Profile of the Textile Industry in Ethiopia

1.     Major Features of the Textile Sector

1.1 Output and Products

Ethiopia's textile manufacturing industry embraces both medium and large public and private enterprises. Their main activities include spinning, fabric formulation, dyeing, finishing and sewing.

The Ethiopian textile industry is the third largest manufacturing industry, only second to the food processing, beverage and leather industry. In the fiscal year 2000/01, with a total output value of 699.91 million birr (1USD=8.6 birr), the contribution of textile industry to GDP was 1.35% and 8.31% to the output value of the manufacturing industry.

The Ethiopian textile sector mainly produces 100% cotton textiles. Each enterprise produces one product range, such as cotton yarn, cotton fabrics, bed sheets, blanket, knitwear etc. All the cotton yarn in the Ethiopian market is supplied to the local handlooms. It is estimated that the annual hand-loomed fabric is around 95 million square meters. The output of major items in the textile sector are shown in the following table.

 

S.No.	Product Item	Unit	Output
1	Cotton fabric	1000m2	49,925
2	Nylon fabric	1000 m2	1,310
3	Acrylic fiber yarn	ton	411
4	Cotton Yarn	ton	5,726
5	Blanket (wool)	1000 m2	3, 095
6	Blanket (cotton waste)	piece	90, 311
7	Bed Sheet	Piece	1,778
8	Carpet	m2	4,779
9	Gunny Sack	ton	5, 981
10	Sewing thread	Ton	7
11	Embroider thread	Ton	50
12	Jano thread	Ton	7

Output of major textile products in fiscal year 2000/01

1.2. Supply of raw material and accessories

Out of the raw materials used by textile enterprises, cotton is widely grown in Ethiopia and it is easily available from local suppliers. Other materials including chemical fiber, wool, dyestuffs and chemicals as well as a small share of lint depend on imports.

1.3. Export Market

Data from Ethiopian Export Promotion Agency show that the fiscal year 2000/01 witnessed apparent increase over the previous year both in the variety and quantity of textile export. Variety increased from 6 kinds, mainly cotton yarn and bleach cloth made from pure cotton, to over 20 kinds including gray cloth pure cotton, bleach cloth, knitwear, bedding products etc. Among them, gray cloth made from pure cotton is the major export item, roughly contributing to 2/3 of the total export quantity.

Ethiopia's textile export is mainly targeted at European and African markets. In Europe, the export destinations for Ethiopian textiles are Italy, Sweden, Belgium etc. African major export destinations are Djibouti, Kenya, Swaziland etc.

1.4. Ownership and geographical distribution of textile enterprises

Due to the reform undertaken by the Ethiopian government in recent years, such as privatization and the favorable conditions for the inflow of foreign and domestic private investment into the textile sector, ownership of the industry has diversified. Various type of ownership, such as public enterprises, privately owned enterprises, shareholding corporation, partnership enterprise and individual enterprises etc have come into being and developed.

Broadly classifying the enterprises into public and private, there are currently 19 public and 16 private enterprises which makes a total of 35 enterprises. Most public enterprises are large scale, playing leading roles, as evidenced by the number of enterprises and employees, total output values, income from sales etc.

Most textile enterprises are situated in  densely populated large or medium cities. Out of the total 35 textile enterprises in Ethiopia, 18 are in Addis Ababa, the capital city. Textile enterprises located in Amhara and Southern (S.N.N.P) regions are 6 and 5 respectively.

1.5.  Marketing System of textile products

Products such as yarn, fabric and blanket made by Ethiopian textile enterprises are usually distributed by private trading companies to the local market. The export of the product is mainly handled by the enterprises themselves.

Imported textile hold a large market share in Ethiopian market and nearly one thousand small-scale family-owned trading firms and a small number of large trading companies are engaged in the import business of textile.

2. Favorable Conditions for the Development of the Textile Sector in           Ethiopia

2.1. Abundant Cotton Resources

Ethiopia covers an area of 1.1036 million square kilometers and boasts vast fertile land, rich geographical and weather conditions, and abundant water resources. Domestic cotton production has already developed to a certain scale and for a long time it has made major contribution to satisfying the requirement of fiber by the textile sub-sector. Ethiopia has a large area of irrigated farmland which is very suitable for planting cotton. There is also great potential for further expanding the cultivation and increase the current yield.

2.2. Abundant cheap labor resource

With a population of more than 70 million, and with cheap cost of labor, Ethiopia can provide sufficient labor force with cost-competitiveness for the development of labor intensive textile sub-sector. The cost of labour in the Ethiopian textile sector is not only lower than some Asian nations with developed textile sector, such as China, India, Pakistan but also than some African countries such as Tunisia, Mauritius, Kenya, etc.

2.3. Support through policy and incentives

Ethiopia identifies textile as the key industry to the development of industrialization as well as the exploitation of local resources to promote export in accordance with the policy of ¡° Agriculture Development led Industrialization (ADLI).¡± The long-term strategy of the Ethiopian government is not only to develop the textile and garment industry and expand shares in domestic market, but also to develop a competitive, profitable industry in the export market.

The Ethiopian government has been steadily pushing towards market-oriented reform by means of developing the private sector, deregulating rigid control over the economy, liberalizing foreign exchange, lowering tariff rate, etc. Given that export promotion is of paramount importance, the government has issued a series of export incentives. All in all, in terms of macro economic policy, the Ethiopian government has created an enabling environment for the development of textile sub-sector.

2.3.1. Investment policy and incentives

According to the newly revised investment policy, the minimum capital required for foreign investors has been lowered, creating a conducive investment environment.

-          The minimum capital requirement for foreign investors on a single investment project has been reduced to 100, 000 USD from 500, 000 USD for solely invested projects and for joint venture it has been lowered to 60, 000USD from 300,000USD.

