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CAE Working Paper 2020: 1
Constraints on eco-industrial development in the context of global production networks: The case of Ethiopian eco-industrial parks
Federico Jensen
CAE Working Paper 2020: 1
CAE ⋅ Center of African Economies
Department of Social Sciences and Business, Roskilde University
Universitetsvej 1, 4000 Roskilde, Denmark
www.ruc.dk/en/centre-african-economies
Email: [email protected]
CAE working papers ISSN: 2446-337X
ISBN: 978-87-7349-557-5CAE working papers can be downloaded free of charge from www.ruc.dk/en/centre-
african-economies
© The authors and CAE, Roskilde 2020.
The CAE working paper series publishes cutting-edge research on African economies. The
working papers present on-going research from the projects and programs based at CAE, as
well as the current work of scholars studying African economies from a multi-disciplinary
perspective. They encourage the use of heterodox schools of economic thought to examine
processes of economic development and the economic challenges that African countries face.
Most of all, the working paper series aims to stimulate inter-disciplinary work, showing how
breaking down the barriers between disciplines can be necessary and even more fruitful for
understanding economic transformation in African countries.
ABSTRACT
Eco-industrial parks are an attractive idea for international organizations, state officials and firms alike, as they provide a physical space to entangle better environmental practices with the realm of production. This is particularly true in emerging economies, where industrialization is still the main goal of states. Although the technical solutions exist, and there is a perceived ‘good will’ from tenants and park managers, there is still an implementation gap. Implementation is constrained by local and regional dynamics surrounding the parks, as well as by global dynamics the tenants of the parks are faced with, trying to be profitable in highly competitive global production networks (GPN).
In order to identify these constraints and how they affect the implementation of eco-industrial parks in emerging countries, this article studies the creation and management of eco-industrial parks in Ethiopia, by combining local managerial issues at park level with GPN dynamics producers at the parks face. This article finds that the hyper competitive nature of the apparel GPN implies that firms located in Ethiopian industrial parks have a hard time participating in solving issues together at park level, even when buyers force them to participate due to their sustainability management practices. At the same time, the local context in Ethiopia acts as a barrier for industrial symbiosis due to poor infrastructure and a lack of possible linkages and services for the parks. Finally, the question of who pays for better environmental practices remains a contested one. In Ethiopia, so far, the government has had to pay for most of the environmentally friendly infrastructure for apparel producers.
Based on these observations, it is argued that the state has a role to play through strategic industrial policy in not only attracting investments to the country, as it has, but also in improving the general regional assets in order to foster eco-industrial development in Ethiopia and improve its chances of benefitting from the parks. This is no easy nor cheap task, but industrial development will have to consider the environmental challenges ahead to be successful in the future.
AUTHOR
Federico Jensen ([email protected]) is a Ph.D. fellow at Copenhagen Business School, Department of Organization, and at the Sino-Danish Center for Education and Research, University of Chinese Academy of Sciences.
Working papers in the CAE series:
Whitfield, Lindsay, and Cornelia Staritz, “Les enterprises africaines dans les chaînes de valeur mondiales du vêtement: stratégies de valorisation, réseaux diasporiques et marchés de niche à Madagascar”, CAE Working Paper 2019: 3.
Itaman, Richard, and Christina Wolf, “Industrial Policy and Monopoly Capitalism in Nigeria: Lessons from the Dangote Business Conglomerate”, CAE Working Paper 2019: 2.
Azizi, Sameer Ahmad, "The Kenyan floriculture export industry: Assesssing local firms' capabilities in the floriculture global value chain," CAE Working Paper 2019: 1.
Whitfield, Lindsay, and Cornelia Staritz, "Local Firms in Madagascar's Apparel Export Sector: Technological Capabilities and Participation in Global Value Chains," CAE Working Paper 2018: 3.
Staritz, Cornelia, and Lindsay Whitfield, "Local Firms in the Ethiopian Apparel Export Sector: Building Technological Capabilities to Enter Global Value Chains," CAE Working Paper 2018: 2.
Melese, Ayelech Tiruwhat, "Sales Channels, Governance, and Upgrading in Floricultures Global Value Chains: Implication for Ethiopian-owned Floriculture Firms," CAE Working Paper 2018: 1.
Mulangu, Francis, "Mapping the Technological Capabilities and Competitiveness of Kenyan-Owned Floriculture Firms," CAE Working Paper 2017: 5.
Whitfield, Lindsay, and Cornelia Staritz, "Mapping the Technological Capabilities of Ethiopian-owned Firms in the Apparel Global Value Chain," CAE Working Paper 2017: 4.
Staritz, Cornelia, and Lindsay Whitfield, "Made in Ethiopia: The Emergence and Evolution of the Ethiopian Apparel Export Sector," CAE Working Paper 2017: 3.
Melese, Ayelech Tiruwha, "Ethiopian-owned Firms in the Floriculture Global Value Chain: With What Capabilities?" CAE Working Paper 2017: 2.
Staritz, Cornelia, and Lindsay Whitfield, with Ayelech Tiruwha Melese and Francis Mulangu, "What Is Required for African-owned Firms to Enter New Exports Sectors? Conceptualizing Technological Capabilities within Global Value Chains," CAE Working Paper 2017: 1.
Table of Contents
Introduction ............................................................................................................................................. 1
The argument for combining Industrial Ecology with the GPN framework........................................... 2
Attracting the apparel GPN – dynamics and eco-industrial parks .......................................................... 7
The apparel GPN: a hyper-competitive global manufacturing sector ................................................ 7
Industrial policy in Ethiopia to attract the apparel GPN ................................................................... 9
Industrial parks in Ethiopia .............................................................................................................. 12
Challenges to eco-Industrial development in Ethiopia ......................................................................... 14
The development of utilities and a waste service sector around the parks ....................................... 14
Operating eco-industrial parks in Ethiopia: learning as key ........................................................... 17
Who pays for eco-industrial development? ....................................................................................... 19
Green capital accumulation in the apparel sector in Ethiopia ............................................................... 21
Conclusion ............................................................................................................................................ 23
References ............................................................................................................................................. 25
CAE WORKING PAPER 2020: 1 1
Constraints on eco-industrial development in the context of global production networks:
The case of Ethiopian eco-industrial parks
Introduction
In developing economies, ideas surrounding environmental sustainability are full of contradictions, as
the need for general economic improvements, jobs and industrialization generally leads to a lesser
prioritization of environmental issues. However, no solutions have been implemented at a large scale
and industrialization dynamics inherently continue to have negative consequences on the environment
(Yoon and Nadvi 2018). Recent scholarship argues that sustainability concerns have therefore become
a stronger aspect of industrial competitiveness for lead firms and its suppliers (Ponte 2019). Thus,
industrialization for less economically developed countries will not only have to encompass the creation
of growth and jobs but may also mean the usage of methods and processes of cleaner production, or at
least firms may have to engage with ‘sustainability management’ (Ponte 2019). This article therefore
explores the growth of sustainability management in industrialization processes in the apparel sector in
Ethiopia.
Ethiopia has had success in attracting the global apparel sector, particularly after the entry of one of the
main players to the country, the Phillips-Van Heusen Corporation (PVH), owners of brands such as
Tommy Hilfiger and Calvin Klein (Mihretu and Llobet 2017), the main example of this success being
the ‘Eco-Industrial Park’ in Hawassa City. However, this initial success in the attraction of FDI to the
country is starting to face resistance and challenges regarding issues of labor turnover and low wages,
conflicts between locals and tenants and management in the parks1, as well as issues with some of the
environmental solutions of the parks. The environmental and labor issues mentioned above have
previously been observed in the apparel production network in several other locations (Gereffi 1999;
Azmeh 2014). Therefore, this article will explore whether the general economic dynamics of the apparel
GPN may be negatively affecting the perceived ‘sustainable development’ process in Ethiopia. This
article aims to contribute towards the agenda of sustainable industrialization by investigating the on‐
going industrialization processes in Ethiopia through the creation and implementation of eco-industrial
parks targeted towards the apparel sector. The article argues that although technical solutions to increase
sustainability efforts exist, there is still an implementation gap. Implementation in Ethiopia seems to
face constraints stemming from local and regional dynamics as well as by global dynamics. Producers
are faced with trying to be profitable in highly competitive global production networks (GPN).
