LDN - Business

Made in Senegal? New industrial park woos Chinese firms

[April 04, 2017] By Nellie Peyton

DAKAR (Reuters) - Four new factory buildings rise up from fields on the outskirts of Senegal's capital, the first phase of a government plan to woo Chinese companies shifting low-end manufacturing to Africa as wages in East Asia rise.

African countries are vying for millions of jobs that China is expected to shed. So far Ethiopia is ahead of the pack, with a fledgling shoe and garment-making sector that has made it one of Africa's rising stars.

Now Senegal, a country with a tiny manufacturing base and main exports including fish and peanuts, hopes to replicate that success with a new industrial park and a deal with the Chinese businesswoman whose shoe factory kickstarted Ethiopia's nascent industrial revolution.

Senegal's stable democracy and Atlantic Ocean port make it a natural candidate for export-based industry, but it ranks 147 out of 190 countries on the World Bank's ease of doing business index due to problems with electricity access and bureaucracy.

The 85 billion CFA franc ($138.59 million) project in the town of Diamniadio is gambling on hopes it resuscitate a manufacturing sector that has languished for decades.

If it works, this will be one of the first cases of Chinese industry spreading to Francophone West Africa.

The stakes are high. Senegal suffers chronic underemployment that sends millions abroad in search of a better life.

"Lots of Chinese companies are discovering Senegal for the first time," Mines and Industry Minister Aly Ngouille Ndiaye told Reuters in a phone interview. "In the industrial domain, we have everything to learn from China."

Kenya, Tanzania and Rwanda are among the other African countries that are chasing Chinese textiles investment and have launched or planned new industrial zones in the last three years. None, however, are as far along as Ethiopia.

China has also invested in manufacturing in Ghana and Nigeria, West Africa's top economies, but its activity in the French-speaking countries has been centered around more traditional areas like infrastructure and mining.

"SNOWBALL EFFECT"

C&H Garments, a Chinese company active in Ethiopia and Rwanda, plans to hire 5,000 workers at Diamniadio and export clothes to the U.S. and Europe, said co-owner Helen Hai.

Hai expects the plant to open this year.

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Visitors and business people tour a factory building on a U.N. organised trip to Senegal's new Diamniadio industrial park in Senegal November 15, 2016. REUTERS/Nellie Peyton

Around 20 other companies from Senegal, North Africa, Europe and Asia have applied for factory space and are awaiting selection, Ndiaye told Reuters, although Senegal still needs to pass new tax laws for the special economic zone.

Senegal developed a textile industry in the 1960s but it was heavily supported by the state, which couldn't sustain it.

Now it imports almost everything from clothes to matchsticks to toilet paper, often from China.

While there are some factories canning fish, making cement and rolling cigars for export, they are dwarfed by a services sector that makes up more than half the GDP.

"If Senegal is able to demonstrate a quick success as a French-speaking country, this could have a big snowball effect ... on the African continent," Hai said.

This was the case in Ethiopia. After Hai's shoe company Huajian opened a plant near Addis Ababa in 2012, other firms clustered around it and foreign direct investment grew over 300 percent to reach $1.2 billion by 2014, according to a U.N. World Investment Report.

Senegal has higher wages and electricity costs than Ethiopia, but its proximity to target markets in Europe and North America makes it attractive, said Hai, who is also advising the government.

But analysts say Senegal will still need to work quickly to seize the opportunity in a brutally competitive environment.

Between five and 10 African countries are likely to see their industrial sectors take off in the next decade as production shifts from Asia, said John Page, a Brookings fellow and former chief Africa economist at the World Bank.

"It's going to be a combination of better governance, better policies and some good luck" that distinguishes the countries that pull ahead from those that don't, Page said.

(Editing by Tim Cocks and Tom Heneghan)

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