Addis Standard (Addis Ababa)

19 May 2014

Ethiopia: Dazzling Headlines, Biting Reality

Over the last six months news coming out of Ethiopia both by the local and international media is awash with tales of international giants heading to Ethiopia to establish either their own production plants or looking for sourcing. From Uniliver to H&M, to Tesco, Walmart and Primark, and many more companies from China and Turkey have added to dazzling headlines of a heaven-like Ethiopia for investment. Companies looking into textile and garment production and sourcing top the news.

In April last year the Swedish giant clothing retailer H&M announced it was looking at Ethiopia as a new place to have its fashions made; in March this year, Britain's Tesco, the world's third largest retailer, said it wanted a promising industry that upholds high ethical standards as it looks into sourcing clothes from Ethiopia; and in the end of March this year Akber, a Turkish textile manufacturing firm, said it was set to construct the biggest textile plant worth US$ 175 million in Ethiopia.

Akber is not the only Turkey-based textile company to have business interest in Ethiopia. In January this year, MNS Manufacturing P.L.C, another Turkish textile company, entered the Ethiopian market with an investment of more than US$ 60 million and has already begun producing carpets, towels, polyester, and home textiles, according to the Ethiopian Textile Industry Development Institute (ETIDI).

Several Turkish textile companies have planned to make a massive relocation to Ethiopia after Ayka Addis Textile and Investment Group's request of establishing a special Industry Zone was granted a green light by the authorities in Ethiopia in 2013. Ethiopia's Ministry of Industry expects the relocation of these Turkish companies to create US$ 2 billion per annum in revenue and more than 60,000 job opportunities for Ethiopians.

Not as dazzling as the headlines The government in Ethiopia gave priority to the textile and garment industries on its ambitious five-year Growth and Transformation Plan (GTP), which will come to an end in just one year time. The GTP plans to raise the gross value production of the textile and garment sector to US$2.5 billion by the end of the plan in 2015. It also says the country will earn US$1 billion in foreign exchange from the sector by the end of 2015 fiscal year.

"Fifteen giant foreign companies have showed interest to invest in the sector", said Ahmed Abetew, Minister of Industry, during a meeting with the local media held in the beginning of March. "When all these [companies] start operations, US$1 billion is not that much."

However, figures obtained from his ministry revealed that the government was able to secure only US$320.8 million from the sector in the last four years. According to the latest figure from ETIDI the country has exported a mere US$ 84 million worth of textiles and apparel during the first nine months of the ongoing fiscal year that began on July 8, 2013. ETIDI says the figure shows an increase by $9.8 million than the amount earned during the corresponding period of the previous fiscal year. In his report to the Industry Affairs Standing Committee of the House of People's Representatives (HPR) in October last year ETIDI director general Sileshi Lemma said that although ETIDI had planned to export US$ 113 million worth of textiles during the 2012/13 fiscal year, it could only export textiles valued at US$ 101 million. The director general admitted the deficit was attributed mainly to delays in the commencement of new projects.

But there is more to Sileshi's candid admittance than meet the eye. A visit to one of the textile companies, ELSE Addis Industrial Development Plc, located in Adama town, 90km east of Addis Abeba, reveals the challenges common to many other textile companies investing in Ethiopia. "One of the problems we are facing is shortage of cotton," ELSE's Manager Nevzat Kerim Aydin, told visiting journalists in the end of February this year. "We get less in quantity and quality."

ELSE came to Ethiopia in 2009. Headquartered in Istanbul it owns similar factories in Germany, Bulgaria and Uzbekistan but its investment in Ethiopia is the first and only in Africa. "We came to Ethiopia because we want to find different area for investment and to have an ability to compete with other textile producers in the world," Aydin said.

The factory is located on a spacious 46,000sqm of land and is producing yarn and fabric. It has a current monthly capacity of spinning 500 tones, weaving 750,000 meters and knitting 100 tones, and claims to have had invested US$150 million during the first phase of investment, which only saw half of its production exported. Shortage of raw material forced ELSE to establish its own cotton farming and ginning factory. Although the cotton farming is in its early stage, the ginning factory has already started processing 450 tons of cotton every month. ELSE has already received 10, 000hct of land in Korcho area of the Omo Valley in southwest Ethiopia and plans to invest US$150 -US$250 million in the cotton farming, something it was not prepared for when entering the business in Ethiopia. This has forced it to miss its business targets - it had originally planned to triple the weaving and spinning capacity this year, but getting into the new business of farming and ginning means it is unable to keep up with its original plans.

In a sharp contrast to the reality, a brochure by the Ministry of Industry claims "wide availability of raw cotton and other natural fibers" as well as "cheap, skilled and highly-motivated workforce." For what it's worth the truth about the sector is beginning to sink in.

Minister Ahmed admitted that there were multiple impediments facing the sector; chief among all scarcity of raw material and skilled manpower. In an attempt to address the former, the government in Ethiopia is encouraging and helping farmers in different parts of the country to sow genetically modified (GM) cotton seeds during the coming major rainy season starting from June, according to a report by Thomson Reuters Foundation released in January this year.

Last year the Parliament in Ethiopia gave green lights for importation of genetically modified organisms (GMOs) once an approval for bio-safety is secured from the Environment Ministry. But it is not clear if imported GM cotton seeds will be available widely as of the coming June. Meanwhile, the government in Ethiopia continued lobbying for more textile companies to come and invest in the country. In January this year, the newly appointed President Dr. Mulatu Teshome has invited Chinese textile companies to come and invest in Ethiopia. His plea created the usual dazzling headline amongst Chinese media. In reality though, nothing has changed between now and January, and perhaps in the immediate future, too. Cover Photo caption: Ginning, which was not part of the plan, is now part of the work at ELSE Addis Industrial Development Plc

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