Groups like PVH are turning to Ethiopia to source apparel given its low costs and logistics network.

After decades of civil war, corrupt governance and famine, the East African nation of Ethiopia is emerging as one of the continent’s fastest-growing economies, with a burgeoning textile and apparel sector that the Ethiopian Textile Industry Development Institute said earned the country $31.2 million in exports in the third quarter of 2017.

Textiles and garments were exported to Germany, Italy, China and the U.S. under the African Growth and Opportunity Act.

The World Bank forecast for 2018 expects the Ethiopian economy to grow by 8.2 percent this year. “Among East African countries,” the report stated, “Ethiopia is likely to remain the fastest-growing economy, but growth is expected to soften as it takes measures to stabilize government debt.”

The expansion of the textile industry has been spurred by the growth of cotton farming, with stakeholders comprising the public and private sectors as well as small-scale farmers. According to Bantihun Gessesse, the development institute’s communication director, some 104,000 acres of land are currently being cultivated for cotton farming, and domestic production could satisfy local demand. Moreover, the institute is providing training to cotton growers to maintain the quality of the crop.

The Ethiopian government also adopted measures to attract foreign investment, which has been critical to the country’s economic success. Clothing and textile companies looking to relocate their manufacturing bases to Africa were enticed with favorable benefit packages that included preferential trade deals and land policies, as well as duty-free imports of machinery, equipment and construction materials needed for factories.

Foreign investment in the textile industry has seen a sharp increase from around $166.5 million in 2013 and 2014 to $1.34 billion in 2016 and 2017, according to the Ethiopian Investment Commission, prompting some observers to dub Ethiopia “the new China.”

PVH Corp., whose brands include Calvin Klein and Tommy Hilfiger, recognized the potential for doing business in Ethiopia. Roy Ashurst, the company’s former Hub Leader for Africa and the Middle East, recounts that in 2014 he was tasked to determine whether PVH should continue to source from Africa. “We were already sourcing from Kenya, Egypt and Mauritius, and we continue to do so, but I saw Ethiopia as the opportunity. It had all the ingredients, i.e., abundance of trainable labor, land, water and green low-cost electricity. However, it had no sustainable textile or apparel industry.”

For PVH, Ashurst added, this was not just about sourcing garments. “Our aim was to build a sustainable, compliant supply chain,” he said.

Other companies have set up factories in Ethiopia, among them Velocity Apparelz Companies, the Dubai-based suppliers of Levi’s, Zara and Under Armour, and China’s Jiangsu Sunshine Group, which supplies Giorgio Armani and Hugo Boss. H&M and Guess also source from Ethiopia.

Most of the factories are housed in the country’s new industrial parks, the most impressive of which is Hawassa Industrial Park, located some 171 miles from the capital Addis Ababa. Completed in July 2016 and sprawled over 14.8 million square feet, it was designed as a modern, cutting-edge facility with sustainable development in mind, the first of its kind in Africa. It currently hosts 37 factories.

The park came about as a result of close consultations between PVH and the Ethiopian government. Ashurst recalled that while touring the country back in 2014 with the Minister of Industry looking at potential sites for an industrial park, “my main objective was not to be in Addis, as history tells us apparel always starts in the capital city, i.e., New York, London, etc., then migrates to more regional locations — for instance New York to the Carolinas, and then to Central America. As we were looking at the supply chain, it was important to get it right as you cannot move a fabric mill overnight as you can with a garment factory,” he said.

Hawassa offered several advantages: A good, flat piece of land in close proximity to the city center, a population of 350,000 to 500,000, underground water that was readily available and its location along the highway to Kenya.  “This could be a future advantage as we were looking at East Africa as growth potential, not just Ethiopia,” he said.

“We had invited our Far East supply chain to invest in East Africa, and most preferred Ethiopia, so we had a strong interest to invest,” Ashurst continued. “From the government side, Dr. Arkebe Oqubay, senior adviser to the prime minister, bought into the vision and together we planned Hawassa Industrial Park.”

Asian factories — from India, Indonesia, Sri Lanka and China — invested heavily in Hawassa, filling up the first phase of 22 factories, necessitating the addition of 13 more units in phase one plus. “The bulk of the investors were existing PVH suppliers or were encouraged by what PVH’s vision was,” he said.

With manufacturing costs in China rising, it’s easy to understand the appeal of Ethiopia.

Electricity is substantially cheaper at $0.04 per kilowatt hour, thanks to the country’s hydropower dams. A population of 100 million, with 65 percent under the age of 20, presents an available workforce ripe for training in the textile and apparel sector. Land and labor are also less expensive. The country’s labor cost of $909 “is reasonable compared to other African countries as well as to Bangladesh, and appears similar to China in the Eighties,” according to a report by the U.S. think tank Center for Global Development.

The only other nation with cheaper labor costs in Africa is the Democratic Republic of Congo, but political instability makes it an “implausible” alternative for manufacturing.

Moreover, Ethiopia is not plagued by “the ongoing reputational problem of poor working conditions” that beset Asian manufacturing locations, the report said. It noted that “some claim that manufacturing working conditions in Ethiopia — though far from ideal — are better than in Bangladesh and Cambodia. In the International Trade Union Global Rights Index, Ethiopia fared better than Mexico and Malaysia.”

According to Ashurst, there is one fabric mill in Hawassa supplying PVH shirt fabrics, which brought down the supply chain lead time “from 35 days from Shanghai to Hawassa to 15 minutes from mill to factories.” There are four factories producing PVH shirts in the park. Even interlinings, labels and packaging are produced in the park; “hopefully buttons, zips and sewing threads, too, in the near future.”

While the textile and apparel sector has taken off, the industry still faces challenges, including training and recruitment of the labor force. At peak capacity, for instance, Hawassa would be providing employment to 100,000 workers. To date, 10,000 jobs have been created.

“Taking a non-industrial country into manufacturing has been the greatest challenge,” admitted Ashurst, “and high absence and labor turnover have been huge challenges as well, despite all workers being given ‘soft skills’ training prior to factory technical training.”