Introduction
In Africa, infrastructure investment is widely recognised as essential for advancing economic development, serving as a foundation for improving market access and promoting industrial modernisation.Footnote 1 Research highlights that investment in key infrastructure, such as roads, railways, energy and telecommunications, can enhance productivity (McCann and Shefer Reference McCann and Shefer2003), stimulate trade (Brooks and Hummels Reference Brooks and Hummels2009) and attract private investment (Eden and Kraay Reference Eden and Kraay2014). Additionally, such investments help countries integrate into global value chains (Lin and Wang Reference Lin and Wang2017). Beyond these macroeconomic benefits, infrastructure development can create substantial local development opportunities, including job creation, technological diffusion and the growth of local businesses through backwards and forward linkages (Bekhet Reference Bekhet2011; Wolf and Cheng Reference Wolf and Cheng2018; Qingwei and Nyantakyi Reference Qingwei and Nyantakyi2019). Yet, the extent to which these broader impacts are realised depends on how well infrastructure projects are embedded within local economies.
Within the scholarship on China-Africa relations, the integration of China-backed projects into local economies remains a contested issue. In the infrastructure sector, Chinese companies are often criticised for failing to generate positive economic effects for the local economy. According to several studies, Chinese construction companies operate in enclaves with no or very limited economic benefits for the partner country, and with little attention to the financial, economic and social implications of their actions (Corkin Reference Corkin2013; Wethal Reference Wethal2018; Zajontz Reference Zajontz2022; Zhu et al. Reference Zhu, Mwangi and Hu2023).Footnote 2 Some studies attribute this to a vertically integrated model in which Chinese actors not only transfer capital but also retain strict control over the entire infrastructure value chain, including labour, management, project design, technology and inputs (Wegenast et al. Reference Wegenast, Krauser, Strüver and Giesen2019; Lema et al. Reference Lema, Bhamidipati, Gregersen, Hansen and Kirchherr2021; Li et al. Reference Li, Kopiński and Taylor2022).
This research presents new evidence on the impact of Chinese firms’ operations in Ethiopia’s infrastructure sector by addressing the following question: to what extent do Chinese-built infrastructures enhance linkages with the local economy and support local development outcomes? Such development outcomes include forward and backward employment linkages, technology and skills transfer, outsourcing practices with local enterprises and linkages with the manufacturing sector, both upstream (e.g., production of primary inputs and equipment) and downstream (e.g., maintenance and services). The choice of Ethiopia as a case study is informed by its unique position as a key space for China’s Belt and Road Initiative, one of the top recipients of Chinese financing and one of the largest markets for Chinese contractors working in the infrastructure sector.Footnote 3 Methodologically, the article adopts a mixed-methods approach, drawing on firm-level surveys and in-depth semi-structured interviews. Fieldwork involved 81 interviews with stakeholders such as Chinese and Ethiopian managers, public officials and local workers, supplemented by a comprehensive survey of both Chinese and Ethiopian firms operating in the infrastructure sector.
While the literature on Sino-African infrastructure partnerships has rapidly expanded in recent years (Wethal Reference Wethal2018; Wolf and Cheng Reference Wolf and Cheng2018; Schaefer and Oya Reference Schaefer and Oya2019; Lema et al. Reference Lema, Bhamidipati, Gregersen, Hansen and Kirchherr2021; Zhu et al. Reference Zhu, Mwangi and Hu2023), three themes remain underexplored. First, Chinese overseas companies and their engagement strategies in the African context tend to be viewed as homogeneous.Footnote 4 As a result, many observations about the Sino-African infrastructure partnership fail to account for the diversity in the practices and performance among a heterogeneous group of Chinese firms working in Africa. Additionally, the infrastructure sector is often considered a conglomerate of industries. Delving deeper into the sectoral characteristics, and the inter-, intra- and extra-firm relationships, it is important to understand what may influence the implementation of Chinese-led infrastructure projects. Finally, in the literature, there is especially a dearth of detailed and properly contextualised empirical knowledge on the effects of the host country’s environment in conditioning the impact of Chinese firms’ operations in Africa. This article, while methodologically aligned with existing studies, offers three distinct contributions.
The first distinctive contribution of this article is the conceptualisation and deployment of an innovative analytical framework, the ‘Global Infrastructure Network’ (GIN). The GIN builds on insights from the Global Production Network (GPN) theories, taking into account three interconnected, but recognisably different, levels of analysis: macro (national level and transnational), meso (infrastructure sector) and micro (infrastructure firms). It helps to grasp how these levels are connected with one another and speculate on the factors and dynamics that strengthen or constrain the potential for Chinese firms to generate positive development synergies at the local level. The result is a portrait of actors, incentives and interests at play in China-Ethiopia relations in the infrastructure sector.
Secondly, based on this framework, this article offers a nuanced understanding of the Chinese presence in Ethiopia. Specifically, contrary to a homogenised understanding of Chinese firms’ impact on the African infrastructure sector, the analysis underscores the unique characteristics of individual Chinese firms. Within the Ethiopian context, one in which the building of new infrastructure has been framed as a pivotal element in the overall development strategy, the findings highlight the fluidity and varied impacts of Chinese companies. In particular, the specific sector in which the Chinese firms operate, the size of the companies, the ownership type and the length of operation in the host country have proven to be important determinants for the impact of such firms on local development.
Thirdly, the article also advances the literature by investigating the structural barriers to the formation of economic linkages at the local level, as relevant factors for understanding divergences in local development outcomes. Aspects such as the host’s institutional environment, local industrial capabilities, the capacity of the local labour force and the ability of local officials to supervise and monitor projects are all analysed as factors that can amplify or dampen the strengths and limits of the Ethiopia-China partnership.