The empirical material provided in this article is based on 11 days of fieldwork in Ethiopia, with one
day spent in Adama, four days spent in Hawassa city and the rest in Addis Ababa. 23 interviews were
1 See for instance: https://www.capitalethiopia.com/featured/textile-firm-held-hostage-by-youth/ [Accessed 30.04.2019] or https://www.theafricareport.com/12818/ethiopias-26-a-month-factory workers-all-quit-in-the-first-year/ [Accessed 07.06.2019].
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conducted with state officials from EIC and IPDC, both senior level and park managers (six interviews),
representatives from the supplier firms and buyers (four suppliers and two buyers), the managers of the
ZLD system in Hawassa (two interviews) and other relevant actors such as consultants and NGOs
working in and around the Industrial parks (seven interviews). In addition to this, participant
observation was conducted in a meeting between the tenants’ association of Hawassa Industrial Park
and government representatives from city, region and ministerial level. This meeting was the initial
event for a multi-stakeholder initiative in order for the city of Hawassa to be better connected to the
Industrial Park, and for the city and the industrial park to work together to solve issues. This participant
observation, in addition to the interviews with state officials and firm managers provide for the
empirical material of this article, while interviews with NGOs and consultants serve as triangulation. In
addition, speaking with both senior officials and management level at state organizations provides the
opportunity to see if strategic ideas are being implemented on the ground. Finally, primary sources from
researchers in the apparel industry also served as a triangulation tool, particularly in relation to buyer
and suppliers’ interests and motivations to come to Ethiopia, for which I only had information from
state officials.
This article has the following structure: In the next section, the theoretical background is laid out.
Section three describes general dynamics of the apparel GPN, which also affect the Ethiopian context.
Furthermore, the section describes the context of Ethiopia as a sourcing country. This will be done in
order to understand the structural dynamics affecting the apparel sector in Ethiopia. Section four
analyzes the constraints on environmental practices in the apparel sector in Ethiopia based on GPN
dynamics and regional dynamics that affect the industrial parks in Ethiopia. Special emphasis is given
to the issues surrounding the Zero Liquid Discharge (ZLD) wastewater plant in Hawassa Eco-Industrial
Park, as the ZLD is a main aspect of eco-industrial development in Ethiopia. Finally, the role of the
firms themselves in the park, their governance mechanisms towards suppliers and their strategic
consideration when choosing location will be discussed. The last section presents a conclusion to the
findings of the study.
The argument for combining Industrial Ecology with the GPN framework
The industrial ecology literature does not focus on the socio-economic relations in depth when trying
to explain the constraints of creating eco-industrial parks (Yoon 2014: 17). With its origins in
engineering, industrial ecology tends to value technical solutions as a method to create better
environmental management for firms in close to proximity to each other (Yoon 2014: 17). However, an
increasing number of studies are starting to highlight the importance of social factors in the
collaboration among firms to the achievement of industrial ecology (Deutz and Gibbs 2008; Gibbs
2009). These studies have focused on the social issues in creating the networks and by-product
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exchanges necessary for the technical solutions of industrial ecologists to be successful, rather than
focusing on the engineering innovations that make eco-industrial parks possible (Yoon 2014: 17).
At the same time Yoon (2014:18) argues that the industrial cluster and chain/network studies do not
focus enough on environmental management as an everyday consideration for a firm in industrial
agglomerations. Most studies on industrial clusters and GPN focus mainly on ‘end of pipe’ issues or
pollution control (Lund-Thomsen 2009), others focus mainly on cleaner production based on global
standards or CSR (Lund-Thomsen and Nadvi 2010) or depict environmental issues as dark sides of
GPN (Bair and Werner 2011).
However, these environmental issues may also provide new opportunities or trigger new development
trajectories in a region. As firms in a region can change over time, the dark sides that once were
politically tolerable in the region are no longer politically viable, leading to a recombination of regional
assets to suit a different GPN (Yeung 2015). Therefore, the role of institutions that engage in decision-
and strategy-making towards regional development is crucial, as they can ameliorate the dark sides of
coupling or implement more distribution and capacity building in a region (Yeung 2015). However, the
question becomes how these negative aspects are ameliorated in a practical sense by firms, something
which several authors have attempted to tackle through discussing services in GPN (Kleibert 2016;
Alexander 2018) or through further understanding the process of a firm creating its own sustainability
management (Ponte 2019).
The combination of both literatures provides for a filling of the gaps each other have, since the industrial
ecology literature provides technical solutions for inter-firm cooperation to solve environmental issues
(Yoon 2014), while the GPN framework provides explanations about the strategic behavior of firms
and non-firm institutions in collaborating with each other to create new industrial growth in regions
(Coe and Yeung 2015). Therefore, both are necessary for understanding the challenges surrounding
eco-industrial development in Ethiopia.
Industrial ecology suggests that the solution to environmental problems is reforming the traditional
industrial systems towards a circulating process. This means facilitating flows of materials and energy
between product units within an industrial system (Yoon 2014: 31). This reforming process of
traditional industry, in its social dimension, and with its specific industrial policy is generally
denominated eco-industrial development (Gibbs and Deutz 2007; Yoon 2014). Eco-industrial
development provides the basis for understanding the goals and the roles of relevant stakeholders in
this article, as not only developing new industries, but attempting to create better environmental
management during production to be able to continue similar growth. The creation of better
environmental management in production, and in industrial development, is also perceived as a key
aspect of economic development.
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The main method in industrial ecology to foster eco-industrial development is increased collaboration
and synergies among competing firms: industrial symbiosis. Chertow and Ashton (2009: 129) argue
that three main synergies can be seen as industrial symbiosis:
“By-product exchanges: use of traditionally discarded materials or wastes as
substitutes for commercial products or raw materials;
Utility sharing: pooled use and shared management of commonly used resources
such as steam, electricity, water and wastewater;
Shared services: collective provision of services by a third party to satisfy ancillary
needs, such as waste management or fire suppression.”
In the more practical sense, industrial symbiosis is for the most part undertaken in co-located systems
of production, and generally (although not always) inside an institutionalized organizational form such
as an eco-industrial park.
Eco-industrial parks are not islands without relations, as in the end the purpose is still to produce
products for a market outside the park. Therefore, the theoretical framework must consider linkages
with EIPs not only from a symbiosis perspective, but also in terms of the underlying dynamics of
production in the park. There are two main external linkages which significantly influence industrial
parks: global networks and a state’s regulatory framework. Industrial parks’ external linkages at the
global level are the most intensively studied area over the last decade under the label of global value
chains or global production networks (Gereffi et al. 2005; Coe and Yeung 2015). The key objective of
this framework is to understand how local relations and processes are influenced by global players such
as branded buyers and manufacturers. The main reason for this influence is that demands and decisions
by these strong global players affect the positioning and production processes of firms engaged in the
network (Coe and Yeung 2015; Gereffi et al. 2005).
The first essential aspect of a GPN approach is the focus on the three competitive dynamics (or GPN
dynamics) all firms are faced with:
1) Cost-capability ratio: defined as the ratio between costs and a firm’s capability,
2) Market imperatives to maximize value capture through access to and even domination
of a market,
3) Financial discipline: in the form of pressures to create value for shareholders through
synergy and developing new products/markets (Coe and Yeung 2015: 81-123).
In addition to these three competitive dynamics, Coe and Yeung (2015: 81-123) add risk as an important
external variable, which can trigger companies into action to manage such risks. One type of
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increasingly relevant risk is environmental risk, or rather, the risk of your production being considered
unsustainable by consumers, or a major pollutant that destroys natural landscapes (Ponte 2019). This
has led firms increasingly to see sustainability management as its own dynamic in GPN. The actions
partaken to address this new dynamic can be argued to be reshaping the current spatial, organizational
and technological structure of GPN (Ponte 2019). For instance, the rise of certification schemes, the
increased environmental monitoring of production by lead firms and re-shoring decisions seem to stem
from an increased attention to sustainability management (Ponte 2019). The value extracted by these
firms through sustainability management, be it from premium prices for eco-products, costs pressures
on suppliers based on increased production knowledge or non-compliance, is what Ponte (2019) coins
as green capital accumulation.
The placement of production in eco-industrial parks can also be argued to represent an engagement with
sustainability management by firms. In relation to eco-industrial development, this implies a need to fit
the GPN dynamics of global firms entering a country with the right regional assets and dynamics to
stablish eco-industrial practices. This can then help to understand the type of strategies firms take in the
country and explore the process of park implementation. It is the positive synergies and connections
between these two dynamics that can create regional development and eco-industrial growth, under the
right conditions. Here is where the concept of strategic coupling can help to understand how regional
and GPN dynamics are brought together in different contexts and industries (Yeung 2015; Coe and
Yeung 2015: 170-200).
