Ethiopia: emerging on the sourcing skyline

Move over Bangladesh, make way for Ethiopia. Following the latest buzz around Ethiopia as an emerging textile and apparel sourcing country, one may indeed think that Ethiopia is headed the Bangladesh way. FashionUnited has taken a closer look at the country’s parameters.

Like Bangladesh, Ethiopia has a high population and is with 93.8 million people the second most populous African nation after Nigeria. Similar is also that both countries have a young population with over 40 percent aged 15 and younger in Ethiopia and 34 percent in Bangladesh. More than 50 percent of the population thus fall into the 15-64 age bracket in Ethiopia and more than 60 percent in Bangladesh. Low wages are also common, with Ethiopia hovering around 25 US dollars a month.

From

2004 to 2009, Ethiopia showed 10 percent economic growth per year, which made the country one of the fastest growing economies in the world according to the IMF. In the last five years, this growth has slowed down 7 percent due to less external demand and a private sector that is not yet open enough for international activity. A high inflation rate has plagued the country between 2006 and 2013, averaging 20 percent and reaching a record high of 64 percent in July 2008, but seems to be on track now with a current rate of around 8 percent.

Ethiopia is one of the most promising African nations

With all these factors working in its favor, it is not surprising that Ethiopia is emerging as one of the most promising African nations in terms of resources, growth, potential and investment opportunities for international companies.

Currently, Ethiopia’s economy is largely dependent on agriculture, providing 85 percent of total employment and close to 47 percent of the gross domestic product. Efforts are underway to change this situation with government incentives in place and the country’s textile and apparel industry a key priority sector. In fact, the government’s Growth and Transformation Plan envisions textile export revenues of 1 billion US dollars by 2014-15 and creating 40,000 new jobs.

For the current fiscal year 2013-14, the government targets an export revenue of 500 million US dollars, which seems ambitious given last year’s exports of 99 million US dollars and first quarter exports reaching 29 million US dollars (compare that with Bangladesh’s garment exports of over 27 billion US dollars in 2013). However, in the first quarter, only 58 of the country’s 110 textile companies were operational. Industry experts expect production capacity to go up during the rest of the year to come closer to the target.

Fassil

Taddesse, president of the Ethiopian Textile and Garment Manufacturers’ Association (ETGMA), feels that the government’s export target is higher than the capacity of the textile sector. Add to that the teething problems that plague the Ethiopian textile and garment sector like regular power cuts, poor infrastructure, the need for the import of costly equipment and rising future costs and it seems indeed doubtful if the target can be reached.

However, the potential is there and is the attracting factor for international buyers. For example, the Ethiopian textile and garment industry can take advantage of high quality cotton that is grown in the country and duty free access to US and EU markets. “We have three million hectares available to grow cotton but we are using only about 6 to 7 percent of this resource. You can imagine the potential that we have in this segment,” confirms Seleshi Lemma, director general of the Textile Industry Development Institute (TIDI) in a report by just-style.

With a vision to become a world-class institute by 2024, TIDI wants to plant itself firmly on the map. Its mission is to “enable the Ethiopian textile industry to compete globally by providing sustained investment promotion, consultancy, training, research, laboratory and marketing support and services”.

Coupled with an offer to provide competitive prices, the Ethiopian textile and garment industry has garnered quite some interest among international players. British retailer Tesco, Irish textile discounter Primark, US retail giant Walmart and Swedish fast fashion company H&M are already sourcing clothes from Ethiopia. Having learned their lessons from Bangladesh, they want to do this by ensuring beforehand that factory conditions are up to par or by raising them if need to be.

“We

always do a risk assessment before we enter into a new purchasing market. In Ethiopia we made extensive such analysis where we looked at human rights and environmental conditions in the country. Dialogue with the International Labour Organisation, the Swedish International Development Cooperation Agency and local organisations were part of the analysis. We lean against authorities such as the UN and follow EU trade directives,” said spokeswoman Elin Hallerby about H&M’s entry into the new market.

The company is said to be looking at sourcing about one million garments a month from Ethiopia and placed test orders with Ethiopian suppliers last year already. Proximity to markets is key for this move: "As a growing global company we have to look at how we guarantee that we have the capacity to deliver products to all our stores where we have a rapid pace of expansion," said H&M spokeswoman Camilla Emilsson-Falk. "We are doing that by increasing production in our existing production areas and also by looking at new ones."

In August of last year, around 50 Turkish textile and apparel companies even announced their relocation to Ethiopia to establish an industrial zone around the capital Addis Ababa. The relocation would create revenues of 2 billion US dollars per year and provide jobs for more than 60,000 job people.

Though Ethiopia is still far away from becoming the new Bangladesh (or Africa the new Asia for that matter), the question remains why it took so long for the international garment industry to discover this untapped market, especially given the country’s stable economic growth and political situation. With the Ethiopian textile and garment industry planning to increase product diversity and product categories and to open access to this yet unexplored market, we can expect to see more apparel products "Made in Ethiopia” on store shelves soon. With Ethiopian designers like Fikirte Addis, Genet Mimi Kebede, Sara Abera and Liya Kebede reaching national and international fashion stages, this will also apply to the creative potential coming out of the country.

Photos: TIDI