Conceptual Approach and Theoretical Tools: The Global Infrastructure Network (GIN)” establishes the state of the literature on the effects of foreign-backed infrastructure in late industrialisers and provides a conceptual framework for the analysis. “Chinese Infrastructure Firms’ Involvement in the Ethiopian Infrastructure Boom” grounds the study empirically, tracing how Chinese contractors entered and reshaped Ethiopia’s transport, power and telecommunications sectors. “Methodology” introduces the research methodology and sample. Based on the data collected during fieldwork, “Assessing the Impact of Chinese Construction Firms on Local Development” examines four key features of the potential local development impact of Chinese firms in Ethiopia’s infrastructure sector: employment outcomes, partnerships and subcontracting with domestic firms, technological and skills transfer to local companies and workers, and linkage formation between the infrastructure and the local manufacturing sector. The analysis complements this with a critical assessment of the combined influence of the host country’s institutions and local industry capacity in facilitating the development of local economic benefits. The final section offers the conclusions.
Conceptual Approach and Theoretical Tools: The Global Infrastructure Network
Despite the growing presence of foreign-backed infrastructure projects in Africa, particularly those led by Chinese firms, there is a lack of comprehensive frameworks to assess their impact on local development. Most analyses tend to focus on macroeconomic indicators, overlooking the nuanced ways in which these projects interact with local economies. To gain a deeper understanding of the role Chinese-backed infrastructures play in Africa, we need a conceptual framework that can (a) position these projects within a global network, (b) explain governance mechanisms, (c) acknowledge unique contextual aspects and (d) assess their impact on the local economy. To this end, in this section, the article advances a multi-level conceptual framework, the Global Infrastructure Network (GIN) (Figure 1), designed to evaluate Chinese-backed infrastructure projects in Africa.
Figure 1. The Global Infrastructure Network Framework.
The GIN is designed to understand Chinese-backed infrastructure projects as outcomes of intertwined international and national conditions from both host and source countries. Its multilevel structure comprises three interconnected levels of analysis: macro (national and transnational), meso (infrastructure sector) and micro (infrastructure firms). The macro level encompasses factors such as macroeconomic trends, policy, regulatory environments and institutional capacity, all of which set the stage for how infrastructure projects come into being and how they operate. The meso level focuses on the infrastructure sector itself, highlighting technological innovation, human capital and the capabilities of local firms. At the micro level, the characteristics of foreign firms play a significant role, including their ownership type (public or private), size, length of presence in the host country and the specific subsector in which they operate.
To develop this framework, I draw upon the GPN framework (Coe and Yeung Reference Coe and Yeung2015).Footnote 5 The GPN framework helps to study infrastructure projects by mapping actors, dynamics and economic activities within certain spatial units and across space. It allows us to conceptualise economic activities as twofold processes that are situated in global economies and affect local development processes. Such a relational network attempts to go beyond the idea of infrastructure projects as distinctively local phenomena and helps to give more prominence to the way infrastructure projects are operated far beyond the local level.
Unlike methodologies such as the GVC, whose focus on governance mechanisms is largely confined to transnational trade, often downplaying the regulatory role of domestic policies, the GPN framework helps illuminate the impact of local political economy on companies’ behaviour. Moreover, by focusing on the actions of different actors in the production network rather than on value-chain variations, the GPN framework clarifies what diverse actors do in specific places and through their local transactions. In this way, we can retain the world-systems approach’s emphasis on the integration of spatially diverse territories but shift the focus from services and goods to the actions of multiple actors across different spatial units under particular contextual conditions.
While the GPN framework captures value-creation outcomes (Coe and Yeung Reference Coe and Yeung2015), fully understanding the local development impacts of foreign-backed infrastructure projects requires drawing upon a broader body of work. This literature, reviewed below, goes beyond the narrow confines of economic growth to explore development outcomes related to employment dynamics, localisation efforts, technology transfer and linkages with the manufacturing sector. It provides valuable insights into the factors influencing the involvement of Chinese firms at the macro, meso and micro levels, and clarifies how these factors relate to the outcomes of Chinese-led infrastructure projects.
Macroeconomic dynamics refer to the overarching economic conditions and trends that shape the operating environment for infrastructure projects, particularly in relation to the economic interactions between the home country of foreign firms and the host country. These dynamics include factors such as access to finance, investment flows, foreign firms’ market-seeking strategies and the growth prospects of the host economy. Furthermore, there is broad consensus in the literature that enabling institutions, the presence of a conducive policy environment and an effective regulatory framework are key determinants for the development of local economic linkages (Qobo and Le Pere Reference Qobo and le Pere2018; Morris et al. Reference Morris, Kaplinsky and Kaplan2012). A well-designed policy and regulatory regime can create opportunities for skills development, job creation and enhanced working conditions for local workers, while also encouraging foreign firms to engage more actively with local contractors (Morris et al. Reference Morris, Kaplinsky and Kaplan2012). However, beyond sound policies and frameworks, the effective implementation and enforcement of these policies are equally crucial. Institutional capacity, defined as ‘the ability of states to plan and execute policies and enforce laws transparently and effectively’ (Fukuyama Reference Fukuyama2004, 7), plays a pivotal role in fostering local linkages and ensuring the successful execution of infrastructure projects (Tan-Mullins et al. Reference Tan-Mullins, Urban and Mang2017).
At the meso level, the potential for development-oriented linkages is contingent upon the availability of adequate human capital and the capacity of local firms. First, an important condition for any linkage formation is a capable and well-prepared labour force. The readiness and capability of the labour force are key in catalysing economic linkages and assimilating foreign practices into local infrastructure operations (Khan Reference Khan2022). Indigenous firms must also have sufficient absorptive capacity to integrate and adapt external knowledge to their own processes and organisational routines. Where local firms can meet certain quality and technical standards, they are better positioned to form partnerships with foreign corporations, which can lead to long-term gains in technology transfer, managerial expertise and overall competitiveness (Narula and Marin Reference Narula and Marin2003).
