GENEVA — Ethiopia‘s ambitious plans to develop its industrial sector include it becoming a major hub for production and export of apparel, textiles and accessories.
The plan hinges in part on attracting foreign direct investment looking to benefit from the country’s preferential access to the U.S. and European Union markets, according to trade experts.
Taffere Tesfachew, director for Africa, Least Developed Countries and Special Programs at the U.N. Conference on Trade and Development, said Ethiopia is setting up industrial parks, including for textiles and apparel, and for leather, in a bid to boost export-oriented production volume and quality, reduce costs and generate new jobs for the nation of 96 million people, Africa’s second most populous after Nigeria.
The Ethiopian government has already earmarked $1.3 billion to develop export processing zones in key urban locations as part of its second Growth and Transformation Plan, and the World Bank Group is providing $250 million in credit in support of the projects it says will increase competitiveness in the country’s manufacturing sector.
Ethiopia’s Industrial Parks Development Corp., which oversees the projects, notes the government provides exemption from income tax for 10 years to developers in and around Addis Ababa, and 15 years for investments outside the capital.
In addition, “to encourage private investment and promote the inflow of FDI, technology and know-how transfer, fiscal and non-fiscal incentives are committed depending on volume of export and investment location.” The first apparel site, Bole Lemi, located in Addis Ababa, and developed by IPDC on eco-friendly and sustainable criteria, has already started operation.
From 2016 to 2019, IPDC said it plans to build an additional 10 industrial parks, with textiles and apparel among the eligible industries in eight. This includes the development next year in Sawassa, in the South, of 741-acre sites designated only for textiles and apparel, and the set up in 2017 of Bole Lemi II, a 460-acre site for the manufacture of textiles and apparel.
Textiles and apparel will also be among the industries entitled to set up operations in new sites to be built in 2016 in Dire Dawa in the East, Kombolcha in the Northeast, Mekelle in the North, Adama in the Southeast, and in 2016-17 in Bahir Dar in the Northwest and in Jimma in the Southwest.
International development agencies are also upbeat about Ethiopia’s prospects. A new World Bank report concluded that Ethiopia’s real gross domestic product growth averaged 10.9 percent from 2004 to 2014, and if it can keep the current pace, “it’s on the way to becoming a middle income by 2025.”
The report points out the likelihood of continued high growth in Ethiopia spurred by factors such as “enhancing structural change, sector productivity gains, technological catch-up, urbanization, foreign direct investment and a large domestic market.” But it also highlighted challenges ahead, including geographical disadvantages (land-locked), low export size, diversification, low levels of human capital and poor trade logistics. But these inhibitors, it noted, “do not pose insurmountable hurdles.”
The Ethiopian Textile and Garment Manufacturers’ Association said the country has “enormous export potential” in the sector and noted by attracting FDI, the textile and a garment industry “is positioning itself for massive growth in the future.”
In 2014, Ethiopia’s apparel exports reached $49.5 million, up from just $12.2 million in 2010, and are running at around $55 million for this year. Exports of textiles such as yarns and cotton fabrics last year were valued at $39.3 million, up from $26.9 million four years earlier, according to World Trade Organization data.
A recent survey by McKinsey & Co. of 40 top apparel chief purchasing officers ranked Ethiopia seventh from nations they see as the top three sourcing destinations over the next five years.
“In the past years, a number of European companies — among them H&M, Primark and Tesco — began sourcing some of their garments from Ethiopia. The rest of the apparel industry took notice,” said the McKinsey study.
The sourcing of major global buyers such as H&M is having a “positive effect,” said Tesfachew, and is acting as a pull factor on potential buyers and investors.
Foremost, the CPOs polled indicated the biggest reason why Ethiopia has become a hot topic is cost. Wages for garment workers, it noted, are among the lowest in the world at about $60 per month, and Ethiopia has low electricity prices.
The Ethiopian Investment Commission, eager to attract foreign investors, asserted Ethiopia’s workforce is competitive, and claims wages in the country are a fifth of China’s and half of Vietnam’s, and also trumpets the cheap hydro-energy.
In 2014, UNCTAD estimates Ethiopia attracted $1.8 billion in greenfield investments in the textile and apparel sector, or about two-thirds of the total FDI inflows.
Major investors are coming from China, Turkey, South Korea and India, said UNCTAD’s Tesfachew. But he said Ethiopia has some way to go on enhancing quality of textiles, apparel and accessories, securing adequate supplies of inputs and tapping the huge potential the country has in increasing cotton production.
Tesfachew said Ethiopia has 3 million hectares suitable for cotton cultivation, but noted only about 4 percent of the land is used for cotton. Apparel manufacturers, he said, also need technical support to go up the fashion value-chain in design, and in tapping and developing export markets.
Vanessa Erogbogbo, manager for the women-in-trade program at the Geneva-based International Trade Center, said her agency is helping 40 companies run by women in Ethiopia to access international markets, with color and fashion design, improving the quality of materials used, on ways to increase production capacity and value, and to export to boutiques in Germany, the U.S., and in the U.K.
She said New York’s The New School’s Parsons School of Design and London’s College of Fashion are participating in the ITC initiative.