Federico Jensen - typo3.ruc.dk€¦ · CAE Working Paper 2020: 1 CAE ⋅ Center of African...

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].


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


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.


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


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


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


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


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/


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.


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.


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.


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.


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.


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.


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.


(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.


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.


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.


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.


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.


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.


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]


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


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.


References

Alexander, R., 2018. Sustainability in global production networks – Introducing the notion of extended

supplier networks. Competition & Change, 22, 255–273.

Anner, M., 2019. Squeezing workers’ rights in global supply chains: purchasing practices in the

Bangladesh garment export sector in comparative perspective. Review of International Political

Economy, 1–28.

Azmeh, S., 2014. Labour in global production networks: workers in the qualifying industrial zones

(QIZs) of Egypt and Jordan. Global Networks, 14(4), 495-513.

Azmeh, S., and Nadvi, K., 2014. Asian firms and the restructuring of global value chains. International

Business Review, 23, 708–717.

Bair, J. and Palpacuer F, 2015. The institutionalization of supply chain corporate social responsibility:

field formation in comparative context. In (eds.): Tsutsui, K., and Lim, A., 2015. Corporate

Social Responsibility in a Globalizing World. Cambridge University Press, UK.

Bair, J. and Werner, M., 2011. The Place of Disarticulations: Global Commodity Production in La

Laguna, Mexico. Environment and Planning A, 43(5), 998–1015.

Barret, P. and Baumann-Pauly, D., 2019. Made in Ethiopia: Challenges in the Garment Industry’s New

Frontier. NYU Stern Center for Business and Human Rights Report. New York. Retrieved at:

https://www.stern.nyu.edu/experience-stern/faculty-research/made-ethiopia-challenges-

garment-industry-s-new-frontier

Bellantuono, N., Carbonara, N. and Pontrandolfo, P., 2017. The organization of eco-industrial parks

and their sustainable practices. Journal of Cleaner Production, 161, 362–375.

Chertow, M. and Ashton, W., 2009. The social embeddedness of industrial symbiosis linkages in Puerto

Rican industrial regions. In (eds.): Boons, F. and Howard-Grenville, J. (2009) The Social

Embeddedness of Industrial Ecology. Cheltenham: Edward Elgar, UK.

Coe, N. and Yeung, HWC, 2015. Global Production Networks: theorizing economic development in an

interconnected world. Oxford University Press, UK.

Deutz, P. and Gibbs, D., 2008. Industrial Ecology and Regional Development: Eco-Industrial

Development as Cluster Policy. Regional Studies, 42, 1313-1328.

Deutz, P. and Lyons, D., 2015. Introducing an International perspective on Industrial Ecology. In (eds.)

Deutz, P., Lyons, D. and Bi, J., 2015. International perspectives in industrial ecology. Edwards

Elgar Publishing, UK.


Gereffi, G. and Lee, J., 2016. Economic and Social Upgrading in Global Value Chains and Industrial

Clusters: Why Governance Matters. Journal of Business Ethics, 133, pp. 9-37.

Gereffi, G., 1999. International Trade and Industrial Upgrading in the Apparel Commodity Chain.

Journal of International Economics, 48, 37-70.

Gereffi, G., Humphrey J. and Sturgeon, T., 2005. The Governance of Global Value Chains. Review of

International Political Economy, 48(1), 78-104.

Gibbs, D. and Deutz, P., 2007. Reflections on implementing industrial ecology through eco-industrial

park development. Journal of Cleaner Production, 15, 1683-1695.

Gibbs, D., 2009. Eco-industrial parks and industrial ecology: strategic niche or mainstream

development? In (eds.) Boons, F. and Howard-Grenville, J., 2009. The Social Embeddedness of

Industrial Ecology. Cheltenham: Edward Elgar, UK.

GTP I, 2010. Growth and Transformation Plan (GTP) 2010/11-2014/15. Ministry of Finance and

Economic Development (MoFED), September 2010, Addis Ababa.

