers for wage employees within the Kenyan manufacturing sector for 2012 coincide from different national sources, 2012 numbers slightly differ within a range of 5,400 employees, from 271,500, over 275,700 to 276,900. So I decided for the second amount, as these are data officially published by the government (257,700) and not a summary of data. And as the data only slightly differs to the data from the independent research institute (276,900).137 As it is a very difficult process, to record all wage employees within the sector of 134

Pedro Martins (2014), p. 14. National Bank Ethiopia (2013), pp. 98, 101. 136 Kenyan Ministry of Devolution and Planning (2013b), p. 22. 137 Kenyan Institute for Public Policy, Research and Analysis (2013a), p. 77; Kenyan Ministry of Devolution and Planning (2013a), p. 13; Kenyan Ministry of Devolution and Planning (2013b), p. 22. 41 135

manufacturing and overall, differences can be expected. Regarding the data sheet of Fact and Figures from the Kenyan Ministry of Devolution and Planning, the share of the manufacturing wage employment on the countries total wage employment decreased, from 13.26 percent in 2009 to 13.04 percent in 2012. Despite the drop in the total share, the wage employment within the manufacturing sector decreased from 270,300 employees to 277,900. From 2009 until 2012, the female wage employment of the sector revealed an decrease of 2.97 percent to 9.73 percent in 2012, respectively a loss of 1.46 percent within the male wage employment to 14.57 percent on the total wage employment of female, respectively male employees in the Kenyan manufacturing sector. The largest sector in 2012 regarding wage employment was the Community, Social and Personal industry with 39.44 percent and 840,900 employers working on the wage payment level. The agricultural level was second with 16.37 percent and 348,900 employees. 138

4.2.2. Job creation by foreign manufacturing companies As my own research on foreign direct investments within the sector of manufacturing in Ethiopia demonstrated, about 21,000 jobs were created, by non-Ethiopian companies, since the start of their operation. And this number is just based on data of 16 out of 42 foreign companies doing business in Ethiopia. So, it can be assumed, that at least double the amount of jobs were created by foreign investors. As the newest report about the already mentioned Chinese shoe manufacturer, Huajian, states that, 3,500 employees (including Chinese) work only for this company. From 2012 on, until 2022, US$2 billion shall be invested in a co-operation with the Africa Development Fund to generate 100,000 new jobs and build a light manufacturing zone close to Addis Ababa. Seeing itself in competition to Huajian, the Taiwanese company of George Shoe Corporation plans to also set up their own industrial park in Modjo and employ 10,000 people.

138 139

139

A

Kenyan Ministry of Devolution and Planning (2013b), p.22. Melik, James (2012).; Jobson, Elissa (2014), p. 68. 42

currently even larger foreign manufacturer within Ethiopia, regarding the amount of employees, is the Turkish Ayka Addis Textile & Investment Group, with 6,000 workers.140 Furthermore, as was stated in a newspaper in March this year, Unilever plans to invest into the Ethiopian market and build a large manufacturing business. This, as the company said, shall be settled in the Chinese owned Eastern Industry Zone close to Addis Ababa. The company’s expansion in Vietnam shall be seen as comparable and led to 1,200 direct and 8,000 indirect new jobs, as published by the company.141 In Kenya, for only 33 out of the overall 57 companies with foreign ownership in the manufacturing sector, numbers for the employment were available, regarding my research conducted. At the current date, these 33 companies created jobs for about 57,000 people. Within this number, at least 2,000 jobs are created indirect, through operations directly linked to the foreign manufacturing business. 142 Further 720 are employed on seasonally basis.143 Thus, about 50,000 jobs were created by direct employment. The largest foreign company is the Indian apparel company, “United Aryan EPZ Ltd.”, employing 9,500 local and 60 expatriates. With 9,000 employees, the Kenyan subsidiary of the British “James Finlay” multinational firm, “James Finlay Kenya Limited” is the second largest employer. Regarding the sub-sectors of manufacturing, where foreign companies are existing, the compound sector of apparel, leather and shoes had the highest share of job creation. In Kenya, but also in Ethiopia. Where in Kenya 38,172 jobs got created within this sector, in Ethiopia it are 20,514, currently. Regarding the research of Phelps, N.A., Stillwell, J.C.H., Wanjiru, R. in 2008 and the finding of 35 foreign companies, 32,000 jobs were created. Connected with my conducted research, this would be a development to less but larger companies, 140