At the micro level, the specific characteristics of firms are often central to determining how much they contribute to local development (Amos and Gallagher Reference Amos and Gallagher2013; Pavlínek and Žížalová Reference Pavlínek and Žížalová2016). Ownership structure (state-owned versus private), sectoral focus (roads, railways, energy, or telecommunications), firm size and the length of operation in a host country can all shape the way foreign firms manage labour, transfer technology, subcontract to local enterprises or otherwise engage with the broader community. For instance, longer operational histories can result in a deeper understanding of local regulations and a stronger network of local contacts, thereby allowing for more effective partnerships and potentially greater developmental impact.
In line with this multi-level view, the GIN framework spotlights four paths by which foreign-led infrastructure ventures can spur local economic benefits: employment, technology (and knowledge) transfer, outsourcing practices with local enterprises and deeper integration with the manufacturing sector. These categories form the core of the analysis, allowing for a richer exploration of how the identified factors influence local development outcomes.
According to Bekhet (Reference Bekhet2011), employment and procurement policies of international firms play crucial roles in establishing significant economic linkages. This perspective is supported by research emphasising the positive impact of job creation resulting from infrastructure investments. For instance, a World Bank study (Ianchovichina et al. Reference Ianchovichina, Fender and Loening2012) shows that infrastructure investments in developing contexts have high employment multipliers that work through several channels: direct, indirect and induced. The construction, operation and maintenance of infrastructure assets require workers (direct effect), but they also create jobs in the supply chain (backwards linkages) or in the distribution network (forward linkages).
Additionally, foreign firms can serve as conduits for the transfer of skills and knowledge to the local labour force. By actively sharing knowledge and providing training opportunities, international firms contribute to the professional development of the local workforce (Qingwei and Nyantakyi Reference Qingwei and Nyantakyi2019). By helping local firms acquire technology and sharing relevant knowledge, international firms can enhance local technological capabilities and competitiveness directly. Indirectly, international firms can also contribute to the development of local firms’ technological efficiencies by setting high-quality and efficiency expectations. This helps indigenous firms learn to meet international quality standards, provide on-time delivery and become more competitive (Narula and Pineli Reference Narula and Pineli2016).
The role of the infrastructure sector in linking suppliers of materials, machinery, equipment and services in the value chain is also widely recognised (Hirschman Reference Hirschman1958). By relying on a range of inputs, from raw materials such as rock, sand and wood; to intermediate inputs such as cement, bricks and steel; to building components such as hydraulic and electrical materials and equipment and finishing parts, the construction industry sector can generate local clusters of industries and contribute to economic diversification (Wolf and Cheng Reference Wolf and Cheng2018). Alongside the construction-materials sector are important economic clusters that develop over time, such as brokerage services and maintenance.
Taken together, these considerations illustrate how the GIN framework offers a systematic lens for studying the local development impact of Chinese-backed infrastructure initiatives. By examining how macro-level policies, sector-level structures and micro-level firm attributes intersect, it becomes possible to gain more detailed insights into how and why certain projects lead to stronger local development outcomes than others. In the following sections, this framework is applied to the context of Ethiopia, with the aim of clarifying how broader macroeconomic forces, sectoral conditions and firm-level behaviours coalesce to shape local development outcomes in that country’s infrastructure sector.
Chinese Infrastructure Firms’ Involvement in the Ethiopian Infrastructure Boom
Infrastructure development has long been integral to Ethiopia’s economic aspirations, a priority shaped in part by the nation’s landlocked status. Since the imperial era, Ethiopian elites have regarded infrastructure as a fundamental prerequisite for economic growth. However, significant investment in this sector only truly accelerated following the rise to power of the Ethiopian People’s Revolutionary Democratic Front (EPRDF) in 1991. Guided by a developmentalist agenda, the EPRDF increased public spending on infrastructure from roughly 5 per cent of GDP in the early 1990s to 18.6 per cent by 2011, positioning Ethiopia among the highest global spenders on infrastructure as a share of GDP (Moller and Wacker Reference Moller and Wacker2017). This demand created a favourable environment for Chinese firms, which possessed the requisite skills, technology, and financial capacity to address Ethiopia’s pressing infrastructure needs.
Over the past two decades, Chinese companies have penetrated and expanded within the Ethiopian market by leveraging deep sectoral expertise, competitive bidding tactics and vertically integrated business models. China’s construction industry has long been among the world’s largest and most dynamic, initially standing out in power generation (thermal and hydro), transportation infrastructure (roads and railways) and information and communication technology (ICT) (Lin and Wang Reference Lin and Wang2017). Following a domestic slowdown in 2011, however, China grappled with industrial overcapacity in steel, cement and aluminium, among others, resulting in financial losses. Concurrently, the domestic market became saturated in areas such as dam construction and power transmission (Xu and Liu Reference Xu and Liu2018).
Confronted with rising labour costs, market saturation at home and overcapacity in key industries, Chinese state-owned enterprises (SOEs), multinationals and small- and medium-sized private companies increasingly turned their attention to international markets (Zou et al. Reference Zou, Shen, Zhang and Lee2022). Their competitive edge lies not only in technical know-how but also in the capacity to operate on substantially lower profit margins. While most international competitors target margins of 15 to 25 per cent, many Chinese firms can function at around 10 per cent, an approach enabled by tax incentives, soft loans and other forms of financial support from the Chinese government, which facilitated low-priced bidding during the early phase of their overseas ventures (Fei Reference Fei2020).
