With its cheaper labour and resources, East Africa has already attracted foreign investment
, particularly from Asia – as well as business from major international fashion brands and retailers.
International brands, importers and manufacturers are looking hard at Ethiopia as an attractive garment production and sourcing destination. The country’s textile and clothing industry is undergoing major expansion following a high flow of foreign investment in recent years from India, Turkey, China, Bangladesh and South Korea.
“We have created operational and investment incentives for the textile and garment sector, including duty exemption on imported machinery and transport; duty free access to US and EU markets; income tax exemption for eight years; cheap labour; as well as inexpensive and nearly free access to land," says Bantihun Gessesse, spokesman for the Ethiopian Textile Industry Development Institute.
Ethiopia boasts some of the cheapest land and electricity rates in Africa and Asia at US$0.50/kilowatt (KW), while the cost of leasing land can be as low as US$0.03 per square metre per year for 80-year leases in many instances.
And with labour costs continuing to rise in Asia, "the cost of trainable manpower is significantly cheaper and competitive," adds Gessesse, noting the average monthly wage in Ethiopia is just US$40.
The country also has the potential to become a centre for cotton cultivation. "Of the three million hectares of fertile land capacity for cotton production in Ethiopia, only 6.7% is being cultivated," says Gessesse.
International brands, including retailers Tesco, Primark, Walmart and Hennes & Mauritz have all started doing business with Ethiopia’s textile and clothing sector in the last two years.
H&M, which buys approximately 80% of its products from Asia, started sourcing clothes from Ethiopia in 2014 to supply new stores in emerging markets. “We see great potential in Ethiopia. Our aim is to contribute to development of the textile industry and bring best practice and continuous, sustainable business,” a company spokesman told just-style.
Ethiopia’s largest textile investment projects include plans by the Bangladesh-based DBL Group to build a US$30m textile and garment factory. And around 50 Turkish textile and apparel companies have said they will relocate production in Ethiopia, to participate in an industrial zone around the capital Addis Ababa, established by Turkey-based garment firm Ayka Addis.
In 2014, the export value of Ethiopia’s textile and garment sector reached US$120m, according to the government, which ambitiously hopes these earnings will rise to US$500m in 2016.
Next-door Kenya is another potentially important sourcing hub in the region. The US$65m US-funded East Africa Trade and investment Hub, in the capital Nairobi, is one example of a new, strong partnership between the United States and the five East African Community (EAC) countries of Kenya, Burundi, Rwanda, Tanzania and Uganda.
The new advisory and investment centre was launched in November 2014 by Robert Godec, US ambassador to Kenya, and is expected in future to also help develop projects in Ethiopia, South Sudan and Djibouti. According to Godec, the US government thinks the region has significant economic growth potential because of its growing educated and globalised middle class.
Kenya is interested in expanding its reach to the US garment and apparel market. "In its efforts to become a middle-income country by 2030, Kenya has drawn an aggressive industrial take-off to be backed by manufacturing services and agricultural commodities," according to a report released in March by the UK-based Textiles Intelligence, which supplies business information on the sector.
While major garment and apparel brands are increasingly sourcing from Kenya and Ethiopia given rising wages in China and labour unrest in Cambodia and Bangladesh, there are also other factors at play.
“Kenya and Ethiopia governments have been creating favourable conditions to attract investors,” notes Textiles Intelligence. For instance, in 2013, Kenya Industrial Estates Ltd – which helps accelerate the growth of micro, small, and medium enterprises in Kenya – aided 46 apparel manufacturing projects, compared to only 19 projects between 2009 and 2012.
According to Cyrille Nabutola, CEO of Kenya’s Export Processing Zones Authority, companies now sourcing textiles and clothing from Kenya include Turkey’s CherryField Sesby, Li & Fung and PVH Corp.
“Besides, this year, we are expecting delegations from Primark and Tesco, H&M and Tchibo,” says Nabutola.
Cotton farmers and textile manufacturing companies have also been pushing for the removal of a ban on GM cotton in Kenya, which could expand production and backward linkages to the apparel and textile industry, he says.
As well, Chinese companies are investing in Kenya. In February this year, Jiangsu Lianfa Textile Co signed an agreement with the Kenyan government to open a US$500m factory in Naivasha town, near the Great Rift Valley. “This will be the largest plant of its kind in sub-Saharan Africa and will create over 30,000 direct jobs,” says Xiangjun Kong, the company’s president.
Other options
As for other countries in the region, Rwanda could also show promise, with its government promoting sustainable growth. Its small textile and apparel finishing sector is attracting Chinese investment, with China-owned C&H Garments Company planning to begin operating a garment factory near the capital Kigali in January 2016.
The company signed a business agreement with the Rwanda government in July, and expects to invest US$10m into the company while manufacturing garments destined for the US and Europe, reported the Rwanda Development Board (RDB).
Prior to the deal, Kigali-based Utexrwa has been Rwanda’s first and only textile manufacturing company, specialising in finished fabrics and yarn. The company produces 1m kg of cotton and polyester-cotton yarn, as well as a moderate number of finished garments, including military uniforms, earning US$2-3m a year, according to company statements.
The new C&H factory will use imported fabrics initially, but sources told just-style that it hopes to source materials locally from Utexrwa.”From discussions we had and visits made by C&H investors, the new investment is an opportunity for [Utexrwa] to supply fabrics if they can produce the quality required by the new company,” Eusebe Muhikira, head of export and business development at the Rwanda Development Board, told just-style.
Chief among the challenges for potential investors is the lack of local raw materials, such as cotton, dyes and chemicals. “This can add significant cost to products that are usually lower margin, making mass production less likely to be viable” says Hunter Thompson, director of Karisimbi Business Partners, a Kigali-based consulting firm.
[Just-Style]