Should More Car Companies Manufacture in Ethiopia?
Every Saturday, I write about international business, finance, or politics for the average Joe, 王, ተስፋዬ, 佐藤, Martin, Müller, or 김 to show how our economies are more interconnected than one would think.
Today’s Topic: Ethiopia’s Car Market
The other week, I mentioned in an article how Trump and Elon falling out could have larger repercussions than simply the splintering of the MAGA movement. I was hopeful that having Tesla’s CEO working with the Republican president might nudge some doubtful conservatives to warm to electric vehicles, maybe even climate change science. With Chinese brands like BYD increasing their market share worldwide, the USA may not have the time to waste arguing over details or backtracking on support for their own industry.
Take a bill passed by the House three weeks ago that could roll back incentives for people to purchase and manufacture electric vehicles in the United States. To me, actions like this exhibit backwards thinking that ignores the grander picture. On the one hand, we have Secretary of State Marco Rubio warning developing countries to be wary of working with China. On the other hand, Republicans are trying their hardest to prevent modern technology from taking off in the United States. Can they not see that these two approaches are contradictory to one another?
In the aforementioned article on Trump and Musk, I touched on Chinese investment in Africa. While many countries on this continent may be economically behind Southeast Asia and South America, it would be unwise not to notice the importance of this phenomenon. After all, Africa is expected to be the only region that will experience strong population growth over the next 75 years. This situation reminds me of China in the 1970s and India now. Stable countries with millions of young adults seeking work attract foreign companies, not merely for the cheaper wages, but also because failure to follow industry rivals to these new destinations could mean loss of global market share in the long run. On a political level, companies often affect how their country of origin is viewed by whatever foreign land they are investing. In turn, this places pressure on decisions made by leaders.
Ethiopia is a perfect example. As one of the fastest-growing economies in the world, this federal parliamentary republic is being seen by many Chinese EV companies as a trial run for operations elsewhere in the region. With brands like Guangzhou Automobile Group looking to manufacture on the ground in Ethiopia or provide components to local players like Belayneh Kindie Motors, is it any wonder that China is now ranked the most respected nation within the country? It’s all well and good complaining about the Belt and Road Initiative or the Forum on China-Africa Cooperation, but what alternatives are being offered by those with concerns?
According to a report from Focus2Move from 2022, the top brand in Ethiopia at the time was Toyota, followed by Ford and China’s Lifan. Even then, it was noted that although the African nation’s car market was small, having even faced a downturn in the years before the pandemic, production in the country was getting moving with the establishment of new assembly plants belonging to BYD, FAW, Lifan, Sinotruck, Geely, Toyota, and Kia. All of this seems like it happened in anticipation of the Ethiopian government’s total ban on the import of gas vehicles last year. I cannot find any data on whether Ford sells electric vehicles in the country yet, but given that there seems to be no American car company that manufactures on the ground, it seems reasonable to say that the famous Michigan-based manufacturer will lose its second-place status soon, if it hasn’t already.
Maybe Ford doesn’t care about the small pickings in Ethiopia. Yet, if some within the US are concerned about Chinese investment in Africa, perhaps there should be a push to follow the lead of other companies by setting up EV manufacturing in Ethiopia. After all, while the country’s import tax on fully assembled EVs is just 15%, tariffs on imported parts are almost zero percent. It seems the African government is attempting to industrialize itself without being too reliant on other countries.
On this note, I should first remind whoever is reading this that I am not against the growth of Chinese business. If countries like Ethiopia can develop from Chinese investment and more people can enjoy happier lives, I am all for it. However, I still hope China remembers its own mantra regarding companies investing in foreign lands and how economic power can erode sovereignty just as much as war. I believe the Middle Kingdom has an incentive itself to stick to its morals here. By respecting others, one respects oneself. Failure to recognize one’s own boundaries will lead to retaliation in the long run.
When foreign car companies began entering China in the 1980s, many were required to partner with Chinese counterparts. Volkswagen partnered with Shanghai Automotive Industry Corporation. Ford went with Changan. Honda worked with GAC Group and Dongfeng Motor. This was done to not only prevent foreign tech companies from having too much influence in the country but also to allow China to have a chance to move up the technology chain. Such a strategy was nothing new. Hyundai had entered the auto industry in 1967 by cooperating with Ford.
So far, it is uncertain whether Chinese car companies are applying the same mindset to Ethiopia. BYD has partnered with Inchcape, but this multinational automotive distribution company is headquartered in England. Changan is working with Pactzion, but they appear to just be a trading company. The same is true with the Tamrim Motor-JAC Motor partnership and Haqiqa International Business, where both are just car importers. Golden Dragon Company is supplying parts to Belayneh Kindie Motors, but this is only resulting in buses, not passenger cars. All of these operations, as well as the establishment of small assembly plants by BYD, Geely, and Sinotruk, are creating jobs and allowing Ethiopians to share in revenue, but none seem to mirror what China made foreign companies do in the 1980s.