Moreover, these low bidding prices are supported by a vertically integrated business model, allowing Chinese firms to retain control over the entire infrastructure value chain. Through vertical integration, Chinese construction companies can leverage cost and efficiency advantages in all phases of infrastructure development, including planning, design, financing and construction. For both Chinese and other foreign firms operating in Africa, vertical integration enhances profitability and helps preserve a technological edge over local competitors (Le Pere Reference Le Pere and Freeman2017). This competitive advantage has led to a growing and diverse range of Chinese firms entering the Ethiopian market.
Broadly, these firms can be divided into two principal categories. The first category comprises large SOEs and major private companies that benefit from direct or indirect subsidies from the Chinese government. Many of these enterprises began operating in Ethiopia with explicit support from the Ministry of Commerce (MOFCOM) or from provincial and municipal authorities (Henderson Reference Henderson2011). The second category includes smaller provincial or city-level SOEs, as well as small and medium-sized private Chinese firms. In many instances, these smaller enterprises were founded by former employees of larger Chinese companies who, having gained substantial experience, branched out to establish their own businesses, often as subcontractors or specialists in niche segments of the procurement chain (Fei Reference Fei2020).
From 2000 to 2019, Chinese companies won the majority of national and international infrastructure tenders in Ethiopia’s transport, telecommunications and power sectors. In the road segment alone, they constructed approximately US$6.5 billion worth of roads spanning 3,000 km, representing over 69 per cent of total road construction during this period. In the railway sector, two of Ethiopia’s most ambitious initiatives, Addis Ababa Light Rail Transit and the modernisation of the Addis Ababa–Djibouti railway, were developed and managed by Chinese firms, namely the China Railway Engineering Corporation and the China Civil Engineering Construction Company. These projects were financed through credit lines from the Export-Import Bank of China (CHEXIM) amounting to more than US$3.5 billion.Footnote 6 In telecom and power, China’s ZTE and Huawei received credit lines totalling US$2.6 billion to develop and expand Ethiopia’s national telecommunications network, while major hydro and wind projects, including Gibe III, Gibe IV, Halele Werabesa, Tekeze, Adama I, Adama II and Ashegoda, were also awarded to Chinese firms.Footnote 7
By capitalising on lower-cost strategies and significant state-backed financing, Chinese companies have reshaped key segments of Ethiopia’s infrastructure landscape, particularly in transportation, telecommunications and power. Although these engagements have produced varied development outcomes, they have undoubtedly played a transformational role in Ethiopia’s infrastructure boom. The next sections examine the implications of these projects for local development, focusing on how Chinese firms and Ethiopian actors interact in ways that can either nurture or hinder broader economic linkages.
Methodology
This study employs a case-study approach centred on Ethiopia, using a mixed-methods design that combines in-depth interviews with firm-level surveys. In total, 81 semi-structured interviews were conducted to investigate the tools, modalities, and impacts of Chinese firms’ engagement in Ethiopia’s infrastructure sector. The pool of informants included company managers and Chinese employees, Ethiopian public officials, local private firms and local workers.
In selecting interview participants, a multi-step process was followed. First, a comprehensive list of potential stakeholders was compiled using official registries of infrastructure projects in Ethiopia, as well as membership directories from professional associations. Second, a purposive sampling approach was employed, ensuring representation from each key subsector (roads, railways, telecommunications and energy) and from different organisational levels (top management, mid-level supervisors and specialised staff). Lastly, a snowball sampling technique was used to identify additional participants, both Ethiopian and Chinese, who had significant knowledge or experience relevant to the research questions. This combination of strategies helped ensure that the interview sample captured diverse perspectives while focusing on respondents well-positioned to comment on how infrastructure projects shape local development outcomes.
In parallel to the interviews, surveys were administered to both Chinese and local firms active in the infrastructure sector, following key attributes outlined by Amos and Gallagher (Reference Amos and Gallagher2013). Their framework for examining the impact of Chinese mining activities in Latin America identifies five critical factors: industry type, geographical origin (Chinese or local), firm size, ownership classification (private or public) and length of local operation.
A list of foreign and domestic firms active in Ethiopia’s infrastructure sector was obtained from the Ethiopian Investment Commission (EIC). In 2018, 43 Chinese firms and 67 local private companies were registered in Ethiopia as Grade 1 contractors (GC1). Of these, 55 firms (50 per cent of the total) were randomly selected based on data availability. The final sample, after accounting for a 60 per cent response rate, comprised 33 firms: 18 Chinese (10 SOEs and 8 private companies) and 15 Ethiopian private companies (table 1).
Among the 10 Chinese SOEs surveyed, 4 operated across all infrastructure subsectors except telecommunications, 3 were exclusive to the energy sector and 2 focused solely on telecommunications. All had over 500 employees and had been active in Ethiopia for more than a decade, with the exception of 2. Of the 8 private Chinese companies, 6 were founded by former SOE employees (following the xiahai model) who opted to launch their own ventures in Ethiopia. Among these private companies, 8 specialised in transportation (predominantly road construction), 3 also operated in the energy sector and 2 exclusively addressed telecommunications. The majority of the private firms (7) had been operating in Ethiopia for fewer than 10 years, and all employed fewer than 500 people. Among the Ethiopian private companies, most (11) focused on general building and road construction, while a smaller number were involved in energy (3) and telecommunications (1). All had been operating for over a decade, with size classifications ranging from medium (11) to large (4).
Table 1. Characteristics of Firms Surveyed
Source: Author’s calculations based on data from firm surveys.
* Several companies operated in more than one subsector.
