As second or third generations take over the reins of family businesses, they may be more open to outside investment to grow their companies. East Africa in particular has a rich seam of such businesses, which canny private-equity investors should be exploring.
Ethiopia’s low wages must be viewed in real terms – and the result is shocking
As the movement for sustainable fashion gains ground, Ethiopia's low wages have been put in the spotlight.
A report entitled ‘Made in Ethiopia: Challenges in the Garment Industry’s New Frontier’, produced by a team of researchers from the NYU-Stern Centre, states that Ethiopian garment workers are the worst-paid in the world, as reported in The Africa Report.
While this report was anchored on wage rates prevailing in Hawassa Industrial Park, I have previously discussed the situation at broader scale in a piece entitled ‘Ethiopia’s low wage is a curse, not a blessing’.
Bad situation made to look worse
It seems the NYU report suffers from a classic case of hasty generalisation, as well as confusing correlation with causation.
This happened in two ways, but it would help to set the scene by focusing on the logical sequencing of events, about which the reporter of the NYU piece was muddled.
The Ethiopian People’s Revolutionary Democratic Front (EPRDF) regime, led by the Tigray People’s Liberation Front (TPLF), ruled with an iron fist. The tight grip was loosened when Prime Minister Abiy Ahmed came to office in April 2018 and started political and economic reforms, effectively taking the lid off a variety of simmering tensions.
Here I confine myself to two tensions relevant to the issue in hand:
- Workers who previously had no chance to speak up started airing their grievances;
- Activists and political groups who loved to hate the ethnically based federalism started to protest openly, demanding complete obliteration of the existing federal governance structure.
Firstly, the report implied that workers’ demands for decent pay in Hawassa has something to do with ethnic politics. I suspect the NYU reporters were somewhat ill-informed – perhaps by activists who have grudges against Abiy’s steadfast commitment to keep the current federalism.
- It is true that Ethiopia has tense ethnic politics in many districts. It is also true that workers have risen up demanding decent pay in Hawassa or elsewhere.
- However, the two problems have nothing much in common. The case of workers demanding a decent living wage is something that needs to be taken separately.
Secondly, by highlighting the ‘base wage’ figure of $26 per month, the report implied that this was a typical wage for garment workers in Ethiopia. This figure was presented in a graphic display, in a bar chart (page 9) of ‘monthly minimum wages’ in 13 other countries. The next lowest in that chart were Bangladesh and Myanmar, each with $95 per month, almost four times that of Ethiopia.
- No doubt Ethiopia’s factory workers are the lowest paid compared to any other country in the world. However, a more realistic figure reflecting what workers typically earn is likely to lie somewhere between $35 and $50.
But this is still less than a subsistence wage!
The fact remains though, that at no stage in its economic development has any country in the world ever paid a wage as low as that currently paid in Ethiopia, when the cost of living is taken into account.
- If we convert the nominal wages to ‘real wages’, the situation gets even more ridiculous because the cost of living in Ethiopia is relatively high.
- While China and Bangladesh also have a history of paying low wages, they also improved agricultural productivity in order to keep cost of living low.
In order to understand the severity of the problem in Ethiopia, think of it in terms of bare energy expenditure in factory work:
- Factory workers most certainly spend many times more energy (in terms of calorie intake per day) than they can replace by spending their wages.
We can illustrate this as follows:
- An adult needs about 2,000 calories for subsistence per day; perhaps more for workers on a factory floor.
- Teff, Ethiopia’s staple crop, has about 101 calories per 100g.
- If we assume a ridiculous scenario whereby the worker survives by consuming teff and nothing else, then s/he would need 60kg of teff per month, which currently costs $42 (at January or harvest season price).
That is how bad the situation is. In addition, workers need to buy fuel to cook the teff, and pay for accommodation, clothing, transport and social obligations.