This is important because it begs the question why China applied such principles to itself in the past and isn’t now that it is in the role European and American companies once played. As I mentioned in my other article, Sun Yat-Sen spoke about the risks of allowing foreign capital into the country decades before the Communists came to power in his Three Principles of the People. Given that the Chinese government in the 1980s were still Marxist in outlook, perhaps they were also influenced by dependency theory, which Wikipedia defines as the following:
Dependency theory is the idea that resources flow from a "periphery" of poor and exploited states to a "core" of wealthy states, enriching the latter at the expense of the former. A central contention of dependency theory is that poor states are impoverished and rich ones enriched by the way poor states are integrated into the "world system".
Yet, if Chinese companies now go to countries like Ethiopia without following the same model their own country pushed for in the 1980s, the relevancy of this is blurry. The evidence then may simply point to China uses one theory for itself and another for everyone else. In other words, nationalism is more important to the country’s overall economic strategy than Marxism. Regardless, even if dependency theory is labeled under a Marxist approach to international relations, this doesn’t mean China’s leaders took inspiration from it. Maybe Beijing isn’t even aware of the hypocrisy. Still, we can’t forget that Chinese companies are separate from their government too.
Nevertheless, the contradictory world view should be pointed out.
Therefore, I think American car companies like Ford should invest more in Ethiopia, and American politicians should focus on uplifting their own electric vehicle industry instead of spending too much time wagging their fingers, not only because it’s good for the United States, but also because it’s good for Ethiopia and China. By investing in manufacturing on the ground in the country, companies like Ford and General Motors can set an example regarding labor standards. This, in turn, will incentivise Chinese brands to do the same. Not just this, but both should work on finding local partners to form joint ventures too. That way, Ethiopians can fully benefit from industrialization and have more ability to stand up for themselves if they ever get into any sticky situations from being too reliant on outsiders. A strong Ethiopia keeps the balance, but it begins with the respect of more powerful nations. Only through balance can there be stability and only through stability can there be growth for everyone involved.
This goes for companies from elsewhere too. In 2020, Korean Hyundai partnered with Marathon Motors, an Ethiopian brand owned by Olympic gold medalist Haile Gebrselassie. Unfortunately, this only lasted two years due to foreign currency shortages that made importing parts unsustainable. Still, does this just reinforce the argument that manufacturing should take place within Ethiopia?
Other joint ventures have been more successful. Korea Kia Motors has been partnered with Belayab Motors since 2016. The two run a plant in a town outside of Ethiopia’s capital, Addis Ababa. There is not much information online about how this is doing, but I wonder how important this African market is to Korean companies. South Korean companies may lose market share worldwide due to the growth of Chinese competitors. It may be smart for them to take advantage of Ethiopia’s focus on electric vehicles too.
German companies have certainly received the message. After hearing about the Ethiopian government’s goal to have 148,000 electric cars and 50,000 electric buses on the roads by 2030, Volkswagen announced earlier this year that it is aiming to establish an EV manufacturing facility. Given the country’s love for the company’s Beetle, I hope this happens. Although it doesn’t seem Volkswagen has a joint venture.
Toyota is changing the game in Ethiopia too, though I am curious to see if it can maintain its lead. Just yesterday, the company announced it will be selling an electric vehicle at $48,000. This price not only makes it a luxury item in Ethiopia. It’s also $33,000 more than the cost its selling for in China. With 60% of Ethiopia’s newly registered personal cars last year having been electric, I am not sure if Toyota’s strategy here is the best. The government has been pressuring the company for years to manufacture in the country. Perhaps it should consider making cheaper vehicles there, especially since Toyota named Ethiopia a key new market back in 2017 before entering due to its proximity to the ocean and growing population.
France’s Peugeot opened a factory in Ethiopia in 2016, but there is nothing on whether they have taken advantage of the country’s push into electric vehicles. Given it has its own electric vehicles, it would make sense for them to jump in. After all, Peugeot is well known on the streets of Addis Ababa for its cars’ contribution to the city’s taxi industry.
Of course, Ethiopia’s economy and car market are miles behind richer countries, but given the government’s push to industrialize the country and the fact that Chinese investment is only growing, other countries should be watching. Unfortunately, recent ethnic tensions like the Tigray War may undermine these development plans, as they have already led to the US terminating Ethiopia’s position in the AGOA Trade Preference Program in 2022, but the growth in electric vehicles is promising. However, now that the Tigray War is over, perhaps Ethiopia should use Chinese EV growth as a bargaining chip to rejoin the trade program and attract American car companies into the country.
