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Setting a minimum wage and asking investors to pay above the capability of workers will undermine the very competitive advantage countries have for attracting Foreign Direct Investment (FDI), according to the Josephine Ngure, Resident Representative of the African Development Bank.
The statement came earlier this month during the launch of the African Economic Outlook report. “When you think about the wages in a competitive market, the wages have to reflect the productivity of the workers. You cannot ask investors to pay above the productive capabilities of the workers. The reason why we are saying the manufacturing activity is moving from Asia and moving to Ethiopia and other African countries is precisely because they do have the advantage of workers that can be paid according to their capabilities while producing quality products. And with training, which is what we are emphasizing, we can see this productivity grow,” she stated.
Nagure further underlined that it needs to be understood that the ultimate objective of attracting FDI is creating jobs and jobs that are consistent with the skills that exist in the country need to be created. Overtime, the skills of the workers needs to continue to be built through more trainings as a different more advanced set of skills are needed when countries move from light to heavy manufacturing.
“When you compare these wages between here and Asian countries, you might think that the workers here are being underpaid but you should not compare the two. What you need to do is look at the wage and compare it to the productivity and the skill of the individual. We need to approach this gradually, we need to do what we need to do to improve the skills of the workers and after that we need to ask ourselves, whether or not the free market is compensating the workers and the skills they have,” Nagure also said. She further said that studies currently show that the wages that are being paid are consistent with productivity.
Currently Ethiopia doesn’t have a set minimum wage and there are no plans to do so anytime soon. Nagure stated that currently the companies that are investing in Ethiopia are high profile companies that are very well aware of the consequences of treating employees badly so they are likely to provide a safe work environment along with different benefits such as health coverage.