Ethiopia the emerging textile and clothing industry 2014 edition

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1 Ethiopia the emerging textile and clothing industry 2014 edition

2 Ethiopia the emerging textile and clothing industry 2014 edition By Rupa Ganguli March 2014 Published by Aroq Limited Seneca House Buntsford Park Road Bromsgrove Worcestershire B60 3DX United Kingdom Tel: +44 (0) Fax: +44 (0) Web: Registered in England no: i

3 Single-user licence edition This report is provided for individual use only. If you would like to share this report with your colleagues, please order additional copies or sign up for a multi-user licence by contacting: Claire Clements Research manager, just-style.com Tel: +44 (0) claire.clements@just-style.com Copyright statement 2012 All content copyright Aroq Limited. All rights reserved. This publication, or any part of it, may not be copied, reproduced, stored in a retrieval system, or be transmitted in any form by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of Aroq Limited. This report is the product of extensive research work. It is protected by copyright under the Copyright, Designs and Patents Act The authors of Aroq Limited s research reports are drawn from a wide range of professional and academic disciplines. The facts within this report are believed to be correct at the time of publication but cannot be guaranteed. All information within this study has been reasonably verified to the author s and publisher s ability, but neither accept responsibility for loss arising from decisions based on this report. ii

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5 Table of contents Chapter 1: Africa, a destination for apparel and textile?... 1 Discovering Africa... 1 Chapter 2: Ethiopia today, recent factsheet and profile... 5 Introduction... 5 Preferential market access... 6 Economic and social profile... 7 Political and legal framework... 8 Technology and infrastructure... 8 Institutional framework and incentives... 9 Chapter 3: Creating value across the value chain Introduction and exports of the textile and apparel sector A sector with rapid growth and potential for value addition Access to highest quality raw material Much needed backward integration and international collaborations Encouraging diverse products and value-add across the value chain...22 Specific gaps identified as new business opportunities Chapter 4: Emerging Ethiopia, on the global fashion platform High value products and luxury end of the market drives demand Origin Africa Source Africa Ethiopian designers Fikirte Addis Sara Abera Genet Mimi Kebede Seblewongel Gelan Mafi Liya Kebede Chapter 5: SWOT analysis, what s the verdict? Strengths Weaknesses Opportunities Threats Chapter 6: Competition and comparison Chapter 7: Made in Ethiopia, making it a reality Five things for Ethiopia to do as next steps: Chapter 8: Directory of Ethiopian textile and clothing factories...44 Appendix Appendix Appendix References iv

6 List of tables Table 1: Directory of Ethiopian Textile and Clothing factories Table 2: African key Regional Communities Table 3: Timeline of Africa s regional integration efforts Table 4: Ethiopia s rank in 10 key areas Table 5: No of days required to start a business Table 6: Medium and large scale Textile and Apparel industry export plan for 2010/ /15 PROJECTION by Ethiopian government Table 7: Type of natural dyes in Ethiopia Table 8: Major new investments across the textiles and clothing value chain Table 9: Major expansion investments across the textiles and clothing value chain v

7 List of figures Figure 1: Africa s share of world exports in textiles and clothing... 2 Figure 2: Ethiopia s GDP growth percentage... 7 Figure 3: Ethiopia s exports in textiles and clothing annual growth (%) Figure 4: Growth in no of factories in Ethiopia Figure 5: Medium and large scale Textile and Apparel industries 2010/ /15 Expected production value (USD million) Figure 6: Total projected growth (combined) in USD million 2010/ / Figure 7: Ethiopia s industry capacity and value chain in textiles and clothing sector Figure 8: Export (value) of T-shirts (6109) by top sub Saharan African countries (2012) Figure 9: Competitiveness of Ethiopia as compared to close competitors in sub Saharan Africa for product category 6109 (T shirts) vi

8 Chapter 1: Africa, a destination for apparel and textile? Discovering Africa Africa in the past brought up a picture of conflict, poverty, unemployment, lack of security, crime and malnutrition amongst others. However, this picture, although slowly, has started changing over recent years. It is often referred to as the continent with immense potential, opportunity and resources. Referred to as the lion economy, the final frontier, a large investment potential and an opportunity waiting to be realised, Africa has started to change its image and perception as well as shown real growth and changes in several countries across the continent. Since 1989, twenty new democracies have been formed in Africa. Political conflicts have declined and governance and stable economies across the continent are becoming more the norm rather than the exception. With mobile and e-commerce on the rise across the continent, a large young and dynamic population across fifty-four countries, Africa has been rated now as the continent with some of the fastest growing economies in the world. Euromonitor has identified Kenya, Ethiopia, Ghana, Tanzania and Cameroon as the highest growth countries within Africa over the next years. As investments start flowing in, current foreign direct investment is estimated to be close to USD$xx billion. With more and more international brands and businesses keen to get a share of the pie, several African countries are equipping themselves to meet the increasing demand. 1

