Chinese FDI in Ethiopian Leather Industry: Mixed Outcomes

The chapter provides insights into the mixed results of Chinese foreign direct investment (FDI) in the Ethiopian leather sector, which was among priority sectors. Chinese FDI in this sector increased between 2006 and 2015, but the weak performance and outcomes were mixed due to several factors. First, the weakness in government policy on the leather sector and inadequate government focus were significant factors in underperformance of the sector. Moreover, government coordination among too many players and stakeholders remained a major obstacle, and the government—industrial association’s weak partnerships compounded the challenge. Second, structural issues of the industry and the nature—type of firms and the motives of investing firms—have all contributed to the mixed results. The motivation of Chinese tanneries was to supply raw materials to their parent company rather than value-addition and boost exports aligned with the government’s strategy. Hence, the Chinese tanneries subsector performed differently from that of leather products, with minimal contribution from Chinese tanneries. Third, on the other hand, Chinese firms in the footwear industry were significant players in the global market and had immense productive capacity in Asia, integrated with the global supply chain. The firms were directly influenced by the competitive pressure forcing them to improve performance. These footwear firms significantly contributed to employment, production, export, and know-how formation.