Great Expectations

Three years ago, in October 2015, exhibitors and visitors at the Origin Africa event in Addis Ababa were showered with exciting news about massive investment and huge capacity increases in the cotton/textiles/garment sector. Nobody doubted that Ethiopia was ready for a roaring take-off. At that time, in spite of the buzz around Ethiopia, the export performance of the sector was unimpressive. In fiscal 2013- 14, textiles and garment exports did not exceed $111 million. Both the Ethiopian government and foreign observers were confident that exports would soon reach $1 billion and that the sector would create jobs for more than 350,000 people.

However, the expected take-off of the Ethiopian textiles and garment exports did not happen. To the surprise of all observers, Ethiopian exports of both textiles and garments decreased in 2016. The dream of an irresistible leap forward vanished. The Ethiopian authorities had to adjust their expectations downwards. According to the Ethiopian Textile Industry Development Institute (ETIDI), Ethiopia has planned to generate $240.4 million from textiles and apparel exports in the current fiscal (July 2018-June 2019).

Why the expected take-off did not happen Among the many reasons why in recent years Ethiopian textiles and garment exports grew so slowly, and even temporarily decreased, the most quoted are:

• Access to foreign currency remains a big issue;
• Businesses also complain about the stifling and antiquated socialist bureaucracy. Importing something as mundane as cotton can take months;
• Corruption is widespread. Businesses regularly face demands for bribes and facilitation payments. Anti-corruption laws are poorly enforced;

• Until recently, there was political instability in some parts of the country. Now the whole nation is putting much hope on Abiy Ahmed who became Prime Minister in April 2018;
• Logistics, infrastructure, product quality, labour productivity, are all at a low level and cannot be improved as quickly as businesses would like.
• Frequent power breaks continue (construction works at the Grand Ethiopian Renaissance Dam have been delayed). Internet connection is erratic;
• Most textiles and garment factories work at less than 60 per cent of capacity, according to Sileshi Lemma, directorgeneral of ETIDI;
• Local input shortage is handicapping apparel exports. Most of the needed materials still have to be imported. As a result, cycle times can be up to 150 days;
• It takes time for local garment manufacturers to integrate in global trade networks.

Indian and other foreign investors

In spite of the many problems that apparel exporters are facing in Ethiopia, foreign investment continues to flow in. In 2016, Ethiopia received more foreign direct investment (FDI) in textiles and apparel than any other country in the world, except Vietnam.

Being a pioneer in a fledgling industry can be risky. The Turkish integrated textile companies Ayka Addis and Saygin Dima were the first foreign big-scale companies to invest in Ethiopia. According to the ETIDI 2016 textile sector profile, Ayka Addis Textile & Investment Group (6,473 employees) was established in 2007 and Saygin Dima Textile (1,121 employees) in 2012. During ASFW 2018, there were rumours that Ayka Addis was in government hands. Yusuf Aydeniz, owner of Ayka Addis, responded: "A lot of rumours about our company are going around since some months. Kindly be informed that these are rumours only. I am still the owner of my company and our operations are running as usual."

On the other hand, Indian investors are apparently not as numerous as the Chinese investors in the Ethiopian textile and garment industry, but they seem to be doing fine.

Beating Arvind in speed, Kanoria Africa Textiles, a subsidiary of the Indian group Kanoria Chemicals & Industries, in October 2015 inaugurated a brand new denim factory- the first in Ethiopia-with an annual capacity of 12 million metres in Bishoftu, 37 km from Addis Ababa. Subsequently, in the summer of 2018, Kanoria Africa also started making men's jeans for the domestic market (900 pcs/day). The intention is to increase the production of jeans to 2,000 pcs a day and to export worldwide. Kanoria Africa employs some 1,500 people in its denim and jeans factory in Bishoftu, a city that is famous for its beautiful crater lakes. One hundred of them are Indian expatriates.

Arvind Life Style Plc, established in 2014 in the Bole Lemi Industrial Park in Addis Ababa, surprisingly did not start with denim manufacturing but denim bottoms for women, shirts, and essentials for men, for exports to the US and Europe. Arvind's Apparel Solutions is one of the main investors in the Hawassa Industrial Park (HIP), 273 km south of Addis Ababa. When the former Ethiopian Prime Minister visited Arvind in Hawassa, in June 2017, he was informed that the Indian giant was already employing 2,000 workers in Addis Ababa and expected to push total employment in Ethiopia to 12,000 workers. Arvind's total output in Ethiopia is expected to be about 30 million pcs of shirts, denims and essentials, all for export. In addition, Arvind has signed a joint venture agreement with global apparel brand PVH, to manufacture in Ethiopia and export 8 million pieces of shirts annually.

