Ethiopia: An Attractive Landscape

The textiles tradition in Ethiopia is age-old, but the industry has started to develop only in the last three or four years. Ethiopia's textiles and apparel industry is on a growth trajectory, aided by the presence of a cheap but skilled workforce. This surge has been helped by the country's impressive economic growth over the past years. Ethiopia's enormous export potential is made possible by the wide availability of raw cotton and other natural fibers and Ethiopia's access to domestic, regional, and international markets. Available within Ethiopia are all essential ingredients for a competitive textiles industry: raw materials, low wages, and low energy costs. This gives the country a comparative advantage over many other countries and regions. Over the next five years, Ethiopia is hoping to become the epicenter of the textiles and apparel industry in Africa, as analyzed by Market Intelligence, Fibre2Fashion.

Source: CIA World Fact book, IMFWorld Economic Outlook

Industry overview

• In recent years, the global market has become increasingly accessible to countries such as Ethiopia.
• New export opportunities were created through initiatives such as AGOA (the African Growth and Opportunity Act), COMESA (the Common Market of Eastern and Southern Africa) and the many bilateral trade agreements concluded with Western countries, including the Netherlands, Belgium and Luxembourg.
• Ethiopia is also part of the "Everything But Arms" programme that has been set up to provide access to the EU market for Lesser Developed Beneficiary Countries, free of duty and without quota restrictions, for all export products except arms.
• Safe and secure working and living environments identified by the UN and the International Chamber of Commerce (ICC) as key assets for investors in Ethiopia.
• Land is available on a leasehold basis of up to 99 years. In response to the country's drive to attract foreign investment, regional governments are now expected to allocate land to investors within 60 days of receiving their applications.
• A conducive tax environment like corporate income tax is 30 per cent; Excise tax is levied (minimum 10 per cent) on selected local or imported products; Income taxes range from 0-35 per cent on monthly income of $16.50 and above; Capital
  gains tax - share of companies 30 per cent; business 15 per cent; Rental income tax (on annual rental income) is 0 -35 per cent, dependent upon the level of rental income; Stamp duty-leasing is 0.5 per cent of value; Export duty is zero; and tax treaties to avoid double tax payment are signed with several countries, along with bilateral treaties for the protection and promotion of investments.
• The government guarantees constitutional protection from expropriation.

Source:ethiopianembassy.org

Doing business in Ethiopia

Openness to foreign investment: Ethiopia is currently implementing its five-year Growth and Transformation Plan (GTP), which was approved by the Ethiopian Parliament in November 2010.

Conversion and transfer policies: All foreign currency transactions must be transferred through Ethiopia's central bank, the National Bank of Ethiopia (NBE). The local currency (Birr) is not freely convertible.

Expropriation and compensation: As per Ethiopia's 1996 Investment Proclamation and subsequent amendments, assets of a domestic investor or a foreign investor, enterprise or expansion cannot be nationalised wholly or partly, except when required by public interest.

Dispute settlement: Disputes arising out of foreign investment that involve a foreign investor or the state may be settled by means agreeable to both parties. A dispute that cannot be settled amicably may be submitted to a competent Ethiopian court or to international arbitration.

Performance requirements and incentives: New investors engaged in manufacturing, agro-processing activities or the production of certain agricultural products and who export at least 50 per cent of their products or supply at least 75 per cent of their product to an exporter as production inputs are exempt from income tax for five years.

Right to private ownership and establishment: Both foreign and domestic private entities have the right to establish, acquire, own, and dispose of most forms of business enterprises.

Protection of property rights: Secured interests in property are protected and enforced, although all land ownership remains in the hands of the state.

Transparency of the regulatory system: Ethiopia's regulatory system is generally considered fair. Government ministries often pass decisions and associated paperwork to various ministries before any decision is finalised.

Competition from state-owned enterprises (SOEs): State-owned enterprises and ruling party-owned entities dominate major sectors of the economy. There is state monopoly or state-run dominance in sectors such as telecommunications, power, banking, insurance, air transport, shipping, and sugar. Ruling party-affiliated "endowment" companies have a strong presence in the ground transport, fertilizer, and textile sectors.

Foreign trade zones / free trade zones: There are no areas designated as foreign trade zones and/or free ports in Ethiopia. Because of the 1998-2000 Ethiopian-Eritrean war, Ethiopian exports and imports through the Eritrean port of Assab are prohibited.