At the same time, these decisions affect industries related to the eco-industrial park, such as possible
raw material suppliers and other actors in the production process (Yoon 2014: 60-64). This
demonstrates the importance of understanding global linkages in order to also understand local and
horizontal dynamics on the ground in EIP (Yoon 2014: 60-64), something the industrial ecology
framework has not adequately covered. Furthermore, these global linkages can also explain the
absorption and adaptions by locals and extra-firm actors of the decisions by lead firms, while this can
spur into a knowledge transfer to meet standards and thus maintain or improve a firm´s economic
position (Yoon 2014: 60-64). In the case of eco-industrial development, this means that establishing the
principles of industrial ecology in a park can serve as a springboard to meet global standards, as well
as to improve efficiency and costs, something that can also improve a firm´s position in a network, and
the possibility of both environmental and economic improvement for the region as will be discussed
below.
Thus, the element of trust and the firm’s relations in GPN should be considered in the horizontal
dimension of management of the park among tenants in the parks (Yoon 2014: 60-63). However, as
explained above, cooperation and trust are not a matter of course. Joint action should be coordinated to
build the industrial symbiosis relations among park firms. The institutional support system to promote
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industrial ecology practices can be compared to extra-firm actors bargaining with the specific GPN
parks are selling products to. Therefore, it can be supposed that the elements of symbiosis in industrial
ecology can promote the development of regional assets locally and solve issues for specific firms,
leading to a strategic coupling (Coe and Yeung 2015; Yoon and Nadvi 2018).
One of the types of strategic coupling Coe and Yeung (2015) identify is structural coupling. This type
of coupling is associated with modern divisions of labor and highly intensive labor manufacturing
located in ‘assembly platforms’ (Coe and Yeung 2015: 180-185). Generally, this type of coupling is
said to associate firms in dependency structures between developing regions and lead firms from
industrialized economies (Yeung 2015). Although this inequality exists, Yeung (2015) argues that this
type of coupling still requires strategy. The state or region still needs to attract investment through
proactive policies, as firms do not only invest in places with lower labor costs. Thus, ‘assembly
platforms’ may be an initial and deliberate form to enter GPN towards achieving other developmental
goals at a later stage (Yeung 2015). This could for example imply that although what is being
experienced in Ethiopia is an ‘assembly platform’ type of coupling, the requirements to achieve the
coupling were still accomplished through proactive policies from the state. Furthermore, in this case,
eco-industrial parks were key due to the increased risks associated with environmental issues in garment
GPN.
To encourage firms to participate in environmental joint actions, there must be gains which are attractive
enough to firms. These gains include resource productivity, secure supplement of materials and energy,
cost saving, good reputation and social responsibility (Yoon 2014: 60-64). In summary, the gain is eco-
efficiency. This eco-efficiency can be achieved through internalizing external diseconomies by joint
action, something Yoon (2014: 64) coins collective eco-efficiency. In the case of less economically
developed economies this eco-efficiency needs to be considered a regional asset, as will be explained
below, in order to be useful in attracting and maintaining FDI and the possibility of leading towards the
coupling of firms in the region. However, eco-efficiency does not necessarily mean good eco-industrial
development for a region; as these efficiency gains can be absorbed fully by firms and not distributed
to for example labour or the region. At the same time, eco-efficiency in a ‘brown economy’ only
provides some improvements to environmental management rather than a fully ‘green’ production
system, but in the current economic realities of global production may be the best option to initiate eco-
industrial development.
Therefore, it is relevant to understand how to create eco-industrial development in less economically
developed countries in the context of GPN. Two important factors become relevant, the use of FDI and
the role of the state. Therefore, a framework aiming at understanding eco-industrial development in less
economically developed countries need to have an added perspective on the relation between the state
and the large firms that make decisions about the location of their suppliers and service providers in a
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competition among states for foreign investments from GPN. However, the diversity of purpose on
establishing production, driven by the dynamics of production networks, may show the lack of
environmental incentives in EIPs in relation to economic priorities in less economically developed
countries. Thus, it is relevant to understand how creating eco-collective efficiency in developing
countries may be constrained by GPN dynamics.
By mapping the necessary elements for eco-industrial development in Ethiopia, the behavior of apparel
GPN entering this new region and the role of extra-firm actors in facilitating this process, this
framework uncovers empirically what constraints firms, their suppliers and other actors have, in
fostering cleaner production processes in the context of globalized production in Ethiopia.
Attracting the apparel GPN – dynamics and eco-industrial parks
In order to understand the effect of GPN dynamics on eco-industrial development in Ethiopia, it is
necessary to understand the specific GPN discussed in this article as well as the perceived issues
stemming from the process of park creation in Ethiopia. Therefore, this section, through a combination
of reviewing secondary sources and the primary data collected during fieldwork, will describe the
dynamics that rule the apparel GPN, as well as provide the empirical data describing the establishment
of eco-industrial parks and the attraction of the apparel GPN to Ethiopia through strategic industrial
policy.
The apparel GPN: a hyper-competitive global manufacturing sector
In the 21st century apparel GPN, the distribution and potential of profit at various points of the apparel
GPN changed in correlation with a change in practices by lead firms in their business models (fast-
fashion), aggressive pricing and marketing practices, and high levels of financialization in firms
(Milberg 2008). At the same time, although there was stronger concentration and consolidation of firms
in end markets, competition arose as demand fell due to a decrease in the rate of growth of the
purchasing power of the middle-class in end markets (Milberg 2008).
All these dynamics necessitated the off-loading of more risks on producers, who are now expected by
lead firms to not only accept less share of profit from sales and shorter lead times, but also to deliver
higher quality and more services for that lower price (Bair and Werner 2011), indicating a need for
suppliers to have high cost-capability ratios. At the same time, the final phase-out of the quota system
and the higher requirements for buyers have led to the rise of first-tier suppliers in Asia that could
organize the flexible sourcing the lead brand required, and an increase in South-South competition
(Azmeh and Nadvi 2014).
All these developments in the buyer and supplier side have led to the current picture of low prices and
‘supplier squeeze’ with a low prospective of capturing value and the need to take on contracts, even at
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a loss, just to maintain relations with buyers (Anner 2019, Bair and Palpacuer 2015; Khattak and
Stringer 2017; Khattak et al. 2015). This supplier squeeze in turn affects the reaction of supply firms
against demands for better wages and environmental management. At the same time, new sourcing
areas have spurred again from relative trade gains such as the Africa Growth and Opportunity Act
(AGOA), as well as labor cost differentials and compliance issues in Asia (Whitfield and Staritz,
forthcoming). However, with the price per unit decreasing and competition increasing, the room for
investments to improve the apparel production in any newcomer country, such as Ethiopia, may be
significantly reduced.
Many examples can be found of the apparel sector, and specific brands being called out for not living
up to perceived environmental, labor and safety standards. In light of the Rana Plaza disaster, in which
over 1000 garment workers in Bangladesh died, after a building collapsed after lighting on fire, the
apparel industry came under large scrutiny in all aspects of its production (Bair and Palpacuer 2015).
Furthermore, the increased perception of the apparel sector as wasteful and unsustainable has also led
to more and more projects and sustainability initiatives within the supply chain2.
This has spurred the sector into a crisis of legitimacy with consumers and NGOs, and many initiatives
have been attempted to achieve better working conditions, especially in relation to wages and safety
(Bair and Palpacuer 2015). Buyers, through their position of control of the networks have made their
suppliers sign into suppliers’ codes of conduct and adhere to several standards, both public and private,
as a way to deal with these issues, and with exclusion from their selection of suppliers as punishment
for non-compliance (Bair and Palpacuer 2015). These projects, however, still do not address the main
dynamics outlined in the section above of price competition and over-crowding in the sector. Thus,
although buyers are willing to participate in initiatives with civil society and local producers, they
cannot promise long-term solutions. This is due to buyers’ constant re-structuring of their supply chains
and changing their sourcing factories in order to reduce costs, which require a type of flexibility that
does not permit buyers to invest in their suppliers’ safety mechanisms or higher wages for workers (Bair
and Palpacuer 2015).