In addition, a series of investment incentives have been put in place, such as:

-          Remittance of foreign currency of profit and dividends from investment

-          Exemption from income tax from 1-5 years etc.

In order to promote export, various flexible taxation encouragement measures have been undertaken such as export tax refund, tax coupon and bonded warehouse. Simplified procedures have greatly shortened customs clearance time.

The Ministry of Trade and Industry has launched textiles and garment export forum to attract domestic textile and garment exporters into the discussion of issues and future development for textile and garment sector in order to promote the export of textiles and garments.

 

2.4. Increased Domestic Demand

Ethiopia has a large territory with a large population. The growth rate of the population is 2.7%, creating a large potential market.

According to the country¡¯s economic development programme, the average growth rate of GDP in the coming years will reach around 7%. As a result of the development of economy and the progress in reduction of poverty as well as the improvement of people¡¯s living standards, it is believed that not only the present market demand would increase, but also a new market demand will arise. Currently the Ethiopian per capita fiber consumption is roughly 1kg, which is far below the world's average level of 8.7kg and Africa average level of 3.2 kg. It is estimated that domestic fiber demand will increase at an annual rate of 5% and the large and continuously increasing domestic market will fuel the development of the textile sector.

2.5. Easy access to international market

In the latter half of the 20^th century, the consumption of fiber products all over the world has increased five times, while the world population has increased only 1.4 times.  The improved living standards quality of human beings has created 2/3 of the increase in fiber production. In recent years, along with the revival of world economy, particularly the economic growth of U.S.A, Europe and Japan, the market demand has increased. In 2000, import volume of textiles in the world amounted to US $167.13 billion. The United States and EU were the two largest textile importers,  occupying 39.2% of the world¡¯s textile import value.

2.5.1. Africa Growth Opportunity Act (AGOA)

In May 2000, the United States approved Africa Growth Opportunity Act (AGOA) to give sub-Sahara region of Africa, specifically 48 countries, special preferential trade policy. In August 2001, Ethiopia was entitled AGOA qualifications and is one of the 18 beneficiary countries which can export textiles and garments to the United States free of duty and without quota restrictions.

2.5.2. "Everything but Arms" of the European Union

The European Union (EU) has given preferential trade policy to the Lesser Developed Beneficiary Countries (LDBC) including Ethiopia. Accordingly, Ethiopia is a beneficiary of Everything but Arms initiative of the EU in which all Ethiopian export products except arms can enter the EU market free of duty and without quota restrictions.

2.5.3. Common Market for Eastern and Southern Africa (COMESA)

Ethiopia is a member of the Common Market for Eastern and Southern Africa (COMESA) agreement embracing 20 countries in Eastern and Southern Africa with a population of approximately 353 million. Exports and imports with member countries enjoy preferential tariff rates.

2.5. 4. Bilateral Agreement

Ethiopia has signed bilateral trade agreements with 16 nations such as Russia, Turkey, Yemen etc which provide legal framework for enjoying most-favoured-nation treatment and removing tariff barriers. According to Generalized System of Preference (GSP), most of the products made in Ethiopia enjoy tariff treatment in the United States, Canada, Switzerland, Norway, Sweden, Finland, Austria, Japan and the majority of EU member nations.

3. Project Proposals for Cooperation/Partnership

The government of Ethiopia invites companies to participate in the investment of Ethiopia's textile industry. Foreign companies can participate in this industry in the following three forms:

1.        By setting up wholly-owned (sole) enterprises by themselves.

2.        By setting up enterprises in joint venture with Ethiopian companies. In this connection, there are project proposals of some Ethiopian private companies engaged in textile and garment sectors seeking foreign partners.

The private sector project proposals are listed below and are available at the Ethiopian Embassy in Beijing.

Name of Project                                                Name of the Company

2.1. Production of ready made suits                  Ambassador Garment &Trade Plc

2.2 Production of ready made shirts                  GBD Plc

2.3 Blanket Manufacturing                                KK Plc

2.4 Surgical Dressing and antiseptic

     materials manufacturing                               Asmi Industry Plc

2.5. Manufacture of Apparel, uniforms

       and textile items                                         Spectrum Business Group

3.        By establishing cooperation with Ethiopian public enterprises. These enterprises, which are in the process of privatization by the government, have their own future prospects and plans. Some wish to expand their enterprises by installing new and modern machinery and equipment, some would like to develop their human resources through training. Some would like to study new market opportunities, etc. Therefore, there are various ways of cooperation with these enterprises, which may require discussion with specific enterprises. However, there are three forms of cooperation which applies to all enterprises which Chinese companies can participate. These are:

a)       Joint venture

b)       wholesale ownership

c)       Contract Management

 

In this connection, we have listed below Ethiopian public enterprises engaged in the textile and garment sectors who are seeking foreign partners. The profiles of these enterprises are available with the Ethiopian embassy in Beijing.

3.1. Ethio-Japanese Synthetic Textile Share Co.

3.2. Bahir Dar Textile Share Co.

3.3. Kombolcha Textile Share Co.

3.4. Awassa Textile Factory

3.5. Arbaminch Textile Share Co.

3.6 Dire Dawa Textile Factory

3.7. Debre Berhan Blanket Factory

3.8. Ediget Yarn and Sewing Thread Factory

3.9. Adei Ababa Yarn Share Co.

3.10. Akaki Garment Share Co.

3.11. Addis Garment Share Co

3.12. Gulele Garment Factory

 

Companies who are interested to invest in Ethiopia in the textile sector either by themselves or in joint venture with both public and private enterprises can contact the Ethiopian embassy in Beijing. The Embassy would be pleased to provide available project proposals and profiles to interested companies. The address of the embassy is provided in the inside back cover of this bulletin.