Wang Jinjie: Chinese companies' rise and retreat in Ethiopia

PKU scholar says the country now stands as a test case for how Chinese companies might build more resilient models in Africa.

Ethiopia once stood as one of the clearest showcases for Chinese industrial expansion in Africa, with industrial parks and export-oriented factories helping to fuel a sense of rapid transformation. But ethnic conflict, political fragmentation, and mounting foreign-exchange pressures have since turned that promise into a tougher lesson in the fragility of frontier investment. It is against this backdrop that Wang Jinjie, a Research Assistant Professor at Peking University’s National School of Development (NSD) and Institute of South–South Cooperation and Development (ISSCAD), and Deputy General Secretary of the Peking University Center for African Studies, examined what the rise and fall of Chinese companies in Ethiopia can teach investors about resilience, risk, and the future of industrialisation in Africa.

Wang made the speech on 5 December, 2025, at a seminar jointly hosted by the NSD, ISSCAD, and the China Center for Economic Research (CCER). The seminar was dedicated to Conflict and Development: Studies on Ethiopia’s Politics, Economy and Society 冲突与发展：埃塞俄比亚政治、经济与社会研究, a new book published by Xinhua Publishing House and compiled by ISSCAD Belt and Road research group.

The article was published on 27 February 2026 on the NSD’s official WeChat blog.

Another speech from the same event has also been published on The East is Read.

王进杰：中国企业在埃塞潮起潮落的启示

Wang Jinjie: What the Rise and Fall of Chinese Companies in Ethiopia Can Teach Us

I would like to discuss the actual development of Chinese enterprises in Ethiopia. Although the book Conflict and Development: Studies on Ethiopia’s Politics, Economy and Society 冲突与发展：埃塞俄比亚政治、经济与社会研究 does not devote a specific chapter to Chinese enterprises, the topics covered in its various chapters, such as exchange rates, finance, industrial parks, and port development, are all closely related to Chinese-funded enterprises.

I first travelled to Ethiopia for field research in 2016. Between 2018 and 2019, I was going there every month or every other month. At that time, the country was in a remarkable period of rapid development, and the pace of construction was truly striking. On every visit, I could see newly completed infrastructure and roads. Things were changing so quickly that even navigation apps struggled to keep up. However, after 2020, frequent conflict and political instability led to a large-scale withdrawal of Chinese companies. The number of Chinese nationals in Ethiopia fell sharply, from a peak of more than 100,000 to fewer than 10,000 by October 2025.

Does Ethiopia still offer opportunities and hope for development? How should Chinese companies position themselves there in the future? I will address these questions from three perspectives:

1. The industrialisation practices of Chinese companies in Ethiopia;

2. The reasons behind the worsening conflict and the deterioration of the business environment in Ethiopia;

3. The new opportunities created by the new energy vehicle industry.

The hope is that Chinese companies will draw lessons from their experience in Ethiopia and build more resilient industrial and investment models in African countries in the future.

Ethiopia is a key frontier for Chinese companies in Africa’s industrialisation

Why are Chinese companies in Ethiopia seen as pioneers of Africa’s industrialisation? Ethiopia holds a unique position in the global footprint of Chinese enterprises. Whether during its high-growth years from 2016 to 2019, or in the current downturn, China has remained Ethiopia’s largest source of foreign investment and its biggest trading partner.

Export-oriented industrial development policies drove rapid growth in Ethiopia between 2016 and 2019. Industrial parks provided one-stop services, including water and electricity, factory facilities, tax support, and customs clearance, attracting a large number of processing and manufacturing firms. Among them, the Eastern Industry Park, which we have followed closely for many years, was the first industrial park in the country to be invested in and developed by a Chinese company, and it generated a very strong clustering effect.

