Ethiopias growth has been at 11% every year for the last 12 years

Ethiopia's growth has been at 11% every year for the last 12 years

Ethiopia's ambition to become a global apparel and textile powerhouse has been well-documented over the past decade, despite its slow steps towards this goal. But the scale of investment in the country appears to be accelerating, some of the largest US and European brands are placing orders, and the government seems committed to building a sourcing hub for the future.

In recent years all eyes have been on Ethiopia as an emerging apparel sourcing hub, with an increasing number of companies looking to set up or expand production capabilities in the East African country. Apparel firms such as Hennes & Mauritz (H&M), Asos, George at Asda, Calzedonia, Primark, Tesco and PVH all source from Ethiopia, with the latter describing its experience in the country as "nothing short of exceptional".

However, figures published last month by the Ethiopian Textile Industry Development Institute (ETIDI) show textile and apparel exports continue to fall short of expectations, with a range of issues blamed including managerial and technical expertise, power outages and fluctuation, a shortage of manpower and high turnover, weak company linkages, and delays in implementing investment projects.

Not surprisingly, Dr Arkebe Oqubay, Minister and Special Advisor to the Ethiopian Prime Minister, is putting a positive spin on things, telling delegates at this year's Prime Source Forum event in Hong Kong that the country's Growth and Transformation Plan (GTP) seeks to boost economic growth and achieve middle income status by 2025. Its vision is for GDP to grow by 11% every year for the next ten years, and for the manufacturing sector to grow by 25% every year for the next decade. 

"We know this is realistic, we can achieve this," he explains. "Ethiopia has been known in last decade as the fastest growing economy, noted by many country leaders, including Obama. This growth has been 11% every year for the last 12 years. Ethiopia does not have petroleum, diamonds, or copper, it is all driven by the production sectors, agriculture and partly manufacturing."

Industrial ambitions

Ethiopia's ambition is evident with the construction of the Hawassa industrial park, set up in partnership with a number of industry majors such as PVH Corp, owner of the Calvin Klein and Tommy Hilfiger brands. The US$246m eco-park has been built in a record time of just nine months, on 130 hectares of land in the capital Addis Ababa. It is expected to create around 60,000 jobs and generate a total export value of US$1bn. 

The park is in line with the country's focus on sustainability and its target of reducing carbon emissions by 67% by 2030. Set to begin operations from June, it will introduce zero discharge and use primarily wind energy and hydro power. "The issue of sustainability and environment is central to our strategy," says Oqubay. "We want Ethiopia to be the leading country in terms of manufacturing with the minimum CO2 footprint."

Also central to the country's strategy is its ambition to build a vertically integrated apparel and textile industry. The plan: to use its masses of unused land to plant GM (genetically modified) cotton. 

Ethiopia's size is close to 1.2m sq km – the combined size of Germany, Japan, Belgium and South Korea – and contains an immense amount of arable land that can be used for agriculture. Oqubay says the aim, over the next 24 months, is for Ethiopia to become one of the world's major producers of high quality GM cotton.

Other challenges if the country is to achieve its goals, however, include a focus on productivity and ensuring it has a steady stream of skilled labour to produce garments for the major brands it has attracted to the project – including India's Arvind and Raymond, Hong Kong's Epic and TAL Industries, and Indonesia's Pityu. 

Oqubay is confident this is achievable, and in the shortest possible time, with worker training expected to begin this month. The workforce, he says, is keen to learn and, in 24 months time, "will reach the productivity levels of workers in Vietnam." 

"Ethiopia has been listening and trying to understand the requirement of the manufacturers. Ensuring there will be a smooth landing and that these companies will be profitable is important to achieving our strategy. We have very high standards and we are learning from experiences in Bangladesh."

Indeed, Mark Green, executive vice president of global supply chain for apparel giant PVH, says the company's experience in Ethiopia has been "nothing short of exceptional." 

