Ethiopia sets sights on $30bn apparel exports

ETHIOPIA is raising the bar on its garment and textile ambitions, targeting exports worth $30 billion by 2025: a huge goal for a country whose annual shipments currently sit at just $115 million. Speaking for the first time about the plans, Dr Arkebe Oqubay, a minister and special advisor to Prime Minister Hailemariam Desalegn, shares the “bold vision” he believes will transform this East African nation into a compelling new sourcing hub for brands, retailers and their suppliers.

“By 2025 we want to make Ethiopia the leading apparel and textile manufacturing hub in Africa capable of exporting up to $30 billion. This is the single, bold vision we have,” explains Dr Arkebe.

“It is a challenge, but one we are confident we can achieve. We believe if Vietnam can do it, if Bangladesh can do it, Ethiopia can do it even better.”

It’s the first time the country’s vision has been spelled out in such detail. And with annual clothing exports of just US$73,25 million in 2015, there’s no doubt the country does indeed have a massive battle on its hands. Its goal represents a 300-fold rise in shipments in just eight years. Looked at another way, Ethiopia’s combined textile and clothing exports of $114,8 million are just a fraction of the revenues of companies like TAL Apparel ($850 million) and Arvind Limited ($770 million), who are in the process of setting up production facilities in the country.

It’s not the first time Ethiopia’s government has looked to the textile and clothing supply chain as one of the country’s key targets for growth, as just-style first reported around a decade ago.

But what seems very different now is that the government has a clear view about how it intends to achieve its goals, honed from an almost unprecedented level of collaboration with leading fashion brands and retailers, manufacturers.

Its plans extend to building a sustainable, fully vertical supply chain from the ground up and, crucially, leading players from across the industry are flocking to the country.

“The one thing that is unique in Ethiopia is that there has never been such an organised roadmap dedicated to apparel and textiles . . . not in any country in the world,” explains Ranjan Mahtani, chairman and CEO of Hong Kong-based Epic Group, one of the world’s largest producers of woven tops and bottoms, which has just shipped its first products from the country.

“Number one priority”

“Until 2010 the prime focus was on agriculture, and even in the last five years it has been in transition,” Dr Arkebe explains. “But now we are giving more attention to manufacturing. And if we look at manufacturing, then apparel and textiles is our top priority because it’s the largest employing industry, and also the international market is significant: every household requires apparel and textile products.”

He adds: “We are two years into our journey so far. We are a long way from achieving our vision, but believe we are following the right path.”

A commitment to the textile and garment sector is part of Ethiopia’s broad Industrial Development Strategic Plan (2013-2025) to propel the country to middle-income status over the next decade. It also features in the second fiveyear Growth and Transformation Plan (GTP-II), which targets production worth US$2,18 billion and US$779 million in export revenue by 2020.

And the hope is that industrialisation will help the country reduce its dependence on subsistence farming, generate foreign income through exports, increase employment and therefore reduce poverty.

“Ethiopia has a lot to offer to attract investors: we have good political stability, macro-economic stability, competitive labour that can help reduce production costs, competitive and efficient energy. We have invested in long-term infrastructure and in skills; we have built more than 50 universities, and more than 1 300 technical schools to train operators and technicians,” Dr Arkebe explains.

It is also the second largest electricity producer in sub-Saharan Africa, with a focus on renewable power generation from hydroelectric, wind and geothermal sources.

And it enjoys duty-free privileges to the US and EU markets through AGOA (the African Growth and Opportunity Act) and the Everything But Arms (EBA) deal, as well as preferential duty treatment to markets such as China, India, Japan, Canada and Australia.

For investors, favourable benefits to attract clothing and textile companies looking to relocate their manufacturing bases to Africa include duty-free imports of machinery, spare parts and raw materials; along with zero tax on exports and exemptions from income tax for up to ten years.

Multiple level view

Even so, Dr Arkebe agrees the export vision of $30 billion by 2025 “is a very ambitious programme. It’s going to require a huge effort, and in order to achieve this we are working on multiple levels.”

The first focus, he explains, has been on attracting high quality investment from best-in-class buyers and suppliers “who are interested to work on the long-term and also high value, rather than those only interested in cheap labour.

