Ethiopia may have more trump cards to play than any other sub-Sahara African country when it comes to developing a competitive cotton, textile and garment supply chain, but it still has a rough road ahead. Indeed, Ethiopia’s growth as a garment exporter will be slower and more difficult than the government and local textile organisations predict.
Theoretically, all the necessary ingredients are available to transform Ethiopia into an internationally competitive textile nation.
More than 3m hectares, of which only 7% are currently cultivated, are available to grow cotton. Compared to other African countries like Burkina Faso, Mali or Ivory Coast, Ethiopia is an insignificant cotton producer (38,000 tons of lint in 2013/14). However, while most African countries export more than 90% of their cotton as raw material, Ethiopia uses most of its cotton for manufacturing textiles and garments.
The French cotton consultant Gérald Estur expects faster development of the textile supply chain in Ethiopia than in other African countries because of the available spinning capacity (more than 100,000 tons/year in 17 spinning mills) and the high priority the Ethiopian government has given to the sector’s development.
What is probably most attractive in Ethiopia for companies like H&M, Tesco, Primark, PVH, George at Asda (Wal-Mart) and Tchibo, is the very low wage level. Narain Shahdadpuri, the CEO of Global Apparels Kenya, says: “In Nairobi, I pay my seamstresses US$150 a month; in Ethiopia seamstresses get only US$50.”
Why then does Global Apparels not relocate to neighbouring Ethiopia? Shahdadpuri explains: “Many years of hard work were needed to make this company profitable. It would be the same in Ethiopia. And during the difficult period of building up a new company, [I am sure] Ethiopian wages will strongly increase.”
But some other large Kenya-based garment producers like Atraco (from Dubai) and New Wide Garments (from Taiwan) are taking a chance in Ethiopia and are currently setting up new factories there.
Other Ethiopian trumps that seduce foreign investors and buyers are the very low land and electricity costs, the large number of textile schools and training institutes, the numerous infrastructure works (like the textile industrial zone Bole Lemi in Addis Ababa, developed in co-operation with Chinese textile company Zhejiang Jinda Flax), the fiscal and financial incentives for investors, the country’s political stability and impressive macro-economic growth, the privileged trade relations with the US (AGOA) and EU (Everything But Arms), and its favourable geographic location, which enables goods to be shipped in a relatively short time to Europe via Djibouti and the Suez Canal.
The main investors in the Ethiopian textile and garment industry are companies from Turkey (especially Ayka Addis and Saygin), China and India.
The Chinese firm Jiangsu Lianfa Textile Co boasts it will create more than 20,000 jobs in Addis Ababa. The Bangladeshi group BDL will invest US$30m in Mekele in a textile and garment factory with 3,000 workers. Kanoria African Textiles Plc, a subsidiary of the Indian group Kanoria Chemicals & Industries, in 2013 started the construction of a denim factory with an annual production capacity of 12m metres.
The Indian denim giant Arvind wants to manufacture jeans in Ethiopia, initially on a limited scale and for export to Europe and US. The Ethiopian Investment Agency has also announced that several Asian textile companies have signed up for the new Bole Lemi textile zone in Addis Ababa.
Textile machinery builders are also eagerly exploring Ethiopia. In July 2013, eight Italian machine manufacturers visited Ethiopia; a German delegation followed in October 2014.
How fast will Ethiopia grow as a garment sourcing hub?
It must be sobering for the government to compare its optimistic predictions with real growth figures of textile and garment exports. According to the Growth and Transformation Plan launched in mid-2010, during the fiscal year 2013-14 Ethiopia should have exported textile articles worth US$435m. However, exports only reached a quarter of this, at US$111m.
It will take several years before Ethiopia can fully exploit its advantages as a textile nation.
The very low wages are counterbalanced by low labour productivity. The average utilisation of production capacity does not presently exceed 40-50%. Most machine parks are very obsolete. Even in Addis Ababa, factories suffer electricity, water and internet interruptions. Everywhere bureaucracy is rife.
Financial operations with foreign currency are difficult. Some say it’s cheaper to transport textile materials from China to Djibouti than from Djibouti to Addis Ababa.