** The year of reference is 2019.
*** The survey uses the size definitions from the Ethiopian Central Statistical Agency’s survey of large- and medium-scale construction firms.
Several factors may affect the accuracy of these survey findings. First, nonresponse bias could arise if firms that declined to participate differed in significant ways from those that did. Some companies, Chinese and otherwise, were either unwilling or unable to take part. Additionally, even among respondents, some withheld specific information, leading to incomplete surveys. Second, response bias may also be present if firms provided answers that diverged systematically from their actual practices or experiences, whether due to social desirability concerns, fear of potential repercussions or insufficient knowledge.
To mitigate these limitations and bolster data reliability, the survey findings were triangulated with multiple sources, including in-depth interviews, direct observation and secondary data drawn from scholarly articles, government reports, company documents and independent consultant publications. In many cases, multiple representatives from the same Chinese firm were interviewed, allowing the study to compare the perspectives of Chinese expatriate managers and local employees, thereby providing a richer understanding of internal organisational dynamics and decision-making processes. The aim was to ensure a robust and well-rounded understanding of how Chinese infrastructure initiatives influence local development outcomes.
Assessing the Impact of Chinese Construction Firms on Local Development
Job creation and employment opportunities
The extent to which Chinese-led infrastructure projects contribute to job creation in host countries has generated considerable debate. Although certain studies (Schaefer and Oya Reference Schaefer and Oya2019; Wolf and Cheng Reference Wolf and Cheng2018) point to exceptions, earlier commentaries criticised Chinese firms for allegedly prioritising Chinese nationals over local labour, raising concerns about limited employment opportunities for host communities (French Reference French2014; Gadzala Reference Gadzala2010). Additionally, some research suggests that Chinese companies may rely more heavily on expatriate labour in managerial, operational and semi-skilled roles compared with local or Western firms (Chen et al. Reference Chen, Goldstein and Orr2009; Wegenast and Schneider Reference Wegenast and Schneider2017).
In Ethiopia, official data suggest a significant presence of Chinese workers, yet also reveal substantial job creation for Ethiopians. Between 2012 and 2019, the Ministry of Labor and Social Affairs (MoLSA) issued 49,269 work permits to Chinese nationals (MoLSA 2019).Footnote 8 During the same period, the EIC reports that Chinese firms employed a total of 152,524 permanent workers and 76,747 temporary workers, including 97,057 permanent and 54,960 temporary positions in the infrastructure sector (EIC 2019). In parallel, the Ethiopian National Planning Commission observes that total construction-sector employment tripled from 229,000 to 825,000 between 2005 and 2013 (NPC 2018). These statistics do not account for casual labour, which comprises a significant portion of the construction workforce.
Fieldwork findings challenge the notion that Chinese infrastructure firms in Ethiopia overwhelmingly depend on expatriate labour. According to interviews, the majority of Chinese companies appear to employ predominantly Ethiopian staff. Among the 18 Chinese firms surveyed, 55 per cent reported localisation rates above 90 per cent, 33 per cent reported rates between 80 and 90 per cent and 88 per cent reported a localisation rate exceeding 80 per cent overall.
Although no major disparities in localisation rates emerged between Chinese SOEs and private firms or among companies of varying sizes, there was a clear pattern based on time in operation. Firms with more than a decade of experience in Ethiopia exhibited higher levels of workforce localisation. Managers indicated that more seasoned firms no longer need to import as many expatriates because local workers have been trained over time, reducing labour costs and improving operational sustainability. These findings mirror Kernen and Lam (Reference Kernen and Lam2014) and Tang (Reference Tang2016), who argue that Chinese enterprises often depend on Chinese workers in the early stages of operation due to their familiarity with corporate processes, thereby facilitating rapid project execution. Over time, as firms adapt to the host country’s business environment, they increasingly employ local workers.
Sectoral analysis revealed lower localisation rates in telecommunications and energy. In energy projects, Chinese-to-Ethiopian labour ratios range between 60 and 70 per cent, dropping below 60 per cent in telecommunications. Across most infrastructure subsectors, Ethiopian workers are heavily concentrated in unskilled positions, with only two firms indicating that more than 10 per cent of managerial posts are held by Ethiopians. In telecommunications, around 20 to 25 per cent of workers are semiskilled (compared to below 10 per cent in other subsectors), owing to the technical expertise required for installing and maintaining ICT networks.
All interviewed Chinese managers expressed a desire to further increase local employment, primarily citing cost minimisation. One manager noted that wages for unskilled Chinese expatriates can be five to ten times higher than those for Ethiopians, while expatriates also require additional benefits such as daily allowances, housing, meals, and annual flights to China.Footnote 9 According to a Chinese manager: ‘It does not make economic sense for us to bring manual labour from China. Chinese unskilled workers are paid six, seven times more than the locals. If we talk of skilled labour, the gap is even higher. At the beginning it made sense to work with more Chinese because we needed people that were able to work with the machineries and knew how to do the job, but now we have trained a good amount of people and our localisation efforts are being repaid in terms of economic savings’.Footnote 10
Despite cost savings that encourage hiring local workers, a lack of specialisation and machinery operation skills persists among the Ethiopian workforce. Managers repeatedly cited lower productivity and slower project timelines as key concerns. Similarly, obstacles to promoting Ethiopian staff to managerial roles are tied to broader deficiencies in the education system and what Schaefer and Oya (Reference Schaefer and Oya2019) term the ‘ecosystem of skill formation’. Ethiopia thus faces a dual challenge: first, converting a predominantly rural, low-skilled workforce into a highly productive labour pool; and second, cultivating an adequate pipeline of mid-level managers and skilled technicians through mechanisms such as Technical and Vocational Education and Training programmes and on-the-job training (Oya Reference Oya, Cheru, Cramer and Oqubay2019).