Ethiopian Textile Industry Development Institute (2014), p. 29.; Laghai, Shafagh (2014). 141 Davison, William (2014). 142 Washington, Gikunju (2010).; 143 Kakuzi (2012)., Finlays (2014b). 43

employing more people on average.144 As the online research conducted by myself, until midst of May 2014, reveals, an average foreign company in Kenya creates 1767 jobs, whereby in Ethiopia 1332 jobs got created by one company on average. The sector within manufacturing, where most jobs get created on average is in Ethiopia the apparel, leather and shoe industry with 1,465 and in Kenya the agro-processing sector with 4,155 jobs per foreign company. Based on my own research and on the companies with any publication about their employment in Kenya. As foreign owned companies in Kenya’s agroprocessing sector are mainly large multinational firms, as James Finlay and Del Monte and mainly recruit employees for their large sized plantations and only less for their manufacturing facilities, the agroprocessing sector is placed on rank one regarding job creation. 145

144 145

Phelps, N.A., Stillwell, J.C.H., Wanjiru, R. (2008), p. 72. Fox, L.; Liebenthal, R. (2006). 44

Manufacturing Sub-Sectors

Ethiopia*

Kenya*

Companies

Employment

Companies

Employment

14

20,514

23

38,172

Agroprocessing

/

/

4

16,261

Chemicals, Paint

/

/

3

960

Beverages, Food, Confectionery

/

/

2

925

/

/

1

230

1

400

/

/

1

400

/

/

16

21,314

33

56,548

Apparel, Leather, Shoes

Dart Cement Assembling Total

*Ethiopia: 16 companies published data to direct employment. *Kenya: 33 companies published data to direct employment Source: Own illustration. Based on own online research.146 Table 1: Job creation by foreign manufacturing companies in Ethiopia and Kenya

146

Ethiopian embassy UK (n.d.); Ethiopian Textile Industry Development Institute (2014); Al-Mehdi Industries (2014); Eastern Industry Zone (2014); 2merkato (2013); Addis Fortune (2009); Fekade, Berhanu (2014a); Fibre2Fashion (2012); MIDROC (2014); Al-Mehdi Match Maker (2014); Sahota, Dawinderpal (2013); Wallis, William (2013); Fekade, Berhanu (2014b); Jeffrey, James (2013); Norbrook, Nicholas (2014a); Ethiopian Steel (2014); Eastern Industry Zone (2014); World Bank (2014c), p. 171; Kakuzi (2012); Messah, Omboi Bernard (2011), p. 63; Del Monte (2014); Exports processing zones authority (2011), pp. 2, 3, 4, 5, 7, 8, 11; Phelps, N.A., Stillwell, J.C.H., Wanjiru, R. (2008), pp. 73, 78; Sinolink EPZ Ltd, blog (2014); Worker Rights Consortium (2006); Gold Crown Foods (EPZ) Ltd. (2014); Olivado (2010); Earth Oil Kenya Proprietary EPZ Ltd (2007); Nestle Kenya Ltd. (2014); Bloomberg News (2012); Unilever (2014); Staminagroup (n.d.); Imperialtea (n.d.); Bakels (2014); Finlays (2014a); Finlays (2014b); Williamson Tea (n.d.); Tata Chemicals Magadi (n.d.); Lafarge (n.d.); Bamburi Cement Limited (n.d.); Crown Paints (n.d.); Bio-corn (n.d.); Exports processing zones authority (2012), pp. 2, 3; Henkel (2014); Washington, Gikunju (2010); Exports processing zones authority (2013), p. 17; EPZ Kenya (n.d.); Greif (2014b); Greif (2014a); YKK Group (2014); Kenyaplex (n.d.); De La Rue (n.d.); Wrighley (n.d.); Bayer AG (2011), p. 49; Beiersdorf (n.d.); Fiel Exchange (2004); Promasidor (n.d.). 45

