Low Ethiopian labor cost attracts Chinese investors

For Huajian, the major attraction of Ethiopia is its cheap workforce. The average monthly payroll for a worker in Ethiopia is about 300 yuan ($50), compared with 3,000 yuan at its headquarters in Dongguan, Guangdong province.

In addition, because animal husbandry output accounts for 20 percent of Ethiopia's gross domestic product, Huajian is using 30 percent of the local leather yield every year, which saves 30 percent in the cost of raw materials.

However, being in an inland country lacking transportation networks, the shoemaker has to pay for higher shipping fees.

"In general, we can save 18 percent to 28 percent in costs in Ethiopia compared with China," Wei said.

"But the Ethiopian factory makes up less than 10 percent of the company's global production," he added.

Still, Huajian's ambition to move all of its manufacturing to Ethiopia will not be that easy. Currently, without skilled workers and high-grade processing methods, local leather can only be used for middle- or low-end products and popular colors and styles.

"Most of our workers have not seen a factory before. It always takes us some time to develop simple skills in them, let alone sophisticated craftsmanship," Wei said.

Because of a condition banning sales in Ethiopia, Huajian has been granted some support from the local government such as duty-free exports and material imports for five years.

Of course, on the other side, Ethiopia is welcoming such investment because it is in urgent need of more foreign currency earnings and job opportunities.

However, for Lifan and Eastern Steel, which are selling in the Ethiopian market, things are more complicated.

High tariffs and expensive transportation are heavy burdens, and their investments are more cautious.

"The policy is not very favorable in terms of high import tariffs and consumption taxes," said Yin Tianjun, director of Lifan's Ethiopian factory.

Lifan is shipping equipment and parts from China, and workers in Ethiopia just do the assembly work.

Lifan can sell 1,000 automobiles in Ethiopia every year. It is hiring 200 local workers who assemble seven cars every day.

Nevertheless, the lower cost of labor is offset by high duties. The price of a Lifan car is almost triple the price in China.

Faced with a squeezed Chinese automobile market dominated by overseas brands, Lifan entered Ethiopia in 2009. It is positioned as a middle-end brand, in order to attract the rising number of local family car buyers.

"We cannot compete with brands such as Toyota in terms of quality and price. But they just export finished vehicles here, while we focus on the Ethiopian market," said Yin.

Based on Lifan's current sales in Ethiopia, it is planning to make a trial in shifting several production lines to the country.

If things go well, Yin said they are expected to improve output to 5,000 vehicles annually in five years.