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By Aaron Maasho

ADDIS ABABA (Reuters) - Ethiopia will start setting up a new industrial park in September and will expand another at a total cost of $250 million, an official said, part of efforts to shift away from farming and become a hub for textiles and other industries.

The Horn of Africa nation aims to attract investors who are moving some manufacturing from China and other Asian markets, where costs are rising. Ethiopia offers cheap labour and fast improving power supply, transport and other infrastructure.

Luring new industry is seen as vital to maintaining high growth rates in Ethiopia's still largely agrarian economy. The economy has expanded annually by double digits in the past decade and is forecast to grow by 8 percent or more this year.

Yaregal Meskir, deputy director general of the Ethiopian Industrial Development Zones Corporation, said plans were being finalised to expand the existing Bole Lemi Industrial Zone, on the southern outskirts of the capital, while a new industrial hub was planned at Kilinto, 30 km (20 miles) further south.

"We have witnessed many investors have come to acquire sheds and land and there is a long queue," he told Reuters in an interview on Friday. "We prefer labour-based industries like garment manufacturing and shoe manufacturing for exports."

After selecting a designer, he said building Bole Lemi phase two and the Kilinto Industrial Zone would start in September.

A third of the 156-hectare Bole Lemi site was developed at a cost of 2.5 billion birr (74.3 million pounds), financed by the state, in the first phase and has attracted Korean garment-maker Myungsung Textile Company and Taiwan's George Shoe Corporation.

The Kilinto zone will cover 243 hectares.

Both the expansion work and new site would be financed by a $250 million World Bank loan, Yaregal told Reuters.

The industrial parks are central to Ethiopia's plans to build an industrial base, with textiles and garments seen as a key sector, in part because the country benefits from the U.S. AGOA trade pact allowing duty-free exports to the U.S. market.

The industrial zones offer land for factories at $1 per square metre a month, tax holidays for up to seven years and customs and other services on site for those investing in the nation of about 90 million people, officials say.

NEW HUBS PLANNED

"Ethiopia has developed a strategy that gives priority to certain industries," Taddese Haile, State Minister of Industry, told Reuters. "The aim is to see Ethiopia as a globally-known cluster for textiles and garment products."

Another three manufacturing hubs are planned across the country in the next decade, including a Special Economic Zone in the eastern town of Dire Dawa of 3,000 to 20,000 hectares. Details of the Special Economic Zone are still under study.

Ethiopia faces tough competition from other African countries seeking to benefit from increased interest among foreign investors in a continent with a fast-growing middle class with rising disposable incomes.

In countries like Ghana, for example, small, prefabricated 'pop-up' factories are providing low-cost, low-risk ways to churn out consumer goods for global markets by circumventing onerous local regulations and corruption.

Ethiopia, once ruled by communists, has driven up its economic growth rates with strong state intervention as well as rising farm output. Industry accounted for just 10 percent of economic output last year, official figures showed.

The International Monetary Fund forecasts economic growth of 8 percent to 8.5 percent for fiscal 2013/14 and 2014/15 but has also said the state must avoid squeezing out private firms.

Strong growth has helped fuel projects that include hydro-electric dams and other power projects to offer cheap electricity and a growing network of roads and railways. The capital will soon have its own urban metro, a rarity in Africa.

In a bid to encourage investment, the government is allowing private firms to build their own industrial hubs. One such enterprise is the Eastern Industrial Zone, whose shareholders included China's Jiangsu Qiyuan Group.

Firms operating in that zone include Huajian Group, which produces around 300,000 pairs of shoes and sandals a month for Western markets. The firm is planning its own industrial park.

(Editing by Edmund Blair and Gareth Jones)

Reuters