In addition to these skill-related challenges, the absence of robust regulatory frameworks constrains workforce localisation. While the Ethiopian government has publicly prioritised the employment of local labour by foreign firms, it does not impose legally binding requirements for a minimum percentage of domestic workers, unlike Angola or Mozambique, which have included such regulations in law.Footnote 11As a result, localisation initiatives, including those from China, remain largely voluntary.
Despite challenges related to workforce specialisation and regulatory gaps, Chinese infrastructure companies in Ethiopia have made notable progress in localising their workforce. Many companies, particularly those with a longer presence in the country, have increasingly relied on local labour, driven by cost-saving measures and evolving business strategies. Although weakness persists in overcoming skills deficits and improving educational and regulatory systems, the increasing reliance on Ethiopian workers demonstrates a positive trend towards job creation.
Outsourcing and local firms’ integration into the infrastructure value chain
Localisation extends beyond direct employment to include the selection of suppliers and subcontractors. In Africa’s construction sector, Chinese companies have frequently been criticised for providing limited procurement opportunities to local firms and for fostering perceptions of unfair competition (Gadzala Reference Gadzala2010; Corkin Reference Corkin2013; Wethal Reference Wethal2018). According to survey data, domestic firms remain weakly integrated into Chinese-led infrastructure value chains, as partnerships and subcontracting agreements with local companies appear minimal. Specifically, only 9 per cent of Chinese contractors surveyed reported engaging in joint ventures with Ethiopian firms, indicating low levels of collaborative integration. Furthermore, less than 30 per cent of all Chinese contractors subcontracted work. Companies interviewed reported that subcontracting opportunities were mostly limited to low-value-added activities, such as drilling, excavating, earth moving, paving and surfacing.Footnote 12
Subcontracting practices show little variation across different industries, company sizes or lengths of operation in Ethiopia. Smaller private Chinese firms primarily play the role of subcontractors rather than main contractors, often relying on subcontracts from larger Chinese SOEs or multinational private companies. Fieldwork suggests these subcontracts tend to be awarded to Chinese-owned enterprises due to factors such as risk reduction, existing business relationships, perceived higher efficiency in task completion and an inclination to avoid language or cultural barriers.Footnote 13
While subcontracting to local Ethiopian firms is marginal in the infrastructure sector, the analysis shows that this is not only linked to Chinese companies’ modus operandi, but it is also a result of constraints within the local industry and weak institutional support. As illustrated in Figure 2, the single most significant barrier for domestic firms is limited access to financing. According to the National Bank of Ethiopia (NBE), approximately US$819 million in loans were disbursed in 2017/2018, 23 per cent of which supported energy generation, water and construction projects, yet none were allocated specifically to local contractors engaged in public infrastructure projects (NBE 2019).
Figure 2. Main Constraints Facing Domestic Companies.
High fixed costs, including regulation and prequalification expenses, further impede Ethiopian companies’ access to local procurement markets. While in principle, domestic firms receive a 7.5 per cent ‘price preference’ in international competitive bidding, this measure has yielded limited practical advantages.Footnote 14 According to the president of the Construction Contractors Association of Ethiopia (CCAEC), only a small fraction of contracts have been awarded under this provision.Footnote 15 Additionally, stringent prequalification requirements, often stipulated by the Ethiopian government or international lenders such as the World Bank and the African Development Bank, typically exceed the financial and technical capacities of local firms, restricting their ability to partake in large tenders.
Weak policy enforcement further impedes local subcontracting. Although the government has announced its intention to promote domestic participation, it has not enacted binding regulations or minimum subcontracting thresholds compelling foreign contractors to engage local firms. Gaps in the design and execution of public procurement strategies result in the vast majority of large-scale contracts being awarded to major Chinese or other foreign entities, leaving local players relegated to smaller, marginal tasks.
Local firms have responded by lobbying the government to adopt regulations that encourage local procurement and subcontracting (Lauria Reference Lauria2022). However, gaps in policy design and weak enforcement compromise these initiatives. Structural issues, such as weak institutional support for local firms, frequently exacerbate the competitiveness gap between Ethiopian and Chinese firms. While the government could foster stronger linkages by introducing ownership or local-content requirements compelling foreign companies to partner with local enterprises, existing policies remain fragmented, leaving domestic participation largely reliant on voluntary actions by foreign firms.
These challenges are further exacerbated by the government’s weak execution of its policy framework on procurement and joint ventures. Lack of effective regulations and execution may be the result of a strategic choice of the Ethiopian Government to continue luring foreign firms that can provide the country with infrastructure. Although this approach could have significant long-term consequences for the development of a robust Ethiopian construction sector, the current priority for the government is to ‘get things done’.Footnote 16 Indeed, local companies increasingly view the lack of policy adherence as detrimental to their growth, leaving many Ethiopian firms struggling to keep pace with foreign competition.Footnote 17 In light of these constraints, the question arises whether limited subcontracting might be offset by other avenues for strengthening local capabilities, particularly direct training and technology transfer.
Skill building and technological transfer
A critical aspect of Chinese firms’ involvement in Ethiopia’s infrastructure sector lies in their potential to foster skill-building and technological transfer. This section examines both the transfer of technology to local subcontractors and the training of local workers, two key indicators of how Chinese enterprises may influence the development of local skills and expertise.
Although Chinese firms do offer technical assistance to subcontractors, most Ethiopian companies benefit only marginally from significant technology spillovers. Concerned about preserving proprietary knowledge, many Chinese firms limit the transfer of core technologies and specialised skills, particularly in the absence of market regulations that would incentivise them to deepen collaboration. As Chen (Reference Chen2018, 9) notes, ‘Chinese SOEs may support knowledge transfer and skills training in some aspects of rail projects, for example, but, like other profit-seeking bodies, they have little to gain from handing over the underlying technology to local firms or industries’. Consequently, more structured technology-sharing efforts often occur within Chinese-owned subsidiaries rather than in partnership with local firms.