Similar trends are observed in regard to issues of environmental management in apparel firms -buyers
spur or manage the active involvement in managing sustainability issues, but the costs are still being
pushed down to suppliers (Khattak et al. 2015; Khattak and Stringer 2017). The main difference
between labor issues and environmental issues is that there is at least one possible incentive for suppliers
to engage with sustainability requirements, namely when this can become a new revenue stream or a
cost-saving mechanism (Khattak et al. 2015; Khattak and Stringer 2017). Nevertheless, as we will see
below in the case of Ethiopia, these incentives and the possibility of environmental management is
2 https://www.ecotextile.com/
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contingent upon the capacity and relations among suppliers, and the regional assets in the place where
production is occurring.
For the apparel GPN, the main environmental concerns surrounding production are energy, water, solid
waste management and carbon emissions (Khattak et al. 2015; Khattak and Stringer 2017). Specifically,
the environmental issues refer to the use of renewables for energy consumption, the recycling of water
and decreased consumption of it through technological innovation, the segregation of solid waste and
its recycling, and the monitoring of CO2 emissions, as well as concerns of long distance travelled by
inputs (Khattak et al. 2015; Khattak and Stringer 2017). At the same time, the challenges associated
with dealing with these issues are mostly of a technical and financial nature, as in many cases either the
technology, designs and examples are not available in a local context and thus the financial requirements
to deal with these issues are high (Khattak et al. 2015; Khattak and Stringer 2017).
Industrial policy in Ethiopia to attract the apparel GPN
After describing the dynamics ruling the apparel GPN, we move to the government’s role in attracting
this GPN to Ethiopia. It is important to understand how and why investors landed in Ethiopia in order
to discuss the possibilities for eco-industrial development, as well as its challenges. For instance, the
role of the state in building the parks explains the establishment of a state-owned enterprise (SOE) as
the park developers and managers in the country (IPDC), which in turn affects industrial ecology
practices in the parks, as will be discussed below.
After the initial success of Bole Lemi I (a World Bank pilot project), other parks were planned and the
apparel sector in Ethiopia accelerated once a major global buyer in the apparel GPN, the Phillips Van
Heusen corp. (PVH), and other producers (mostly Asian transnational producers in the apparel GPN)
started to consider Ethiopia as a viable investment location (Whitfield and Staritz, forthcoming).
Ethiopia benefitted in this acceleration from the assistance of PVH and their knowledge of buyer
requirements. This resulted in all parks after Bole Lemi I being designed from the beginning with
technologies and soft management processes that try to consider productivity concerns in production in
alignment with buyer requirements. The government invested in several industrial parks equipped with
government services provided on-site (one-stop shop) and equipped with water recycling systems,
namely a zero-liquid discharge (ZLD) water treatment plant (Whitfield and Staritz, forthcoming). At
the same time, investments in better logistics and other infrastructure, were also set in motion (Whitfield
and Staritz, forthcoming).
The parks that are operational have been filled by tenants or have almost been filled up, and the interest
of buyers for Ethiopia as a sourcing country has increased3. At the same time, the main success factor
3 Interview with senior officials at the Ethiopian Investment Comission (EIC), Addis Ababa, 3rd of May 2019.
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visible in Ethiopia is that the network of buyers (Inditex, H&M, VanityFair, PVH) all have now offices
or representatives in Ethiopia4.
This wave of industrial policies comes with requirements for firms in relation to export requirements
(100%), as well as generous fiscal incentives (15 years free of tax) and with incentives for local linkages
(Staritz and Whitfield 2019). All these policies have been implemented through a new agency: the
Ethiopian Investment Commission (EIC), which has full regulatory powers in the parks and is directly
governed by the Ethiopian Investment Board, chaired by the Prime Minister. At the same time, the EIC
also created a state-owned firm to develop parks, namely the Industrial Park Development Corporation
(IPDC), in order to centralize and coordinate the construction and management of the parks (Mihretu
and Llobet 2017). The objective with this new structure is both to ease and centralize the regulatory
institutions investors need to go through in order to invest in the country, as well as provide key
infrastructure for those investors, in a ‘plug-and-play’ style (Mihretu and Llobet 2017). As discussed in
the prior section, the apparel GPN has high levels of competition and financial pressures, and thus the
provision of specific infrastructure that eases the complexity of establishing production in a new country
is an attractive investment incentive.
The EIC has been given high levels of autonomy to encourage investment through policy reform, has
received full power over the IPDC to strategically build industrial parks and infrastructure, and has
created an investment board, chaired by the Prime Minister, in order to design the industrial policy of
the country. Thus, the Ethiopian Investment Commission functions as a strong intermediary and
institutional asset (Coe and Yeung 2015; Yoon 2014) in the Ethiopian government, which adds to the
attractiveness of Ethiopia as an investment area, since other countries in the area do not have similar
organizational bodies that offer a similar ‘all around’ services for investors.
In addition to the fiscal and infrastructural incentives the Ethiopian government specifically targeted
towards the apparel GPN, low labor costs represented a large attraction factor. Ethiopia has the lowest
labor costs in most large sourcing destinations of the apparel GPN (Barret and Baumann-Pauly 2019:
9). Although wages can go up to 40-45$ a month with productivity bonusses and allowances for
transport and housing, these prices remain highly competitive. However, particularly at the beginning
of a new factory, as the mostly rural population of Ethiopia employed at the parks, is not as productive
as experienced garment workers in Asia5. Thus, although operations in certain plants have been going
for two years now, these factories are still losing money (Barret and Baumann-Pauly 2019: 11) and are
not as productive as their Asian competitors (Staritz and Whitfield 2019). Workers’ learning of the
4 Interview with senior officials at the Ethiopian Investment Comission (EIC), Addis Ababa, 3rd of May 2019. 5 Interview with the manager of one of the firms at Adama Industrial Park, Adama, 1st of May 2019. Other interviewees also emphasized the productivity comparison to Asian workers.
CAE WORKING PAPER 2020: 1 11
particular production tasks in apparel production requires time, and productivity is slowly increasing6,
so over time it is expected that these wage prices will be highly competitive in the industry.
Even though labor is a big factor in garment production, time and logistics is key as well (Staritz and
Whitfield 2019). Time to import/export in Ethiopia is high (Staritz and Whitfield 2019), as seen in the
table below. Ethiopia has the longest and most expensive transport and logistic costs in comparison to
the main garment producing countries.
Table 1: Transport time and costs in apparel producing countries
Country Time to Export Cost to Export
Ethiopia 44 days 2380$
Bangladesh 28,3 days 1281$
China 21 days 823$
India 17,1 days 1332$
Source: Report on the Ethiopian textile and apparel industry (2014: 30) in Staritz and Whitfield (2017: 19).
To reduce these costs and lead times, the government has partaken in large infrastructural projects, such
as the Addis Ababa-Djibouti railway line, which is now operational. Further, railway lines to Mek’ele
and Hawassa, meeting in Modjo, are under construction (Staritz and Whitfield 2019). However,
trucking to the port of Djibouti will still be the most important method of transportation until a fully
operational railway system is in place7. Improvements such as Modjo dry port and the continuous
growth of the Addis – Awash freeway to Hawassa and other parts of the country also will affect lead
times8. Furthermore, Modjo dry port, once operational, will allow the mixing of orders from different
factories in Ethiopia, rather than in other logistics hubs around the world, allowing containers to be fully
filled and send directly to their destination9, further decreasing lead times. In addition, for eco-industrial
development, an improvement in logistics means increased opportunities for collaborations among
firms which are further away from each other. Finally, the parks themselves also acted as a relevant
attraction mechanism for producers, specially PVH, as they showcased a strong commitment to attract
them and their suppliers to the country (Mihretu and Llobet 2017).
In regard to end-markets, the two main markets for exports from Ethiopia are the European Union (EU)
and the United States (US), and all major buyers are by now present in the country either as buying
agents, such as Inditex, Vanity Fair and H&M, or more involved in production such as Calzedonia or
PVH. Particularly the US is the main export market, as the AGOA (Africa Growth and Oportunity Act)
trade agreement provides for a comparative advantage for apparel coming from Ethiopia above other
6 Interview with the manager of one of the firms at Adama Industrial Park, Adama, 1st of May 2019. 7 Interview with the logistics manager of a buyer, Addis Ababa, 2nd of May 2019. 8 Interview with the logistics manager of a buyer, Addis Ababa, 2nd of May 2019. 9 Interview with the logistics manager of a buyer, Addis Ababa, 2nd of May 2019.
