(Bloomberg) -- Ethiopia is offering tax breaks and other incentives to lure foreign drugs manufacturers as the government forecasts demand will increase by almost a third by the end of the decade.

Ethiopians spend $700 million a year on pharmaceuticals, only a fifth of which are produced locally. Spending on medication is expected to grow to more than $900 million by 2020, Anteneh Senbeta, the deputy commissioner for corporate affairs at the Ethiopian Investment Commission, said in an emailed response to queries.

Foreign companies have ploughed $213 million into the industry in the past two years, lured by government offers to facilitate exports and allow companies to repatriate profits, the agency said. The government has promised tax exemptions for factories at an export-processing facility on the outskirts of the capital, Addis Ababa, one of several established across the country.

Two Chinese companies, Humanwell Healthcare Group Co. and Sansheng Holdings Group Co., invested a total $100 million in another industrial park over the past two years, according to Kartik Akileswaran, a governance adviser at the EIC.

The latest investor to announce its entry into Ethiopia is Mumbai-based Kilitch Drugs India Ltd., which plans to build a plant to manufacture medicinal vials by mid-2019. United Arab Emirates drug-maker Gulf Pharmaceutical Industries has a hub in Ethiopia, from where its eyeing east and west African markets.

“There is a strong investment policy focused on pharmaceuticals, with tax exemptions, a one-stop shop for government services and a price preference in public procurement,” Senbeta said.

Cheap Labor

Ethiopia’s manufacturing industry is valued at about $1.35 billion, compared with $48.1 billion in South Africa, the continent’s most industrialized economy, according to the World Bank. South Africa’s pharmaceutical industry was valued at more than $3 billion in 2016, accounting for almost 10 percent of manufacturing, according to Research and Markets Ltd., a Dublin-based research company.

Other than Chinese and Indian investors, Ethiopia is also seeking manufacturers from Europe, Akileswaran said. While it lacks sufficient skilled labor and raw material for the pharmaceutical industry, those can quickly be acquired through training and imports, he said.

Although its economy grew at an annual average of 10.3 percent in the 10 fiscal years to June 2016, Ethiopia remains one of the world’s poorest countries and low wages remain a big draw for investors. Factory workers earn on average $75 per month, which is attractive even for Chinese manufacturers put off by rising wages back home, Anteneh said.

To contact the reporter on this story: Samuel Gebre in Nairobi at sgebre@bloomberg.net

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, Helen Nyambura, Hilton Shone

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