9 Chapter 2: Ethiopia today, recent factsheet and profile Introduction This chapter provides an overview and brief outline of the country s overall structure, economic, social, political and legal framework. It also provides some practical details on infrastructure and incentives provided by the government. According to their Doing Business report 2014 (DB2014) 2, The World Bank ranks Ethiopia xxx out of xxx countries globally. According to the report, it takes approximately xx days to set up a business in Ethiopia as compared to an average of xxxx days across Sub Saharan Africa and an average of xx days in OECD countries. One of the oldest countries in the world, Ethiopia is home to millions of years of striking history. The oldest remains of human ancestors said to be over x million years and Lucy the famous xxx million year old skeleton were both discovered around the Awash valley area in Ethiopia. With magnificent architectural remains in northern Ethiopia, such as the Palace of the Queen of Sheba, several historical sites from the eras of Christianity to Islam to the colonisation, military power and Soviet influence, regional conflict, famines and droughts, to the recent stability and democracy since 1995, Ethiopia has a long, myriad and colourful story to tell. These recent years of democratic rule have seen the formation of a democratic government and rapid opening of the economy to business and investment. 2 Source: World Bank Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises. (for more details see APPENDIX 1) 2 Own compilation based on information from Embassy of Ethiopia in the UK 5

10 Chapter 3: Creating value across the value chain Here at our Embassy, we are proactively engaging with British investors to introduce Ethiopia s lucrative textile and garment sector. H.E. Mr Berhanu Kebede Ambassador Plenipotentiary and Extraordinary of Ethiopia to the UK Introduction and exports of the textile and apparel sector The textile and garment sector in Ethiopia has set ambitious targets to expand rapidly by Export performance of textile industry increased on average annually xx% for the last six years. While export figures are very small in relation to share of global trade, it has been experiencing consistently high growth rates. AGOA, the key trading agreement that affects textile and clothing trade between Ethiopia and US went through several changes and reforms since it was set up in Ethiopia has managed to increase exports (although very small in real value) by over xx% between 2010 and The US now accounts for almost xx% of Ethiopia s total textile and garment export (2012). AGOA is set to expire on 30 September With the third party fabric rule extended, it is hoped that more manufacturing and exports of apparel will take place. More than xx% of the apparel imports under AGOA are open to the third country fabric rule of origin. This allows apparel manufacturers to utilise yarns and fabrics from any origin. This change was put in place because, while rich in raw materials, Ethiopia and other countries benefiting from AGOA are still not equipped to utilise only their own raw materials to create products as required by US brands and retailers. They still need to import their raw materials from Asian countries such as China, India and others. Benefitting from EU s Everything But Arms scheme (EBA), almost xx% of Ethiopian textiles and clothing exports go to the EU. This competitive market access could further improve in favour of Ethiopia with the new GSP in place from 1 January GSP stands for Generalised System of Preferences is the system of preferential access granted by the EU to developing countries and Least Developed Countries (LDC). These GSP benefits lower tariffs to zero tariffs depending on the level of development of the country and the product. Under the new GSP, the effectiveness of the EBA scheme will be strengthened. By focussing preferences on 12

11 Chapter 4: Emerging Ethiopia, on the global fashion platform I can t over emphasize the various efforts of my Government particularly in the last decade to kick start Ethiopia s textile and garment sub sector so that our enormous potential in the manufacture of textiles and garment is fully realised. You can see this from the helping of farmers grow quality cotton to the privatization of state-owned textile and garment factories to laudable stimuli offered to exportoriented textile firms. The very fact that the textile sector enjoys priority attention in our ongoing five year Growth and Transformation Plan (GTP) is yet another proof of my Government s resolve and commitment to the sector. Moreover, the Government has introduced incentives to this sector in order to attract foreign direct investment. This policy has already brought in world renowned textile brands into Ethiopia. H.E. Mr Berhanu Kebede Ambassador Plenipotentiary and Extraordinary of Ethiopia to the UK (in an exclusive statement) High value products and luxury end of the market drives demand The luxury and niche end of the international fashion and interiors market has already seen the opportunity and started working with Ethiopian textiles, pottery, and leather using traditional skillsets and handloom fabrics. The impact has already started being felt and seen on the runways and fashion showcasing events in Europe, US and within Africa. Some well- known international high-end brands have recently started developing mainstream collections using Ethiopian cotton and Ethiopian techniques for their core lines. Made in Ethiopia has only just started featuring on the agendas of mid-market and high street retailers. The Ethiopian Textile and Garment Manufacturers Association (ETGAMA) president, Mr. Fassile Tadesse said there has been a recent interest from several retailers from Europe and the US who have started conducting study visits and are showing interest in what the Ethiopian textile and garment industry has to offer. One of the greatest factors for big buyers and retailers is the potential for cotton cultivation, leading to access across the value chain within the country. This can have a great impact on lead times and transparency. Price competitiveness is always an attractive factor as well as preferential market access to key markets. A key challenge remains in assessing the risk and identifying the right suppliers. Since Ethiopian suppliers are not present at the majority of sourcing trade events globally, nor is there an existing history of production and 27