CAE WORKING PAPER 2020: 1 12
sourcing locations in Asia (Staritz, Plank and Morris 2016: 14). The renewal of AGOA until 2025
provides another incentive for producers to relocate to Ethiopia, particularly after increased trade
tensions between China and the US.
The type of strategies pursued by the government, in addition to the type of production being done in
the country and the general dynamics of the apparel GPN in other locations, indicate that the mode of
coupling between the apparel GPN and Ethiopia is structural, of the assembly platform type. In relation
to this article, it is relevant to explore whether this type of coupling is conducive to effective eco-
industrial development, something which will be discussed in the next section.
Industrial parks in Ethiopia
The parks themselves, as the physical representations of the coupling of the apparel GPN to Ethiopia,
provide this article with the empirical data necessary to understand eco-industrial development in
Ethiopia. The construction, growth, conflicts and linkages to the parks are what will dictate the long-
term success of eco-industrial development in Ethiopia. Therefore, this section aims at providing a
description of the development of the parks as well as an overview over environmental and social issues
surrounding them.
When IPDC first started, its mandate was to build parks for the projects of Bole Lemi I with the World
Bank as well as three other projected parks around the country (HIP feasibility study 2015). However,
after the success of the Bole Lemi park and the success of EIC in convincing PVH to invest in Ethiopia
and create a pilot industrial park in Hawassa, there was an acceleration of projects to build industrial
parks in different regions of Ethiopia10. This meant the thinning out of IPDC’s financial capacity as
well as a reduction of their capacity to train and hire the right personnel for the different jobs. Key IPDC
officials had travelled to China and India to learn about industrial park development and management,
but these officials quickly became a small part of the general IPDC staff and the ensuring of learning is
not clear to have happened11.
As a result of the above-mentioned policies and the successful attraction of the apparel GPN to the
country, the apparel sector has grown significantly, even though the targets specified in the Growth and
Transformation Plan (GTP I) were not reached (GTP I 2010). Nonetheless, the continued focus on the
apparel sector led to the creation of sector specific industrial parks. After the initial success of Bole-
Lemi and Hawassa, industrial park construction has now grown, with the creation of industrial parks in
10 Participant observation in a UN Habitat sponsored meeting between the Hawassa Industrial Park tenant’s association, Hawassa city, the regional government (SNNPR), the Ministry of Industry and Trade, Industrial Parks Development Corporation and the Ethiopian Investment Commission. In addition, some NGO’s and Academics were present as observants and input providers, Hawassa City, 6th of May 2019. 11 Participant observation in a UN Habitat sponsored meeting between the Hawassa Industrial Park tenant’s association, Hawassa city and other key stakeholders, Hawassa City, 6th of May 2019.
CAE WORKING PAPER 2020: 1 13
all regions of Ethiopia, an integrated ‘Industrial Zone’ in Dire Dawa and several parks being clustered
on other industries such as chemicals, heavy metals, appliances, construction and agro-industry. In
addition, several private parks are operational or being built in Ethiopia. See map below to get an
overview of all built and planned apparel specific industrial parks in Ethiopia:
Figure 1: Map of built and planned apparel industrial parks in Ethiopia as of 2019 Author’s based on IPDC 2016 and Ethiopian Investment Commission (2019) [Online] available at
http://www.investethiopia.gov.et/index.php/investment-opportunities/other-sectors-of-opportunity.html [Accessed 17-07-2019].
Although as showcased above several other parks are being planned, only some apparel industrial parks
and the Eastern Industrial Park in Addis Ababa12 are operational or partly operational. These parks were
created to reduce start-up time and provide all government services (customs, licenses, banking, visa,
expat residency) in one location (Staritz and Whitfield 2019).
At the same time, the parks, starting with Hawassa Industrial Park, are designed to not only
accommodate the specific requirements of garment investors in the economic sphere: low costs of
production, centralized investor relations, low taxation and reduced investment risk, but are also
12 Eastern Industrial Park is a mixed industrial park generally serving Chinese construction and appliances companies.
CAE WORKING PAPER 2020: 1 14
consistent with the latest trends in cleaning production processes in the market (Mihretu and Llobet
2017). Furthermore, the parks have their own energy sub-station (something which is quite normal in
most industrial parks) and the energy is based on hydropower, another key reason for PVH to locate to
Ethiopia (Mihretu and Llobet 2017). Furthermore, firms at the parks are provided priority over the
population when there are grid failures or high electricity demands and shortages13. The parks have also
direct water connections, generally through boreholes and are serviced by a waste water treatment plant.
This means that the infrastructural capacity of the park itself has better utilities than the cities they are
located in. Furthermore, all facilities are built to international building, fire and electrical standards,
something highly sought after in the apparel industry after the Rana Plaza disaster in Bangladesh
(Staritz, Plank and Morris 2016). Since all parks besides Bole Lemi are designed based on Hawassa
Industrial park, all parks also have specific environmental standards by design, namely zero liquid
discharge facilities (ZLD) in the majority of them as well as specific energy and waste regulations.
Challenges to eco-Industrial development in Ethiopia
In many conceptualizations of the economy, the availability of simple services and infrastructure is
taken as a given. The main assumption is that the initial conditions for a successful business venture are
already established and provided by the government. This narrow consideration of what is needed for
businesses to be successful is especially contradicting for the emergence of industrial ecology, which
is in itself based on collaboration and links among industries, which have to be located near each other.
Ethiopia, as a less economically developed country, is plagued with contextual constraints for eco-
industrial development to be successful. Although several issues such as logistics, and utility
connections such as electricity and water are highly prioritized by investors and the government (due
to their direct relation to production), secondary issues such as waste management infrastructure
(recycling plants, landfills etc.) are generally not perceived as important. However, they become
important when improved environmental management is more and more a source of competitiveness in
the apparel GPN. Therefore, this section argues for a need to look more broadly at the needs of firms in
EIPs to practice environmental management, and for strategic industrial policy that also addresses the
development of said sectors for better environmental management.
The development of utilities and a waste service sector around the parks
The government of Ethiopia, as explained above, realized the presence of constraints on the initial
conditions to start production in the country, and thus engaged in the construction of industrial parks.
The industrial parks were already created to offer the investors with the necessary infrastructure needed
to start production almost right away, with the government even providing the parks with better
13 Participant observation in a UN Habitat sponsored meeting between the Hawassa Industrial Park tenant’s association, Hawassa city and other key stakeholders, Hawassa City, 6th of May 2019.
CAE WORKING PAPER 2020: 1 15
infrastructure and priority of utilities use14. However, these provisions have mostly focused on utilities
for production, rather than on utilities for waste disposal15.
The waste sector in Ethiopia is highly underdeveloped. This represents a large issue for companies in
servicing their waste needs. For example, Hawassa City does not have any type of solid waste
management system16, only allocated dump sites. As HIP is trying to comply to high environmental
standards, the park does not have any type of opportunity to collaborate with the city as dumping waste
in these local sites does not comply with standards17. This highlights one of the key observations
concerning park creation in Ethiopia, which is that although the parks are self-sufficient, there will
always be necessary linkages of production to the local region. Therefore, an improvement in this given
set of regional assets needs to happen to enable more successful coupling.
The lack of a waste disposal systems and utility access of the parks with the cities and towns they are
located in can nonetheless be an opportunity for creating eco-effective closed-loop systems in order to
comply with international standards of production. However, eco-industrial parks are heavily
contingent on the existence of sectors and industries to create symbiosis and product exchanges with.
Therefore, a developing country context requires a rethinking of the type of symbiosis available for
parks. Furthermore, the type of apparel specific park in Hawassa and in other parks in Ethiopia means
that inputs and waste are all similar among tenants (Bellantuono et al.2017), thus necessitating thinking
of by-product exchange symbiosis beyond the parks and towards the local economy.
In addition, the type of investment coming to the country means that tenants’ own financial pressures
supersede any type of environmental performance or project they would want to participate in. At the
same time, the requirements of buyers mean that suppliers want services that create these environmental
services at competitive prices. For example, systems like the Zero Liquid Discharge (ZLD) system,
which provides for water savings and a good image.