5. Conclusion This bachelor thesis, conducted through online research, contributes to the existing literature on foreign direct investment within the sector manufacturing in the two East African neighbouring countries of Ethiopia and Kenya. It supplemented the existing research on FDI in Ethiopia and Kenya and their impacts through a comparison of both countries and research focused on the manufacturing industry. Even for companies, planning to move their manufacturing plant to Ethiopia or Kenya, this paper offers great information needed. I find that most foreign companies, investing in the two selected African countries manufacturing sectors, focused mostly on the compound sector of apparel, leather and shoe products. As labor costs in Kenya’s manufacturing sector are four- to fivefold as high as in Ethiopia, and triple and quadruple as high as in Cambodia and Bangladesh, it is surprising that the country can still attract further companies, which are looking for the lowest production costs worldwide. Both East African countries have currently, with the AGOA, an important advantage compared to the East Asian competitor markets. However, a challenge will arise, if the AGOA will be expired and not any more prolonged for further period. It can be expected that a large amount of foreign companies, which are currently operating in the both countries and exporting to America under this agreement, might leave the countries. As my research revealed, this was an important incentive for the concerned countries investment and might lead to a large negative impact on the country, as many employees might get redundant. In

Kenya

other

focus

sectors

of

foreign

manufacturing

companies, regarding my research, are the agro-processing, chemicals and paint and food industries. In Ethiopia, next to the apparel, leather and shoe products sector, the wooden products, plastics and metal, respectively steel sector are more in focus. Where in Kenya, I identified 57 foreign companies, inclusive two local companies with strong relations to their sister companies located abroad, in Ethiopia I detected 46

40. The foreign manufacturer located in Kenya spread over 8 sectors, whereby foreign companies active in Ethiopia’s manufacturing sector are spread in 11 sub-industries. I further found that in most companies, in Kenya as well as in Ethiopia are from Asia, with having a paramount position within foreign manufacturers in Ethiopia, by holding 85 percent of the foreign firms. China is within both countries summarized the largest home country, followed by India. The former colonist of Kenya, the United Kingdom, is in 2014 placed third regarding foreign manufacturing countries in its former “backyard”. In Ethiopia it is obvious that the Saudi Arabian MIDROC Group sees large potential for the future of the county, as it placed already 6 subsidiaries of its company range, spread about diverse manufacturing sub-industries. Such a focus, of one company group, could not be identified within Kenya’s manufacturing sector. The country is perceived as an important entrance into further East African countries by several large multinational companies. Thus, international companies as Bayer, Coca-Cola, Nestle and Henkel set up their manufacturing plants in the country. No foreign manufacturing company had facilities in both countries. Regarding their incentives set for foreign companies in the manufacturing

sector,

both

countries

have

similar

approaches.

However, the Kenyan government is already some steps ahead of Ethiopia’s as it can reveal 45 more export oriented zones. Further, with its great position, on the Indian Ocean Kenya reveals a major advantage. If the country’s infrastructure gets improved, it might face the chance to attract even more complex manufacturing sectors, which depend on reliable road, electricity and water supply. As it was seen within the thesis, the effect of companies following a successful “first mover” is great. As the country can already reveal several large scale multinational companies within the manufacturing sector, further and even larger one might be following. In Ethiopia, where the location is more a disadvantage, the government focusses on the attraction of foreign manufacturing companies through its large amount of very 47

cheap labor. Ethiopia can grow to one of the big textile manufacturing hubs in the world, if it keeps on its current development and can keep its labor costs on the currently very low level. However, to be an even stronger competitor to markets as Bangladesh and Cambodia the country needs to improve its paramount connection to the port in Djibouti. As foreign manufacturing companies in Ethiopia and Kenya revealed, both countries benefit from the foreign investment within the sector. Technology and knowledge spillover effects exist, as trainings get processed by companies in both countries. Further, in Kenya, it could

be

found,

that

large

connections

between

the

foreign

manufacturers and the local economy exist. This is primary seen in the agro-processing sector, where local farmers get involved, but also in other sectors. Highlighted by my research, the foreign investments created large amounts of new jobs. This might be the strongest impact on both economies. As several newspapers and governmental statements announced, further major projects are planned within the next years. With the current strategy plans of both countries, foreign manufacturing companies do not need to be afraid of any cut-backs in their present incentives packages. Furthermore, if the countries want to achieve their set goals, more incentives need to be placed to attract further foreign manufacturing companies. However, on the longer prospect, to reach the aim to become a middle-income country, the foreign manufacturing companies need to bring Ethiopia and Kenya higher spillover effects, on the economic as well as social level. Thus, it is important that both governments get the foreign companies to settle down for a long time period.

