Workers at a textile factory in Addis Ababa, Ethiopia. The country is
scrambling to offer a cheaper alternative, and go up against established
low-cost garment makers like Bangladesh and Vietnam. PHOTO FILE | AFP
Chequered shirts for American chain Gap. Slate leggings for
Swedish store H&M. Twill shorts for Germany’s Tchibo. They are among
a growing list of clothes being stitched for big brands in Ethiopia.
As
labour, raw material and tax costs rise in China — the world’s dominant
textiles producer — the Horn of Africa country is scrambling to offer a
cheaper alternative, and go up against established low-cost garment
makers like Bangladesh and Vietnam.
It is still early
days, and most of the clothing companies to source production in
Ethiopia are testing the waters with small volumes. But the government
is working hard to attract their business with tax breaks, subsidies and
cheap loans.
The landlocked nation is also about to open the final stretch of a 700km electric railway to Djibouti’s coast.
This
is part of a drive to turn a nation that is among the poorest in Africa
into a manufacturing centre that is no longer held hostage to fickle
weather patterns that periodically devastate the agrarian economy and
leave its people hungry.
There has been some progress:
Foreign investment in the textile industry has risen from 4.5 billion
birr ($166.5 million) in 2013/14 to 36.8 billion birr ($6.13 billion) in
2016/17, the Ethiopian Investment Commission, a government agency, told
Reuters.
Industrialisation drive
“This
is a huge success,” Arkebe Oqubay, a prime ministerial adviser directing
the industrialisation drive, said during the inauguration of an
industrial park in the northern Ethiopian town of Kombolcha. “The
challenge now is to bring the world’s biggest companies into the
country.”
Some have already arrived, most of them
sourcing some production locally, like Gap and H&M, but a few
building factories themselves.
Those to set up
factories this year include US fashion giant PVH, whose brands include
Calvin Klein and Tommy Hilfiger; Dubai-based Velocity Apparelz
Companies, which supplies Levi‘s, Zara and Under Armour; and China‘s
Jiangsu Sunshine Group, whose customers include Giorgio Armani and Hugo
Boss.
French retailer Decathlon and over 150 companies
from China and India will begin sourcing production from Ethiopia soon,
said the investment commission.
Continental rivals
However,
while Ethiopia is moving faster than its continental rivals, there is a
long road ahead. Logistical, bureaucratic and cotton-quality problems
are threatening its ambitions and there are no guarantees it will ever
be able to compete with the big global players.
The
gulf in textiles exports is huge — Ethiopia’s totalled about $115
million in 2015, against Vietnam’s $27 billion, Bangladesh’s $28 billion
and China’s $273 billion, according to the World Bank’s latest figures.
Ethiopia’s
fledgling sector can ill afford the kind of working conditions scandals
that have dogged the low-cost garment industry elsewhere, and officials
said they were sending representatives to Asia to learn best practices.
Ethiopia’s
road link with the port in Djibouti is outdated and congested in many
parts and, together with the limited capacity and dense bureaucracy of
its Customs service, slows companies’ supply chains. This is undermining
the benefits of being closer to European markets than most of its Asian
rivals.
It takes up to 44 days from the time a
clothing consignment leaves the factory to when it reaches buyers in
Europe, compared with an average 28 days from Bangladesh and 21 days
from China, according to a report from the Ethiopian Textile Development
Institute compiled for investors this year.
This
drives up costs. It costs up to $1,870 to export a 40-foot container,
compared with $1,290 in Bangladesh and $679 from Vietnam, according to
an internal report compiled by a major European clothes retailer and
seen by Reuters.
Slashed transit time
However,
officials say the $4 billion electric railway between Addis Ababa and
the Red Sea, to be inaugurated in the coming weeks, will reduce the
transit time to the port of Djibouti from two to three days to eight
hours.
Bill McRaith, PVH’s chief supply chain officer
based in New York, told Reuters his company saw sub-Saharan Africa as a
promising new manufacturing frontier at a time of rising costs and
labour shortages in established countries.
PVH arrived
in Ethiopia this summer and is building a factory in Hawassa, south of
Addis Ababa — an investment McRaith said was based on a long-term
expectation that Ethiopia will become one of the most competitive
locations in the world to make apparel for the West.
He said PVH aimed to produce $100 million worth of clothes a year at the factory to be exported.
“Basics
operating costs are very attractive but offset by transportation,” said
McRaith. “The transportation infrastructure, skills training, banking
sector ... will all have to be improved,” he added. “But the Ethiopian
government is farther ahead on this than many other countries.”
Quality control
Cotton
quality and pricing also present a big obstacle to Ethiopia’s
aspirations — one that is blunting its competitiveness and deterring
foreign investment.
While Ethiopia has an estimated 2.6
million hectares suitable for cotton cultivation, only 130,000 has so
far been used, and textile company owners say output from them is 10
times more expensive to purchase than the average international price.
They are also often substandard for exports owing to contamination and poor processing, resulting in poor fabric.
While
the government has sought to entice investors into its cotton farming
industry, this has been complicated by ineffective land management and
complex property rights.
Velocity Apparelz Companies
started production six months ago at a $50 million factory in Mekelle,
northern Ethiopia. It produces 1.5 million pieces of clothing a month
but aims to double that within two years, said Erica van Schaik,
executive assistant to the executive chairman of Velocity.
However,
domestic fabric quality problems mean the company has to import their
denim, van Schaik said. Good local material could reduce Velocity’s
costs by up to half, freeing up cash that could be invested in Ethiopian
production.
It would also cut the company’s lead time —
from the beginning of production to arrival in shops — from 110 to 90
days, she said. “That would be like a day-and-night kind of difference. A
game-changer.”
Investors face other challenges too:
Foreign currency shortages complicate trade, in addition to
ever-changing regulations. The limitations of the financial system mean
many foreign-owned textile firms use offshore banks to conduct their
trade, depriving Ethiopia of vital hard currency.
With
workers’ conditions and safety a big concern for investors, the
Ethiopian Textile Development Institute said its leadership was
travelling to India — another leading global garment producer —for
training in best practices.
“The industry in this
country is very young — we are taking our very first steps and so
everything will not go seamlessly,” said communications chief Banteyihun
Gessesse. “Countries such as India have vast experience in the field.”
Whether Ethiopia can overcome these hurdles remains to be seen.
Competition
In
Africa itself, it faces competition in textiles manufacturing from the
likes of Kenya, Mauritius and Madagascar, but has moved more
aggressively to attract business.
The government will
spend $1 billion building 15 industrial parks by 2020. Two opened in
July, another two will be completed this year.
The
state bank, meanwhile, provides up to 60 per cent of factory expansion
costs for companies that sell 70 per cent of their products overseas, as
well as a 10-year tax exemption and low-interest loans.
Ethiopia
can also offer companies lower power costs than most of its continental
rivals, thanks to its hydroelectric dams. Electricity costs $0.06 per
kilowatt-hour in Ethiopia, compared with $0.24 in Kenya, for example.
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