In 2007, the Eastern Industry Park was established through a tender organised by China’s Ministry of Commerce and Ministry of Finance, and was developed by Jiangsu Yongyuan Investment Ltd, becoming Ethiopia’s first industrial park. This marked the starting point of Ethiopia’s industrial park strategy. It was later incorporated into Ethiopia’s national development strategy, the Growth and Transformation Plan, as an important vehicle for absorbing manufacturing transfers and promoting industrialisation, and that position has remained unchanged to this day.

Despite economic decline, inflation, and capital outflows, the Eastern Industry Park is still one of the most successful parks in the country. Workers there earn monthly wages of 3,000 to 10,000 birr, significantly higher than the average wage of less than 1,000 birr outside the park. The park has significantly boosted economic growth and urban expansion, and improved living standards. Analysis of nighttime light data also shows that its spillover effect extends for roughly 10 kilometres.

At present, Ethiopia has 24 industrial parks. Thirteen are government-led, while 11 others involve Chinese investment or construction to varying degrees. Even in government-led public industrial parks, Chinese urban construction companies are involved. This shows that Ethiopia’s development model is strongly centred on industrial parks, and that Chinese companies have participated in every stage of the country’s industrialisation process.

By the end of 2024, Chinese companies had participated in more than 3,000 projects in Ethiopia, including both investment and contracted construction, with cumulative investment exceeding $8.5 billion. In 2024, 60 per cent of new foreign investment projects came from China. These projects have created around 600,000 jobs in total, mainly in manufacturing and infrastructure. Since 2024, emerging sectors such as logistics and new energy vehicles have also attracted significant amounts of Chinese capital.

The main roles Chinese companies have played in Ethiopia’s industrialisation

First, they are producers and creators of value. In manufacturing and infrastructure, they have raised local industrial output and export capacity.

Second, they are job creators. Labour-intensive manufacturing and large-scale infrastructure projects have created large numbers of formal and informal jobs. For rural young people and low-skilled urban workers entering the modern industrial system for the first time, Chinese companies are often their first employers.

Third, they are agents of technology transfer and incubators for entrepreneurship. In a 2023 survey we conducted with students from the South-South Institute, it was found that among more than 200 business owners in the Addis Ababa area, over 40 per cent had previously worked in foreign-invested firms, and 70 per cent of that foreign-firm experience came from Chinese companies. Such experience showed a significant positive correlation with entrepreneurial motivation, opportunity recognition, and management capability. Chinese companies have effectively become training grounds and incubators for local entrepreneurs.

Fourth, they are talent developers. Faced with a shortage of skilled workers, companies have shifted from simply hiring people to actively training them, gradually forming a joint training model of “government + enterprises + educational institutions.” This has helped promote the overseas expansion of a range of Chinese vocational education programmes, including the Lu Ban Workshops, Ban Mo Workshops, the Overseas Learning Centers of the Open University of China of the Open University of China, and AVIC International’s vocational education projects, while also helping Chinese technology and standards go global.

A deterioration in the business environment caused by ethnic conflict

After 2020, Ethiopia experienced a serious outbreak of domestic security and political conflict. The intensification of conflict and the deterioration of the business environment created structural constraints that became the primary reason Chinese companies were forced to leave.

Overall, China-Africa trade has continued to rise year by year. Although there was a slight dip during the pandemic, the long-term growth trajectory remains unchanged. China’s exports to Africa mainly consist of electronics, machinery parts, and small commodities, while Africa’s exports to China are concentrated in primary goods such as minerals, energy, and coffee. Trade ties between the two sides have continued to deepen.

Yet against this broader backdrop, Ethiopia stands out as a special case. After peaking in 2019, Chinese investment in Ethiopia plummeted and remained low in 2024–2025. In 2024, Chinese direct investment in Ethiopia ranked among the lowest in Africa, far below that of neighbouring Kenya and Tanzania. These major East African nations have comparable population resources and are all committed to industrialisation, which has created a competitive dynamic. Since 2020, foreign investment has shifted away from Ethiopia towards neighbouring countries with better English-language environments and more stable relations with China. As a result, Ethiopia has gone from being one of the main destinations for Chinese investment in Africa to a country receiving only low to moderate flows.