48

Appendix Ethiopia

Sectoral share on GDP (in %) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

Agriculture

47%

46%

45%

43%

46%

45%

44%

Industry

13%

13%

13%

13%

10%

11%

12%

Services

40%

42%

44%

45%

44%

44%

45%

147

GDP sectors, annual growth (in %) 30,0%

annual % growth

25,0% 20,0% 15,0% 10,0% 5,0% 0,0% -5,0%

147 148

2000

2002

2004

2006

2008

2010

2011

2012

Manufacturing

6,8%

2,1%

7,9%

10,9%

9,9%

7,3%

18,6%

11,1%

Agriculture

3,1%

-1,9%

16,9%

10,9%

7,5%

5,1%

5,2%

4,9%

Industry

5,3%

8,3%

11,6%

10,2%

10,1%

8,2%

23,8%

12,5%

Service

10,8%

5,5%

5,1%

12,9%

16,3%

10,6%

5,4%

11,3%

148

National Bank Ethiopia (2013), pp. 6, 44. World Bank (2014d), rows 89303, 89812, 89937, 90414. X

% of GDP

FDI, net inflows growth (%) 6,0% 5,0% 4,0% 3,0% 2,0% 1,0% 0,0%

Ethiopia

2001

2003

2005

2007

2009

2010

2011

2012

4,3%

5,5%

2,2%

1,2%

0,8%

1,1%

2,1%

0,7%

Sub-Saharan Africa 4,3%

3,1%

3,2%

3,6%

4,1%

2,9%

3,1%

2,9%

Kenya

0,5%

0,1%

2,7%

0,4%

0,6%

1,0%

0,6%

0,0%

149

Export development 50,0%

4.000 3.000

30,0%

20,0%

2.000

10,0% 0,0%

-10,0%

2000

2002

2004

2006

2008

2010

2011

2012

-20,0%

1.000

US$ Million

40,0%

0

Exports of goods and services (annual % growth) Exports of goods and services (constant 2005 US$)

150

Export goods regarding SITC (2011) 60,0%

50,0% 40,0% 30,0%

23,2% 12,9% 2,7%

0,5%

0,3%

20,0%

10,0%

Percentage of overall export

70,0%

60,4%

0,0%

151

149 150

World Bank (2014d), row 89651. World Bank (2014d), rows 89597, 89599. XI

Main countries by export from Ethiopia 12.2% Germany China (PR) 10.8% 42.7%

Somalia Netherlands

9.3%

Sudan Saudi-Arabia

6.9% 4.9%

6.8% 6.4%

Switzerland Miscellaneous 152

Exchange rate, 1 US$ to Ethiopian Birr 153

151

GTAI (2013b). GTAI (2013b). 153 Oanda (2014). 152

XII

Foreign manufacturing companies in Ethiopia (1/2) 154

154

Ethiopian embassy UK (n.d.); MIDROC (2014).; Ethiopian Textile Industry Development Institute (2014); Al-Mehdi Industries (2014); Eastern Industry Zone (2014); 2merkato (2013); Addis Fortune (2009); Fekade, Berhanu (2014a); Fibre2Fashion (2012). XIII

Ethio-Japan Nylon Textile Share Company ETUR Textile PLC.

Selen Dawa textile Share Company

Else Addis Industrial Development PLC Angel's Cotton & Textile

Karli international Mahiveri Textile Industries Ethio-Japanese Synthetic Textiles

A.N.F garment factories

K.E.I Lifan Motors Ethiopia Crown, Cork & Can Manufacturing Industry S.Co Daylight Apllied Technologies Pvt. Ltd. Co. (Daylight)

Apparel

Apparel Apparel

Apparel

Apparel Apparel

Apparel Apparel Apparel

Apparel

Apparel car assembling

Corks

Cork

Ayka Addis Textile & Inv. Group Saygin Dima Textile Share Company (Saygin Group)