“As a global value chain it’s a buyer-driven industry, so we have to engage buyers on a strategic level. Secondly, we need leading manufacturers: they already know the requirements related to compliance and standards, (and have existing) supply arrangements with the buyers. We also want them to be drivers for knowhow transfer in skills development and management skills to local companies.”

Among the firms currently setting up operations in the flagship Hawassa Industrial Park are PVH Corp, owner of the Calvin Klein and Tommy Hilfiger brands; Hong Kong-based dress shirt specialist TAL Apparel; Sri Lanka’s casual wear to underwear maker Hirdaramani Garment, and sock maker Isabella and Sarasavi Export; Indian denim giant Arvind Ltd, and suit specialist Raymond Group; as well as Chinese fabric mill Wuxi Jinmao.

Another key pillar is to set up specialised industrial parks “built with the highest international building, fire and electrical safety standards and also with sustainability at their core.” Dedicated not only to clothing production but attracting the tier-2 and tier-3 fabric and fibre mills too, the goal is to ensure an environment “where energy will not be a constraint, where transport and logistics will not be a constraint.”

The Hawassa Industrial Park, for example, is mostly powered by renewable electricity sources (hydro-electricity), with rainwater recycling, and solar powered LED street lights. There is also a zero-liquid discharge facility — the first in Africa — to purify and recycle virtually all of the wastewater produced, as well as recover and re-use the salt used in the textile dyeing process.

“Ultimately we want to be able to say apparel and textile products produced in Ethiopia have the lowest carbon footprint, so we can use that as a source of competitive advantage.”

Linking these specialised industrial hubs with local technical colleges and universities will help “improve the skills upgrading” and provide additional support and experience to local companies. In addition, Dr Arkebe reveals, talks are underway to try to involve fashion schools in London and New York.

Verticalisation

Creating a fully vertical supply chain from the ground up, “whereby we have the apparel sector, then fabric mills and then the spinning mills and then high quality cotton plantation,” is seen as key to the sector’s long-term prospects.

Just focusing on garment production would make it easy for companies to “park and move to the next destination. We have to build an industry that is not footloose, an industry that can sustain in the long term,”

Dr Arkebe explains, “We don’t want to repeat what is happening in some Asian countries such as Bangladesh, which exports $26 billion (in garments) but imports $22 billion (in raw materials).”

Another element is to make Ethiopia “the hub of accessory production. By doing this we will ensure that 90 percent of the materials are locally produced, we will create more jobs, more value, and ensure companies are guaranteed to improve their speed to market.”

This last point — speed to market — is the icing on the cake; the endgame so to speak. “Speed to market is a critical issue to the apparel industry; it is the final determining factor to being competitive. And you can only achieve this if it’s fully integrated with all materials supplied locally,” Dr Arkebe says.

Infrastructure and logistics

Another key component in delivering speed, of course, is logistical efficiency, and this too is being tackled. Being vertical is one way to be fast and flexible, but in the meantime the inputs for apparel made in landlocked Ethiopia — and the finished products themselves — have to be transported by truck to and from the neighbouring Red Sea port of Djibouti, a process that is both slow and expensive.

Dr Arkebe envisages a more efficient system that combines air, rail and sea transport.

A new Chinese-built electric railway network that links Addis Ababa, the dry port city of Modjo, and Djibouti, will help reduce cargo transit times from three days by road to 10-12 hours by train. And there are future plans for eight rail corridors that will make up a 6 000km network and create a series of key trade routes to neighbouring Kenya, South Sudan and Sudan.

But leveraging the capability of stateowned Ethiopian Airlines — “the largest airline in Africa and the fastest-growing airline in this region — may play a key role in the logistics process, especially if speed is important. Its new cargo terminal at Addis Ababa Bole International Airport gives it an annual cargo capacity of 600 000 tons — “which is as big as Singapore’s main air cargo terminal” — and transit times could be cut by moving cargo by air from Ethiopia to Jeddah or Dubai, to be transported onwards by sea.

Flagship industrial park

Having a vision is one thing, but it’s at the Hawassa Industrial Park, a US$250 million facility some 275km south of the capital, where it’s starting to take shape. Built in the space of just nine months, with “100 percent occupancy secured from the very beginning,” the 1,4 million square metre facility provides 410 000 square metres of factory space across 37 sheds. — Just Style.