Ethiopia, with all its lucrative opportunities, offers unlimited opportunities for foreign investors.


Ethiopia is on the threshold of demonstrating its potential as a promising sourcing hub for textiles and apparels. The country offers features that would support the growth of textile and apparel sector such as;low cost work force, production locations, and availability of natural resources like cotton. It has the potential to develop cotton farms for both domestic use and exports. This facilitates the setting of vertically integrated textile and apparel industries.


Apparel exports from Ethiopia are seeing an increasing trend. With the aid of Government export incentives and opportunity of international trading environment, the country's textile and apparel exports have increased significantly. Textile sub-sector is the third biggest manufacturing industry.


Amidst-increasing demand for its products in the global market, the country is gearing up to enhance its textile and apparel sector. During 2001-2005, the country's apparel exports increased by 31%. During the first 9 months of 2010-11, the country achieved $40.1 million by exporting textiles. This is $25.5 million-more when compared with the corresponding period of the previous year. It is-experiencing a dazzling growth with a year-on-year rise of 175%. Ethiopians overall exports comprise 11.5% of GDP of Africa as per 2010 data.

Ethiopia has cheap labor force. Apparel sector mainly depends on cotton, and sufficient quantities are produced within the country. The country yields ample quantities of cotton which provides a reliable income source for many Ethiopian families, and also abets generating export revenues. Providing the required tools for textile industry, will not only strengthen the countrys economy, but will also reinforce the female work force, as majority of the employees in the textile and apparel sector of this country are women.

Buyers from the US seek for local suppliers for apparel fabrics, and apparels. Earlier buyers who were doing business with China are shifting their focus towards Ethiopia due to increasing apparel costs in China. Ethiopia aims to increase its exports by 110% in the coming 5 years. During 2005-06, Ethiopias exports amounted to 11.1 million USD, and soared up to 22 million USD during 2009-10. The country positively hopes to achieve a target of 500 million USD during 2010-11.

FDI to enhance export revenues:

Ethiopia is currently putting efforts in positioning itself to become a potential sourcing destination for textile and apparels. It is planning to generate export revenues more than $1 billion within the next five years. The current export target of Ethiopia is 40 time higher than its exports during 2009-10 which was $25 million. It is chalking plans to achieve this unprecedented growth. It is planning to cut down on the sales of domestic market which currently accounts for 90% of the consumption, and add this to its exports. The country foresees FDI as a main source for enhancing the textile and apparel sector. With an intention to industrialize its economy, the Government is seeking investments from firms in China, Turkey, and specially, India.

A recent report from the Ethiopian Investment Agency states that FDI investment into Ethiopia is very promising that the country has attracted around 2 billion USD worth of investments in the past 6 months. The agency registered a total of 900 projects during the period July-December 2010, of which 72% were from foreign investors. They prefer investing in the manufacturing, and agricultural sectors. To achieve their set export target, Ethiopia positively hopes to attract foreign investments more than $1.6 billion. The Government is planning specific measures to enhance its textile and apparels sector by welcoming FDI, privatization

The country has also brought an import tariff regime offering a collective proposal for the textile sector considering the tariff policies on textile and clothing articles in Sahara African regions. The countrys bank provides long term loans to textile projects, repayable over a period of 5-15 years, with a 7.5% annual interest. This is comparatively lesser than the interest rates of commercial banks who charge around 11-12%.

Challenges:

Ethiopia faces some challenges in the global forefront. Apparels from this country are usually late in arriving to the US markets, and buyers, generally do not accept this. Local manufacturers of Ethiopia do not make apparels in bulk, which is the demand in the global market. The country imports a major part of its unfinished textiles from abroad, and this increases the expenses of textile and apparel industries. Recent statistics of Ethiopian Revenues and Customs Authority (ERCA) states that there is a big gap in the trade balance between US, and Ethiopia. Lack of information regarding the US markets, low industrial capacity, and base; low skilled and poorly trained labor force; lack of proper production management skills are few limitations the country needs to address.

Textile sector offers significant opportunities for development of Ethiopias economy. It needs to take care of its shortcomings. Government needs to support them appropriately so as to enable the manufacturers benefit from apparel exports. By developing a viable export market, and facilitating the inflow of foreign investments, Ethiopia can strengthen its economy.

References:

1.      Ethiopianhistory.com

2.      Bds-ethiopia.net

3.      Newbusinessethiopia.com

4.      Connectethiopia.com

5.      Data source: Accesscapitalsc.com, & Ethiopian Revenue and Customs Authority