Conflict and political uncertainty have brought enormous systemic risk. Political stability was once a major advantage that attracted Chinese firms to Ethiopia. But after the death of Meles Zenawi, political fragmentation, ethnic tensions, and disputes over resource distribution triggered unrest. The country declared a state of emergency twice in 2016 and 2018, and the death toll from the conflict is conservatively estimated at 500,000. Northern Ethiopia has remained mired in prolonged fighting, severely damaging investor confidence and directly disrupting industrial parks and Chinese business operations in the north.

Beyond domestic turmoil, the international environment has also dealt a serious blow. The African Growth and Opportunity Act (AGOA) once gave Ethiopia duty-free access to the U.S. market and strongly boosted its export-oriented manufacturing sector. But because of the conflict in the north, the U.S. removed Ethiopia from the list of beneficiary countries. That caused industrial parks to lose their tariff advantage, and many factories were forced to shut down while personnel were evacuated.

The book Conflict and Development: Studies on Ethiopia’s Politics, Economy and Society argues that ethnic conflict and periodic political instability may remain “given constraints” that Ethiopia has to face for a considerable period of time. Chinese companies operating in the country must therefore consider their strategic planning and risk management within the context of these structural risks.

Policy constraints

In addition, Ethiopia faces several other constraints.

First, under its export-oriented policy framework, domestic sales are tightly restricted. Industrial parks are required to export 80 per cent of their output. Only a small proportion of defective goods may be sold domestically, and taxes on domestic sales are relatively high. This has left many firms in a bind: exports do not always move smoothly, while domestic sales are restricted, dampening business incentives.

Second, there is mandatory foreign exchange conversion and an irrational foreign exchange structure. When firms earn export revenues, during periods of foreign exchange shortage in Ethiopia, they are required to settle 68.5 to 80 per cent of that income in the local currency, the birr, exposing them to major exchange-rate risk. At the same time, Chinese companies operating in industrial parks are often required to pay rent, taxes, and management fees in U.S. dollars. In other words, they struggle to earn dollars, yet still have to pay costs in dollars. This foreign exchange structure severely squeezes profit margins.

Third, there are restrictions on human resources and market access. In the Eastern Industry Park, for example, the ratio of Chinese to Ethiopian employees is capped at 1 to 15. At the same time, foreign investment is prohibited in sensitive sectors such as mining, coffee, and retail. Although Ethiopia opened its domestic market much more widely after 2024, driven by the IMF, and allowed Chinese companies to enter sectors such as retail, the entry threshold remains extremely high. The required scale of capital investment is beyond what most Chinese firms can bear, so most of them still have yet to enter these sectors.

Fourth, the relationship between the federal government and regional state governments also affects industrial park development. Again, taking the Eastern Industry Park as an example, its first phase, covering 2.33 square kilometres, has performed very successfully. Because occupancy is high, the company planned a second phase of 1.67 square kilometres. But that second phase has still not moved forward. The core reason is that although the federal government approved it, the regional state government vetoed it. Since taxes paid by companies in the park go to the federal government, the regional authorities do not receive direct revenue from it. To some extent, this institutional design has constrained further business expansion.

Taken together, these factors led to the large-scale withdrawal of Chinese companies in 2023 and 2024.

New opportunities for new energy vehicles created by the ban on fossil-fuel cars

However, when we revisited Ethiopia in 2024, we saw something new: the rise of the new energy vehicle industry. China’s technological strengths in this area align perfectly with Ethiopia’s industrial policy, and the country’s ban on fossil-fuel cars has become a key catalyst. Faced with foreign exchange shortages and difficulty importing oil, Ethiopia has turned to new energy vehicles.

