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Textile Sector – a Centerpiece for Industrial Development

Textile Sector – a Centerpiece for Industrial Development

Since 1950s, the prevalence of the global textile industry, in response to global economic movement, had shifted from Japan, to Korea, Taiwan and other Asian countries. But the trend shifted to China and India since the 1990s. As per the World Bank Group Trade and Competitiveness (WBG), textile and apparel companies continue to look for business opportunities under the constant cost pressures.

Recently, East Africa has been getting more attention from the textile and apparel industry as a potential investment destination. Moreover, Global Value Chain (GVC) also presents an opportunity for developing countries.

WBG indicated that the global apparel companies are emphasizing that they are not aiming at making quick bucks by relying on cheap labour – the previous model of only cutting and sewing operations. Rather, they see the advantage of setting up vertically integrated operation (from Fibre to Fabric in one place). This shift in business model signals more GVC participation and domestic value addition for host countries. In this regard, the WBG stated that it is closely analyzing and monitoring this trend to leverage it as a catalyst for African countries to attract investors in this sector.

With this view, Ethiopia-Korea Business Forum was held here in Addis Ababa recently. The main issue tabled for discussion was the growth opportunities in the Ethiopian textile industry. The discussion was focused on the investment environment of the textile industry, crafting growth opportunities for the textile industries in Korea and Ethiopia, changing landscape of the global textile industry and Korea corporate success story in establishing manufacturing base through industrial park.

Though, the first integrated textile factory was established in Ethiopia in 1939, for long its development had not been encouraging. However, the government highlighted the sector as a key industry for growth and development in 1995. In 2003, the Ethiopian Textile and Garment Manufacturers’ Association (ETGMA) was reestablished with international support.

According to ETGMA, Ethiopia is to be the next hub of textile and garment for Africa. This is also the goal of GTP 2. The export value of the textile and garment sector had reached 100 Million USD in 2013. Export value of some 500 million USD is expected from the sector in 2016.

According to Fasil Tadesse, Head of ETGMA, the textile industry is considered as number one priority by the Government’s Industrial Development Strategy. The availability of some 3 million hectares of land and climate suitable for cotton cultivation, out of which only some 5 per cent utilized so far, make the country preferable destination for textile industry, the Head said on the Forum adding, the country also has huge potential for organic cotton cultivation.

According to Fasil, Ethiopia provides several opportunities for those who like to invest in the textile industry. The country provides one of the cheapest environmentally friendly hydroelectric power supplies, competitive labour cost than the average in African, institute to provide inputs for factories and established textile development institute to care the textile.

He also indicated that skilled labour in the sector is increasing rapidly as a result of fast growing education and training institutions in textile technology in different universities, technical and vocational institutions as well as private training institutions.

The other advantage that Ethiopia offers is market. There are available international buyers such as H&M, George, Tchibo, KIK, Alde, PVH, VF and the likes in addition to the quota and duty free market access to the US and EU, COMESA and other 16 nations including China, India, Turkey, Canada and Russia. On the other hand, Ethiopia also offers one of the largest domestic markets in Africa, given its population size and rapidly growing economy.

The country is striving to fulfill the provision of infrastructure and all service for ongoing construction of Industrial Parks in Kombolcha, Makalla, Dire Dawa, Hawassa, Adama, and Addis Ababa Industrial Zones. State Minister of Industry Tadesse Haile, on the occasion said that special industrial zones and industrial parks had been setup in Ethiopia with one-stop shop services with the view to expand the manufacturing sector. The notable example, according to him is that, Shin Textile Solutions Co. of the Republic of Korea had moved into the existing industrial park at Bole Lemi in October, employing over 3,000 people.

In addition, the government also provides incentives particularly investment and operational incentives such as tax holidays (including 100 per cent free importation of new or used machineries, etc) and several other financial incentives.

On the other hand, Korea could provide several benchmarks for Ethiopia in the textile industrial development. According to the Korean Ministry of Trade, Industry and Energy, the number of firms and employees go as high as 300,000 and 837,000 respectively, if the linkage industries such as leather, bags, shoes, dyes, pigments, textile machinery, are included.

Korea is the 8th largest global exporter of textile products. The country’s textile industry is characterized by its import-dependency (import raw or processed materials) and export-led orientation. It has also complete system of manufacturing bases consisting of upstream and downstream industries stretching from the production of yarn, textile, dying, fashion apparel, distribution and the likes. The textile posted a greatest amount of export, while import of apparels recorded the largest amount among import of textile and fashion related products.

Recently, the industry shows signs of a contraction. The number of firms in 2013, for example, was decreased by 31.6% compared to 1995; the number of employees plummeted to a half of what it was in two decades ago. These changes are attributable mainly to industry-wide structural reforms and the re-location of production bases to overseas. In this regard, China has been the most preferred Foreign Direct Investment (FDIs) destination, accounting for 59% of the industry’s total investments in overseas, followed by Vietnam, USA, and Indonesia. The industry’s FDIs are in general on an increasing trend, as local business conditions in Korea are exacerbating, i.e. increase in labour costs, shortfall in the availability of labour, etc. Korean textile and apparel industry has been re-locating overseas, looking mainly for the availability of labour and affordable labour costs.

In this case, Ethiopia has great opportunity for the development of textile industries, it has an opportunity to become a destination for this lucrative FDI. But it was indicated in the forum that the country has to work hard to overcome its challenges such as shortfall in infrastructure, excessive costs incurring in logistics vis-à-vis potential competitors (the possibility in delays at the port of Djibouti, etc.), administrative red-tape and rigidity.

Programme Officer at Korean Institute for Development Studies Jae-Hoon Lee told members of the media that the Korean delegation consisted of some 40 potential investors, Chief Executive Officers and owners of companies. The CEOs are mostly from textile and garment industries.

He also noted that there are numerous investment opportunities in Ethiopia as many people identify. “Investors are coming. And they have to. The thing is whether we are prepared for it or not as there are several challenges in this regard also,” he added.

Lee also acknowledged that though it is impossible to overcome all challenges at once, there is a need to seriously prepare to attract investors and accommodate and facilitate their needs. “Every country has a challenge in this regard. But the main point is whether we are seriously trying to facilitate the investors’ needs. And this is what the Ethiopian public and private sectors have to do,” the programme officer emphasized.

According to him, the main challenge of textile manufacturers in Ethiopia is the fact that the logistic cost is quite expensive. However, Lee said this challenge could be changed into opportunity and advantage. To do so, there is a need for shortening the delivery time and enhancing capacity for one-stop shop, and to shorten the date means to shorten the cost, he added.

“What I always emphasis is that it is all right that there is higher logistic cost in Ethiopia vis-à-vis competitors [in East Africa]. The main thing is, if we can reduce our cost elsewhere, then the Total Cost (TC) will be smaller. And this is key [to the competition],” he emphasized.

On the forum, discussions were also held on the trade cooperation between the two countries, ways to strengthening cooperation between bilateral companies and generating new business opportunities. The other issues of discussion were the Ethiopian investment environment, Ethiopian road project plan, desirable business field in Ethiopian industry, the Ethiopian railway project development plan, and plans for building single-window customs at the Ethiopia Revenue and Customs Authority.

Source: http://allafrica.com/stories/201512111299.html

Areda Batu
Author: Areda Batu

Areda Batu is a consultant, entrepreneur, Lecturer and researcher on textile and garment sector. He is a founder of this portal. He is also a co-founder of Infinity Consulting PLC.

About The Author

Areda Batu is a consultant, entrepreneur, Lecturer and researcher on textile and garment sector. He is a founder of this portal. He is also a co-founder of Infinity Consulting PLC.

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