Factories are Pro-Poor: A Meditation on Huajian in Ethiopia

A guest post by Frances Pontemayor

Can there be something less glamorous than a factory? Industrialization is gritty, sooty, sweaty – it just doesn’t align with the “tragically beautiful” poverty that development practitioners in Europe and North America dream of fighting with organic farms and $50 laptops. But at what point do implicit (never explicit) aesthetic preferneces start to blinker us from what really works?

Take the Huajian Shoe Company. It’s one of China’s leading shoemakers. I’m sure you’ve never heard of it, but if you’ve ever bought a pair of Naturalizers, Clarks, Guess or Tommy Hilfiger shoes, you’ve probably worn shoes made at a Huajian factory.

In January 2012, Huajian became one of the first Chinese manufacturing companies to launch large-scale operations overseas, opening a big-time shoe factory just outside Addis Abeba, in Ethiopia. The company produces 2,000 pairs of shoes everyday and employs over 1,750 workers at its factory.

With the media attention on the conditions of Chinese factories and all that horrible pollution, the knee-jerk reaction to Chinese factories in Africa is just more fuel to Western NGO’s white-knight complex.

“Race to the bottom!” “End modern day slavery!” said every development mission statement ever. How could we let these Chinese neocolonialists ruin all the hard work they’ve trying to accomplish for the last six decades?

To be clear, helping Ethiopia develop is not a goal of Huajian, anymore than it’s the benevolence of the butcher, the brewer, or the baker that we expect our dinner from. Business is business; development is the byproduct.

Given the rising costs of labor and appreciation of the RMB, the company chose Ethiopia because they needed to shave some costs.  The country has a fairly well developed local scene for leather inputs suppliers, and labor costs are much lower. When it comes down to it, they just wanted to make some shoes that Westerners will want to buy, even cheaper than they could make them in China. Does that offend your sensibilities? Look down; what shoes are you wearing again?

Huajian’s move to Ethiopia comes with a cherry on top: thanks to AGOA, exports from Ethiopia to the US and UK markets come tax-free.

Huajian Shoe Company on its own won’t make Ethiopia into Denmark. Of course. But it will help make it a more dynamic and productive economy.

Ethiopians working at a Huajian factory are vastly more productive than their counterparts in non-export oriented manufacturing companies. That may sound like a recondite fact, but we know that in the long-run average wages track average productivity, and there’s just no way to raise average productivity that doesn’t involve shifting people from low-productivity jobs to high-productivity jobs.

In the case of Huajian, the company has even gone above and beyond in sending a number of workers to China for training, giving these workers even more specialized skills.

But even in the short term, there are definite benefits: Huajian workers become integrated into the formal economy. They get dorm-style housing and food provided by the company. The management model has been described as “military-style” and yes, hours are long and the work is boring. Still, it’s easy to caricature management’s approach, and that’s not necessarily fair either: in China, Huajian’s boss made a point of giving out his cell phone to all 30,000 company workers so they could reach him directly if that was necessary.

More importantly, they get paid regularly, predictably, which is already a huge improvement on the uncertain, unpredictable earnings of informal sector workers.

Formal workers spend have cash to spend on their children’s tuition fees or books, healthcare, things for their house (possibly a cook stove that everyone keeps talking about), or at a restaurant to celebrate. And those shopkeepers and restaurant owners will then go out and spend their money. Money, even if in small increments, will flow throughout the economy, generating the kind of multiplier effects on community well being that so many pro-poor development projects talk about and so few actually achieve.

More people in the formal economy means more a bigger tax base for the Ethiopian treasury. Tax revenue feeds into infrastructure, into education, into social welfare. And the hard currency earned by Huajian’s export orientation finances imports of foreign manufacturing technologies to upgrade leather-making equipment, or more efficient irrigation systems for their farms.

The point is the Ethiopian government can use this money, their hard earned, pulled-up-by-the-bootstraps money, on whatever they feel would continue the cycle of wealth and to overcome aid dependence. Whether you’re a teenager or an African governments – no one wants to be managed by someone else.

Somewhere down the line, Huajian’s local managers will think to themselves: “Hey, I think I could run my own factory with all this know-how I’ve gotten from Huajian, and possibly make the production even more efficient!” This new class of entrepreneurial managers, with their local networks and priceless knowledge built over the years of running a factory will eventually lead to more factories being built. This kind of spill-over effect that takes hold as knowledge embodied in workers diffuses throughout an economy is anything but glamorous. But no country has ever really developed without it.