Foreign direct investment: Despite these economic environmental challenges, large FDI deals in the mining, construction and manufacturing sectors continue to be launched and/or expanded. These projects are typically facilitated by private funding sources as well as generous financing support from the development bank.

Source: Ethiopia Country Profile, KPMG

Global trade in textiles and clothing

Source: WTO Comtrade database

Note: Globally, Ethiopia is a very small player in textile and apparel industry. The value of the country's textile exports is estimated at US$ 94.18 million while imports is estimated at US$ 604.61 million in year 2013.

Exporters to Ethiopia

All values in US$ million

Importers from Ethiopia

All values in US$ million

Textile and apparel trade summary

• Ethiopia stands 139th position in the global textile and clothing trade, a very small player in textiles and clothing industry.
• The earnings from exports of textiles and apparel by Ethiopia have been growing during the implementation of the government's Growth and Transformation Plan (GTP).
• Its exports are mostly into cotton and clothing while the imports consist of man-made staple fibres and clothing.
• Ethiopia has an export market of about $94.18 million only, of which 36.64 per cent goes to Germany. There is a comparatively huge import market of about $604.61 million with 61.36 per cent coming from China.
• The textiles and apparel industry of Ethiopia has grown at a CAGR of 18.46 per cent for the period 2004-2012.
• Its major export markets are Germany, Turkey, China, Italy and United States with a CAGR of 100.91 per cent, 32.91 per cent, 60.12 per cent, 20.87 per cent
• It primarily imports from China, India, Vietnam, Turkey and Thailand with a CAGR of 22.40 per cent, 25.65 per cent, 34.72 per cent, 24.27 per cent and -8.46 per cent respectively for the period 2009-13.

Trade-related updates

• Under the five years Growth and Transformation Plan, currently on its final year, Ethiopia aims to earn $1 billion from textiles.
• Currently, there are 110 textile companies in Ethiopia, of which Turkish, Chinese, and Indians are major contributors for the textiles and apparel exports which has reportedly grown by 28 per cent year-on-year from 2012 to 2013.
• In recent months, several textile and garment companies, including those from China, Bangladesh, India and Italy, have announced setting up of manufacturing units in Ethiopia.
• Favourable investment atmosphere, low labour cost, ready market and advantageous geographical location are some of the reasons for making investments in Ethiopia.
• China-based Shaoxing Mina Textile Company will invest $15 million to set up a textile and garment factory in Ethiopia's Oromia state.
• Kanoria Chemicals & Industries Limited (KCI), leading manufacturer of chemical intermediates in India, has opened Kanoria African Textiles, a subsidiary and a denim fabric production unit in Ethiopia's Bishoftu town of Oromiya regional state.
• Calzedonia, an Italian garment manufacturing firm, is set to open its first branch in Tigray state.
• Israeli apparel designer and marketer Bagir Group has entered into a deal to purchase a 50 per cent stake in Ethiopian clothing factory, Nazareth Garments.
• DBL Group, Bangladesh-based diversified and integrated knit garments manufacturing and composite industry with a strong backward linkage, is set to establish textiles and garment factory at a cost of 765 million birr in Mekele town.
• The Government of Ethiopia has provided 100 hectares of land in Mekele city of the Tigray region to Velocity Apparel Plc for construction of a modern garment factory with an initial investment of $150 million.
• Eksoy Chemical Industries Ltd, a Turkish chemicals producer, is the second dyes and chemical supplier to empanel for a bonded warehouse scheme to supply these products to the Ethiopian textiles sector.
• Swedish fashion retailer H&M in partnership with Swedfund will help in development of a responsible textiles industry in Ethiopia, with high social and environmental standards.
• A Middle East-based textiles company is going to set up an integrated garment factory at a cost of $80 million in Mekele.
• A Chinese textile company, Zhejiang Jinda Flax Llc, in collaboration with the Ethiopian Ministry of Industry, is going to set up a textile industrial zone in the Bole district of capital Addis Ababa.
• India-based ShriVallabh Pittie (SVP) Group is setting up a $550 million spinning mill in Kombolcha town, located in the Debub Wollo Zone of Ethiopia's Amhara Region.
• Turkish textiles manufacturing firm Akber is set to construct the biggest textiles plant worth $175 million in Ejere town in the Oromia region.
• MNS Manufacturing Plc, a Turkey-based textiles company, has begun production of carpets, towels, polyester, and home textiles with an investment of more than 1.2 billion birr.