Ethiopia & China Relations

Current Ethio-China Relations: Only Tip of the ice ፦

Ethio-China relations dates back to the era of the Silk Road, over two millennia ago, and it is one of the most longstanding. Trade between the two countries included goods such as elephant tusks, rhinoceros horns, pearls, civet musk and ambergris. In the not-so-far past, around the middle of the 19th century, Chinese labourers built roads in Ethiopia’s highlands. Since then, the Chinese have served a significant role in building the nation’s physical infrastructure.

Today, Ethiopia and China have excellent relations in all measures, dubbed the “Comprehensive Strategic Cooperative Partnership” in the lingua franca of diplomats and international relations experts.

Ethiopia is considered an example of the success of China’s foreign policy toward Africa. The two countries are not only engaged in wide-ranging diplomatic relations but are strongly tied together through economic benefits and socio-cultural exchanges. China is the largest trader and one of the biggest providers of financial support to Ethiopia.

Chinese companies have invested billions of dollars in Ethiopia during the last two decades and created tens, if not hundreds, of thousands of job opportunities. By last year, private Chinese investment in Ethiopia hit over a quarter of a billion dollars.

And with the coming of the Belt & Road Initiative, which focuses on economic cooperation and connectivity among Asian, European and African nations, stronger economic integration with China is yet to come.

Trade relations have progressed over the last few years perhaps as a result of favourable quota and tariff rights to African countries. Of course, the balance of trade remains grossly in the Asian nation’s favour.

Ethiopia’s main export commodities to China include sesame seeds, leather products and coffee, earning the country around a quarter of a billion dollars, while China sells close to 3.8 billion worth of goods to us.

In response to this imbalance, however, China’s government has afforded special treatment to hundreds of commodities that come from Africa to reach their markets duty and quota-free. The suspension of tariffs on mainly agricultural products has been beneficial in boosting exports of African nations including those of Ethiopia.

The establishment of the China-Africa Co-operation Forum (FOCAC) in 2000 gave a substantial impetus to the comprehensive relations. In the 2018 FOCAC Beijing Summit, China announced 60 billion dollars worth of additional financing to Africa. The financing is planned to go to investment, trade facilitation, loans and development financing.

Ethiopia and China’s relations have also been expanded in terms of politics, including diplomacy. The diplomatic importance Ethiopia attachs to China can be explained in terms of the number of representatives Ethiopia has in China. Aside from an embassy in Beijing, there are consulates in Shanghai, Guangzhou and Chongqing.

In addition to historical, economic and diplomatic relations, there are more specific and practical reasons for Chinese investors to choose Ethiopia for business. Cheap economic factors of production, favourable market factors for foreign investors and improving infrastructure offer massive opportunities.

Ethiopia is strategically located with proximity to the Middle East, Europe and Asia - near to the strategic location called Bab-el-Mandab - a strait through which close to 700 billion dollars worth of commodities pass through annually.

Ethiopia also has abundant natural resources particularly in the areas of arable agricultural land, livestock, mineral resources, sources for the production of renewable energy and a massive and cheap labour force. The nation’s economy is just waiting to be tapped.

The government’s commitment in the promotion of investment is also an important factor in business decision making. Investment promotion has been high on the political agenda for some time. The sole blemish here are the three years of political unrest that has sapped the interest of those looking to invest in Ethiopia.

There are incentives for priority sectors and export-oriented investments and various online and under-construction industrial parks.

Ethiopia is also one of the fastest growing economies in the world and had the highest Foreign Direct Investment flow in Africa last year. It is privy to duty and quota-free access to the United States and European Union.

Being a signatory to the recently launched African Continental Free Trade, which is the biggest free trade agreement since the establishment of the World Trade Organisation, has not hurt either.

Soon it will be the ever-expanding infrastructure that pulls nations such as China toward Ethiopia. The newly built Addis-Djibouti electric-powered railway, hydropower projects and various industrial parks are manifestations of the expanding infrastructure.

The country has huge investment potential in renewable energy including hydro, wind and geothermal. The Grand Ethiopian Renaissance Dam, the largest hydroelectric power dam in Africa, is expected to have 6,000MW of electric capacity.

It is also crucial to note the importance of the strength of enterprises in the service sector such as Ethiopian Airlines, which has dozens of international cargo and passenger destinations. This is critically important for tourism, trade and investment. Ethiopian Airlines has destinations in Beijing, Shanghai, Guangzhou and Chengdu.

Ethiopia’s regional, continental and international relations also bode well for the nation in terms of its viability in the eyes of China. Ethiopia is a member of the World Bank-affiliated Multilateral Investment Guarantee Agency (MIGA) and is a signatory to a World Bank treaty on the settlement of investment disputes between states and nationals of other states - which is an important step toward building trust and confidence.

Ethiopia has preferential access to global markets and is one of the leading countries in engaging in projects by various institutions and inter-governmental organisations. Ethiopia is known for its obedience to international rules and regulations and observance of agreements. It is also notable that Addis Abeba is the seat of the African Union’s headquarters.

Thus, the strong and long-standing relations that date back to the Silk Road coupled with the current investment and business-friendly situation in Ethiopia are attractive qualities to many investors.

Ethiopia serves as an all-in-one destination in the African corridor for China. There are great opportunities yet to be reaped from this strategic foothold. Evidently, there is a need to boost enforcement of regulations, reduce loans and push to level the playing field with China by presenting a united front with other African nations.

By smartly engaging with China, Ethiopia can build on the relationships it already has with a nation that is soon to have the world’s leading economy.