What is it like to work in an Ethiopian factory?

Hope and disappointment in the future(?) of manufacturing

Pittards shoe factory in Ethiopia. Source

Short of waking up one morning from unsettling dreams to find yourself transformed into Brunei, there is only one way we know of to rapidly lift a poor country out of poverty: manufacturing growth.

Ethiopia’s government has staked its national development strategy on this idea—most of all in the textile industry, where it has built vast industrial parks, subsidized electricity, and offered generous tax incentives to attract foreign investors. It is the highest-profile attempt by a country in Sub-Saharan Africa to adopt the East Asian model of export-led manufacturing growth. If Ethiopia succeeds, no doubt others will follow.

Ethiopia’s original goal was to create 350,000 jobs by 2022; so far, it has managed around 150,000. Political events have disrupted these grand designs. First came the outbreak of civil war in late 2020. Then, because of wartime human rights violations, the United States terminated Ethopia’s beneficiary status under AGOA, a law that gives developing African countries tariff exemptions. But even before its recent political turmoil, Ethiopia’s experiment was not yielding the expected results: headline GDP growth was good, but was largely driven by other sectors. Like cold fusion or the end of my PhD, the promised manufacturing renaissance always seemed just a few years away. Why?

The answer, I think, has been partly obscured by how we sometimes talk about development, including at the start of this post: as something done by states, the product of Five Year Plans and Export Promotion Targets. It’s sometimes easy to forget that the real protagonists of development are not governments or their leaders or the bureaucrats who enact their policies, but the people toiling in fields and factories.

I have never worked in a factory. Nor have I even been to Ethiopia—a research trip I planned in 2021 was cancelled because of the war. But I have long been fascinated by the growing body of research that documents the perspectives of Ethiopian manufacturing workers. If we want to understand what is going wrong, we need to listen to their voices.

The story of Ethiopian manufacturing—its rise, its faltering, and its potential for renewal—is an example, I believe, of where a little more empathy can lead to better economics.

The View from the Factory Floor

Some of the first signs of trouble could be seen in a 2010-13 field experiment by the economists Chris Blattman and Stefan Dercon. Around a thousand applicants to five industrial firms were randomly sorted into three groups: a third were offered a factory job, a third were offered a $300 grant to start a business and five days of entrepreneurship training, and a third were sorted into a control group. Blattman and Dercon then followed up a year later to see how each group was doing economically.

Most economists (including me) would have predicted that those who got factory jobs would have done best. In standard neoclassical theories of industrialization, workers are pulled into factories through the draw of higher wages—since the modern, industrial sector is typically more productive, factory wages should be higher than in agriculture.

But that’s not what Blattman and Dercon found.

Their survey data showed that factory jobs paid less, not more, than other jobs—wages were 25% less than informal pay. In their randomized experiment, offering people factory jobs had no significant effect on incomes by any measure. By contrast, the entrepreneurship grant increased earnings by one-third. (Sadly, in Ethiopia, that is just US$1 a week.)

Even more strikingly, few of the factory jobs stuck. A third of those offered a factory job quit within the first month; another 77% left within the first year. Beyond low pay, workers frequently mentioned health problems: after a year, “repetitive stress, kidney, and respiratory issues” were common. With each additional month of factory work, workers were 1.1 percentage points more likely to report a disability. (A silver lining is that these negative health effects did not seem to persist after five years.)

Blattman and Dercon’s paper is not alone in its findings. Last year, the sociologists Reimer Gronemeyer and Michaela Fink compiled an invaluable report based on interviews with garment workers, their families, and their managers, largely from the state-of-the-art Bole Lemi and Hawassa Industrial Parks—the gleaming vanguard of Ethiopia’s industrialization push. Built in 2014, the Bole Lemi park is on the outskirts of Ethiopia’s capital Addis Ababa—not far from the new Chinese-built airport terminal—and has the capacity for 35,000 workers. The Hawassa park, built in 2016 around 270 kilometers south of Addis, is even larger, with capacity for 60,000.

Rwanda’s Paul Kagame and Ethiopia’s Abiy Ahmed examine shirts made in the Hawassa Industrial Park. Source

The crucial data in the report comes from a survey of 456 workers by Tesfaye Semela, Setisemhal Getachew and Daniel Semela, scholars at Hawassa University.