Apparel

Subsidiary of MIDROC Group

Joint Venture

Joint Venture

Subsidiary of Else Group

Joint Venture

Joint Venture Subsidiary of ETUR Textile

Joint Venture

Saudi Arabia

USA/ Ethiopian government

South Korea China

Pakistan

India India Japan/ Ethiopian government

Turkey Turkey

Turkey / Ethiopian government

Japan/ Ethiopia Turkey

Turkey / Ethiopian government

Subsidiary of Ayka Addis group Turkey

China Kenya Pakistan Pakistan

Subsidiary of Sun flag group

Zhong Shun Cement Manufacturing Co., Ltd. Awassa Textile Share Company Al Mehdi Industries plc Addis Ababa Al-ASR

Country of origin

Advanced cement prodution Apparel Apparel Apparel

Company connection China

Company name

Advanced cement prodution East Cement Share Company

Manufacturing subSector

1994

2011 2014

2010

2010 2010

2007

2007

2008 1989 2004 2007

2006

Year of establishment

C/O MIDROC Ethiopia; PO Box 8677

PO Box 5501

PO Box 2184 Bole Lemi Industrial Zone, East of Addis Ababa Bole Lemi Industrial Zone, East of Addis Ababa Kality district

Oromia Region, Adama Legetafo Industrial Zone, Addis Ababa Bole Lemi Industrial Zone, East of Addis Ababa

Dire Dawa

Oromia Region, Mojo Bole sub-city, Addis Ababa

Alem Gena town

Oromia Region, Sabta

Eastern Industry Zone, Addis Ababa SNNP Region, Awassa Dukem Industrial Zone Dukem, Oromia region

Eastern Industry Zone, Addis Ababa

Location

Full capacity: 1,000

Full capacity: 1,000

Full capacity: 1,000

1000

1500

300

1288

6000

901 425 400

400 (350 Ethiopian)

Employees

Foreign manufacturing companies in Ethiopia (2/2) 155

155

Ethiopian embassy UK (n.d.); MIDROC (2014); Al-Mehdi Match Maker (2014); Sahota, Dawinderpal (2013); Wallis, William (2013); Fekade, Berhanu (2014b); Jeffrey, James (2013); Norbrook, Nicholas (2014a); Ethiopian Steel (2014); Eastern Industry Zone (2014). XIV C/O MIDROC Ethiopia; PO Box 8677 PO Box 13093 Eastern Industry Zone, Addis Ababa Bole Lemi Industrial Zone, East of Addis Ababa PO Box 50402 Akaki Industrial Area, Addis Ababa C/O MIDROC Ethiopia; PO Box 8677

2006 2006 1995 2011

1966 1999

Subsidiary of MIDROC Group Saudi Arabia Subsidiary of MIDROC Group Saudi Arabia Subsidiary of MIDROC Group Saudi Arabia China Taiwan Kenya/ Ethiopia Kenya

Summit Engineered Plastics Pvt. Ltd. Co. (SEPCo) Blue Nile P.P & Craft Paper Bags Manufacturing Pvt. Ltd. Co. (BN)

Modern Building Industries

Subsidiary of MIDROC Group Saudi Arabia

Kombolcha Steel Products Industry

Joint Venture

Subsidiary of MIDROC Group Saudi Arabia

Eastern Steel Co., Ltd. Kombolcha Steel Products Industry Addis Tyre

Wanza Furnishings Industries Pvt. Ltd. Co. (Wanza)

China Saudi Arabia Japan/ Ethiopian government

George Gloria Group Joint Venture Subsidiary of Safal group

George Shoe Corporation Private Limited Company ZAK Ethiopia Ethiopian Steel Plc

Huajian

2003

C/O MIDROC Ethiopia; PO Box 8677

Eastern Industry Zone, Addis Ababa C/O MIDROC Ethiopia; PO Box 8677 PO Box 2394

C/O MIDROC Ethiopia; PO Box 8677

2010

2004 2009

Outskirts of Addis Ababa PO Box 3973 Kality, Dukem Industrial Zone Addis Ababa PO Box 5710 Eastern Industry Zone, Addis Ababa

Pittards Ethio-Leather Industry Al Mehdi Match Makers plc Addis Ababa Tecno Group Limited MAMCO Paper products LQY pipe Manufacturing CO., Ltd.

