The UK and Germany have set up a landmark US$6.5m fund aimed at saving thousands of jobs in Ethiopia’s textile and garment industry while helping to support the country’s economic recovery from the Covid-19 pandemic.

Set up in collaboration with the Ethiopian government of Ethiopia, textile factories in Ethiopia’s industrial parks can apply for wage subsidies – similar to the furlough schemes operating in many countries including the UK and Germany – and incentives to reward businesses that are able to adapt in response to Covid-19.

Ethiopia’s textile and garment industry is a leading provider of jobs in the country’s manufacturing sector. However, the collapse of domestic and international demand is expected to hit the sector hard. The country’s Jobs Creation Commission estimates that between 1.4m to 2.5m jobs could go over the next three months.

At the start of the pandemic, textile and garment factories in Ethiopia’s industrial parks employed 95,000 people, with women accounting for 70% of these jobs.

The fund aims to protect jobs, enable textile factories to keep running, and support factories to build back better. Meanwhile, the innovation incentive will reward factories that have been able to demonstrate their ability to make their businesses more resilient in the face of Covid-19, including through the development of new production lines and partnerships.

To be eligible for the support, businesses will need to show they have experienced an economic shock and that they have a business recovery plan. Businesses will also need to commit to certain principles like adhering to ILO core labour standards.

“The FDRE Jobs Creation Commission estimates that close to 1.4 million wage employment opportunities are under threat and approximately 1.9 million people in vulnerable employment will lose their income due to the economic shock of Covid-19,” says HE Nigussu Tilahun Gebreamanuel, Commissioner of the Jobs Creation Commission of the Federal Republic of Ethiopia.

“This facility and other similar programmes are crucial as they will support the factories being affected by the pandemic and help protect jobs in industrial parks, while slowing down the harsh economic impact.”

Mark Napier, CEO of development agency FSD Africa, says the support forms part of the work FSD Africa is doing in financial markets across Africa to build resilience and help drive the economic recovery from the pandemic. “This fund brings together UK and German funding and technical expertise to deliver real benefits for vulnerable households and ensure that Ethiopia’s patient efforts to build manufacturing capacity over many years are preserved.”

The Commercial Bank of Ethiopia will be responsible for assessing applications and disbursing the funding to factories. Continuing the international collaboration at the heart of the fund, UK Aid-funded FSD Africa will implement the project in partnership with Ethiopian consulting firm First Consult.