Ethiopia-Japan Industrial Policy Dialogue Phase 3

Transcription

1 Ethiopia-Japan Industrial Policy Dialogue Phase 3 What we are doing to support Japanese businesses and investors in Ethiopia Kenichi Ohno National Graduate Institute for Policy Studies (GRIPS) Japanese-side leader of Industrial Policy Dialogue Tokyo, April 2017

2 Japanese Industrial Cooperation in Ethiopia Requested by PM Meles, Japan initiated industrial cooperation with two main pillars (Kaizen & Policy Dialogue). It expanded to export promotion, champion products, and various studies and actions. Japan advised drafting of GTP II(2015/ /20), and many of our suggestions were adopted (light manufacturing vision, QPC, kaizen philosophy, etc.) Ethiopia aims to achieve middle income by Situations and policies are constantly changing. We do not completely agree with some of the policy changes, and we will continue to discuss them in policy dialogue. Current topics include QPC, Japanese FDI attraction and industrial parks/areas. We also need to discuss enterprise capacity building & technology transfer through FDI linkage, and coping with social aspects of growth. Ethiopian capacity to conduct policy research & advice must also be strengthened. Ethiopians can already teach basic kaizen including 5S. Kaizen Phase 3 introduces higher kaizen, deepening of kaizen movement and philosophy, and teaching kaizen to other African countries.

3 Ethiopia-Japan Policy Dialogue & Industrial Cooperation PM Meles PM Hailemariam TICAD IV Preparation Industrial Policy Dialogue Phase 1 ( ) Phase 2 ( ) TICAD VI Phase 3 Africa Taskforce Meeting Jul.2008 JICA s Industrial Cooperation Official launch Jun.2009 Kaizen Phase 1 (30 pilot companies) Metal industry survey Final session May 2011 (With Germany) Start Jan.2012 TICAD V Mission to Malaysia Kaizen Phase 2 (Institution & human resource) Champion Products PM Abe visits Ethiopia Final session Oct.2015 Kaizen Phase 3 (Advanced level) Business climate survey Branding & promotion Note: Black boxes indicate three-level policy dialogue in Addis Ababa (PM, ministers, operational level). Start Feb.2017 Industrial park support Champion Women enterprises Etc.

4 Japanese Industrial Cooperation under GTP II Agreed between Ethiopian & Japanese stakeholders. Many underway & some under preparation Policy area Cooperation components Remark 1. Policy Continue policy dialogue With PM, PMO, MOI, institutes, etc. 2. Kaizen Intermediate & high level kaizen Kaizen national movement Dissemination to rest of Africa Kaizen center (infrastructure) Hundreds of Ethiopian kaizen consultants trained; kaizen budget increased; many kaizen activities outside JICA; NEPAD requests kaizen cooperation with Ethiopia/JICA. 3. Domestic private sector transformatio n 4. Investment climate 5. Strategic FDI attraction Management Champion companies FDI-local linkage & tech. transfer Export promotion Industrial human resource Research on productivity & wage General framework improvement F/x, tax, customs, logistics, power Bilateral investment/tax agreement Investment promotion in general Industrial park quality Japanese industrial area Attracting Japanese FDI Financial help to Japanese FDI Select and assist a small number of Ethiopian firms for visible results (handholding); mobilize industrial institutes; Japan as QPC lead donor shall support policy design, industrial capacity and related research. Japan will cooperate with some, not all, of issue areas. JICA consultants began to work at EIC & IPDC; JETRO is also in operation. Ethiopia requested Japanese FDI & JETRO office (latter already established). Japan is assisting with investment promotion, mutual visits, policy negotiation, FDI support, etc. All- Japan support for Japanese industrial area.

5 Awarding ceremony of the Order of the Rising Sun, Gold and Silver Star to Ato Newai Gebreab for his chairmanship in bilateral policy dialogue (July 2016) High Level Forum attended by ministers and state ministers (Feb. 2017) Ato Newai Cabinet Minister Alemayehu EDRI Director Mekonnen Ambassador Saida Lecturing on Japanese economic development at Civil Service University Industry Minister Ato Ahmed Dr. Arkebe, Rank of Minister, PMO PM Hailemariam At MOI

6 Quality, Productivity & Competitiveness (QPC) PM Hailemariam: Following Japanese advice, GTP II contains Quality, Productivity and Competitiveness in many places, but what are required concrete policies other than kaizen? MOI: QPC is one of the key industrial pillars of GTP II. We request Japan to be a lead partner for QPC. Japan: QPC has a wide coverage touching virtually all industrial issues. Its strategy must therefore encompass all industrial measures. Under the QPC pillar, Japan will propose a policy framework with clear vision & structure, and support MOI to implement needed actions. Japan s current industrial cooperation, including kaizen & champion products, are already closely related to QPC. Japan should add new cooperation measures as necessary. Also, resources of other donors and international organizations should be mobilized.

