How to Do Industrial Parks Right
As it appeared on Addis Fortune (http://addisfortune.net/columns/how-to-do-industrial-parks-right/)
On the February 12th issue of Addis Fortune newspaper (Volume 17, №876), I read a viewpoint about the industrial parks development in Ethiopia.
While the viewpoint was good in terms of defining the industrial parks based on their purposes and their roles in the economic as well as environmental aspects, I found it with some misunderstandings and some sort of information deficiency. The article titled, Concerns Rising with Ethiopia’s Industrial Parks written by Yohannes Eneyew also raises some points as concerns in the developments which I see as irrelevant in the case of industrial parks development in Ethiopia.
Before going into point to point discussion of the ideas raised in the article written by Yohannes, let us try to shade some light on the rationale behind the development of industrial parks in the country.
The industrial parks development model in the country follows that of Singaporean model which is led by a profit making establishment like that of the Industrial Parks Development Corporation (IPDC).
So, the development of industrial parks in the country is meant to minimize capital accumulation. In the previous developments of manufacturing plants, manufacturers used to take up to 10 years in the construction stage while they have to directly get into production and start selling products in a short period of time. Industrial parks are aimed at solving this by letting the manufacturers engage themselves in plant installation and immediate manufacturing.
Second, the agglomeration of industries both in the parks and outside the parks is said to be created by letting manufacturers get into the parks. The outside small manufacturers and suppliers come closer to the investors in the parks as they can easily locate their potential buyers in the parks.
This said, although the development of industrial parks in the country was not a success story, especially in reference to the first Growth and Transformation Plan (GTP I) which realized only Bole Lemi I among planned five parks, let me pin point major ideas in Yohannes’s article.
First of all, the development and ownership of industrial parks in the country is not exclusively given to the government and its joint developers with the government. Private developers are also allowed to develop industrial parks and rent shades to different manufacturers as is the case with Eastern Industrial Park. Huajian is also another example of private developers with others being in the pipeline.
Again, I do not see any missing element for the Ethiopian industrial parks indicated in the viewpoint as peculiar features of industrial parks wherever they are established. The industrial parks have designated places on which manufacturing shades are built. Most of the manufacturers in the in the parks feed or at least are structured to feed each other or be fed by the outside nearby small manufacturers.
The aim of the development of industrial parks in the country, in addition to inter-manufacturers link within the industrial parks, is to link the community small manufacturers that can be potential suppliers of input for the manufacturers in the parks.
Furthermore, regarding the incentives, let alone manufacturers in industrial parks which the government wants to encourage more, those manufacturers out of industrial parks get incentives ranging from duty free capital goods importation to tax exemption. Those close to Addis Ababa get 10 years of exemption while others get up to 15 years of tax exemption.
Finally, the industrial parks are said to strive to the advancement of industrial development, mitigate environmental pollution and work for urbanization.
In principle, industrial developments are aimed at advancing industrial development- whether done in parks or other places. And, naturally, as seen in the historic industrial developments or as often termed as revolutions, they attract many people around the development area and these people come to provide different services to the laborers. This in turn creates settlement in the industrial development areas thereby bringing about urbanization.
Probable concern that could arise from industrial development is pollution. But, in the Ethiopian industrial parks case, this is of minimal concern as the development of the parks is eco friendly thus the parks dubbed eco- industrial parks.
Furthermore, in order to minimize the environmental impacts of the developments both environmental and social impact assessment (ESIA) and resettlement assessments, if necessary, and compensation schemes are studied. Yohannes stated that the World Bank’s International Development Assistance (IDA) as the government’s collaborator. Which industrial park project is financed by the WB without ESIA? Doing this is against the financing procedures of the WB as well as other international lenders.
Rather, there are some major concerns in the industrial parks development of the country.
The first concern is that of land grab, or as is termed land rush, in the case of developments carried out by private developers. Parks established by the private developers, like the large commercial farms in the country, are owned by foreign investors, which is the main reason for the concern raised.
Although the current developments are spearheaded by the government, the plan is to pave the way for private developers. Even the plan at the inception of the development of industrial parks in the country was to develop them by private investors. Then the government realized that there were no investors that came to invest on the industrial parks, except for the Eastern Industrial Park developed by the Chinese. This led the government into the investment on the parks to set examples.
This means, the future developments, which add to 10 in number, are not to be developed by the government only, but also by the private investors hence, triggering the land grab issue.
The second concern is that the parks are being developed by loans mainly from the World Bank. For instance, for the development of the Bole Lemi II and Qilinto industrial parks, the government secured a loan of 250 million dollars from the WB. A total of 30 billion dollars is expected to be invested in the development of industrial parks in the country, the majority of which is to come in the form of loans.
Without any requirement to decipher the numbers, it is clear that the number will add a hefty load on the country’s indebtedness.
The other concern is the government’s limited capacity to properly manage the parks and provide the promised services in the industrial parks. For instance, the Bole Lemi I industrial park has some designated buildings for the service providers ranging from customs services to utility processes. But, these offices are vacant and the customs office in the park gives partial process of the service required to export the manufactured products. The exporters are then forced to go to the main office to process their exports.
This shows, with the growing expansion of the industrial parks, the government will have difficulties of rendering the promised services to the manufacturers in the parks. The Ethiopian Revenues and Customs authority has acute difficulty in managing its own offices located in every border city and regional towns with the frequent employees’ turnover which stands at 1,200 last year alone.
Another concern is the crowding out of the local manufacturers which have limited financial capacity to rent the shades in the parks which are ready either in 11,000ha or 5,500ha. Hence, the manufacturing shades in the industrial parks are being held by foreign investors which are financially capable and more experienced in the international market.
Although the government has considered this concern and is preparing 3,000ha and 1,500ha shade mainly aimed at local manufacturers, it is only some of them that can afford these shades.
Unless these are addressed, the industrial parks development in the country will join the group of countries that are mentioned when it is said industrial parks development is not only a success story.
Therefore, I see the concerns raised by Yohannes to be of minimal effects to the country’s industrial parks development. There are much bigger concerns lingering around.