TPP demise helps propel fabric mills to Ethiopia
Textile investment is pouring into Ethiopia, helped by the shared vision of brands, manufacturers and fabric mills, government support, preferential trade deals, investments in infrastructure, low costs – and an unexpected windfall from the end of the Trans-Pacific Partnership (TPP).
Ethiopia's vision is to create a fully integrated vertical supply chain from the ground up, from garment factories to fabric mills, accessories producers, spinning mills and all the way back to high quality cotton plantation.
And it's an approach designed to bring multiple benefits.
First and foremost, it is seen as key to the sector's long-term prospects. An industry based on sewing factories alone is likely to be fickle, with buyers and suppliers upping sticks to the next low-cost destination as they chase cheaper and cheaper products around the globe. It is also likely to be slow and inflexible, hampered by longer lead-times as materials and inputs have to be imported.
But an industry where all of the input materials are locally produced is likely to stay put and remain viable into the future. Verticalisation creates value, it creates more jobs, it improves competitiveness – and above all it gives companies an edge when it comes to being fast and flexible.
Price is no longer the driver of strategic sourcing decisions; the retail imperative in this day and age is speed to market. That's the one thing that brings a competitive advantage to any supply chain.
Garment manufacturers are already setting up bases in Ethiopia, drawn by the country's emerging industrial parks model where facilities are built to international building, fire and electrical safety standards, with a focus on sustainability, industry-specific facilities, located along key economic corridors and with easy reach of large pools of labour and education and training schools.
The model also gives priority to high profile brands and retailers – currently led by H&M and PVH, owner of the Calvin Klein and Tommy Hilfiger labels – who then attract their own best-in-class suppliers into manufacturing clusters.
But the next wave of investment already has some of the world's largest textile mills waiting in the wings.
"The top ten largest mills in China are considering investing in Ethiopia," says Dr Arkebe Oqubay, a minister and special advisor to the Prime Minister, who is credited with driving the industry's textile and clothing growth strategy.
"All will use tremendous amounts of electricity, and we're prepared for this," Dr Belachew Fikre, deputy commissioner of the Ethiopian Investment Commission, tells just-style.
The price of electricity in Ethiopia just US$0.03 per kwh, putting it among the lowest in the world. The country is also the second largest electricity producer in sub-Saharan Africa, with a focus on renewable power generation from hydroelectric, wind and geothermal sources.
Two projects underway, including the Grand Ethiopian Renaissance Dam (GERD), will more than triple Ethiopia's current generating capacity, and rank among the world's biggest hydropower plants.
For investors, favourable benefits to attract clothing and textile companies looking to relocate their manufacturing bases to Ethiopia include duty-free imports of machinery, spare parts and raw materials; along with zero tax on exports and exemptions from income tax for up to ten years.
But perhaps the biggest pull for textile mills has been the demise of the Trans-Pacific Partnership free trade agreement between the US and 11 Pacific Rim countries including Vietnam. The pact would have given duty-free benefits on exports to the US if all steps of production (including yarn and fabric) were carried in the TPP region – and has been responsible for a flow of textile investment from China, Korea and Taiwan into Vietnam.
But Dr Belachew says the US decision to withdraw from the TPP earlier this year has been the "game-changer" driving investment into Ethiopia instead.
Ethiopia enjoys duty-free exports to the US through AGOA (the African Growth and Opportunity Act), with the general qualifying rules of origin requiring apparel to be made from either US yarns and fabrics – or regional sub-Saharan African yarns and fabrics.
Investments so far
At the flagship Hawassa Industrial Park, the largest facility by far has been taken by Chinese company Wuxi Jinmao. It already has factories in China, Bangladesh, Cambodia and Vietnam, with customers including PVH, Gap, JC Penney, Target, VF Corp, Next and Mark &Spencer – and through its subsidiary JP (Ethiopia) Textile Company is the first fabric mill in the park.
Its initial investment of over $18m to set up its cotton shirt fabric operation will be followed in 2019 with a further injection of US$22m to expand the fabric mill and build a new garment factory. Total capacity will grow from 11m yards in 2017 to 26m yards in 2019, with 2,500 to 3,000 employees – and exports of US$60m targeted by the end of 2019.
The scale and scope of its operation is breathtaking. The company has so far imported 167 40ft containers of state-of-the-art machinery into its 40,000 square metre facility at Hawassa, including 120 weaving machines (set to double to 244 next year). The initial phase is focused on yarn-dyed product, but piece-dye and printed fabrics will be in the future phase. Yarns will be imported, and dyed, woven and finished on site, with the final fabrics delivered to garment manufacturers based in the park.
Phase II of the flagship Hawassa Industrial Park gets underway in July, and will be ready for the next tranche of investors by the middle of next year, with the main focus on attracting more fabric mills.
New investors include China's Huafang Group, which is spending around $0.5bn to develop an integrated cotton textile hub on almost 50 hectares of land; and Taiwan's Everest Textile, which will establish a synthetic fabric mill alongside its garment facilities in Phase I.
Everest, which has an annual turnover of more than $256m and more than 3500 employees in Taiwan, Thailand and China, operates a vertically integrated production line from yarn, weaving, knitting, dyeing and processing, to garment making. Customers include Nike, The North Face, Columbia, Lululemon Athletica, Decathlon, Patagonia, Gap, Ralph Lauren, Eddie Bauer and Under Armour.
The company says it expects to invest more than $8m in the next five years, to create more than 8,000 jobs and generated a total production and export turnover of more than $120m.
Waiting in the wings
Separately, at the Adama Industrial Park, wool textile and garment specialist Jiangsu Sunshine Group is investing close to US$980m on an 80 hectare site where it will produce the whole chain from fibre to suits.
China's Kingdom Holdings, one of the world's largest linen manufacturers, is also taking a 30 hectare plot at Adama.
And South Korea's Youngone Corporation is looking to take 60 hectares in Adama to add to the 11,000 sq m garment shed it has at the Bole Lemi Industrial Park near the capital Addis Ababa.
While at the Dire Dawa Industrial Park, China's Shandong Ruyi is initially looking at 100 hectares to set up a cotton mill – but also wants up to 500,000 hectares on which it can plant cotton.
Dr Belachew says 200,000 hectares of land has also been allocated for a cotton joint venture in Shinile, one of three districts in Sitti Zone in Somali Regional State, which lies in east and southeast Ethiopia. The State is the second-largest prospective cotton growing region in Ethiopia, and taking production all the way back to the cotton fields completes the final piece of the jigsaw towards a vertical textile and apparel industry in the country.