BSL, the famous Indian producer of premium viscose and wool fabrics, exhibited for the first time at ASFW 2018. Marketing manager Abhish Pal mentioned that BSL has been delivering fabrics to customers in the northern city of Mekele; however, he seemed not very bullish about the present Ethiopian market potential for BSL. Vestis Garment Production Plc, located in the industry park Bole Lemi, in Addis Ababa, is according to the Ethiopian Investment Commission a company of Indian origin. Vestis is producing woven shirts for H&M.

Probably the biggest investor in the Ethiopian garment industry, in terms of job creation, is not an Indian or Chinese but a Bangladeshi company: DBL Industries Plc with headquarters in Dhaka. The group built an integrated factory (spinning, knitting, garments) in Mekele in 2017. In July 2018, the first shipment of DBL left Ethiopia; it was meant for H&M. In November 2018, DBL will open a new printing and dyeing facility in Mekele. Among DBL's customers in Ethopia are, beside H&M, Nike, Auchan, and probably also soon PVH. Last year, the total number of workers, employed by the DBL Group in Bangladesh and Ethiopia, was 42,000. In Ethiopia, the group wants to increase the current number of workers (4,100) to 23,000 by the year 2022.

Some expansion plans of local companies

While at the end of 2015, many local and foreign companies announced greenfield investments, now the focus is mostly on expansion and/or diversification projects. A few examples.

Integrated textile company Kombolcha Textile SC is considered a successful exporter of 100 per cent cotton yarn (to Turkey and China) and of towels and bed linen (for Italian and other high paying European contract markets). Now, the company intends to buy a number of Chinese machines and six Belgian Picanol machines for weaving polyester and polycotton fabrics to be used in Kombolcha's new garment division.

Desta Plc in Addis Ababa, a manufacturer of grey knitted fabrics and different types of garments (polos, t-shirts, corporate clothing), has customers in the US (Champro, Springfield) and Europe (Lidl, Diesel, Auchan, Terra Nova, Fashion Link, Ernstings). Starting in the first quarter of 2019, Desta will also produce knitted and woven tops and bottoms (up to 22,000 pcs/day) at a new factory in Butajira. Training of the workers is already under way.

Feleke Garment Plc was one of the exhibitors at the recent ASFW show and was energetically looking for foreign buyers. The company is producing t-shirts but is also specialising in complicated clothing, made of heavy fabrics (like baseball pants, coveralls, workwear) for exports to the US and Canada. Among its American customers are Bermapparel, Champro, Five Rock and Stanley. The company wants also to do business with Europe. The owner is convinced that Ethiopia's garment exports will boom. He recently added some more production lines and intends to build a new factory just beside the existing one in order to quadruple production capacity.

Knitter Eltex Textile & Garment Factory, with factories in Addis Ababa and nearby Dukem, is planning to produce open width fabrics. Expansion should increase the present production capacity of jackets, t-shirts, dresses and kids' clothing from 87,000 pcs/ month to 150,000 pcs/month. Bahir Dar Textile SC, a producer of cotton home textiles, intends to increase production capacities in weaving and processing. Daily production capacity of fabrics is now 95,000 sq m, and that of processing 125,000 sq m.

Jeans maker CBA Garments (128 employees) is buying denim from Kanoria in Ethiopia and from Thai and Chinese suppliers. The company boasts that its jeans are better than those from Pakistan and China. Its biggest foreign customer is American Eagle Outfitters. It expects a lot from the Indian and Turkish expatriates it hired to increase its exports.

Local production of materials is growing

Certainly for apparel manufacturers who want to supply to fast fashion companies like H&M or Primark, speed is essential. Much time can be saved if fabrics and other inputs can be sourced locally instead of being imported from China or other countries. In 2014, the World Bank Group started a $270 million project to stoke "Ethiopian competitiveness", in part by "enhancing industrial zone linkages to the local economy". Since then, the bank has prepared seven homegrown companies-makers of boxes, buttons, and finished leather-for their entry into the global supply chain.

