Workers from Huajian Shoes play ping-pong in a hallway of the factory building.

World Bank report

A World Bank study released in November 2012 showed that China's foreign direct investment (FDI) in Africa was rising and Ethiopia was at the forefront of the trend.

The study of 69 Chinese companies in Ethiopia pointed out the potential opportunities and challenges for Ethiopia and made a number of recommendations.

China has been both the largest exporter and importer for Ethiopia. And Chinese FDI in Ethiopia has grown from virtually nonexistent in 2004 to well over $1 billion in 2014.

Just during Chinese Premier Li Keqiang's visit to Ethiopia in May, Chinese government ministers and company executives signed 16 deals with their Ethiopian counterparts, including loans and cooperation agreements for the construction of roads and industrial zones.

The expanding ties between the two countries reflect the structural change taking place in both countries. Rising labor costs in China mean it will be ready to relocate some 100 million low-skilled, labor-intensive jobs that would be suitable for Ethiopia, according to the report.

While Ethiopia's relatively stable political environment, its huge domestic market, easy access to European and US markets have been strong magnets for Chinese FDI, the report did express concerns raised by Chinese business executives, ranging from trade regulation and customs clearance efficiency, exchange rate fluctuation, inconsistent and inefficient tax regime, inadequate labor education and skilled labor pool to lack of access to local finance and excessive government regulations.

A report released in July this year by global business consultancy Deloitte called Ethiopia, A Growth Miracle, noted similar challenges facing the country in attracting FDI.

Chinese optimism

To most Chinese executives, Ethiopia, like many fast-growing African nations today, reminds them of China in the late 1970s and early 1980s when the country embarked on its reform and opening up drive leading to more than three decades of rapid economic growth.

That is certainly true for Liu of Lifan Motors. He said if more preferential policies are introduced in Ethiopia to attract foreign direct investment and fast economic growth is maintained, the potential could be huge.

The 32-year-old has worked in the company's overseas operations for a decade, including in Brazil, Thailand and Egypt. He is optimistic that the situation will improve because the Ethiopian government is eager to learn from China's experience of the past decades and align itself with Chinese automotive industry policy.

That optimism is also voiced by Jiao Yongshun, assistant director of the EIZ Administrative Committee, who said the zone will double the number of its factory buildings to 21.

Plans are in place for a 10,000 sq m office building, an 11,000 sq m showroom and reception center, three 18,500 sq m accommodation blocks, and a 3,000 sq m canteen.

The zone, financed by Jiangsu Yongyuan Investment Co Ltd, which is part of the Jiangsu Qiyuan Group, is listed as part of the Ethiopian government's Sustainable Development and Poverty Reduction Program. The Addis Ababa government has offered various preferential policies to companies occupying space in the zone, including extended tax holidays.

Jiao says Chinese Premier Li Keqiang's much-publicized visit to the zone in May, accompanied by Ethiopian Prime Minister Hailemariam Desalegn, gave it a huge boost.

Since then, the number of enquiries from possible Chinese tenants has surged, convincing the owners to consider further expansion.

Meanwhile, EIZ has inspired the Ethiopian government to develop more industrial zones in the nation's modernization drive. The government-built Bole Lemi Industrial Zone has already attracted 20 foreign tenants, including the shoemaker Gorge Shoe Corp from Taiwan, and a new state-owned site is now being planned in Kilinto, south of there.

Jiao said he is concerned whether some of the subsidies and benefits being offered by the government to other Ethiopian industrial site developers are not being made available to Chinese counterparts.

As a land developer, the EIZ itself is not yet eligible for the promised tax holidays that are offered to other foreign manufacturing companies, according to Jiao. The 58-year-old has been doing business in Ethiopia since 1999, when he worked for a textile group based in Tangshan, in North China's Hebei province.

Good corporate citizens

Like several other Chinese companies, Lifan Motors is also trying to adapt to the local community, including playing an active role in corporate social responsibility.

For Lifan Motors, of each of its cars sold in Ethiopia in 2013, 300 birr ($15) was donated to the charity.

Liu, the general manager, looks quite proud as he talks about how previous Ethiopian President Girma Wolde-Giorgis invited Lifan executives to attend his birthday party at the presidential palace to express his appreciation for the charity work.

Lifan is also involved in other charity work, such as planting trees, helping build roads and donating educational materials for 400 orphans and senior citizens, all of which underlines its long-term commitment to the Ethiopian market, Liu said.

As current President Mulatu Teshome opened the new Lifan plant in the EIZ in May, he was joined by two underprivileged Ethiopian children who had received help from the company through an Ethiopian charity, the Mary Joy Development Association.

Contact the writer at chenweihua@chinadailyusa.com