The ZLD system can be qualified as a utility sharing mechanism in the park in the industrial ecology
sense (Chertow and Ashton 2009). At the same time, it has provided the EIC with a key ‘marketing
tool’ for suppliers to come to the country, and this system is being introduced in several other parks,
such as Adama and Mek’ele industrial parks as a key service the suppliers use to run their operations in
the country. The establishment of this technology to the country follows the arguments by Kleibert
14 Interview with the UN Habitat office in Addis Ababa, 3rd of May 2019. 15 Interviews with waste management consultants working on better waste management in Hawassa Industrial Park, Addis Ababa and Switzerland (over skype), 5th of May 2019 and May 20th respectively. 16 Participant observation in a UN Habitat sponsored meeting between the Hawassa Industrial Park tenant’s association, Hawassa city and other key stakeholders, Hawassa City, 6th of May 2019. 17 Participant observation in a UN Habitat sponsored meeting between the Hawassa Industrial Park tenant’s association, Hawassa city and other key stakeholders, Hawassa City, 6th of May 2019.
CAE WORKING PAPER 2020: 1 16
(2016) of the increased economic importance of services to GPN, as this system not only plays a crucial
part in PVH’s motto of ‘doing right from the beginning’, but it is also being provided by an
environmental services company (Arvind Envisol), a sister company of one of PVHs key suppliers
(Arvind).
However, these services of water recycling still create large levels of solid wastes, namely the salts and
toxic sludges left from the processing of the water. This supports Kleibert’s (2016) notion of services
being a GPN in itself, as water processing not only requires certain inputs which will be discussed
below, but also create outputs, which can be bought and sold (creating by-product exchanges) or
disposed of, depending on the productive capability of the local economy. Apart from disposal, the
sludges from the ZLD can be sold for burning due to its high caloric value or be used to make bricks,
while the salts could be recycled again for textile production18. There are no sanitary landfills for
hazardous waste in or around Hawassa or local buyers for the waste, and hence the investors are required
to find other avenues for their hazardous waste management, such as the sludges and salts which for
now has meant safe storage in the park itself until solutions are found19. This is particularly relevant for
the ZLD system, as without any symbiotic systems to rely on for further usage of the effluent sludge,
the waste created must be eventually disposed of20. Furthermore, and relevant for the industrial ecology
literature, the type of symbiosis that could take place in these parks would be done through a by-product
exchange stemming from a utility sharing mechanism.
Transportation costs and available logistics infrastructure also play a role in decreasing the possibility
of creating symbiotic relations or general waste disposal systems21, because it is a question of how far
and at what price you are willing to move “essentially trash” 22 for further treatment. Due to the small
size of the sectors that would be interested in the sludges from Hawassa park at the moment, their
location far away, as well as the lack of proper transportation infrastructure (still being built, such as
the road linking Hawassa and Modjo), the price to pay for investors to create these type of symbiotic
relations becomes too large, and proper environmental management of the sludges does not occur.
Therefore, eco-industrial development is halted by large contextual constraints and cost-efficiency
issues.
Although the park has been an ‘isolated unit’ when it comes to attempting to be sustainable, a full
‘closed-loop’ is not a realistic possibility for any park (Deutz and Lyons 2015). This meant that IPDC
as park managers had to find the relevant solid waste management business on their own to service the
park23. This was more challenging than anticipated, as most local service suppliers did not offer the
18 Interview with Arvind’s Envisol Country Manager, Addis Ababa, 9th of May 2019. 19 Interview with Arvind’s Envisol Hawassa Industrial Park, ZLD plant manager, 7th of May 2019. 20 Interview with Arvind’s Envisol Country Manager, Addis Ababa, 9th of May 2019. 21 Interview with Arvind’s Envisol Country Manager, Addis Ababa, 9th of May 2019. 22 Interview with Arvind’s Envisol Country Manager, Addis Ababa, 9th of May 2019. 23 Interview with the IPDC – Hawassa Industrial Park deputy general manager, Hawassa City, 7th of May 2019.
CAE WORKING PAPER 2020: 1 17
segregated waste disposal and recycling necessary, although in the end a local firm was found24. The
current service provision in Hawassa industrial park for solid waste is contracted to a private service
offered by a company with the capacity to segment the waste, collect the waste efficiently in the park
and process it afterwards25. This capacity is based on the owner of the firm having worked with waste
management prior in Australia, showcasing the importance of knowledge acquisition, as well as the role
of expats or diasporas in capacity building (Whitfield and Staritz, forthcoming).
At the same time, in other parks such as Adama, companies have dug their own boreholes for water
acquisitions, or are planning to do so, due to the incapacity of IPDC to be able to provide these utilities
in a timely manner, or to the size of the services needed26. The problem then becomes that these
unorganized methods to fetch utilities can result in reserves being dried up before time, or on conflicts
when expansion comes, or when some tenants have different utilities than others27. At the same time,
this also means that tenants are not paying for the water they are using, since they are using boreholes,
they have drilled themselves. This not only defeats the purpose of clustering, but also undermines eco-
industrial practices, and may generate path dependencies and a deterioration of relationships that are
difficult to recover over time.
Operating eco-industrial parks in Ethiopia: learning as key
After the building of the park is completed and utilities are connected, the operations team from IPDC
moves to the park. This is one of the most essential parts of the work IPDC does, since it is during this
operation that the park can create a revenue for IPDC, as well as it is the moment when IPDC can learn
from managing the park about the different systems and the eco-aspects of the park.
One of the key management aspects in the parks, as well as a point of contention between IPDC and
the investors is the management of the wastewater system28. This system is what gives the parks a more
‘sustainable’ image than normal parks, while also having high requirements and being costly. In the
case of the ZLD, a strategy was outlined in the contract with Arvind Envisol about the management of
the plant, and the transfer of capabilities to IPDC, from the beginning.
The first management contract of IPDC with Arvind Envisol established a clear path for the phase-out
of expat managers until the IPDC engineers and workers fully operate the ZLD plant on their own. This
was based on a managing fee for Arvind plus the possibility of extension of the management contract,
24 Interview with the IPDC – Hawassa Industrial Park deputy general manager, Hawassa City, 7th of May 2019. 25 Interview with the IPDC – Hawassa Industrial Park deputy general manager, Hawassa City, 7th of May 2019. 26 Interview with a consulting firm and the CEO of the tenant’s association in Hawassa, working as liaison for a Chinese company moving to Adama Industrial Park. 27 Interview with a consulting firm and the CEO of the tenant’s association in Hawassa, working as liaison for a Chinese company moving to Adama Industrial Park. 28 Interview with Arvind’s Envisol Country Manager, Addis Ababa, 9th of May 2019.
CAE WORKING PAPER 2020: 1 18
in the case that IPDC was not ready to overtake the plant after two years29. However, many problems
arose before this phase-out could be completed.
From IPDC’s point of view, the issue falls under Arvind Envisol’s incapacity of teaching their workers,
while also suggesting that Arvind Envisol has no interest in passing on the management of the plant
since they are receiving a large fee for running it30. In any case, the clear outcome was a lack of readiness
from IPDC to overtake the management of the ZLD plant by 2018, which led to a new negotiation of
the contract between IPDC and Arvind, where new provisions were set for the phase-out of the expat
managers. A new position was also created within IPDC to lead the IPDC team at the ZLD plant and to
function as a bridge between IPDC and Arvind on the ground.
This new contract has preconditions for technology transfer and phase-out of international management
with local management, including the creation a specific learning guide and structured process to learn
how to manage the ZLD plant31. However, the new position has not been filled yet, meaning that the
phase-outs of Indian managers that have been planned between November 2018 and May 2019 have
yet to happen. This means that the new contract extension of one year is already behind schedule32.
The problem of learning here is not contractual, but rather a question of the type of relationships
between IPDC and Arvind Envisol. This illustrates the importance of embeddedness of relations
between foreign firms and their local contexts (Coe and Yeung 2015: 180-200). This type of issues does
not require new contracts, but rather experienced managers, strong state officials and middle managers
that can resolve the impasse and arrive at a solution.
The knowledge of the supply chain, relations with suppliers and soft management skills are all placed
at Arvind Envisol, but it is important for IPDC to learn about these supply chains and create
relationships with these suppliers, if it is to ever manage the system on its own. For instance, only one
chemical is being locally procured33, and thus IPDC would have to establish relationships with several
firms that can procure to them the rest of the inputs needed for adequate water processing at the park.