12 Chapter 5: SWOT analysis, what s the verdict? Strengths Access to cotton and the potential for cultivation of cotton especially for larger brands and retailers Duty and quota free access to key markets of EU and USA Preferential market access to several emerging markets such as India, Russia, China with growing populations and disposable income Access to a long tradition of handloom and hand spinning which is attractive especially to the luxury and high end of the market Access to a large population which could be trained for working in the textiles and garment industry Relatively low wage rates (lower than African average) The existence of the Textile Industry Development Institute (TIDI) to support the growth and facilitation of the textiles and clothing sector The existence of a strong and well represented sector association The Ethiopian Textile and Garment Manufacturers Association (ETGAMA) which is linked to regional and international textile and clothing industry associations Access to cheap power and utilities Access to ports Presence of internationally linked airport with reputable national carrier Member of one of the biggest regional economic communities in Africa COMESA The strong prioritisation of the textiles and clothing sector by the government An economically and politically stable country English is widely used especially in business Very supportive representatives in Embassies across the world Presence of home grown and internationally recognised fashion and interiors designers 33

13 Chapter 6: Competition and comparison Total African textiles and clothing sector exports make up only x% of the global exports. Ethiopia is an even smaller player and doesn't even currently contribute x% to the overall exports from Africa. However, within Africa, it is one of the fastest growing countries with a core focus on textiles and clothing as a national priority sector. It has a history of textile traditions and access to high quality cotton. Figure 8 provides an overview of the exports of product category T-shirts (6109) currently one of Ethiopia s top export categories. Figure 8: Export (value) of T-shirts (6109) by top sub Saharan African countries (2012) Source: just-style graphs based on ITC calculations (TradeMap) and comtrade data (UN) 37

14 Chapter 7: Made in Ethiopia, making it a reality Ethiopia will soon be the best cluster for Textiles and Garment in Africa. HE Mr Tadesse Haile State Minister of Industry of Ethiopia (in an exclusive statement) Changing the image of Ethiopia from a post conflict and post disaster country to one with a vibrant and dynamic business community, high quality raw materials and growing production capacity requires active engagement and visibility with international markets. Five things for Ethiopia to do as next steps: 1. Set up a Public Private action plan engaging stakeholders While the government has put in place several initiatives and incentives for business to expand operations and increase potential export from the country, several issues still remain to be addressed. The majority of the local private sector players especially the small and medium companies, which form a large percentage of the industry, still remain un-engaged. Integrating the several initiatives, a sector wide public private action plan would help to create ownership and address issues identified by the private sector in increasing their exports sustainably. While investing and expanding operations will potentially help increase capacity, the capacity needs to be utilised through production orders and sustained access to markets. This is led by the industry and not government. To support industry, industry players need to be involved. Currently approximately xx% of the capacity is being used. Engaging at the public private level will support moving forward in all areas: sourcing, production and marketing. 41

15 Chapter 8: Directory of Ethiopian textile and clothing factories Table 1: Directory of Ethiopian Textile and Clothing factories Name of company Year Type of Main products Production No of Location established company capacity employees 1 Arbaminch Textile SC 1992 Ginning Lint Cotton Arbaminch 2 Awash Ginning Factory 3 Des Cotton Ginning Plc 2010 Ginning Lint Cotton ton/yr Awash 1997 Ginning Lint Cotton kg/day Gondar Town 4 Gebreselam Ginnery 2005 Ginning Lint Cotton Dukem Plc kg/yr Town 5 Haji Nur Hussien Kassie Cotton Ginnery Factory 6 Middle Awash Ginnery 2009 Ginning Lint Cotton kg/yr Gondar Town 1989 Ginning Lint Cotton ton/yr Melka Worer Town 7 Omo Vally Ginnery Factory 1998 Ginning Lint Cotton kg / yr Akaki Kality 8 Adama Spinning 2008 Spinning Rotor spun yarn carded, ton cotton Adama Factory ring spun yarn carded yarn per day and combed yarn 9 Ethiopian Sewing 1965 sewing sewing thread kg per Addis Ababa Factory thread day 10 Al - Asr Industries Plc Weaving Polyestor fabric mts per day Dukem 44

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