Why Ethiopia is attractive for textile and garment investments2019-04-28 14:13:47Ethiopian government wants to make it a centre point of investment for Asian countries, especially in textile and apparel sector. The country has a target to generate 30 billion U.S. dollars in export from the textile and apparel sector by 2030 (according to Bogale Feleke, Ethiopian Deputy Minister of Industry) and establish a foundation for further growth of the strategic heavy industries which finally enable Ethiopia to become an industrialized country by 2025 (according to GTP II). Ethiopian government has been building industrial parks at different cities of the country that are believed to enhance the textile investment and productivity of the country, which ultimately help to increase foreign exchange.
Ethiopia has nearly 175 textile units, which is still a low amount in terms of global perspectives. Therefore, the country is seeking foreign investment in this sector. A few days ago, Bogale Feleke Temesgen, State Minister for Industry of Ethiopia announced different facility for Indian investors. He said Ethiopia’s textile and clothing industry has been undergoing major development aided by low labor costs and highly motivated work force. The minimum investment is $200,000, he informed.
Many companies from China, India and other countries are investing in the country, which has increased anxiety in the several countries like Bangladesh and Indonesia. China’s textile manufacturers are shifting their production to overseas due to increased labor costs and tight pollution regulations. Countries like Bangladesh and Indonesia want to attract them, but some are already moving to Ethiopia. According to data from the Ethiopian Investment Commission, 124 foreign investors have expressed an interest in the Ethiopian textile sector, 71 of which are from China. Indian clothing and textile industry is also a significant future player, with more than 30 investor inquiries. However investment opportunity in Ethiopia is also taken by Bangladeshi companies. One of the leading Bangladeshi textile and clothing manufacturing companies’ DBL group already has set huge investment plans in Ethiopia.
It is true that just a few years ago, Ethiopia was not a preferred place for Foreign Direct Investment(FDI) and still there are many problems like no proper infrastructure, skilled labor etc. , but recently the country has emerged as a great place for FDI. Now the country immensely attracts FDI, especially in textile and garment sector, table 1 is showing that.
In the first six months of the 2016-2017 fiscal year, Ethiopia attracted foreign investments of US$ 1.2 billion, compared with $1.5 billion in the same period a year earlier. The growth was not met their target due to aggressive anti-government protests in which foreign-owned businesses were targeted. However, the situation has been changed; investors from China, India, Belgium, Spain, France, Hong Kong, Sri Lanka and Indonesia are coming here to invest. One of the main investors’ Chinese conglomerates Jiangsu Sunshine Group, which deals in wool textiles and garments, has decided to invest close to US$ 1 billion in Ethiopia. It is building a major textile manufacturing hub in Ethiopia. Many other Chinese textile investors are choosing to relocate their textile operations to the East African country like Ethiopia. Because they need raw material base country and Ethiopia is a cotton-producing country. There is huge potential for expansion of cotton cultivation in Omo-Gibe, Wabi Shebelle, Baro Akobo, Blue Nile and Tekeze River basins in Ethiopia. This is part of its value chain relocation, in addition, companies are also using Africa as a gateway to emerging markets on the continent and to the European market.
According to the World Investment Report, Ethiopia is one of the top performing African countries in FDI flow, registering a 46% increase in 2016, especially in textile sector, though FDI flows to Africa continued to decline. The government of Ethiopia believes that textile would help the nation to join middle-income status in 2025. As the way forward, Ethiopian government has been building industrial parks at different cities of the country to enhance the textile investment and productivity of the country. One of the industrial parks, Kombolcha Industrial Park, inaugurated on 8th of July 2017. The construction works of the park took only about nine months. Building of industrial park will maximize the arrival of investment to the country and these parks will create a large number of job opportunities for Ethiopian citizen.
Another reason for Ethiopia’s emergence on the textile and clothing sector is the opening of a railway line to a port in neighboring Djibouti, located on the Horn of Africa on the Gulf of Aden, which will speed the transport of goods from the landlocked country’s industrial areas.
As a whole, Ethiopia has been a very attractive destination for the investors because of the following reasons:
- Easy access to land with minimal lease period
- Strong export performance (the Ethiopian garment and apparel industry has grown an average of 51% over the last 6 years)
- Stable political climate
- Liberalized free market economy
- Conducive macroeconomic policies and stable foreign exchange regime
- Huge home market of 65 million people
- Access to 23 African countries through the Common Market for Eastern and Southern Africa
- Preferential treatment to the European market under the ACP-EU Lome Convention
- Duty-free access to the European Union (EU) and U.S. markets through the African Growth and Opportunity Act (AGOA).
- Abundant and inexpensive labor force ( Monthly pay for a factory labor: $50 to 60 in Ethiopia, compared with $140 to $160 in Kenya, $70 to $90 in Bangladesh, $150 to $170 in Vietnam and $400 to $500 in China.)
- Strategic location with proximity to the lucrative markets of the Middle East, Europe and Asia
- Potential to develop a competitive cotton or textiles industry due to good climatic and soil conditions together with cheap hydro-energy (textile factories pay between US$0.78 and US$0.002 per KW)
History shows that textile is one of the gateways for industrial development as it played the major role in the industrial revolution in both Germany and United Kingdom. However, for Ethiopia it will not easy at all as Ethiopian textile and garment firms are not in a position to compete in the international markets. There are many problems such as low productivity, limited quality awareness, limited capability of own design & development, ineffective and inefficient management structures, limitations of skills training and inefficient systems. However, how the country is moving forward, it might be able to overcome all the challenges as many opportunities are prevailing also.