Ethiopia-A potential and viable destination for textile industrial investment

By+Shen+Da

As one of the most important visits of China Textile Go Global Union， an investigation team from China led by Sun Ruizhe， President of China Textile and Apparel Council， are going to Ethiopia from June 5 to 9， 2017， to make a survey of international resource allocation. Cooperating with China Dyeing and Printing Association， they mainly investigate the survival environment of dyeing and printing enterprises in Ethiopia， so as to collect information and build bridge for Chinese textile enterprises to invest in hot land of Africa.

In recent years， Ethiopia has gradually become Chinas largest partner in Africa， by virtue of its unique advantages. In spite of the sluggish economic situation in the world， the trade cooperation of China-Ethiopia is still expected to continue to increase.

General situation of Ethiopia

Ethiopia is located at the centre of the world with easy access to international value chains， and has access to a state-of-the-art container port （Djibouti）. Ethiopia has showed various investment advantages for textile enterprises. As the oldest independent country in Africa， it is the most stable country in the region. The 2012 peaceful transition of power to a new Prime Minister has proven the stability of Ethiopias multi-party political system and parliamentarian form of government. Its also most known for its social stability and least crime rate， as well as strong public institutions and reliable police service.

Apart from the stable political situation， economy also has entered the fast lane of development. Ethiopia is raked higher than its regional peers for its conducive macroeconomic environment. Also， Ethiopia is a member of the Multilateral Investment Guarantee Agency（MIGA）， a World Bank affiliate which issues guarantee against non-commercial risks in signatory countries， and of the World Intellectual Property Organization （WIPO）. Ethiopia has grown at an average rate of 10% since 2010. In 2012， Ethiopia was the 12th fastest growing economy in the world. For the export， it also showed a good performance. The Ethiopian garment and apparel industry has grown an average of 51% over the last 6 years， with the UK accounting for 10% of Ethiopias textile and garment exports， and the United States for 40%， and other countries for 50%.

Nowadays， labor cost has become a heavy burden to restrict fast and healthy development for enterprises in China. While， Ethiopia has the second largest labour force in Africa with the number of over 50 million workers. The abundant available workforce at very competitive costs is the most competitive in Ethiopia. Wages in Ethiopia are a fifth of Chinas and half of Vietnams. Generally， private sector monthly salaries for university graduates range from USD 150 to USD 200， while construction sector monthly wages range from USD 60 for daily laborers to USD 300 for a foreman.

Why invest in Ethiopia？

The stable political situation， healthy economy and abundant labor force have made a strong foundation for Ethiopia to develop well and fast. Although the industrialization process just started， the government of Ethiopia paid more attention and published lots of preferential policies to support the development of textile industry.

Ethiopia has concluded over 30 bilateral investment promotion and protection agreements， of which 11 are with individual European Union Member States. Signifi- cant other partners include China， India， South Africa， and Russia， and a number of regional economic partners（Israel， Egypt， and Sudan， among others）. So Ethiopia enjoys preferential access to key markets like China， Australia， India， Japan， New Zealand， Canada， Norway， Switzerland， Russia， the Republic of Korea， and Turkey. Ethiopian products have duty-free， quota-free access to the U.S. and EU markets under the African Growth and Opportunities Act （AGOA） and the Everything But Arms （EBA） initiative， respectively. For a more stable and healthy economy， the Government has brought down inflation to single digits， through a coordinated， prudent fiscal policy and a tight monetary policy， combined with a slowdown in global commodity prices. Also， a foreign investor has the right to make remittances out of Ethiopia in convertible foreign currency at the prevailing rate of exchange.

Addis Ababa has emerged as a regional hub and is home to key international organizations such as the African Union （AU） and the United Nations Economic Commission for Africa. Addis Ababa is also the main air hub for Africa and the home of Ethiopian Airlines， which has won repeated recognition as the best airline in Africa. Ethiopian Airlines offers flights to 94 international passenger destinations （52 in Africa， 17 in Europe and America and 25 in the Middle East and Asia）， 19 domestic passenger destinations， and 35 cargo destinations （21 in Africa， 11 in the Gulf， Middle East and Asia， and 3 in Europe）. It carries two thirds of Africas air freight. In addition， a 5，000 km-long railway network is currently under construction. While the first priority is to join Addis Ababa to Djiboutis main port， the network is expected to reach every corner of the country. As part of this big project， a 34 km Addis Ababa light rail is fully operational while a new 756 km Addis AbabaDjibouti electrified railway route is well completed in 2016 - making access to port Djibouti much easier. Other standard gauge networks are in pipeline. As a significant portion of Ethiopias import/export trade passes through port Djibouti， the rail way construction is a huge efficiency enhancer for producers and traders.

There is also abundant hydro-energy resource in Ethiopia. Power production has increased steadily over the last ten years， with 99% sourced from clean energy in the form of hydropower. Ethiopia has the second largest hydropower potential in Africa， and the countrys installed electricity generating capacity is expected to reach 10，000 MW by mid-2015. The Grand Ethiopian Renaissance Dam – the largest hydroelectric power dam in Africa being built on the Nile river - is expected to generate 6，000MW electricity. This coupled with Gilgelgibe III （1，870MW） and Genale-Dawa III （254MW） and other wind power projects will make Ethiopia a regional power house. It has the cheapest electricity rate in Africa and the whole world – US$0.04/kWh.

At present， over 65 textile investment projects from international investors have been licensed in Ethiopia since 1992， with retailers such as H&M and Primark already sourcing clothing from Ethiopia.

Although there are so many investment advantages， Ethiopia has a long way to advance in the process of industrialization. In the face of opportunities and challenges， the investigation team will further understand the current situation of Ethiopia and analyze the investment environment， so as to provide theoretical support， policy guidance and practical experience for Chinese textile enterprises. Nowadays， Ethiopia has opened the industrialization process in a good order， which will be the preferred country for Chinese textile enterprises to carry out capacity layout.