With more factories comes more revenue, and not just for the managers (now owners), but for their newly hired workers, who are also moving from low-productivity to high-productivity occupations and putting upward pressure on wages. The whole cycle is renewed anew, and before you know it, Ethiopia is developing the kind of export oriented industrial cluster that’s marked more or less every fast development experience of the last three centuries.

Somehow, though, when we think of development work we think of the kinds of “pro-poor” micro-interventions that make life more bearable for poor people even as they remain within low-productivity sectors. That’s not development. That’s managing life in poverty. Development is boring. And more often than not, it starts in a factory.

 

5 thoughts on “Factories are Pro-Poor: A Meditation on Huajian in Ethiopia”

  1. I don’t understand this kind of corporate triumphialism. The argument that working at Huajian will empower workers to start their own businesses or factories is still patronizing, just in a different way. You imply that without Huajian, workers wouldn’t think to start their own businesses. But there are already export-oriented local shoe making businesses in Ethiopia, which is probably why Huajian chose Ethiopia to set up shop. The Huajian factory will likely be managed by Chinese people, not Ethiopians – the “specialized skills” Huajian sent 86 workers to learn were “how to make shoes,” so it’s not like they’re being groomed for management positions [1]. Huajian also apparently pays their workers much less than they would earn in a local export-oriented business. Why not instead promote a strategic industrial policy for Ethiopia that would strengthen existing local businesses?

    I saw from your blog that you’re a fan of Ha-Joon Chang, who I like quite a bit as well. It seems like you’re endorsing the kind of liberal FDI policy (open your doors to foreign multinationals, hope for the best) that I think he would oppose: “There is a growing consensus that accepting a ‘package’ of finance technologies, managerial skills, and other capabilities offered by TNCs may not be as good for long-term industrial development as encouraging the national firms to construct their own packages, using their own managerial skills – with some necessary outsourcing” [2][3].

    [1] http://www.bbc.com/news/business-18094181

    [2] http://www.twnside.org.sg/title/needs-cn.htm

    [3] http://www.iese.ac.mz/lib/cncb/Ensino/EcoInd_2008/NotasLeitura/FDI/Globaliz%20&%20TNCs%20Chang.pdf

  2. sheer phisical effort does little to get things to improve one life For that you need people to learn how to do organized work , maximally productive work and these factories are sometimes an efficient (not necessarily fun) way of achieving that learning .!! If you have enough people learn how to do well organized work then together they may create a work culture that helps them gradually scape poverty rather than simply stave of the worst ravages of poverty ,!!
    The purpose of all those generous western initiatives is not to make their sponsors feel goody goody about themselves but to change the lives of their beneficiaries in third world countries for the better.!!

  3. I really like the phrase: ‘white-knight complex’. When you combine it with the failure of sixty years referred to in the next paragraph then you have the vivid picture of people charging around on horses for sixty years and achieving very little. Along comes a Chinese factory and spoils everything. The white-knight has fallen of his horse and doesn’t know what to do or say and just quivers before the magnificent steed of revolutionary capitalism which is called China. To change the figure slightly: China is the Brigadier Gerard of wealth creation and the white-knights are a set of donkeys plodding along the beach in Blackpool. The Ethiopian workers should just get up on that horse and try get hold of the reins and steer it in the right direction. That will take a bit of time but it is a good horse to sit on in the meantime. They wouldn’t take the money if it was not good for them even though they would prefer more.

    I do wonder about two other points.
    1. Ngo does not create business therefore fails. If all the ngo money had been given to business development then things would have been better a long time ago. Instead it has been egalitarian in its distribution which won’t work because not everybody is the same. Ngo is essentially humanitarian not wealth creating.
    2. Ngo has been hijacked by anti-capitalists who are not really interested in wealth creation. Their agenda has not been make like China but something else which is idealistic and does not go through the turmoil and disadvantages of a capitalist revolution like China. If you worked in a nuts and bolts factory in the Soviet Union then you didn’t get paid very much either but that is never the measure. The measure is always Western capitalistic wages and now the East Asian capitalistic Derby winner.

  4. Right on — development, despite the desires of many overseas development workers, is not a romantic process. You have characterized the process well and hopefully demystified it just a bit for those who still “feel a calling to go and help the poor starving minions of this world.” Condescension never fed anyone. Instead we all need to follow the lead of those “being helped.” They know what they need. Connie Freeman, Syracuse University

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