By Devika Jyothi
Ethiopia – widely considered the birthplace of humankind – is today gaining international attention as an emerging investment destination for the cotton, textile and apparel industry. While textile manufacturers are increasingly shifting base to the country, SITA recently facilitated the visit of a high level Ethiopian delegation led by the State Minister of Industry, Hon. Bogale Feleke, to raise Indian investors’ awareness of the opportunities on offer.
One of the world’s fastest growing economies, Ethiopia is on the cusp of a textile revolution. Expected to emerge as a global sourcing hub for textiles within the next decade, Ethiopia is today the second largest recipient of foreign direct investment in the industry globally, after Vietnam, attracting nearly US$3.2 billion to 2016. Under the Government of Ethiopia’s Growth and Transformation Plan-II (GTP II 2014/15-2020) – a national five year plan to encourage large-scale foreign investment opportunities – the textile industry is aiming for exports to the value of US$1 billion per annum. This target is to be achieved by attracting 150 new investments and at the same time creating nearly 175,000 new jobs.
There are big gains to be had for Indian and other international textile manufacturers investing in Ethiopia and contributing to the country’s development. Many global brands and companies like PVH, H&M, Vanity Fair, Raymond, IndoChine, Wuxi Jinmao and Arvind Limited have already established operations in Ethiopia, tapping into the benefits that the country has to offer.
So, what does Ethiopia offer potential investors?
Land: Ethiopia has approximately 3 million hectares of land suitable for cotton cultivation. In addition, there is a huge, largely untapped, opportunity for organic cotton cultivation. Finally, investors enjoy access to land at a favourable leasing rate.
Power: Ethiopia, known as the water tower of Africa, provides one of the cheapest environmentally friendly hydroelectric power supplies in the world. The country has an installed power capacity of 4,600 mw, generated mostly from hydro units, with a plan to increase the capacity to 17,000 mw by 2025. Power costs are currently at US$0.03 per unit – just INR2.0 compared to the average INR6.00-INR7.00 per unit in India.
Labour: The country has a young and growing labour force with competitive average wages of US$ 60 per month for unskilled workers. Skilled labour in the sector is increasing rapidly with the growing number of educational and training institutes focused on textile technology. English language is the medium of instruction in secondary and tertiary schools across the country and is widely spoken in business.
Plug and Play Industrial parks – The Government of Ethiopia is developing state of the art, electric powered industrial parks as part of its industrialization strategy. Four of the 13 proposed industrial parks are complete and ready for occupation. There are dedicated parks for specific sectors including textiles and apparel which are located along key economic corridors, well connected to ports. Investors are offered favourable conditions to set up operations in the industrial parks.
Fiscal incentives – The government offers many financial incentives to investors setting up facilities in the industrial parks such as zero tax on exports; exemption from custom duties and other taxes on imports of machinery, construction equipment spare parts, raw materials etc; income tax exemption for up to 10 years; duty drawback and voucher scheme in lieu of duties and taxes paid on imported raw material, to state a few.
In addition, manufacturers are offered a one-stop-shop for all government services necessary for setting up the facility as well as aftercare.
Logistics: Ethiopia has easy access to international value chains. Land-linked with a paved road network of over 6000 kilometres, Ethiopia is well connected to the ports of Berbera and Djibouti and has four international airports. The recently completed railway line between Addis Ababa and Djibouti’s main port will reduce the travel time from Ethiopia’s industrial parks by 4 to 12 hours. Another 5,000 kilometre railway network is under construction.
Market Access: Ethiopia offers duty and quota free market access to the United States and European Union as well as Common Market for Eastern and South Africa (COMESA) markets. Ethiopia has also signed more than 16 bilateral trade agreements, which include China, India, Turkey and Russia.
In addition to the easy access to global and regional markets, Ethiopia offers one of the largest domestic markets in Africa, with its population of nearly 100 million and rapid economic growth.
For potential global textile investors eyeing Ethiopia, investment opportunities exist across the textile value chain, covering spinning, weaving, finishing and textile fabrics. These include:
Apparel manufacturing: This is the most attractive investment option for global investors due to the duty-free advantage to the US, EU and other major domestic, regional and international markets.
Textile (yarn and fabrics) manufacturing: With the growing domestic and regional demand for a variety of products including yarn, grey knitted and woven fabric, finished fabrics and ready-mades such as curtains and blankets, Ethiopia is an attractive destination for textile investments across the four main production areas of spinning, knitting and weaving, finishing and garmenting.
Apparel accessories: East Africa’s apparel exports are expanding fast and there is a growing demand for accessories such as labels, buttons, zippers, hooks and the like. An investment in the manufacture of these items locally has much potential as presently they are imported.
Services: With the expanding textile production, opportunities are aplenty for associated services like testing and buying houses, technical consultancy, brokerage, export marketing, training etc. These businesses can provide good return on investment.
Besides the business opportunities, benefits and incentives discussed above, Ethiopia’s political, social and macroeconomic stability, as well as the government’s commitment towards developing the textile sector are key enabling factors for any foreign investor.
As Minister Feleke said during his visit to India, ‘This is a great time for businesses to benefit from Ethiopia’s expanding investment opportunities.’