Ethiopia's stride towards industrialization: Textile and Leather in the front line
By Sani Mohammed
Tigrai Onlne - June 19, 2014
Ethiopia's laudable pace towards industrialization has been commended by several internationally renowned scholars and institutions.
Just last month, the Wall Street Journal declared in its analysis piece that last month declaring Made in Ethiopia will be the next Made in China. Same month, a report from a prominent international think-tank announced: "Expect to see "Made in Ethiopia” emerging more and more over the coming years".
Few months ago, Stratfor's report identified Ethiopia among “the 16 countries best suited to succeed China as the world’s low-cost, export-oriented economy hub” and “strictly successors to China as low wage, underdeveloped countries with opportunities to grow their manufacturing sectors dramatically”.
All these are a direct re-confirmation of the 2002/2003 Industrial Policy and Strategy of Ethiopia that aimed to attain restructuring, diversification and technological dynamism by mobilizing the drivers of growth through five main interlinked directions. That is: Focusing on the agricultural-led, export-led and labor-intensive industrialization process with the active engagement of the private sector in the industry sector development and the state playing the guiding role.
One of the primary responsibilities of the government clearly pointed out in the Industrial Policy and Strategy is creating conducive environment for industrialization. That includes: Stable macro-economic environment, Development of conducive financial system; Reliable infrastructure provision; Trained manpower; Effective & efficient administrative/governance structure and Efficient judicial system.
In line with this, the Industrial Policy and Strategy identified subsectors for Promotion: Textiles and garment industries; Meat, leather and leather products industries; Agro-processing industries; Construction industries; and Small and Micro Enterprises.
The Textiles and Garments subsector is one of the best demonstrations of the industrialization stride and the success of the policy as it became to receive substantial interest from key global textile companies.
Even if the textiles sector have a rich history in Ethiopia stretching back thousands of years, its industrial scale production dates back less than a century, and until a decade ago it remained highly uncompetitive and limited to a small portion of the domestic market.
Following the launch of the Growth and Transformation Plan, however, the sector started to undergo fundamental structural change and now set to make Ethiopia an important hub for the industry. In sharp contrast to its lukewarm performance a decade ago, the industry is now showing promising export revenue, of nearly US$100 million.
This year the textiles and garments registered a 13.1% growth in export revenue.
This recent high flying performance of the textile and garment sector is a result of continuous improvement in the production capabilities of domestic textile, garment, knitting and weaving firms; more importantly, there has also been the performance of foreign firms which have recently entered the industry. The government’s efforts to attract foreign investment into the sector have been successful not only in establishing a first round of established international textile and garment firms but also providing a strong demonstration effect, placing the country as an emerging textile powerhouse on the global industry map. There are a number of reasons to explain the choice of Ethiopia as an investment destination for international textile and garment companies, but the most relevant are its comparative advantages in terms of production factors and the policies put in place by the Ethiopian government.
One of the showcases of the textile sectors progress is the recent announcement of Ayka Addis Textile & Investment Group, a subsidiary of Istanbul-based Ayka Textile, its plan to invest one billion Ethiopian birr (31 million pounds) in an expansion of its current RMG production unit in Alem Gena, 19 kilometers away from Addis Ababa. The expansion will create an additional 13,000 jobs, thus tripling employment, and take production capacity up to 100 percent. The company is also expecting exports to triple to 150 million US dollars in 2015 from which was 56 million US dollars in 2012/13.
Another example is the decision of the textile industry giant Tesco and H&M to start producing in Ethiopia. Last year, the clothing megabrand H&M announced it was looking to source clothes from Ethiopia. H&M plans to source a million garments a month from Ethiopia. Immediately, it started training of employees and became engaged in working hour management, quality of products, and growth in productivity, as well as environmental protection".
One analyst remarked on the matter:
For the Ethiopian government, this is vindication of a concerted policy to grow the country’s garment manufacturing sector, which it has identified as a key source of growth, setting ambitious targets.