Ethiopia’s new energy vehicle policy has been years in the making. Planning began in the early 2010s. In 2021, new energy vehicles and charging infrastructure were incorporated into the National Transport Policy and the Ten Years Development Plan. In January 2024, Ethiopia officially banned the import of fossil-fuel-powered private passenger cars. In March 2024, large-scale promotion began, and between April and October, the country imported 100,000 Chinese new energy vehicles. In June 2025, it banned the assembly of fossil-fuel cars, and in October, it required long-haul trucks to be replaced with new energy vehicles, marking the full phase-out of fossil-fuel vehicles.

The government is firmly committed to advancing this policy. In our conversations with local officials and car retailers, we raised concerns about possible policy reversals. But all parties told us the same thing: Ethiopia can no longer go back to the age of fossil-fuel cars, and it will continue firmly down the new energy path. The main reasons are, first, that foreign exchange reserves are insufficient to sustain oil imports, and second, that electricity prices are relatively low, which makes the rollout of new energy vehicles more feasible.

From March 2024 to the end of 2025, Chinese new energy vehicle companies established a broad presence across Ethiopia. This includes assembly operations for passenger cars, minibuses, and buses; imports ranging from economical to high-end models; and the rollout of sales and service networks as well as charging infrastructure. More recently, local authorities have also planned to promote vehicle manufacturing and battery production projects, with the aim of upgrading Ethiopia from a consumer market for new energy vehicles into a regional manufacturing hub. The country’s advantageous geographic location, its role as a transport hub, and the fact that Ethiopian Airlines serves as a key transit route for many African countries all provide support for that ambition.

Chinese vehicles are already highly visible in Ethiopia. Some brands that remain relatively niche in China have secured a place in the Ethiopian market. Some new energy vehicles that are viewed in China as part of overcapacity have successfully entered the Ethiopian market.

At present, the main bottleneck is the charging infrastructure. Over the past year, only 50 charging stations have been built nationwide, each with multiple charging points, which is far from enough to meet demand. When we asked local officials why they were not accelerating deployment, they said the issue was not funding. Chinese investors were willing to provide capital. The real problem was the shortage of local technical workers able to handle post-construction maintenance, which meant expansion had to proceed cautiously.

Ethiopia can fairly be described as one of the world’s most aggressive promoters of new energy vehicles, showing boldness and determination both in policymaking and in practical experimentation. The industry began to take shape in 2022 and was fully rolled out in 2024. Growth has been rapid, but the overall scale remains limited. Ethiopia has around 1.5 million vehicles in total, and new energy vehicles account for only 5 per cent, leaving a considerable gap between the current situation and the target. Although institutional constraints remain, the scope for future cooperation is vast, and the country is well worth continued attention and in-depth research.

Conclusion

Once the wave of overseas expansion recedes, what do Chinese companies leave behind? It is important to confront squarely the shift from a “surge” to a “relative contraction”. The number of Chinese nationals in Ethiopia once rose rapidly, but has since declined significantly due to multiple shocks, with only a handful remaining to continue their operations locally.

From the perspective of historical legacy, the projects themselves may end, but the capabilities built through them do not disappear. Industrial park development, infrastructure, manufacturing investment, and skills training have all become part of Ethiopia’s development foundation. Productive capacity, facilities, talent, and institutional practices continue to have an impact.

The collective withdrawal of Chinese companies should not be seen as a failure. Rather, it is a mirror. In Ethiopia, and in many other African countries, Chinese companies going forward must strengthen their analysis of the political and economic environment, build local partnerships, and diversify risk. They cannot simply enter blindly because labour is cheap or policies appear favourable. This is a lesson that all Chinese companies expanding overseas should take seriously.

So when looking at the current situation of Chinese companies in Ethiopia, the key question is not “how many people are still willing to invest there” or “whether Ethiopia can return to its golden years”. The real question is how Chinese companies can build more resilient industrial and investment models in Ethiopia and in similar countries. In the process of building that resilience, if they can continue to train local talent and pass on elements of Chinese commercial civilisation, then perhaps the “second chapter” of Chinese business in Ethiopia is only just beginning. We hope there will be more opportunities in the future for deeper field research and more substantial findings.