Average monthly base pay was 1449 birr, or just $25 USD. Pay rose a bit with bonuses: around 80% of workers reported receiving attendance bonuses, which averaged $5, and a third received productivity bonuses, with a mean of $6. But, even accounting for these, most salaries were eaten up by the relatively high cost of living close to the factories: respondents spent an average of $8 birr on rent, $15.50 birr on food, and $5 birr on transportation.¹

A female textile worker says:

“How could a person live in Addis Ababa with a salary of 1500 birr? [$26 USD.] How could a person paying 1000 Birr for the housing rent survive with 500 Birr being left from the housing rent? What kind of life is it? If somebody eats breakfast in the morning, he/she may not eat lunch. What is being paid does not match our effort.” — p. 49

On the factory floor, workers find the environment stifling and oppressive. Workers complain that the hours are long—eight hours a day (eleven or twelve if one includes the long commutes to the parks), six days a week. When orders come due, there is enormous pressure to work overtime (p. 48). Over half of workers said they suffered from kidney pain (p. 92), possibly developed because of the unnatural sitting positions, or perhaps because of the tightly controlled toilet breaks. Workers also complain of a lack of understanding around holidays and sick leave—particularly for women (p. 50)—leading to chronic absenteeism.

There is an unmistakable gender dimension to all this: the vast majority of workers are single young women. Historically, Alice Evans reminds us, factory work has been a great engine of female empowerment: around 74% of respondents said that “financial independence” was their initial motivation to get a factory job. But, far from becoming breadwinners, 67% reported receiving financial support from their families. Workers also report cases of robbery and sexual assault on the way home, traveling after dark after long hours spent at work (p. 169).

It’s not hard to see why so many want to leave. 62% rejected the statement that “I feel that my life has improved since I worked in the factory”.

One former factory worker says:

“Since I was jobless, like everyone else, I was thinking of changing my life. Even if there are people who helped themselves in that situation, the salary was not equivalent to the time and workforce spent there… My expectation and what I found was different. There was labor exploitation, high workload, there was no freedom, everything was tough. — p. 2

Historically, factory labor has always been grueling—but this does not sound like a system that is successfully absorbing labor. Over 60% disagreed or strongly disagreed with the statement “I plan to stay with this company for a long time”.

Why are wages so low? Why, at a minimum, are working conditions so bad?

For one thing, workers lack a voice. Workers who organize or complain or ask too many questions are usually fired (p. 144). Formal unions appear to be largely disconnected from the workforce, with labor organizations like the Confederation of Ethiopian Trade Unions (CETU) often acting as a late-coming mediator after industrial disputes have begun. (There are, however, documented instances of wildcat strikes outside this organized structure).

A man from Tafo, a slum on the edge of Addis Ababa, whose wife works in one of the factories, sums up the dire situation well:

“The girls are suffering a lot. Yet, the factories do not pay enough. Moreover, the factories do not respect the rights of the workers. At any time and moment, they order them to do that and this as they wish. The workers do not have the right to say no and reject the orders being given by the bosses. If the workers reject any order, they immediately fire them. If you look at the job properly, it has features of slavery.” — p.123

Turning to Exit

The factory floor of the Hawassa Industrial Park. Source.

With poor wages and worse conditions, and without the voice to improve their lot, many workers have turned to exit as their only option. The rapid turnover that Blattman and Dercon observed ten years ago has become a serious systemic problem.

A member of the Bole Lemi’s Investors Association says:

“We are not able to fix the problems of absenteeism and attrition… It is the most serious issue in every industrial park. [Ed: Emphasis mine.] We tried to evaluate it and are currently working on it, but we have yet to find an answer for it.” — p.133-134

They are not being hyperbolic. One study of the Hawassa Industrial Park found that 10% of workers quit on their first day, and 25% in their first month. Similarly, another study by NYU Stern researchers found that the attrition rate is 5-10% a month, or 60-120% per year (p. 129). At the root of the problem are low wages: 70% of workers reported “inadequate pay” as a major reason for labor turnover at their company (p. 103).

But this points to a central tension in Ethiopia’s strategy—the situation could reasonably be described as a pernicious low-wage, low-productivity equilibrium. From the workers’ point of view, low wages make an already intolerable work environment unacceptable. The resulting attrition erodes efficiency—every new worker who has to be recruited, trained, brought up to speed is a cost to the firm. But with chronically low productivity, Ethiopia only has one carrot with which to draw international investors: low labor costs.

And yet—in the marketplace of global capitalism, what choice does Ethiopia have?

A good case in point is PVH Corp., the world’s second-largest apparel firm. In 2016, in a major coup, Ethiopia successfully lured PVH, which owns Calvin Klein and Tommy Hilfiger, to Hawassa. A World Bank report cited low wages as a major factor:

The cost of labor was an important consideration in PVH’s decision-making process. “In the fabric side of the business, apart from the raw material, the highest cost is energy. In the garment side of the business, apart from the cost of raw material, the highest cost is labor” (Ashurst, personal communication). PVH compared the cost of labor in Ethiopia with other key countries, including Bangladesh, Cambodia, India, Kenya, and Uganda. Ethiopia offered significant labor cost advantages.