In general, the growing demand for Ethiopian textiles and garments in Western markets can be seen in the fact that more than 45 percent of the national production is exported to Germany. Moreover, according to the Ethiopian Textile Industries Development Institute (ETIDI), thirteen new additional factories with a combined production capacity of 100 tons a day are expected to start production until 2014/15.
Another area of major progress is the Leather and leather products subsector which registered 16.9 percent growth in export revenue in the first six months of the current fiscal year compared to the same period the previous year.
Even if Ethiopia possesses the largest livestock herd in Africa, and the 10th largest in the world and it annually produces 2.7 million hides, 8.1 million sheepskins and 7.5 million goatskins, the sector underperformed for centuries. Therefore, despite the leather industry's potential to become a world class supplier of high quality finished leather and leather products, including shoes, garments, gloves and accessories, little achieved for long.
Recently, that has started to change.
The main leather-related export item of Ethiopia is, however, low value-added hides and skins. The Government of Ethiopia has been promoting to shift the major export items from the low value-added hides/skins to high value-added finished leather. The leather industry has been one of the major traditional industries together with the coffee and garment industries, but it is now at a turning point to change itself from a traditional industry to a modern industry to penetrate the international high value-added leather market, under the strong initiative of the government.
The government of Ethiopia has made the leather and leather products value chain among the top four priority industries in the country due to its strong backward linkages to the rural economy aiding in the alleviation of poverty and its potential for increasing exports and hence the flow of foreign currency into the economy.
The leather footwear industry is considered at important sub-sector that leads the whole sector’s modernization. Although the export of leather footwear started only in 2005, the export value has been growing steadily since then and is expected to make a big impact on the Ethiopian economy.
The importance of the leather footwear industry as a part of the leather industry has been emphasized by the GOE at various levels. In the PASDEP (Plan for Accelerated and Sustained Development to End Poverty), the leather industry was mentioned as an important sector for trade and industry development.
The development of the leather industry is in line with the Agricultural Development Led Industrialization (ADLI), which is the basic development strategy of the country, in that the promotion of high value-added leather products is going to encourage the process of the industrialization of agriculture.
In the five-year Growth and Transformation Plan (2011-2015), the Government has made the footwear industry one of its focus areas, since it is one of the most labor-intensive industries, providing ample employment opportunities, a key to successful industrial development.
As a result, Ethiopian leather products are now being exported in large volumes to markets in Europe, especially Italy and the UK, America, Canada, China, Japan and other Far Eastern countries, the Middle East and other African countries including Nigeria and Uganda. In just one year, Ethiopia’s shoe exports under AGOA rose from US $630,000 in 2011 to nearly US $7 million in 2012. Ethiopia is indeed making a name for itself in the world of mass-produced footwear.
Moreover, foreign investors are now showing increased interest in Ethiopia’s potential. Ethiopia has recently become an increasingly important destination for international buyers looking for high-end shoes, because of its fine leather products and a strong commitment to quality. The footwear industry in Ethiopia is thriving. There have been a growing number of new and innovative enterprises, as well as expansion of existing companies, improving the quality of their products and developing new marketing systems. In the face of fierce competition Ethiopian entrepreneurs have been introducing new ideas for product design, production methods, labor management, procurement, and marketing.
Foreign Direct Investment was increasingly attracted due to government policies. Besides the excise breaks, tax holidays and cheap land rental offered to investors in certain preferred sectors make Ethiopia attractive. Ethiopia‘s has the added advantage of a competitive and youthful workforce.
International retailers have been showing interest in opening new factories in Ethiopia or exporting footwear from Ethiopian leather factories such as Tikur Abay, Peacock, Anbessa and Ramsey. Huajian, a Chinese shoe maker, opened a factory in 2012 in Ethiopia employing over 3000 people and currently produces shoes for Guess, Tommy Hilfiger, Naturalizer, and other Western brands at its Dukem factory. Another shoe factory established in Bole Lemi Industrial Zone, the George Shoe Corporation, is now offering its first 10,000 pairs of shoes for the international market.