HIP Feasability Study, 2015. Feasibility study for the establishment of Hawassa industrial park. Federal

Democratic Republic of Ethiopia, Industrial Parks Development Corporation, September 2015,

Addis Ababa.

Khattak, A., and Stringer, C., 2017. Environmental Upgrading in Pakistan’s Sporting Goods Industry

in Global Value Chains: A Question of Progress? Business and Economic Review 9, 43–64.

Khattak, A., Stringer, C., Benson-Rea, M., and Haworth, N., 2015. Environmental upgrading of apparel

firms in global value chains: Evidence from Sri Lanka. Competition and Change, 19(4), 317–

335.

Kleibert, J.M., 2016. Pervasive but Neglected: Conceptualizing Services and Global Production

Networks. Geography Compass, 10(8), 333–345.

Lund-Thomsen, P. and Nadvi, K., 2010. Global value chains, local collective action and corporate social

responsibility: a review of evidence. Business Strategy and the Environment, 19(1), 1-13.

Lund-Thomsen, P., 2009. Assessing impact of public-private partnerships in the global south: the case

of the Kasur Tanneries Pollution Control Project. Journal of Business Ethics, 90, 57-78.

Mihretu, M. and Llobet, G., 2017. Looking Beyond the Horizon: A case study of PVH’s commitment to

Ethiopia’s Hawasa Industrial Park. World Bank Group, Washington DC.

Milberg, W., 2008. Shifting sources and uses of profits: sustaining US financialization with global value

chains, Economy and Society. 37(3), 420-451.


Olayide, O., 2015. Industrial ecology, industrial symbiosis and eco-industrial parks in Africa: issues

for sustainable development. In (eds.) Deutz, P., Lyons, D. and Bi, J. (2015) International

perspectives in industrial ecology. Edwards Elgar Publishing, UK.

Ponte, S., 2019. Green Capital Accumulation: Business and Sustainability Management in a World of

Global Value Chains. New Political Economy, February 2019, 1-13.

Staritz, C. and Whitfield, L. 2017. Made in Ethiopia: The Emergence and Evolution of the Ethiopian

Apparel Export Sector. CAE Working Paper, 2017:3, Roskilde University.

Staritz, C., and Whitfield, L. 2019. Light Manufacturing in Ethiopia: The Apparel Export Industry. In

(eds.) Cheru, F., Cramer, C., Oqubay, A. 2019, The Oxford Handbook of the Ethiopian Economy.

Oxford University Press.

Staritz, C., Plank, L. and Morris, M., 2016. Global Value Chains, Industrial Policy, and Sustainable

Development – Ethiopia’s Apparel Export Sector. International Centre for Trade and Sustainable

Development (ICTSD), Geneva.

Whitfield, L. and Staritz, C., forthcoming. Industrial Hubs and Technology Transfer in Africa's Apparel

Export Sector. In (eds.) Oquabay, A. and Lin, J., forthcoming 2020. Oxford Handbook of

Industrial Hubs and Economic Development. Oxford University Press, UK.

Yeung, HWC., 2015. Regional development in the global economy: A dynamic perspective of strategic

coupling in global production networks. Regional Science: Policy & Practice, 7(1), 1-23.

Yoon, S. and Nadvi, K., 2018. Industrial clusters and industrial ecology: Building ‘eco-collective

efficiency’ in a South Korean cluster. Geoforum, 90, 159–173.

Yoon, S., 2014. Environmental Performance of Clustered Firms. PhD Dissertation, Manchester

University. Accessed at:

https://www.research.manchester.ac.uk/portal/en/theses/environmental-performance-of-

clustered-firms(c84df7be-e7d5-4e67-8522-4a22ba43cf9f).html

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.

Date post:	28-Jun-2020
Category:	Documents
Upload:	others
View:	3 times
Download:	0 times

Federico Jensen - typo3.ruc.dk€¦ · CAE Working Paper 2020: 1 CAE ⋅ Center of African...

Documents