Wednesday, November 30, 2011

Creative Destruction: Chinese Competition and the Rebirth of Ethiopia's Shoe Industry

Ethiopian brand Sole Rebels targets the export market
I returned from Ethiopia about a week ago. Leather is a big deal in the country (and several Chinese firms are investing large amounts in tanneries and shoes). Around 2001, Ethiopia's shoe industry was severely hit by competition from cheap Chinese imports. Omar Redi of Fortune (Addis) reports on the shoe industry's remarkable recovery over the past decade. Originally serving only the local market, Ethiopian companies like Peacock are now exporting to Italy. "The industry," Redi says, "has survived the onslaught from Chinese competition and prospered."

Highlights of the Ethiopian shoe story:
  • The history of leather industry in Ethiopia dates back to 1928, but focused only on the local market. Chinese imports began to swamp local markets around 2000. 
  • In an unexpected twist of fortune, the Chinese challenge presented an opportunity for Ethiopian shoe manufacturers by pushing them to focus on the quality, design and durability of their products so that they can win the hearts of, at least, the local users.
  • For Peacock Shoes, the pinnacle of the problem was a wake up call; they realised that if they did not compete with better quality and price, their business in the shoe manufacturing sector would crumble.
  • "It was at the height of the challenge around 2001 that we imported our first huge machineries from Europe," Elias said.
  • A leather training institute also helped. Since January 2009, the institute began benchmarking work, under which best practices in the industry from across the world are implemented at Peacock and Anbessa Shoe Share Company.
  • Peacock Shoes now earns around $4 million a year from exports to Europe. Read more here.

Friday, November 11, 2011

Human Rights Watch Report on Chinese-Owned Mines in Zambia

Zambian Miners                     Salim Henry: Reuters
I'm currently doing fieldwork in Ethiopia (where, by the way, internet blocking, if it exists, has not stopped me from accessing my blog). I've been getting a lot of emails about Human Rights Watch's new report on China Non-Ferrous Mining Corporation (CNMC)'s copper mines in Zambia

The report details a climate of systematic violation of Zambian labor regulations, particularly regarding safety. Some people have noted that I am credited as having read a draft and "provided helpful suggestions". What do I think about the report?

First, I have a lot of respect for Human Rights Watch and their methodology: it is a deep, participant-observation, research-oriented approach to improving the human rights situation worldwide. The researcher for this report, Matt Wells, is an incredibly talented, conscientious, and careful researcher who triangulated his findings and went back again and again to check and double-check. This was not a quick and dirty job. HRW also published the response of the Chinese parent company CNMC -- the large Chinese company that owns and runs four copper mines -- which was defensive, but took the report seriously.

Here are some of my comments to HRW on the draft:
This is an excellent piece of work, obvious due diligence and care taken to get facts right, and to provide a comparative perspective with other employers in the Zambian copper mines. It’s a harrowing catalog of poor safety practices, endemic suspicion on all sides, cutting corners and wasteful, short-sighted approaches to worker relations.
The paper leaves a bit of a feeling that the rest of the mining sector is far better run and organized than CNMC’s part. No doubt that’s generally true, but workers have also complained of “serious human rights violations” at KCM (see the article below), with wildcat strikes, people being fired, and a general “chaotic” labor situation in the mines in general.
The fatality figures also suggest that the Chinese are by no means the only mines with safety problems. Matt hasn’t put fatality figures in – they are dated, but some do exist (see my blog post on The Economist article for a link to these figures.
I think the paper would be/would have been even more powerful with more direct comparisons. Chinese factories have been able to raise their standards to US standards in South Carolina (problematic as those may be from some perspectives) and Chinese mines should be able to meet Zambian standards! Dan Haglund has pointed out that the short-term mentality of a lot of the Chinese managers meant they weren't invested in the long-term relationships, training, safety, good labor relations that would be a win for everyone.
There is some context missing from the report. I didn't think it showed that Zambian copper mines are in general places with a lot of labor relations problems and where workers do not trust management to promote their interests. I sent along a link to a story of wildcat strikes at KCM, another of the large (non-Chinese) mines, which provides...
...further evidence of the chaotic nature of labour relations in Zambia's copper mines. It seems barely a single pay round can proceed without a wildcat strike, police intervention and a round of contested sackings of rank and file workers operating beyond the control of trade union leaders. The latest trouble has been at Vedanta Resources' Konkola Copper Mines, the largest of all Zambia's mining companies, and the pacesetter for all other pay settlements. Negotiations seem finally to have concluded with the two mining unions with management enforcing a15% deal after a wildcat strike and protests sufficiently serious to close the plant temporarily and lead to the deployment of riot police as workers refused to trust their own union representatives, let alone management.

In another demonstration of the reliance of the companies on the physical force of the Zambian state to maintain order, Miners were temporarily excluded from the plant and their gate passes confiscated. Police officers then picked a number of workers up from their homes at midnight. They were taken to the plant, where they were interrogated. [Twelve workers were fired.] ... KCM spokesperson Sam Equamo claimed the workers were disciplined because they disrupted operations without giving chance to their union leaders to brief them on what had been negotiated with KCM management. The workers themselves described their treatment as a serious violation of their human rights and urged the government to intervene.
In responding to me, Matt Wells acknowledged worker complaints at the other companies but said that his research still shows pretty conclusively that CNMC is consistently the worst of what can be a pretty bad bunch. A lot of the miners working for CNMC had been laid off from other mines during the global financial crisis, and were in a position to make specific comparisons on safety issues.

CNFC is actually viewed by Chinese  leaders and officials as a model company (for China), and many aspects of its work in Zambia reflect this: the decision not to let workers go during the global downturn; the decision to purchase other risky mines that had gone bankrupt, even, as Dan Haglund has pointed out, their improvements since the early years of running Chambishi mines. Their prompt written response to HRW's criticisms, while formulaic, also shows that they want to be seen as a responsible actor. 

With Michael Sata elected, it is possible (though not guaranteed) that Zambia may start to put money into its mines inspections and safety departments, that the abuses laid out in HRW's report will become exceptions rather than daily violations, and that there will be accountability in this dangerous and lucrative sector. I'm sure there will be multiple points of view on this, however, and I welcome a discussion here.

Wednesday, November 2, 2011

Senate Testimony on China and Africa

This isn't me. But this is surprisingly close to how it looked.
Yesterday together with Amb. David Shinn and Stephen Hayes of the Corporate Council on Africa, I walked through the hallowed halls of the Dirksen Office building to testify in front of the Senate Foreign Relations Committee (text and video here) on China's engagement in Africa. I was impressed by Senator Coons (who organized the meeting). Kudos to his staff; they did a great job briefing him. The other senators (naturally) varied in their level of understanding of this issue. Few got beyond the headlines.

The invitation to speak to the Committee arrived late last week while I was in Bergen, Norway, for a packed week in residence at the University of Bergen -- preparing and delivering three lectures on China (including one on China's impact on governance in Africa at Chr. Michelsen Institute). I probably should have skipped Seun Kuti's concert in Bergen on Saturday night and stayed in my hotel to write my testimony. It was tempting to enter The Dragon's Gift into the record ... in its entirety. But I refrained.