The wastewater system, from a park management perspective, is a double-edged sword. The system
indeed provides for a platform to protect the environment, meets the standards of global buyers and
attracts the main players in the apparel industry to the country, and to do more complex manufacturing
beyond simple cut and trim, that do not require as much water consumption. However, it does not in
itself bring much added value to production, and suppliers located in the cluster are at best
inconvenienced by it and at worst unsatisfied with higher operating costs for their production.
29 Interview with Arvind’s Envisol Hawassa Industrial Park, ZLD plant manager, 7th of May 2019. 30 Interviews with the IPDC and EIC officials at Hawassa Industrial Park, Hawassa City, 7th of May 2019. 31 Interview with the IPDC’s Director of investor after care and Industrial Park management, 9th of May 2019. 32 Interview with Arvind’s Envisol Hawassa Industrial Park, ZLD plant manager, 7th of May 2019. 33 The chemical in question is hydrochloric acid, which is being procured from a state-owned enterprise in Adama.
CAE WORKING PAPER 2020: 1 19
Who pays for eco-industrial development?
Although the industrial ecology literature perceives eco-industrial development as providing win-win
scenarios for everyone in terms of savings, cleaner technology and better production processes, this is
far from the reality of park creation and operation in Ethiopia. This section will highlight several
instances and issues related to the question of financing environmental services at the parks.
Furthermore, this section will discuss how the rise of prices could affect the coupling of firms in
Ethiopia with the apparel GPN. Finally, this section argues that there is a contradiction between
attraction measures performed by the EIC vis-à-vis environmental measures at the park, managed by
IPDC, something which creates conflict in regard to IPDC’s ability captures value from being part of
the park. At the same time, buyers expect their suppliers to pay for environmental services, something
which leads to another form of ‘supplier squeeze’ by buyers.
Beyond the fact that the fees payed to IPDC for using the ZLD system are below the running costs of
the ZLD system itself, the payments for these fees have not fully materialized due to logistical issues
and disagreement with the investors about the method of measuring water consumption and the method
of retrieving the information by IPDC34. This has meant that for the last three years, the IPDC has not
received many of the payments for any of the water used by the tenants35. Only JP textile, the fabrics
producer in HIP has accepted to pay the fee the way it was calculated by IPDC, because they are also
the main consumer of the system. Their textile manufacturing process uses 50% of the effluent treatment
plant system on its own. In any case, the current practices in receiving payment are unsustainable for
the IPDC, who are incurring big losses at Hawassa.36
The dynamics of the apparel GPN are key to understand the challenge EIC and IPDC may face in raising
fees at the industrial parks to at least meet the operational costs of the parks. Many of the suppliers
coming to Ethiopia were ‘strongly motivated’ by their main buyers to move into the country37. Although
the buyers are strongly committed to the Ethiopian project and promise orders for producers when they
come to the country, the initial investment in production in a new country is of high risk for suppliers.
This means that an increase in fees for environmental services or any type of change in the expectation
of costs for these firms is very strenuous on their operations, particularly since they are not yet running
at full capacity and have not reached the productivity goals that will make them profitable.
At the same time, EIC is not too keen on focusing on the financial pressures facing IPDC due to not
receiving payment for environmental services, as EIC’s mandate is investment attraction and
retention38. For them, as long as the park standards are met to a satisfactory level at current prices, so
34 Interview with the IPDC – Hawassa Industrial Park deputy general manager, Hawassa City, 7th of May 2019. 35 Interview with the IPDC – Hawassa Industrial Park deputy general manager, Hawassa City, 7th of May 2019. 36 Interview with the IPDC – Hawassa Industrial Park deputy general manager, Hawassa City, 7th of May 2019. 37 I thank Professor Lindsay Whitfield for this point, based on her ample research and fieldwork of the Ethiopian apparel sector, see Staritz and Whitfield 2019 and Whitfield and Staritz forthcoming. 38 Interview with Hawassa’s Industrial Park EIC representative, Hawassa City, 7th of May 2019.
CAE WORKING PAPER 2020: 1 20
that international operations can be run, it is acceptable enough for EIC that IPDC does not earn more39.
EIC does not want IPDC to become a burden on the investors40. At the same time, EIC perceives these
issues as an opportunity for IPDC to learn, and they expect IPDC to be able to deliver on their
contractual obligations as park managers, particularly when it comes to waste management, and at the
price promised41. Furthermore, EIC considers that IPDC can run at a loss, at least for a while, since it
is learning and can obtain funding from other state sources to sustain their operations, rather than from
their investors, who are faced with challenges already42.
The prioritization by EIC is then clear: IPDC and the environmental management of the park are
secondary to the main issues regarding economic productivity, economic development and export.
Although this is to be expected, this prioritization can be argued to be a lost opportunity for local
linkages and local knowledge building in key service sectors, but also the loss of a key value capture
opportunity for the state from these firms (Coe and Yeung 2015: 180-190; Kleibert 2016). At the same
time, it runs counter to the achievement of investment retention in the medium and long term, since
services and park management are key to providing investors with the right conditions for production
(Kleibert 2016). Furthermore, environmental services and solutions for infrastructure become more and
more relevant every day for suppliers and tenants, so the fact that IPDC cannot fully deliver on the
environmental services already promised, nor innovate or participate in processes to create more
environmental services that provide savings for firms, will keep IPDC trailing behind their possible
competitors in the future.
Generally, environmental management is not prioritized by buyers nor essential for the investment
decisions of the investors. Some of them see it as an opportunity to save43, but the main drivers are the
labor differential compared to Asian countries, buyer pressures and trade policy gains related to the
African Growth and Opportunity Act (AGOA) (Whitfield and Staritz, forthcoming). Environmental
efficiency gains or cleaner production objectives are not the drivers of investment in the industrial parks.
In Ethiopia, the biggest driver for the attraction of firms are the very low labor costs, combined with a
very strong willingness from the government to aid and support investors (Mihretu and Llobet 2017;
Fieldnotes). This does not necessarily mean that possibilities for cleaner production systems do not
exist. For example, the fact that most energy creation in Ethiopia is based in renewable energy of a
hydroelectric nature, means that production there may already be ‘cleaner’ than in other locations. At
the same time, Ethiopia subsidizes the costs of energy for investors as part of their industrial and
investment attraction strategy. Other opportunities in Ethiopia regarding the general utility supply
39 Interview with the Industrial Parks regulation director at the EIC, Addis Ababa, 3rd of May 2019. 40 Interview with the Industrial Parks regulation director at the EIC, Addis Ababa, 3rd of May 2019. 41 Interview with the Industrial Parks regulation director at the EIC, Addis Ababa, 3rd of May 2019. 42 Interview with the Industrial Parks regulation director at the EIC, Addis Ababa, 3rd of May 2019. 43 Interview with CEO of a local supplier firm, Addis Ababa, 31st of April 2019.
CAE WORKING PAPER 2020: 1 21
include for example the hotness of the water, which, with the right technological investment can provide
an opportunity to save energy in the boilers needed for steam production in the garment sector, as it is
done in one of the factories in Adama Industrial Park44. Thus, although the main regional asset attracting
companies to Ethiopia is labor, other complementary assets that also reduce costs and aid in
sustainability management by firms are indeed increasingly becoming relevant factors to companies
when looking for investment opportunities.
The strategic focus on Africa from international buyers is another driver for attracting firms (suppliers)
to Ethiopia (Whitfield and Staritz, forthcoming). However, this focus by buyers has not meant reducing
price pressures on suppliers. Buyers focus on their own value capture and their profitability, based in
financial discipline as a main dynamic driving the GPN (Coe and Yeung 2015: 80-103).
The parks studied in this article follow Ponte’s (2019) idea that sustainability management is a strong
dynamic for value chain governance and behavior in the current global economy. The level of
‘influence’ of this dynamic seems to still be subverted by the other dynamics playing out, such as cost-
capability ratios and financial discipline. The risk of exposure to consumer markets in case of wrong-
doing is not as large in Ethiopia yet, as it is a less known industrial site for apparel. This motivates
companies to focus more on brand management and communication than on changing production
processes and paying better per unit prices to suppliers, but over time this may change. The lack of
environmental management motivations when investing in Ethiopia means that problem solving
concerning eco-practices at the park is underprioritized relative to other issues, creating further
challenges to eco-industrial development in Ethiopia.
This section has discussed how environmental management can mean a further ‘supplier squeeze’
(Anner 2019, Ponte 2019), as buyers get better environmental services for their products, while
suppliers either face the costs, or governments in need of industrial growth subsidize them. This means
that the capabilities and financial means of IPDC to perform proper park services and embark on cleaner
production and symbiosis projects are weakened.