It appears that gradually more materials are available in Ethiopia, and not only cotton fabrics. Italian company Carvico Ethiopia Plc, in Kombolcha, is preparing production of synthetic fabrics. Chinese company JP Textile Ethiopia PLC, a woven cotton and blended fabric manufacturing company in Hawassa is about to invest $22 million in an expansion project. In the Adama Industrial Park (some 75 km from Addis), which was inaugurated by Prime Minister Abiy Ahmed on October 7, 2018, the Chinese companies Jiangsu Sunshine Wool Textile Plc and Kingdom Linen Ethiopia Plc will respectively produce woollen and linen fabrics.

French company Chargeurs, after Freudenberg the biggest producer of interlinings worldwide, started in 2017 production of interlinings in Hawassa Industrial Park.

Japanese company YKK, the world's biggest zipper manufacturer, is preparing commencement of production in Adama.

Already in 2015, the Belgian company BE Connected started producing labels and printing clothing articles at a factory in the Eastern Industry Zone in Dukem City. It is also cooperating with American company Nexgen Packaging, a worldwide leader in the tag-andlabel industry.

Since 2016, garment machinery constructor Jack, which boasts being the No. 1 in China, has a service centre in Ethiopia, in cooperation with Oubari, an Ethiopian company that is representing a lot of foreign textile and garment machinery suppliers in Ethiopia.

Very low salaries

According to UN estimates, the population of Ethiopia will grow from 100 million currently to 118 million in 2030. During this period, Ethiopian authorities will try to provide industry jobs for millions of people who now survive thanks to subsistence farming. It thus can be expected that still for a long time, the apparel industry in Ethiopia will get access to abundant workforce at internationally competitive labour cost. Today, garment workers in Ethiopia are among the lowest paid in the world.

Knitwear company Desta Plc, located on the outskirts of Addis Ababa, is paying workers a salary of 1,000 birr per month (1,300 birr if transport of workers and other expenses are included). "We know some foreign companies are paying more, but for a local company 1,000 birr is ok," merchandising head Adnan Chowdhury says. In October 2018, 1,000 birr was worth around $36 or €31.

Feleke Garment Plc is paying some specialised workers up to 2,000-2,500 birr per month, social taxes included. The lowest paid workers earn 1,200 birr per month. The net salary amounts to around 85 per cent of the brut salary. DBL says it's paying Ethiopian workers on average the equivalent of $60 per month. However, included the cost of transport and the cost of food and medicines that workers can buy at reduced prices in the factory shop, the total cost per worker amounts to $75.

Salaries in the southern city of Hawassa are said to be lower than in Addis Ababa where the cost of living is higher. Some garment companies in Hawassa reportedly pay their workers a base salary of only $25 per month.

The lower the salaries, the bigger the problem of absenteism and personnel rotation. Employers complain that workers, who should respect a one month advance notice, mostly don't do so, and that the government does not care to enforce this rule. In some Ethiopian garment factories, personnel rotation is up to 10 per cent per month. DBL is one of the few companies which have put in order a comprehensive policy to retain workers.

Changing sourcing map

How is it possible that after four years of strenuous efforts a well-run garment factory, like that of Korean company Shin Textile Solutions Co Ltd in the Bole Lemi Industrial Park, is still losing money in Ethiopia? (Fortunately Shin also has a factory in Hai Duong,Vietnam).

Kenneith Han, managing director of the sales support division of Shin Textile Solutions, explains that, as a garment production hub, Ethiopia has four big weaknesses and that 'poor logistics' is weakness number one. According to Han, the three other weaknesses are insufficient infrastructure, low quality level, and very low labour productivity.

One of Han's logistic worries: the China Railway Group built a railway from Addis Ababa to Djibouti (where the bulk of Ethiopia's imports and exports pass), but cargo access to the trains is still restricted. Besides, Djibouti may be the world's most expensive port, maybe also the slowest.

If Ethiopia succeeds in improving logistics and infrastructure, most observers agree, it will benefit from ongoing changes in other manufacturing hubs. China is pushing garment production from the expensive east coast to western China, and as a consequence longer and more costly transport to the consumer markets. Both Cambodia ad Myanmar risk losing European EBA (Everything But Arms) status. Turkey's economic future looks somewhat uncertain.