Direct training of local workers is typically offered in two forms: on-the-job training and formal programmes. According to survey data, 90 per cent of Chinese companies provide some type of on-the-job instruction. These initiatives are prevalent across public and private Chinese firms of varying sizes, reflecting a practical, hands-on approach to skill acquisition. Formal training programmes, by contrast, are more frequently implemented by larger SOEs and private enterprises; 80 per cent of these actors report conducting structured training sessions, compared with only 40 per cent among smaller private companies.
While most Chinese companies offer some level of training to their local personnel, the scope and depth of training vary across industries and company sizes. In particular, there is a noticeable variation between low-tech sectors (road construction and drilling) and high-tech sectors (energy, railways and telecommunication). Chinese companies that use complex technologies are more inclined to provide professional training to their employees (Te Velde Reference Te Velde2002; Agbebi Reference Agbebi2018). Larger firms tend to offer more comprehensive training due to their stronger financial resources, greater international exposure and extensive experience.Footnote 18 Ethiopia’s ICT sector provides a clear illustration. Companies such as ZTE and Huawei have trained local employees to meet the high demand for skilled professionals. After securing its first contract, ZTE hired approximately 1,000 engineers from the then Ethiopia Telecom Corporation (now Ethio Telecom) and provided instruction in telecommunications engineering. In 2017, ZTE also established a training centre in Addis Ababa with an annual capacity of over 200 students, focusing on engineering skills and project management.Footnote 19
A similar pattern emerged during the construction of the Addis Ababa–Djibouti railway. Chinese contractors CREC and CCECC signed six-year operational agreements and committed to training local personnel to ultimately run and maintain the network independently. Part of this arrangement involved sending more than 300 Ethiopian employees to universities and technical institutes in Beijing, Tianjin and Chengdu for advanced training in railway engineering, train driving and track maintenance.Footnote 20 In early 2018, the Chinese Government approved a US$60 million grant to build Ethiopia’s first railway academy in Bishoftu, aimed at enrolling over 900 students per year and offering end-to-end training in railway construction and operations.Footnote 21
Despite these efforts, evaluating training outcomes is challenging. Language barriers persist. Many Chinese managers have limited English proficiency and no knowledge of local languages, complicating effective communication and supervision. Furthermore, no formal regulatory framework exists to track or assess the quality of knowledge transfer. Some Ethiopian agencies are experimenting with internal checks, such as asking Chinese contractors to let local teams independently carry out tasks after initial training, but these initiatives remain sporadic and lack standardised evaluation metrics. For instance, when I inquired with a director of operations at the Ethiopian Electric Corporation (EEC) about such practices, he replied:
There is still no official procedure to evaluate whether training or technological transfer happening between foreign firms and local personnel is beneficial. However, here at EEC, we are taking steps in that direction. For example, there has been a wind turbine installation for a project done by a Chinese company a few months ago. What we asked the company was to let the local team install four turbines by themselves right after the training. If the local teams needed further preparation, we expected the contractor to provide additional training. That was the approach we took to see if they could work properly without supervision. This is helpful, especially for the maintenance work. Now we are planning to do this on a more regular basis.Footnote 22
As the findings indicate, technology transfer stemming from Chinese firms’ involvement in Ethiopia’s infrastructure sector presents a mixed picture. While the surveyed companies generally prioritise employee training, such efforts largely emerge from strategic considerations, ensuring efficient project execution, expanding markets and enhancing profitability, rather than purely altruistic motives. Consequently, meaningful spillovers to local firms remain limited. Excluded from substantial collaboration with their Chinese counterparts, Ethiopian companies face constrained opportunities to acquire and assimilate advanced technologies or to adopt best practices.
Supply chain and linkage formation with the manufacturing sector
Since the early 2000s, Ethiopia’s infrastructure boom has fuelled a growing demand for industrial products and services. Imports of equipment and machinery climbed from 4.5 per cent of total imports in 2000 to 8.7 per cent by 2018.Footnote 23 China has emerged as the leading supplier of advanced inputs, such as equipment and construction machinery (including concrete mixers, hand trucks, cranes and other heavy construction machinery). This is primarily due to the conditionality stemming from China’s vertical integration formula, where the purchase of Chinese inputs and machinery often becomes a prerequisite for securing infrastructure loans backed by the Chinese Government. These products are also competitively priced; for example, Chinese excavators and bulldozers are 20 to 60 per cent cheaper than their Western equivalents.Footnote 24 As a result, both Chinese and local contractors have increasingly relied on Chinese technologies, gradually replacing the dominance of Western European manufacturers that had prevailed in the Ethiopian construction sector throughout the twentieth century (Oqubay Reference Oqubay2019).
The expansion of public infrastructures and the related increase in demand for building materials have been instrumental to the creation of linkages with the local manufacturing sector, especially in the cement-and-building-materials industry (steel, metal inputs and finishing materials), leading to shift in the country’s industrial structure. Thanks to the expansion of public infrastructure investment, value added in the construction sector increased from 11.1 per cent in 2010/2011 to 27.7 per cent in 2014/2015 before slightly decreasing to 22.85 per cent in 2015/16 and 2016/17. Data retrieved from the Ethiopian Statistical Agency show an increase in the gross value of production, the value added, and the number of persons employed by the manufacturers of nonmetallic mineral products between 2002 and 2018 (Figure 3).Footnote 25
Figure 3. Manufacture of Nonmetallic Mineral Products (2002–18).
