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Why does Ethiopia attract textile and apparel investment?

Why does Ethiopia attract textile and apparel investment?

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The Ethiopian government wants to be the center of investment in Asian countries, especially in the textile and apparel sector. Ethiopia's goal is to obtain $30 billion in exports from the textile and apparel industry by 2030 and lay the foundation for further development of the strategic heavy industry, which will eventually make Ethiopia an industrialized country by 2025.

Ethiopia has nearly 175 textile units, which is still a low amount in terms of global perspectives. Therefore, the country is seeking foreign investment in this sector.

Many companies from China, India and other countries are investing in the country. According to data from the Ethiopian Investment Commission, 124 foreign investors have expressed an interest in the Ethiopian textile sector, 71 of which are from China. Indian clothing and textile industry is also a significant future player, with more than 30 investor inquiries.

In the first six months of the 2016-2017 fiscal year, Ethiopia attracted foreign investments of US$ 1.2 billion, compared with $1.5 billion in the same period a year earlier. One of the main investors’ Chinese conglomerates Jiangsu Sunshine Group, which deals in wool textiles and garments, has decided to invest close to US$ 1 billion in Ethiopia. It is building a major textile manufacturing hub in Ethiopia. Many other Chinese textile investors are choosing to relocate their textile operations to the East African country like Ethiopia. Because they need raw material base country and Ethiopia is a cotton-producing country. There is huge potential for expansion of cotton cultivation in Omo-Gibe, Wabi Shebelle, Baro Akobo, Blue Nile and Tekeze River basins in Ethiopia. This is part of its value chain relocation, in addition, companies are also using Africa as a gateway to emerging markets on the continent and to the European market.

According to the report, Ethiopia is one of the top performing African countries in FDI flow, registering a 46% increase in 2016, especially in textile sector, though FDI flows to Africa continued to decline.  The government of Ethiopia believes that textile would help the nation to join middle-income status in 2025. As the way forward, Ethiopian government has been building industrial parks at different cities of the country to enhance the textile investment and productivity of the country. One of the industrial parks, Kombolcha Industrial Park, inaugurated on 8th of July 2017. The construction works of the park took only about nine months.

Another reason for Ethiopia’s emergence on the textile and clothing sector is the opening of a railway line to a port in neighboring Djibouti, located on the Horn of Africa on the Gulf of Aden, which will speed the transport of goods from the landlocked country’s industrial areas.

As a whole, Ethiopia has been a very attractive destination for the investors because of the following reasons:

    Easy access to land with minimal lease period
    Strong export performance (the Ethiopian garment and apparel industry has grown an average of 51% over the last 6 years)
    Stable political climate
    Liberalized free market economy
    Conducive macroeconomic policies and stable foreign exchange regime
    Huge home market of 65 million people
    Access to 23 African countries through the Common Market for Eastern and Southern Africa
    Preferential treatment to the European market under the ACP-EU Lome Convention
    Duty-free access to the European Union (EU) and U.S. markets through the African Growth and Opportunity Act (AGOA).
    Abundant and inexpensive labor force ( Monthly pay for a factory labor: $50 to 60 in Ethiopia, compared with $140 to $160 in Kenya, $70 to $90 in Bangladesh, $150 to $170 in Vietnam and $400 to $500 in China.)
    Strategic location with proximity to the lucrative markets of the Middle East, Europe and Asia
    Potential to develop a competitive cotton or textiles industry due to good climatic and soil conditions together with cheap hydro-energy (textile factories pay between US$0.78 and US$0.002 per KW)

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