Ethiopia’s $26-a-month factory workers all quit in the first year

A new report by NYU-Stern titled “Made in Ethiopia: Challenges in the Garment Industry’s New Frontier” found that factory workers earn $26 per month, by far the lowest wage in the world. It’s an appallingly low figure, even by the already low-wage standards of the global garment industry.

• The report was based on the Hawassa Industrial Park, a flagship government project in southern Ethiopia that employs 25, 000 people.
• Lower wages mean employees in the new factories cannot afford life in Hawassa, which has undergone the inflation expected of such a massive development.

It’s a complicated scene with a negative feedback loop, where workers quit because of the wages and working environment, and employers blame the high attrition rate and low efficiency for the wages they offer.

• The annual attrition rate currently stands at 100 percent => meaning no worker stays longer than a year.

“The $26 per month wage comes no where near replacing the workers physical energy expenditure, forgetting expenses for any other social obligations,” says Ayele Gelan, a developmental economist, “Workers are effectively subsidising billionaire factory owners!”

With its industrial parks, Ethiopia is hoping to replay some of the magic of its flower industry, which has grown into Africa’s second largest in two decades.

Model behaviour

The report’s findings are not new. Hawassa’s wages and working conditions have been the study of several other studies and investigations, mainly because it is a government project and the most visible industrial park in Ethiopia.

A 2017 study of five different companies had similar findings. It also identified gaps in the recruiting and hiring process that do not seem to have been resolved so far.
A 2018 investigation by the Intercept found that some employees earn even lower than $26, and that the few changes that have so far been carried out do not have any profound effect.

Cheap labor, active government involvement and export incentives have been Ethiopia’s selling points, as it tries to fix its export deficit and increase its foreign currency reserves. But these macroeconomic plans will not work if nothing happens on the wage question.

With Prime Minister Abiy Ahmed working to reform the political landscape, the next and bigger challenge has been how to fix the economic mess created by his predecessors.

Hailemariam Desalegn, the former Prime Minister, told The Daily Maverick that the EPRDF government had studied the success and failures of industrial parks before embarking on its own models.
“Nigeria, we concluded, failed because of a lack of leadership, and that it was unsupported by the state beyond given the developers land. Mauritius, which was a success, emphasised the value of location, logistics, clear policy and organisational structure. We also wanted to avoid the situation that Vietnam found itself in, with 30% of its sheds unoccupied,” Desalegn said earlier this year.

• The first step, of building the parks and attracting foreign investors to build factories, has already been achieved.
• The second is far more complicated, because it will determine if Ethiopia becomes an export hub on the back of a sweatshop industry.

The political class understands this problem, but so far has been unwilling to do anything to fix it. Their immediate fear is chasing away the foreign investors, but the fact that Ethiopians are shunning employment in industrial parks should be a greater cause for concern.

• One fix is to boost Ethiopia’s agriculture to lower the costs of raw materials, which the government is already doing by allowing tax-free import of agricultural technologies and equipment. That will take time to have any significant effect on wages.
• Some issues highlighted in the NYU-Stern report should be significantly easier to solve. For example, workers told the researchers that they had been lied to by government-employed screeners while applying for jobs.
• Others, such as the cultural issues creating a hostile working environment, require more political will to resolve.

One reason why Ethiopia’s high unemployment are so visible is because of the migrant crisis currently gripping Europe and some Asian countries. Young Ethiopians have been venturing out to look for jobs for decades but the current global response means that many of them are being deported back home.

• The EU Emergency Trust Fund for Africa lists industrial parks as one of its goals in Ethiopia
• A few days ago, Saudi Arabia released 1, 400 Ethiopian prisoners. Although it did not say why they had been jailed, Saudi Arabia has been a popular destination for Ethiopian migrants who get into the country through Yemen.
• The International Organisation for Migration estimated in March that 260, 000 Ethiopians returned home from Saudi Arabia between May 2017 and March 2019.
• The new released Ethiopians are headed back home to a country that’s still in flux, in a world that is increasingly militarizing its borders.
• Yemen, the familiar route to Saudi Arabia, now has 3, 000 migrants in two detention centers, most of them Ethiopians. The IOM estimates that 20, 000 migrants attempt this journey each month.

Minimum wage recommended

Paul M. Barrett and Dorothee Baumann-Pauly, the authors of the NYU-Stern report, also recommended the government establish a minimum wage. The minimum wage has been a thorny issue in Ethiopia, even as all sides acknowledge that it is not the antidote to the country’s problems.

Some see wages as an issue “too soon to ponder”, a position Abiy Ahmed, who earns only $300 a month, might agree with as he sets to finish the many development projects of his predecessors.

• One problem with a minimum wage, Ayele Gelan tells The Africa Report, is that Ethiopia does not have a former colonial context on which to build. “You resort to minimum wage in normal circumstances, but circumstances are not normal in Ethiopia.
• “What Ethiopia must do is to completely revamp its pay structure, push up from below, so that all bands will move up, making Ethiopia’s pay structure comparable to its neighbours, like Kenya or Tanzania,“ Gelan says.

The idea of a generational sacrifice, as former Prime Minister Hailemariam Desalegn sketched out to The Africa Report when he was still in charge, should see the current working generation accepting the conditions as they are for the sake of a greater good. This may not work because of Ethiopia’s unique history and young population.

Meanwhile, for factories, fixing these labor issues should be a priority. If the status quo continues, the high attrition rates will continue to eat into the subsides the government is giving them.

• One way could be to fix the middle management problem, by sensitising the current management on Ethiopia’s uniqueness and by fast-tracking the process to train and hire more Ethiopians in such positions.

Bottom line: Industrial parks might, like flower farms before them, deliver on the promise of building the economy. In the short-term though, the challenge of attracting both skilled and unskilled labor lies primarily with fixing the wage structure and factory conditions.