Chinese FDI in Ethiopian Textile Industry: A Dynamic Model

The purpose of this chapter is twofold. Firstly, it seeks to provide insight into the design and implementation of Ethiopia’s industrial policy and sector strategy for the textile and garment industry. Secondly, it examines the impact of Chinese foreign direct investment (FDI) on the growth of this sector. The chapter delves into the institutions and policy instruments established by the state to attract and regulate FDI in this industry, with a particular emphasis on Chinese investments. It also evaluates the performance of Chinese FDI in terms of production, exports, employment, and skills development. Many of these Chinese manufacturing firms in this sector were more prominent in size and presence in exports to European and the US markets. The firms had better resources, significant productive capability, export competitiveness, and resilience in adverse local conditions, assisted by the thriving Ethio-China ties. Furthermore, the chapter explores the internal and external challenges facing the investment climate and companies operating in this sector in Ethiopia. For Chinese FDI to contribute positively to Ethiopia’s industrialisation in the textile and apparel sector, the government’s industrial policy was relatively effective in targeting productive FDI as a critical strategy for building manufacturing and export capability. Specialised apparel hubs facilitated government support, inter-firm learning, and the required industrial ecosystem, contributing to the sector’s growth.