Green capital accumulation in the apparel sector in Ethiopia
As explained in the analysis, one of the main constraints to cleaner production in Ethiopia is a question
of finance. Manufacturers or the state are expected to cover the costs of environmental management
and the costs of environmentally focused industrial parks. This means more pressures on manufacturers
who already face strong pressures by global competition. While buyers promise contracts and demand,
they do not promise preferential pricing nor a bigger profitability margin, thus leading to ‘supplier
squeezes’ (Ponte 2019).
44 Interview with the management of one of the tenants in Adama Industrial Park, Adama, 1st of May 2019.
CAE WORKING PAPER 2020: 1 22
PVH and their brands are considered to be at the forefront of the sustainability fight45, even receiving
awards for their production in Ethiopia46, which may give them extra brand recognition they can use on
sales. However, as Ponte (2019) points out, where the context demands it, investment in cleaner
production takes place, but the logic of the market always pushes the lead firm to participate in
sustainability management while spending as little as possible. Thus, there is always a need to squeeze
manufacturers, workers and the environment for value (Ponte 2019), as it is the case in Ethiopia.
Although eco-collective efficiency is supposed to result in savings for the manufacturing companies
involved in it, and that is the case in the Ethiopian context to some extent, companies still operate at a
loss, since productivity is low. Therefore, firms only expect services in the parks that align with their
buyers, without them having to invest time, resources or change their strategies and production
processes; something which so far has left the Ethiopian government footing the bill for the
sustainability management in their apparel export sector. Therefore, there may be a limit to what is
possible regarding ‘greening’ industrial practices while suppliers are not profitable, in a context where
buyers’ risks are low (Ponte 2019).
Furthermore, due to the pressures from the global market and the firm strategies in the network, there
is a question of how firm-level investors prioritize what issues in their parks to tackle first. As
demonstrated in the analysis, in the tenants’ mindset, utilities and environmental management are a
service the parks provide. Labor productivity is the main focus of producers in Ethiopia at the moment,
and thus investment in productivity will be prioritized over investments in environmental management
until firms become profitable. Therefore, it may be necessary to specifically look at the role of
profitability in motivating management to participate in eco-collective efficiency in future research.
In addition, GPN and GVC literatures are starting to recognize the importance of integration of
‘economic’, ‘social’ and ‘environmental’ upgrading as necessary to understanding economic
development (Gereffi and Lee 2016; Khattak and Stringer 2017; Khattak et al. 2015). This indicates a
need for a closer relation with literatures such as the Industrial Ecology literature (Yoon and Nadvi
2018), as well as more empirical cases of attempts to improve production on these three aspects.
As the analysis has shown, the dynamics of the apparel GPN do not align with all the necessary
conditions for eco-industrial development, because the creation of these type of systems requires a re-
thinking of production practices and a level of firm collaboration that is not characteristic of buyer
driven apparel production networks. Furthermore, the large amounts of competition among buyers and
45 https://www.just-style.com/news/pvh-sets-out-new-forward-fashion-sustainability-strategy_id136195.aspx [Accessed 15.05.2019] 46 https://www.just-style.com/news/pvh-wins-award-for-sustainable-operations-in-ethiopia_id134468.aspx [Accessed 20.05.2019]
CAE WORKING PAPER 2020: 1 23
their financial discipline, means that these buyers give the same prices per unit to more ‘sustainable’
suppliers (Khattak et al. 2015).
Therefore, in order to overcome the hurdle between the contradiction of the dynamics of the apparel
GPN and the necessary conditions for eco-industrial development, it is necessary for the state to
strategically prioritize eco-industrial development through industrial policy. As with any other type of
industrial policy, eco-industrial development requires the right balance between regulations and
incentives systems. It is especially necessary to understand that there is learning attached to any type of
investment. Increasing local capabilities on how to manage and build infrastructure like industrial parks
is key for the success of eco-industrial development and the creation of value capture in the region,
while not being a key requirement for the general success of the tenants in the parks in most cases.
Therefore, the incentives and policies need to address not only the private investors incentive systems
to collaborate in eco-industrial development and local service development, but also public officials
and different regional and local politics need to learn to participate, manage and service eco-industrial
development. This furthers the calls by authors, such as Deutz and Lyons (2015) or Olayide (2015), of
the need to understand less economically developed country institutional settings and contexts and the
effects they have on possibilities for industrial ecology.
Of course, there are several difficult processes to control within industrial policy. For Ethiopia’s goals
of structural transformation, there is a real question of prioritization: how to use the available funds, the
available foreign exchange and the available capable public officials for the right sector that will create
the most transformation and positive effects in the economy. Furthermore, the politicization of park
location and services in the park can also create externalities that reduce the chances of industrial policy
to be successful in the long run. The EIC and IPDC are already two organizations that have successfully
transformed the economic landscape of Ethiopia. However, IPDC needs more support as an operational
and service firm that is competitive and efficient in the long run, particularly when the complexity of
production in the parks increases.
At the same time, it is important not to understate the level of commitment the Ethiopian government
has shown in relation to the environmental performance of their industrial parks. Although many
critiques have been raised in this article, the fact that the Ethiopian government - EIC and IPDC in
particular - has created green field industrial parks that have a strong commitment to eco-efficient
production is commendable. The question is how to continue this progress so that Ethiopia can benefit
the most from its eco-industrial development.
Conclusion
This article has discussed how cost efficiency, buyer pressure, and the local economic context
discourage the type of collaboration systems necessary for the creation of eco-industrial development.
These constraints are clearly found in the apparel sector and may be found in other sectors highly
CAE WORKING PAPER 2020: 1 24
focused on cost reduction but may not be generalizable to all types of GPN. However, it is important to
understand that ‘production platforms’ are generally found in most less economically developed
countries (Coe and Yeung 2015) and are driven by dynamics similar to those of the apparel GPN, and
thus eco-industrial development in less economically developed countries needs to accommodate this
reality.
Beyond the network level, but related to it, constraints to service the apparel GPN in the country
stemming from a general lack of infrastructure and city services associated with eco-industrial
development were found. A further theorization of the concept of eco-industrial development in less
economically developed country contexts, needs to therefore consider the underlying conditions most
industrial ecology scholars assume exist on the ground, but which this article has shown do not seem
to be correlated with real experience in less economically developed countries.
At park level, issues on capacity of park management were observed and noted as a constraint. The
level of rent prices associated with eco-industrial parks and the profitability of park management are
core issues in less economically developed country contexts. In addition, the attraction of investors
to the park is under-researched in the industrial ecology literature, but the combination with the GPN
framework in this article has provided an understanding as to why the apparel GPN re-located to
Ethiopia, thereby informing the question of how it affects eco-industrial development.
In this article, it is argued that these inherent contradictions between eco-industrial development and
the general dynamics of the apparel GPN create a role to play for the state. Therefore, industrial
policy becomes key for governments to manage said contradictions. The Ethiopian government has
been relatively successful at breaking some of these barriers and has demonstrated large amounts of
leadership and efficiency in attracting investment and spurring the development of an apparel sector
in Ethiopia. However, this does not mean that the path is smooth from now on. The further
development of local support services around the parks, particularly environmental services, is still
largely an untouched policy area by the government and action is needed for the full implementation
of eco-industrial development in Ethiopia. This is a rather controversial thought, as it essentially
suggests that the Ethiopian government must ‘subsidize’ the green capital accumulation of already
powerful and highly profitable apparel brands. However, in the long term, if these policies are
successful, it can lead to the local capacity of Ethiopian firms in the apparel value chain and the
environmental services sectors to be more competitive, leading to possible local gains both in terms
of tax capture and knowledge and technological improvements that are necessary for the
transformation of the Ethiopian economy.
CAE WORKING PAPER 2020: 1 25
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Center of African Economies
Roskilde UniversityUniversistetsvej 1, Postbox 2604000 Roskilde, Denmark
The Center of African Economies is an interdisciplinary research center within the Department of Social Sciences and Business at Roskilde University. Scholars associated with the Center research and publish on contemporary economic dynamics in Africa with a particular focus on:
• the nature, pace and outcomes ofcapitalist transformation processesunfolding across the African continent;
• who benefits and how those benefits areshared as well as how the distribution ofeconomic benefits is contested and theimplications for political instability; and
• linkages between the regulation ofeconomic transactions and stateformation in African countries.