Addis Gas and Plastics Factory Pvt. Ltd. Co. (AGP) Yulong Technology Building Materials Co., Ltd. 1920's

Location

U.K. Saudi Arabia Pakistan China Saudi Arabia China

Year of establishment

C/O MIDROC Ethiopia; PO Box 8677 Eastern Industry Zone, Addis Ababa

Country of origin

2003 2010

Company connection

Subsidiary of MIDROC Group Saudi Arabia China

Company name

Full capacity: 1,000

3500 (Weltspiegel, 2014); 1,750 (FT, 2013)

400

1,200 locals

Employees

Kenya

GDP sectors, annual growth (in %) 2012

2013

12,0%

10,3%

10,0%

9,0%

8,0%

6,5%

6,0% 6,0%

4,7%

4,2% 4,0%

7,5%

7,2%

4,8%

4,8%

5,9%

5,5%

3,2%

2,9%

2,0% 0,0%

156

GDP sectors, contribution to the economy (%) 2012 40,0% 35,0% 30,0% 25,0% 20,0% 15,0% 10,0% 5,0% 0,0%

2013 36,4% 37,3%

24,6% 25,3%

9,6% 9,1%

9,5% 8,9%

10,5% 10,2% 5,2% 4,8% 4,2% 4,4%

157

156 157

Kenyan Ministry of Devolution and Planning (2014), p. 33. Kenyan Ministry of Devolution and Planning (2014), p. 34. XV

158

159

158

Kenyan Institute for Public Policy, Research and Analysis (2013); Kenya Economic Report 2013, p. 78. 159 Kenyan Institute for Public Policy, Research and Analysis (2013), p. 78. XVI

160

160

Kenyan Ministry of Devolution and Planning (2013b), p. 52. XVII

161

162

161 162

United Aryan (EPZ) LTD (n.d.), p. 13. Kenyan Institute for Public Policy, Research and Analysis (2013), p. 77. XVIII

'000 (amount of people)

Wage employment, manufacturing sector 250,0

230,8

229,2

212,3

200,0 150,0 100,0 50,0

65,6

44,9

41,1

0,0 2009

2011 Male

2011

Female 163

'000 (amount of people)

Wage employment, overall sectors 1600,0 1400,0 1200,0 1000,0 800,0 600,0 400,0 200,0 0,0

1468,1

1430,0

607,9

1.457,60

674,3

591,0

2009

2011 Male

2011

Female 164

'000 (KShs p.a.)

Average wage, manufacturing sector 252,0 250,0 248,0 246,0 244,0 242,0 240,0 238,0 236,0 234,0 232,0

249

249,8

240,5 238,0

2009

2010

2011

2012

165

163

Kenyan Ministry of Devolution and Planning (2013b), p. 22. Kenyan Ministry of Devolution and Planning (2013b), p. 22. 165 Kenyan Ministry of Devolution and Planning (2013b), p. 22. 164

XIX

Foreign manufacturing companies in Kenya (1/2) 166

166

World Bank (2014c), p. 171; Kakuzi (2012); Messah, Omboi Bernard (2011), p. 63; Del Monte (2014); Exports processing zones authority (2011), pp. 2, 3, 4, 5, 7, 8, 11; Phelps, N.A., Stillwell, J.C.H., Wanjiru, R. (2008), pp. 73, 78; Sinolink EPZ Ltd, blog (2014); Worker Rights Consortium (2006); Gold Crown Foods (EPZ) Ltd. (2014); Olivado (2010); Earth Oil Kenya Proprietary EPZ Ltd (2007); Nestle Kenya Ltd. (2014); Bloomberg News (2012); Unilever (2014); Staminagroup (n.d.); Imperialtea (n.d.); Bakels (2014); Finlays (2014a); Finlays (2014b); Williamson Tea (n.d.). XX Kakuzi Ltd Cirio Del Monte Kenya Gold Crown Foods EPZ Ltd. Olivado EPZ Ltd Earth Oil Kenya Proprietary EPZ Ltd Nestle Kenya Ltd. & Nestlé Equatorial African Region Limited Weetabix Unilever Indu Fresh EPZ Ltd. Imperial Teas (EPZ) Ltd Bakels East Africa Ltd James Finlay (Kenya) Limited Williamson Tea Kenya Ltd. Kenya Knit Garments

