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Industrial Park in Ethiopia creating jobs. But at what labor cost?

labor cost

By: Paul Barrett is deputy director of the NYU Stern Center for Business and Human Rights.

For years, the biggest names in apparel have had their clothing made in China, Bangladesh and other countries in East and South Asia. Now, with wages rising in Asia, companies such as Hanes and H&M have identified a new frontier for low-paid labor.

The new destination is Ethiopia, to which Asian manufacturers are shifting some of their production capacity on the promise of low labor costs. Entry-level garment workers in Ethiopia typically receive a base salary worth only $26 a month — the lowest, by far, in the worldwide clothing supply chain.

Opened in June 2017, Hawassa Industrial Park (named after the southern lakeside city where it’s located) is one of five huge publicly owned complexes built for the Ethiopian government by Chinese construction companies.

Hawassa fronts on a wide street crowded with donkey-pulled carts, rickety three-wheeled taxis, and the occasional stray cow.

The orderly 300-acre park has 52 hangar-size factories where 25,000 Ethiopians now sew shirts, trousers, and sportswear destined for Europe and the United States. There’s the capacity to add 35,000 more employees but the labor costs are very small.

But there is good news, too, as I and my co-author Dorothée Baumann-Pauly note in a new report we’ve just published for the NYU Stern Center for Business and Human Rights.

As we’ve learned from our own research in Hawassa, the manufacturing center has already created tens of thousands of jobs, with more projected on the horizon.

But meager labor costs levels have contributed to low productivity and high attrition rates. Workers, mostly young women who migrate to the factories from rural villages, have trouble living on what they’re paid, leading many of them to quit and return home.

What’s more, the influx of workers from the countryside has sparked severe price inflation for food and shelter. The cost of renting a bare room with no plumbing near Hawassa increased from as little as $14 a month to as much as $52. One young woman showed us the concrete ground-floor room she and three fellow workers rent from a homeowner. There is no toilet, only an open-air latrine nearby. The woman said she and her roommates work different shifts, and she’d had some of her belongings stolen. Sometimes, she added, there is no food left for her when she returns from the factory. All four women sleep on thin mattresses on the floor, and when it rains, water seeps into the living space.