Source: Ethiopian Statistical Agency. Author’s calculations, unpublished data (accessed August 2019).
Note: The bars represent the number of surveyed firms citing each constraint.
Source: Author’s calculations based on firm surveys.
The cement industry is a prime example of this industrial diversification. Installed production capacity soared from 800,000 tonnes in 1999 to 16.7 million tonnes by 2017 (Oqubay Reference Oqubay2019), placing Ethiopia among Africa’s leading cement producers. Contrary to many African countries, where multinational corporations predominate, Ethiopia’s cement industry remains led primarily by domestic firms, which together control 55 per cent of installed capacity, while foreign-owned and joint venture operations account for 35 per cent and 10 per cent, respectively (CSA 2016).Footnote 26
The Ethiopian government’s proactive industrial policy since the early 2000s has stimulated investment in the building-materials industries by offering fiscal and financial incentives, including customs duty exemptions, tax holidays and income tax relief (Oqubay Reference Oqubay2019). Additional measures have included priority access to foreign exchange and facilitated financing from institutions like the Development Bank of Ethiopia, the Commercial Bank of Ethiopia and the Industrial Development Fund. In 2012, the state enacted legislation reserving cement production investments for Ethiopian nationals, accompanied by the rollout of a dedicated cement-industry development strategy.Footnote 27
Ethiopia’s metal industry has seen a similar, though more modest, evolution. In its Growth and Transformation Plan II, the government highlights how import substitution policies in the metal and engineering sector have advanced industrial capabilities (FDRE 2015, 31). Over the past two decades, the number of local factories producing metal inputs, particularly reinforcement bars, has expanded significantly, from a single factory in the late 1990s to roughly 20 factories by 2023, with a combined installed capacity of more than 7 million tonnes per annum.Footnote 28 However, it should be noted that only 50 per cent of this potential capacity is currently being utilised.
Although metal products do not occupy a formal priority position in Ethiopia’s industrial strategy, the basic metal and engineering industries (BMEI) have received targeted policy support for import substitution. Following the Plan for Accelerated and Sustained Development to End Poverty II, the Ministry of Planning and Development Commission and the Ministry of Trade and Industry initiated a BMEI Development Strategy and Action Plan in 2008, complemented by a five-year roadmap for the metal and engineering subsector (Solomon and Alula Reference Solomon and Alula2018). In June 2010, the government reinforced these measures with Regulation No. 182/2010, establishing the Metals Industry Development Institute to facilitate technology transfer and industrial development in the metals and engineering sectors.
Beyond tangible inputs such as machinery and raw materials, an expanding construction-rental market has emerged to meet growing needs for both new and used equipment. This trend has encouraged an increase in service providers offering rental options, which helps reduce up-front investment costs for many local construction firms.Footnote 29
Chinese contractors’ engagement in Ethiopia’s infrastructure sector has accelerated growth in pivotal manufacturing areas like cement and metals, prompting local industries to expand capacity and modernise operations. Although challenges persist, such as underutilization of installed production capacity and variable levels of competitiveness, Ethiopia’s industrial policies have thus far helped domestic firms participate in the local infrastructure market. Over the long term, these advancements may pave the way for deeper structural transformation and more robust manufacturing linkages in Ethiopia.
Conclusion
This study set out to examine whether and how Chinese firms operating in Ethiopia’s infrastructure sector generate local development benefits, focusing on four primary areas: job creation, skill and technological transfer, sourcing from local enterprises and linkages to the manufacturing sector. A key focus was the interplay between host country institutions and local industrial capacity in shaping the potential for positive economic outcomes.
Overall, the findings reveal diverse, often uneven, development outcomes stemming from the operations of Chinese firms in the Ethiopian infrastructure arena. Benefits do exist but do not automatically arise from the mere presence of Chinese firms. First, firm-specific characteristics strongly influence the extent of local spillovers. Ownership type (public or private), industry subsector, duration of local operations and corporate size together help determine each company’s inclination to forge linkages with domestic partners.
Second, local absorptive capacity emerges as a decisive factor. A well-trained, sufficiently skilled labour force and local companies with foundational technological capabilities are more likely to form productive partnerships with Chinese firms. Without these conditions, even the most proactive outreach efforts struggle to produce substantial technology transfer or managerial expertise that can be embedded in local industries. Ethiopia’s broader economic landscape, marked by gaps in vocational training, limited access to finance and insufficient policy enforcement, further constrains the ability of indigenous firms to leverage Chinese investment.
Finally, the Ethiopian case demonstrates that the creation of development linkages hinges on the capacity and willingness of African legislators to create a conducive policy environment. Beyond setting policies that encourage local-content usage or joint ventures, governments must ensure coherent implementation and rigorous enforcement. In the absence of legally binding quotas or effective oversight, localisation initiatives, including those introduced by Chinese firms, remain largely voluntary and subject to market forces. A supportive policy environment, complemented by meaningful enforcement, can help stimulate sector-wide improvements in infrastructure, labour training, and industrial capacity, ultimately benefiting both domestic stakeholders and foreign investors.
These conclusions underline the need to move away from binary portrayals of Chinese infrastructure projects as purely exploitative enclaves or unequivocal catalysts for development. Rather, the reality is shaped by contingent factors operating at multiple levels, firm-specific attributes, local industrial capabilities and the institutional environment. Effective policies and coordinated governance can align these factors in ways that optimise gains for the host economy. For Ethiopia and other African nations seeking to capitalise on Chinese investment, the challenge lies in crafting and enforcing frameworks that encourage skills upgrading, technological diffusion, and meaningful local participation in high-value segments of the infrastructure value chain.
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