At ASFW, Amir Mohsen of the Export Promotion Sector of the Egyptian Export Development Authority, stressed that Egypt has the materials, resources and geographic position to play a symbiotic role: "We came to ASFW with 11 enterprises to show Egyptian yarns and fabrics. We have everything in Egypt: not only cotton and textiles, but also research centres and training institutes."

Hany El Habibi of the Egyptian Sahara Group (also the organiser of the 10th Egytex trade fair in Cairo, from October 28-30), explained that companies like PVH and H&M are very interested in the role Egypt could play as a supplier of high quality cotton to Ethiopia. Lead times are only 10-12 days. In the next three years new textile industrial parks will be developed in Egypt with more than $5 billion investment ($1 billion by the state and $4 billion by the private sector).

Tahir Khan, marketing manager of the big Pakistani textile group Sapphire, thinks that Pakistan and India will gradually replace China as the main supplier of cotton apparel fabrics to Ethiopia. The American apparel giant VF Corporation is said to have advised Asian suppliers to invest in Egypt or Ethiopia in order to reduce lead times.

In 2013, Swedish fast fashion retailer H&M drew worldwide attention to Ethiopia, when it started working with three Ethiopian manufacturers. H&M has currently eight suppliers in Ethiopia, of which two originate from India: Arvind Lifestyle Apparel (from India), Ayka Addis (Turkey), Hela Indochinese Apparel (China-Sri Lanka), Hirdaramani (Sri Lanka), Indochine Apparel (China), Jay Jay Textile Plc (Sri Lanka), Maa Garment and Textile (Ethiopia), Vestis Garment Production (India). Among the companies in Ethiopia that are preparing to become a supplier to H&M are Taiwanese company Evertek (brand name Everest) and big Chinese company KGG. In December 2018, KGG will start production of pants and shorts in a second factory in Ethiopia.

Ethiopian fashion design

As for now, the Ethiopian export-oriented garment industry is mainly a CMT-industry from which no design input is expected. However, supporting the fledgling local fashion community could be a wise move. But there are no clear indications that, for example, the Ethiopian textile & clothing association ETGAMA or the governmentfunded textile institute ETIDI are aware that in the future Ethiopia may need local fashion design talent to further develop its garment industry.

According to Mahlet Teklemariam, founder of the Hub of Africa Fashion Week (HAFW, a yearly event in Addis Ababa), the two main problems of local designers are getting finance for production and finding manufacturers who accept small orders.

The first HAFW took place in 2010, and has since then created an opportunity for Ethiopian and other African designers to present their collections to an international audience of buyers, manufacturers, investors and press (like Fashion TV). Since 2010, the Ethiopian designer Mahlet Afework, with label 'Mafi', has successfully evolved from a local to a global star. Until today, however, it remains a big challenge for Ethiopian designers to go and compete on the global market. Teklemariam, who in October 2018 for the 7th time organised a great fashion show in Addis Ababa, together with her brother/business partner, derives hope from seeing a steady increase of interest for African fashion. H&M wants to work with local designers. German development organisation GIZ took African designers to shows in Paris and Berlin. Ethiopian textile universities like the Bahir Dar University have developed a study curriculum for fashion designers. Ethiopian fashion designers have also created their own association that now has nearly 200 members.

Teklemariam says: "Most garment businesses in Ethiopia are serious about sustainability. They should recognise that local fashion designers have precious experience in that field. These designers usually make their creations with handwoven fabrics, at the same time empowering whole communities. Now they should learn how to also use synthetic fabrics as required by export markets."

The way ahead for Ethiopia

ASFW organisers (Trade and Fairs East Africa; Trade and Fairs Consulting GmbH; Messe Frankfurt) invited a number of local and foreign speakers to discuss the current problems and future challenges of the Ethiopian textile and fashion industry.

Carsten Schreiter, director of procurement at German company Willy Bogner GmbH, a manufacturer of skiwear and sportswear, said that in spite of Ethiopia's weaknesses the country stands firmly on everyone's watchlist because in Asia there are not many good sourcing options left.

Ulrich Plein, programme manager of GIZ Ethiopia suggested that the Ethiopian cotton/ textiles/garment sector should promote itself as 'the new African hub for sustainable textile and garment sourcing'. Indeed, many Ethiopian companies score high on sustainability, though nobody seems to know if sustainability is embedded in Ethiopian culture, or imposed by foreign buyers, or simply learned from wise economists like William Nordhaus who in 2018 won the Nobel Prize.