7 Handholding (HH) Select a few potential SMEs, set a goal for each firm, then concentrate help for 2-3 years to attain the goal. Japan, Korea, Taiwan and Malaysia already do this. HH is also called hands-on or yorisoi assistance. Ethiopian SME & export policies are still primitive. Strengthening them will take a long time and full understanding & willingness of the government. In parallel to such institution building, Japan will try to produce visible results by making use of currently available resources. Of course, HH in Ethiopia will be more difficult than HH in Japan. Fortunately, Ethiopia already has Kaizen, Textile, Leather, Metal, etc. Institutions. Their active participation should be combined with Japanese experts in a HH pilot project. We are in a preparatory stage, visiting each institute to know their current enterprise assistance and evaluate the quality of firms recommended by them.

8 Research on Productivity and Wage Ethiopia aims to attain middle income by hosting a large amount of labor-intensive light manufacturing FDI. In this development stage, productivity is the key. It can be improved by QCD, kaizen, TVET, logistics, administrative reform, etc. Do not raise wage beyond productivity gain like Indonesia, Vietnam and Cambodia did. This will lead to quick loss of competitiveness. Labor, management & government must work together to improve productivity, and distribute outcome to workers as wage increase. If management & labor are antagonistic, industrialization will fail. This point has been stressed with PM and relevant ministers. We first propose to (i) study the concept and determinants of productivity; (ii) produce official data annually; and (iii) identify Ethiopia s position in international comparison. Set a medium-term target such as labor productivity growth of 6%/year (now below 3%). Ethiopian researchers must replace Japanese researchers in research and reporting. Like kaizen, all policy research must be conducted by Ethiopians in the future.

9 Asia: Manufacturing Labor Productivity Growth in selected countries (%/year) China 8.8% India 4.8% Vietnam 4.5% Cambodia 4.3% Indonesia 2.1% Malaysia 1.6% Philippines 0.7% Source: Asian Productivity Organization website. Ethiopia: Manufacturing Labor Productivity Average annual growth 2.7% Source: Ethiopian Inclusive Financial Training and Research Institution, Basic Empirical Research on Productivity and Wage in Ethiopia, a JICA commissioned study, September Note: based on CSA's Large & Medium Size Manufacturing Survey and MoFED s GDP data.

10 Investment Climate We cannot say that Ethiopian business conditions are good. The World Bank Ease of Doing Business survey (July 2016) placed Ethiopia at 159th among 190 countries & areas, lower than the previous year (132nd). This is better than Myanmar & Bangladesh, but much worse than Philippines & India. Foreign currency shortage, financial control, and unpredictability of policy, tax & customs are largest headaches. Labor quality, quantity and wage must also be watched. Power, logistics and industrial land also pose problems but these may be eased in the medium term. Investment climate is an issue for all investors, not only Japanese. Japanese investor presence is still small in Ethiopia. Japan shall cooperate in areas which are important to Japanese FDI and which can be improved effectively by Japanese assistance. JICA has already dispatched experts to EIC & IPDC. The Japanese Embassy and JETRO are also expected to contribute.

11 Attracting Japanese FDI The Ethiopian government, including PM, is very eager to receive Japanese FDI. It welcomes FDI from advanced economies which offer long-term commitment and technology transfer. Interest is also rising among Japanese firms, but the number of actual projects remains small. In 2014, Ethiopia proposed to establish a Japanese area within an industrial park. Since then, the Japanese private & public sector have worked toward this goal step by step (currently ongoing). Another strong request by the Ethiopian government, establishment of a JETRO office, was realized in Ethiopia is in an early stage of industrialization focusing on labor-intensive FDI and implementing policies suitable for this. Meanwhile, Japanese firms pursue quality, skills, trust, seriousness and long-term commitment rather than quantity & speed. We need to bridge this perception gap, and provide hard and soft conditions suitable for Japanese FDI. We want the Ethiopian government to recognize and act on these points. Particularly important: (i) understanding the concept, size, products & needs of high-value manufacturing; (ii) keep promise; do not renege on bilaterally negotiated and agreed projects: (iii) lift the state of emergency as soon as possible.

12 Hawassa Industrial Park (HIP) HIP in Southern Region is a state-run flagship IP where many new initiatives and efforts are being introduced. Opened in 2016, it is already fully occupied. It hosts textile and garment firms only. Investors from China, India, Sri Lanka, US, Ethiopia, etc. have arrived. In early 2017, Ambassador Saida, JETRO, JICA & policy dialogue team visited HIP with kind and detailed guidance by EIC. Large standardized sheds build by Chinese contractor are suitable for garment production but not for diversified high-value manufacturers. For Japanese investors, another type of industrial zone need to be prepared.

13 Possibilities of Japanese Investments Creation of champion products--using Ethiopian good raw inputs to produce high-quality merchandise for export to high-end markets (leather, coffee, flowers, gems, etc.) Large-volume export platform--large volume production of light manufactured goods and various components using low-cost labor. Besides greenfield investment, OEM contracts with existing Ethiopian or third country firms are possible. AGOA & EBA are available for Western markets (emerging economy & Western firms are already active). African gateway--use Ethiopia as a production & export base for African markets taking advantage of AU Headquarters, air link & investment incentives (some US firms are coming). Domestic demand--supplying food, consumer goods, infrastructure, construction materials & industrial machinery for growing domestic market. Catering Japanese needs--visits & tours, Japanese food, car sales & service, logistics & storage, business support, industrial parks & rental factories. Resources--biofuel, thermal power, copper, oil & gas, rare metals, etc.