Sino Link EPZ Ltd. Kapric Apparels EPZ LTD Birch Investments Indigo Garments EPZ Ltd. MRC (Nairobi) EPZ Ltd Protex Kenya EPZ Ltd. Sahara Stitch EPZ Senior Best Garments United Aryan EPZ Ltd. Blue-Bird Garments Mirage fashion wear epz ltd Rolex Garments EPZ Ltd. Rising Sun EPZ Ltd Apex Apparels EPZ Ltd. Falcon Apparels

Agro processing

Agro processing Agro processing

Agro processing

Agro processing Agro processing Agro processing Agro processing Agro processing Agro processing

Agro processing Agro processing Apparel

Apparel Apparel Apparel Apparel Apparel

Apparel Apparel Apparel Apparel Apparel Apparel Apparel Apparel Apparel Apparel

Company name

Agro processing

Manufacturing sub-Sector

China China China India Sri Lanka

U.K. U.K. China & Taiwan

Switzerland China Germany Netherlands Sri Lanka Switzerland

Taiwan (90%), Kenya (10%) United Arab Emirates (60%), Kenya China India India India India Sri Lanka India/ Bangladesh Foreign sister companies with close relations in Asia Kenya

Taiwan Protex (90%), Kenya (10%)

Subsidiary of Williamson Tea

subsidiary of the Stamina Group subsidiary of Imperial Tea Group

Subsidiary of Nestle Group Subsidiary of Bright Food

Country of origin

U.K. New Zealand

USA

U.K.

subsidiary of Treatt company since 2008. Until 2008 it was an JV U.K.

Commodities Ltd.,UK

Subsidiary of Del Monte International

Owned by Camellia Plc.

Company connetion

2001 2001 2002 2002 2002 2002 2002 2002 2003 2003

2001 2001 2001 2001 2001

2001

2008

2008

2005 2007

1965

1906

Year of establishment

Export Processing Zone, Athi River

Athi River - Export, Processing Zone - Athi River, Mavoko Municipality Export Processing Zone in Nairobi, Kenya

King’orani EPZ – Changamwe, Mombasa

Nairobi, Kenya Factories in Kitumbe, Chomogonday, Changana and Kymulot Factories in Kapchorua, Changoi, Kaimosi, Tinderet

Sameer Industrial Park EPZ, Nairobi

Nairobi, Kenya Nairobi, Kenya

Athi River EPZ - Athi River

Gold Crown Foods EPZ – Shimanzi, Mombasa Hopetoun EPZ Ltd, Murang’a

Oloitiptop Road, Thika

Location Head Office: Makuyu, 65 Km North East of Nairobi< Futher operation: Nandi Hills, 350 Km North West of Nairobi.

1,150 ppl. In Production; 50 further ppl. (2004) Production: 835; total: 850 Production:820; total: 850 9,500 local worker, 60 expatriats Production: 575; total: 600 Production: 1,175; total: 1,200 Production: 897; total: 950 Production: 1,400; total: 1,460 Production: 2,156; total: 2,342 Production: 200; total: 225

approx. 1,000 Production: 1,820; total: 2,000 Production: 900; total: 900 Production: 1,500; total: 1,580 Production: 1,270; total: 1,300

Production: 1,905 total: 1,920

9000

350-400

6000

861 permanent; 720 fixed term contract employees (seasonaly)