Of the Hawassa investment, he explains: "We went in with a concept of 'let's take a brand, best-in-class mills and manufacturers, and let's create something unique and special'. We wanted to create a vertical supply chain, we wanted it to be scalable for the industry so it could grow in a thoughtful and planned way. We wanted it to be sustainable, to make use of green energy, green technology, and we wanted it to be best-in-class. 

"We wanted to take all of our learnings into Ethiopia and build something anyone involved in the country would be proud of. And it will be a blueprint example for the rest of the world to follow. 

Expansion plans

Hawassa is just one of seven prospective industrial parks the government is developing, thanks to some $750m secured from the sale of its first Eurobond. One-third of that sum will be spent on the remaining parks, some of which will be built in the north of the country. 

The vision is to create 2m manufacturing jobs over the next ten years with the construction of 20m square metres of factory space per year, building on a steady growth rate for the sector of 20% annually over the last five years. This is thanks to foreign direct investment from countries including Turkey, India, China, a number of EU nations, and the US, which in 2015 exceeded $2.5bn in terms of materials and cash inflow. 

"This is the best opportunity for many firms wanting to establish manufacturing plants in Africa," Oqubay says. "Ethiopia is one of the best destinations."

The country is located close to Europe, the Middle East and Asia, enjoying preferential market access to the former through the Everything But Arms (EBA) deal, and duty-free access to the US through AGOA (the African Growth and Opportunity Act). 

Ethiopia's main selling points, Oqubay says, include a population close to 1bn that is growing by 2.3m annually, a steady economy, location, low crime, investment in skills training, and substantial investment in infrastructure – 60% of the government's budget to be precise. 

Central to this is the construction of a Chinese-built electric railway network from Addis Ababa to the Red Sea port of Djibouti, with the eight rail corridors that make up the new 6,000 kilometre network understood to have cost around $1.2bn – of which 70% was financed by the Export-Import Bank of China and 30% by the Ethiopian government. Once completed, it will create a series of key trade routes to neighbouring Kenya, South Sudan, Sudan and, crucially, Djibouti port.

Set to become operational in the next few months, the network also has speed on its side. At 120km per hour, cargo will be able to reach Djibouti from Addis Ababa in nine hours. 

"We know that speed to market is an important competitive criteria for industry," Oqubay says. "One of the lessons we have learnt over the years, and from China, is about heavy investment in great highways. The reason China's economy has been growing is because it has invested heavily in infrastructure. If we want Ethiopia to be a great economic power and industrial country, we have to do this too."

Low growth

Ethiopia has a fair way to go, however, if it wants to match the apparel exports of countries like Myanmar at $1.5bn, Turkey at $18.7bn, and Vietnam at $24bn. In 2014, Ethiopia's apparel exports reached just $112m. 

And while known for its low labour costs – average monthly wages for operators range from $46 to $57 – these are significantly offset by low labour productivity and high personnel rotation. Garment manufacturers are having to invest permanently in worker education and training.

Oqubay also concedes that the country is not free from corruption, but he is hoping that the GTP investments will address these issues.

"There is no country that is free of corruption," he adds. "But the key point is that top leadership is committed to addressing the issues of transparency. In our engagement we have been quite open. Trust is important. It is the basis for success so we have been keen to build this trust. One of the major shifts in this industry over the next ten years will be the shift of apparel manufacturing to Africa and I believe it will be East Africa."

PVH's Green is equally as confident Ethiopia has what it takes to attract more foreign investment.

"We did not want Ethiopia to become another Bangladesh where there was a rush to attract sewing factories. We wanted to build something sustainable, and to do that we need to attract the best-in-class mills. We need the mill powerhouses there to ensure raw material production makes sense and to ensure that what we build is vertical and has speed to market. We need those Taiwanese synthetic textile mills to come as well. 

"There is a huge opportunity with duty-free in synthetic fabrics. Labels, thread, and accessories need to follow quickly. This is a land of opportunity for many aspects of the industry."