ETHIOPIA: The next powerhouse of Apparel Sourcing
Content
1
Country Overview
7
Investment Procedure in Ethiopia
2
Ethiopian Economy: Background
8
Industrial Parks (IP) in Ethiopia
3
Ethiopian T&C Sector
9
Logistics Scenario in Ethiopia
4
Garment Exports of Ethiopia
10
Strength and Weakness Analysis
5
Trade Relationships of Ethiopia
11
Challenges in Production
6
Investment: A Major Source to Boost T&C Industry
12
About US
1. Country Overview
Sub-Saharan Africa / East Africa
Surface Area
11,04,300 square kms
Region
Addis Ababa Capital
102.4 million
Population
Workforce
80% employment is in agriculture
2. Ethiopia Economy: Background
A shift is seen from agriculture to textile and garment sector in last 5 years
65 international textile investment projects have been licensed over the years for foreign investors
Going from Fiber to Factory is comparatively easy in Ethiopia
Textile & apparel industry has grown at an average of 51% in last 5 years
4
3. Ethiopian T&C Sector The economic developments in the textile and clothing sector show enormous growth in comparison to the starting phase back in FY 2010-11. Yarns export, grey fabric, garments and traditional handloom together totaled an export amount of just over USD 160 million in FY 2014-15 compared to USD 60 million in FY 2010-11. The Ethiopian government is eyeing to achieve T&C exports of USD 1 billion by 2020. 5
3.1 Ethiopian T&C Sector Export Share
The apparel sector represents 6% of the country’s total export value and is projected to achieve a share of 22% by 2020
Major Market
The USA and EU are the major export destinations for Ethiopia as, in FY 2016-17, it exported more than 90% of T&C to the these markets.
No. of Factory
At current, the textile and clothing sector consists of around 130 medium and large scale factories of which 37 are foreign owned. 6
4. Garment Exports of Ethiopia 100
100% 89.65%
90
90%
80
80%
70
70%
60
60% 52.60%
50
50%
40
40% 30.90%
30 20 10
23.62%
15.00% FY 2012-13
30%
FY 2013-14
FY 2014-15
Value in USD million
FY 2015-16
FY 2016-17
20% 10%
Y-o-Y % Change 7
5. Trade Relationships of Ethiopia AGOA
African Growth and Opportunity Act (AGOA) enables Ethiopia to export products to the US market with ‘Duty Free Quota Free’ privilege.
EBA
Everything But Arms (EBA) enables Ethiopia to export products to the EU market with duty free access.
DFQF
Ethiopia enjoys the DFQF status extended by the international markets including China, India, Japan and Korea. 8
Why Ethiopia is grabbing the Eyeballs
6. Investment: A Major Source to Boost T&C Industry - It is a well known fact that apparel manufacturing is shifting from China. Now the question is, who all are capable enough to absorb this shift?
- Due to law and order situation, political instabilities and poor working conditions in the factories of some Asian countries, the big retailers such as H&M, Tesco and Primark are finding sustainable alternatives for apparel manufacturing. Ethiopia is grabbing the attention. 9
6.1 Investment: A Major Source to Boost T&C Industry Why to set-up Factory in Ethiopia? The answer lies in these points:
1
Is Ethiopia a lucrative destination for the manufacturers?
2
Do they get more benefits than emerging Asian nations?
3
Are government policies strong enough to attract more investment?
10
6.2 Investment: A Major Source to Boost T&C Industry Foreign investment in the Ethiopian textile and clothing industry has risen from 4.5 billion birr (US$ 166.5 million) in 2013/14 to 36.8 billion birr in 2016/17. Most investors that construct factories themselves come from Turkey, India and Bangladesh but also bring their clients along.