To make all these possible, the government have been working on the establishment of Industrial zones.
Let's take the Bole Lemi industrial zone. In that zone, some 20 foreign companies are setting up in the Bole Lemi industrial zone on the outskirts of Addis Ababa, which on completion will be the first of its kind constructed by the government.
According to the Ministry of Industry, around 20 foreign companies have secured factories at the site. The initial phase has seen the government develop some 156 hectares of land, out of which five companies have already started to install machinery on a 38 hectare portion.
The Taiwanese George Shoe Corporation Private Limited Company, best known as the George Gloria Group, is a large Chinese shoe manufacturer, poised to finalize installation of its factory in about two months’ time. It has leased two sheds on a site of approximately 16.6 hectares. The Corporation said that shoe production will commence in May. He added that the company has devoted some 150 million birr as an initial investment. When the factory reaches full capacity it will employ around 1,000 regular workers, with 100 percent of goods to be exported to China and the US markets.
Other companies in the industrial zone include the South Korean K.E.I, the Indian Karli International and the Pakistani A.N.F garment factories, which are all working to install machinery at Bole Lemi. There are also five more the five companies to start full operation soon, creating 5,000 local employees will be offered job opportunities.
The development of the five sheds at Bole Lemi has already cost the government some 349 million birr, and the remaining 15 factories will require an additional 1.76 billion birr. For the second phase of the Bole Lemi development some 186 hectares of land is required, with the zone expected to be completed by next year.
The government plans to erect more industrial zones in the eastern and northern parts of the country, namely Dire Dawa industrial zone and Kombolcha industrial zone, Bole Lemi phase-II industrial zone, Kilinto industrial zones, are among the huge industrial zones which are now are now under feasibility studies.
Another area of progress is the Small and Micro Enterprises subsector. The performance in terms of job creation is well ahead of the GTP target for each year. About 700,000 jobs were created through micro and small enterprises (MSEs) and housing projects in the first year of the GTP, while more than 1.1 million jobs were generated in the year 2011/2012. In the second year of the GTP, about 1.7 million jobs had been created, among which 50% allotted for women. 343,000 graduates of Higher educations and technical and vocational institutions are planned to benefit from the new job opportunities.
The job creation continued at similar rate in the third year as well. Close to four million jobs were created across the country in total in the three years of the Growth & Transformation Plan period. The performance exceeded the target by over a million. The success was attributed to the expansion of micro & small enterprises (SMEs) and a number of on-going huge projects.
The Ministry of Urban Development & Construction (MoUDC) indicated that about one million of the jobs created during the reported period were temporary and it is striving to make the jobs sustainable. Town administrations have been facilitating loan service, land for manufacturing and marketing, and technical and vocational trainings for micro and small enterprises. The government has decided construction of infrastructure facilities be labour intensive in a bid to create more jobs.
Last but not least we shall note the efforts of the committed leadership to realize this industrial stride. The government has been efforting to speed up the process of license issuing and the provision of land for investors.
It is to be recalled that the "Growth with Depth: 2014 African Transformation Report" stated that:
"Since almost any serious transformation initiative would cut across several ministries and agencies close coordination is needed. This can be done only by an agent whose authority is accepted by other ministers and by the staff other ministries and agencies....... Even the United States, that great proponent of free markets, has the National Economic Council under the Office of the President.
But some countries are taking steps to improve coordination of economic policy and implementation in government. Notable examples are Ethiopia and Rwanda, where the heads of governments—the late Meles Zenawi in Ethiopia and Paul Kagame in Rwanda—play very active roles in economic policy coordination."
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(We will review the industrialization stride in other sub-sectors in subsequent parts, God willing)