What this highlights, rather coldly, is that Ethiopia is not making these decisions in isolation. It is competing in a global arena against other developing countries, most of which would also happily welcome foreign investment to help their economies grow. Given the right package of subsidies and tax incentives, many of these manufacturers surely would be happy to up sticks and migrate to Bangladesh or Vietnam. (PVH left in November 2021, just two weeks after Ethiopia lost its AGOA privileges.)

Comparing Ethiopia and its peer countries, a World Bank report by Caria (2019) finds that sales per worker in Ethiopian firms are lower than their peers in Kenya, Bangladesh, India, and Vietnam—even after controlling for differences in firm size and category and capital stock:

Sales per worker in Ethiopia, Kenya, Bangladesh, and India, controlling for sector, size, and capital, from Caria (2019). Vietnam is the baseline of 0.

These figures deserve a big orange biohazard sticker: the sample is small; Ethiopia and Vietnam lack data on land and capital rents so these have to be filled in using a model; and all this sales data doesn’t account for taxes. But they suggest that Ethiopian firms are less productive in a way that cannot be accounted for by just capital or the sectors they work in.

The Ethiopian state has staked much of its precious capital on the bet that manufacturing growth is its Way Out. It has set aside land and borrowed money to lay out modern industrial parks. It has plied foreign firms with tax incentives, attracting major international brands. It has underwritten their electricity bills, to avoid Nigeria’s chronic blackouts or Kenya’s exorbitant power costs. But, in a sense, what all these subsidies have done is reveal a contradiction at the heart of the enterprise. Every factor of production—land, capital, energy—has been carefully supported and accounted for, save one: labor.

Without workers moving into the factories, a manufacturing takeoff with enough thrust to meaningfully uplift large numbers of the poor is a long way away. In 2019, Myanmar had around 1.2 million garment factory workers; Bangladesh, Pakistan, and Vietnam each had around 5 million. For all of the Ethiopian state’s efforts, in a country of over 120 million people, 150,000 workers amounts to close to a rounding error.

Cutting the Knot

One reasonable, though tragic, response to these figures would be for the state to abandon the manufacturing drive altogether. If a barrage of electricity subsidies and land grants and tax incentives and tariff exemptions still have not worked, perhaps this points to deeper economic problems. (One of these may be Africa’s relatively high prices.) Perhaps the Ethiopian state’s resources would be better spent developing agriculture instead—when one day, growing farm productivity may free workers from the land, and push them towards the factories.

A better solution may be to cut straight through the Gordian knot, and raise wages—perhaps, as Gronemeyer and Fink suggest, through a state-set minimum wage. In the short run, higher wages could be partly offset by the savings from less churn. In the medium run, there may be latent productivity gains from retaining workers for longer. Caria observes that, in the World Bank’s Enterprise Survey, Ethiopian firms have far lower management scores than their peers in Kenya, India, and Vietnam. Most of their shortfall comes from their poor human resources (HR) practices. “Ethiopian firms perform poorly,” he writes, “in terms of their strategies to identify and retain high performers within the organisation, and to deal with poor performers.” If workers are leaving after a few weeks or months, they never have a chance to develop their skills—and managers do not have the time to identify the best talent. Higher retention could lead to greater skill accumulation and a more efficient allocation of workers to tasks.

As I said at the outset, I am far from an expert on Ethiopia. I’m not sure if the correct prescription is a minimum wage, some form of wage subsidies, or greater experimentation on the part of individual firms; I hope this piece spurs others to look more deeply into this question. (If I’ve said anything completely moronic, please let me know in the comments.)

For all its faults, it’s still hard not to be struck by the ambition behind Ethiopia’s manufacturing push. The goal is nothing less than the transformation of the economic destiny of one of the poorest countries in the world; to abandon it outright would be a travesty.

But, in pursuit of that national dream, we ignore the voices on the ground at our own peril. In the past, the engine of industrialization has always been the movement of people from farms to factories. What pulls them there is the hope for a better life, or at least for better lives for their children.

Without an answer to those hopes, the transformation cannot even get started.

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1. I’ve used the June 2024 US dollar exchange rate (57 birr / USD) for clarity. Attendance bonuses averaged 273 birr; productivity bonuses were 356 birr. Respondents spent an average of 479 birr on rent, 887 birr on food, and 277 birr on transportation.