There has been a big buzz around Ethiopia as a potential source of apparel for at least the last five years and yet disappointingly small exports of just US$112m in 2014. But that could finally be set to change, as Jozef De Coster reports from last week’s “Origin Africa” event in Addis Ababa.
Comparative country rankings like the World Bank’s Ease of Doing Business Index, the Ibrahim Index of good governance, and the Corruption Perceptions Index do not, for the most part, encourage foreign companies to set up business in Ethiopia.
However, as far as the production of garments for the US and EU markets is concerned, sourcing specialists seem to agree that Ethiopia is the place to be.
“I visited a score of Asian and African countries and my conclusion is that Ethiopia is the number one location,” says Kumara Kahadugoda, director of sourcing/operations at the apparel sourcing company Duty Free Sourcing Inc.
Entrepreneur Siddharth Sinha, founder and owner of the Vogue and Velocity Group of companies, agrees that no other country can presently beat Ethiopia.
The principal arguments for moving into Ethiopia are well-documented, and include the abundant future availability (at least theoretically) of cotton and hydro-energy, the duty-free access of Ethiopian textile and apparel products to the US market under AGOA (the African Growth and Opportunity Act) and to the EU-market under the EBA (Everything but Arms) arrangement, the strong engagement of the Ethiopian government as outlined in its Second Growth and Transformation Plan (2015-16 to 2019-2020), and of course the very competitive labor cost.
Also noteworthy is that Ethiopia is trying to attract experienced South African cotton farmers. The impending land reform in South Africa will require farmers to redistribute 50% of the land to the workers, coupled with the continuing violence against white farmers (more than 2,000 murdered since 1994) may convince some to consider the offer of free land in Ethiopia and to try their luck there.
Manogya Sharma, export manager of Inviya, a brand of the Indorama Group, the world’s largest integrated manufacturer of polyester, says Indorama is currently in talks with the Ethiopian government to set up of a polyester plant in Ethiopia – the first in Africa.
The ten-year extension of AGOA agreed in June 2015 is of crucial importance for both foreign textile and garment manufacturing groups, as well as for American buyers, to bet on Ethiopia for the long term.
Foreign investors in the Ethiopian textile and clothing industry generally praise the support they get from high-level government officers.
But some problems continue to linger. Kerstin Venhoven, product manager for fashion at Hellmann Worldwide Logistics GmbH, points to the discrepancy that sees the in-clearing of inputs at Djibouti Port for Ethiopian FOB garment manufacturers take two to three weeks, while out-clearing of garments can be done in one day.
The famously low Ethiopian labor cost – at Origin Africa, garment manufacturers quoted average monthly wages for operators of US$46, US$50, US$57 – are, however, significantly offset by low labor productivity and high personnel rotation. All garment manufacturers need to invest permanently in education and training of workers.
Early Birds
The vertically integrated Turkish textile companies Ayka Addis and Saygin Dima, which both entered Ethiopia in 2008, were key FDI pioneers in the sector.
Ayka Addis, currently the biggest textile group in Ethiopia, is working on a plan to relocate some 20 Turkish textile and garment companies to the country.
And Turkish interest in Ethiopia continues to grow, with trade fair organizer Ladin from Istanbul bringing 27 Turkish exhibitors to Origin Africa 2015.
Though yarn and fibre maker Saygin Dima didn’t have an easy start in Ethiopia, CEO Fatih Mehmet Yangin is bullish about the company’s future. He thinks that within two years an annual turnover of US$150m is within reach. Saygin Dima will also extend its activities to garment manufacturing, which will more than double its employment from the current 1,200 workers to around 3,000.
Clothing retailers and brands from Europe and the US have been moving in slowly and cautiously. Fashion retailer H&M started production test-runs in three Ethiopian factories in 2012, and then relied partially on the Swedish taxpayer to upgrade its Ethiopian suppliers via a partnership with Swedfund – which reportedly injected US$8.6m in “the development of a responsible textile industry in Ethiopia.
The US-based clothing group PVH Corp, which owns brands including Calvin Klein and Tommy Hilfiger, brought in some experienced Asian investors to help build its East African supply chain by.
Roy Ashurst, PVH’s sourcing hub leader for Africa and the Indian subcontinent, says: “We brought three investors to Kenya and five to Ethiopia. One of the investors in Ethiopia is a Chinese textile mill making shirtings. We contributed to the building of a suppliers’ hub in the Industrial Park of Awasa, a city 270 km south of Addis, due to become operational in February 2016 with 32 factories.
According to Ethiopian sources, a Chinese company is building Awasa Industrial Park for US$246m.
Competing East African Countries
During Origin Africa 2015, the usual lip service was paid to the idea of regional and even pan-African co-operation. In practice, however, the investment promotion services of each African country are in fierce competition to attract foreign textile investors not to Africa, but to their respective countries.
Kenya, the largest economy in East Africa and the largest apparel exporter under AGOA in Sub-Saharan Africa over the last five years, has a more expensive but better trained workforce than Ethiopia. It is still attracting new garment factory investments but less than Ethiopia.
According to Tim Armstrong, investment promotion director at Tanzania’s Textile Development Unit, Tanzania is actually the best overall location for apparel making in Africa.
At US$70, the average monthly labor cost may be higher than in Ethiopia, but it’s closer to a living wage and won’t increase as fast as will probably be the case in Ethiopia.
Among the main arguments Armstrong puts forward in favor of Tanzania are the fact that it has the largest cotton production in East Africa, local fabrics in knits and wovens are available, a new gas pipeline to Dar Es Salaam has just been turned on, and an efficient new port – Bagamoyo Portside – has just been inaugurated.
The landlocked countries Uganda and Rwanda are also competing for the attention of textile investors.
After seven years of garment production in Kenya, the Chinese group C&H Garment set up a factory in Rwanda, promising to create 20,000 jobs (there are now around 300 workers). The Rwandan government is currently examining how it could tap into the export market for mass manufacturing of quality clothing.
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