Chinese manufacturer Jiangsu Lianfa textile Co will boost 20,000 jobs but brings its own client base Bangladesh DBL has invested US$ 30 million in Mekele PVH group just started construction of large scale factory Indian denim giant Arvind will soon start production of jeans in Ethiopia Turkish Ayka textiles runs a factory in Ethiopia with 10,000 workers 11
7. Investment Procedure in Ethiopia 4. Registration of technology transfer agreement
7. Customs duty exemption of capital goods for manufacturing
2. Obtain business license and construction permit
5. Grading of construction contractor
8. Secure land for the project and obtain a bank loan, resident permits and contract for water, power and telecom
3. Notarization of memorandum and articles of association
6. Issuance, renewal, amendment or cancellation of firm name and work permit
9. Tax identification number (TIN).
1. Obtain Investment License of EIC
12
8. Industrial Parks (IP) in Ethiopia The Ethiopian Industrial Development Zones Cooperation was established in 2014. Initially China and India were set to construct Industrial Parks but, later, the government decided to overtake those initiatives and launch the Industrial Parks itself. The World Bank supports the creation of Industrial Parks within the Competitiveness and Job creation Project (CJC)
Benefits for Ethiopia
Ethiopia is a latecomer to IP development and as such can profit to avoid any missteps other nations have made. The failure in other nations of these zones is attributable to a number of factors which Ethiopia can avoid. 13
8.1 Industrial Parks in Ethiopia S. No.
Industrial Park
Area (in hectares of land)
Developer
1.
Addis Industrial Village
8.7
Government
2.
Bole Lemi Industry Zone
342
Government
3.
Eastern Industry Zone
200
China
4.
Kilinto Industry zone
243
Government
5.
Kombolcha Industry Zone
1123
Government
6.
Dire Dawa Industry Zone
1051
Government
7.
Mekele Industry Zone
1000
Government
8.
Hawassa Industry Zone
1000
Government
9.
Tigray/Amhara/Oromia/SNNP
Integrated Agro Industrial Parks
Government
14
9. Logistics Scenario in Ethiopia It takes up to 44 days from the time a clothing consignment leaves the factory to when it reaches buyers in Europe, compared to an average 28 days in Bangladesh and 21 days in China.
Djibouti is the closest and single Port used for exports of Ethiopian textiles
The above scenario drives up costs. It costs up to US$ 1,870 to export a 40-ft container, compared with US$ 1,290 in Bangladesh and US$ 679 in Vietnam, according to Reuters. But, a US$ 4 billion electric railway between Addis Ababa and the Red Sea, will be inaugurated shortly that will reduce the transit time to the Port of Djibouti from 2-3 days to eight hours. 15
10. Strength and Weakness Analysis Strengths Availability of abundant labor at low cost Cheap electricity- up to 8 times less than other manufacturing nations Water is free. Most garment companies use tap water/ground water/river water Import duty is free on equipment, machinery and on spare parts needed to realize production
Weaknesses Limited availability of raw materials, only cotton is available easily in the country Lack of manmade fibers and Ethiopia depends on imports for MMF sourcing Lack of middle management and merchandisers in garment units Inefficient production (45% maximum) 16
10.1 Strength and Weakness Analysis Strengths Backward integration possibilities with raw materials: local cotton availability Low rent and lease up to 1-2 USD per square/meter for factory buildings All business processes controlled by government: “do not pay without receipt”- to fight corruption.
Weaknesses Lack of IT and CAD/CAM in production Social compliance is a big issue Lack of PPE: workers do not want to use personal protective equipment Limited options for trims, accessories and printing equipment 17
11. Challenges in Production
Due to limited capacity usage the industries production output is still limited.
The efficiency on weaving and knitting as well as garment assembly is less than 45%.
Most factories, either fully integrated or partially integrated run on a profit margin of 0-2%, mostly on break even for exports
Due to low efficiency the production cost per minute (SCM) comes to 9 cents
18
11.1 Despite Challenges, Future is BRIGHT
Capacity Projection by 2020: 37 million kilograms of yarn
88 million meters of woven fabrics
30 million kilograms of knitted fabrics
18 million pieces of woven garments
62 million of knitted garments
19
11.2 Because of the Government Initiatives Ethiopia has over 30 bilateral investment promotion and protection agreements Ethiopian government invests largely in infrastructure Ethiopian government has installed a scheme of incentives for business financing and trading terms: opening an LC regularly would cost a company 3% during the production lead-time in Ethiopia Ethiopian government has reduced the cost of freight and transport with 25% and is about to launch its own transportation company providing trucks that run to Djibouti port.
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