Low Ethiopian labor cost attracts Chinese investors

"We hope to expand into neighboring markets with the development of railways and highways," said Yin.

In a move to combat overcapacity in the domestic market, Jiangsu-based Eastern Steel invested more than 100 million yuan in setting up a factory in the zone, which was launched in October.

"Our productivity is almost five times compared with local makers. Still, we have to pay 5,000 yuan in duties and fees for 1 ton of imported materials," said Miao Wenwei.

The development of the industrial zone, which recruits 4,000 local people, was expected to be faster.

"We have been talking with the local government for seven years about an exemption in income tax lasting four years. We hope to get formal approval within two months," said Qian Guoqing, deputy managing director of the Eastern Industry Zone Administrative Committee.

With an investment of $80 million, the first phase of the zone is equipped with basic operating resources, including water, electricity, communications and roads.

Qian said they are planning to start construction of the second phase. "But we are worrying about funding because it is difficult for us to find loans in this country," he added.

At the root of the issue is a long-running debate about how many more industries the Ethiopian government will open up and how much effort it should make to facilitate transportation to spur the economy and appeal for more investment.

Chen Guangzhe, country director for the Ethiopia Africa Region at the World Bank, said although the labor costs in Ethiopia are very low, labor costs account for only about 30 percent of a Chinese producer's total costs.

"Despite giving more information to Chinese investors about local business opportunities and policies, Ethiopia should further improve its investment environment and try its best to lower the price of logistics," said Chen.