Employees

Foreign manufacturing companies in Kenya (2/2) 167

167

Tata Chemicals Magadi (n.d.); World Bank (2014c), p. 171; Lafarge (n.d.); Bamburi Cement Limited (n.d.); Crown Paints (n.d.); Bio-corn (n.d.); Exports processing zones authority (2012), pp. 2, 3; Henkel (2014); Washington, Gikunju (2010); Phelps, N.A., Stillwell, J.C.H., Wanjiru, R. (2008), pp. 73, 78; Exports processing zones authority (2011), pp. 2, 3, 4, 5, 7, 8, 11; Exports processing zones authority (2013), p. 17; EPZ Kenya (n.d.); Greif (2014b); Greif (2014a); YKK Group (2014); Kenyaplex (n.d.); De La Rue (n.d.); Wrighley (n.d.); Bayer AG (2011), p. 49; Beiersdorf (n.d.); Fiel Exchange (2004); Promasidor (n.d.). XXI Erdemann EPZ Ltd. Crown Berger Kenya Ltd Henkel Kenya Ltd Biocorn Products EPZ Ltd. Swizz conglomerate Bayer East Africa Beiersdorf East Africa Ltd The Wrighley Company (East Africa) Subsidiary of Mars Incorporation De La Rue Currency and Security Print EPZ Ltd.

Nodor Kenya EPZ Ltd. Nutro Manufacturing EPZ Ltd. Cadbury Kenya Ltd YKK Kenya EPZ Ltd. Tata Chemicals Magadi (TCM) Bamburi Cement Eurocon Tiles products Ltd. Greif Kenya Limited Kenya Fluorspar EPZ Ltd.

Chemicals Chemicals Chemicals Chemicals Confectionery

Currency and Security Documents production

Dart board/Cut sisal fibre/Darts Food and beverages Food and beverages Garment Accessoires Manufacture of soda ash and salt Manufacturing of Cement Manufacturing of concrete tiles Metal and packaging Processing of fluorspar

(20 years leasing from the government)

Part of global TATA Group Subsidiary of Lafarge

subsidiary of Promasidor

Subsidiary of Erdemann Property Ltd.

Subsidiary of the Coca-Cola Group

Mainetti group

subsidiary of New wide garment Group

Beverages Chemicals

Apparel

Apparel Apparel

Foreign sister companies with close relations in Asia

Company connetion

Apparel Beverages

Company name Shin Ace Garments Storm Apparels Chandhu EPZ Ancheneyar EPZ Asia Resources EPZ Ltd. Future Garments EPZ Ltd. Hantex Garments EPZ Ltd (setting up its business currently) New Wide Garments (K) EPZ Ltd Celebrity Fashions K. EPZ Ltd (Authorized licencee of Mainetti group) ATRACO INDUSTRIAL ENTERPRISES (Factories: ASHTON APPAREL (EPZ) LIMITED, MOMBASA APPAREL (EPZ) LIMITED) Coca-Cola Sabco

Apparel Apparel Apparel Apparel Apparel Apparel

Manufacturing sub-Sector

UK USA U.K. Japan India France India USA Canadian

U.K.

Germany Switzerland Germany Germany USA

China U.K.

United Arab Emirates USA

Italy

China China

Taiwan Kenya Kenya, foreign Sri lanka Sri Lanka China

Country of origin

1996

1905 1951

1999 2004 2011

1976 1995

1958

1948

2003 2004 2004 2004 2004

Year of establishment

Athi River EPZ - Athi River, Mavoko Municipality Athi River EPZ - Athi River, Mavoko Municipality Ol Kalou Rd., Nairobi, Kenya Kapric EPZ - Mombasa Lake Magadi Mombasa & Nairobi Nairobi, Kenya Mombasa Kenya Fluorspar EPZ - Kimwarer, Kerio Valley

De La Rue Security Print EPZ - Ruaraka, Nairobi

P.O.Box 40050-00100, Nairobi, Kenya Biocorn Products EPZ – Eldoret municipality Nairobi, Kenya Nairobi, Kenya Nairobi, Kenya

Mombasa Nairobi, Kenya Erdemann Industrial Park, A1– Beijing Rd. Mlolongo, Mavoko Municipality Nairobi, Kenya

Athi River EPZ - Athi River

Mazeras EPZ - Mombasa Transfleet – Athi River Zone

Athi River EPZ - Athi River

Nairobi, Kenya

Zois EPZ Ltd in Mtwapa, Mombasa

Location

>450

170 to 230 Kenyans in the factory, additional 2,000 in cutting sisal in the large scale supply farms

60

51-100 450

Ashton: production: 2,700; total: 2,800 825

Kenya: 4420

Production: 789; total: 800 Production: 735; total: 785 Production: 188; total: 217 Production: 500; total: 513 Production:683; total: 700

Employees

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XXIV

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XXVI

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XXVII

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XXVIII

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