Ethiopia’s textile and garment industry is a leading provider of jobs in the country’s manufacturing sector
South Asian garment exporters with manufacturing units based in the war-ravaged Tigray region in the north of Ethiopia are hoping for an early revival of operations but warn that in the interim they are having to find alternative production centres to honour their supply commitments.
“We are making the products [that were to be supplied from Ethiopia] in our Indian factories,” Arul Saravanan, chief marketing officer of SCM Garments Pvt Ltd, in Tirupur, south India, told just-style. “We are also looking at other sources within Ethiopia to have the goods manufactured [by a third party] with the raw material supplied by us.”
According to Saravanan, despite the extra cost of shipping the fabric from India, the free on board (FOB) price of the garments remains the same in Ethiopia, because the Horn of Africa country has cheaper labour and tax concessions. One major advantage for locating production there are duty-free exports to the European Union through the Everything But Arms program (EBA), which saves 9.6% in costs that would be paid if clothes were made in India, he said.
SCM Knit Tex Plc, the Ethiopian arm of the Indian group, employs more than 1,300 people in Mek’ele (Mekelle), the capital of Tigray region, to manufacture T-shirts, leggings and underwear for two major labels in the US and Europe. According to the last information received by the company, its Tigray factory has not suffered any damage, being in an industrial park that has been protected by federal armed forces.
When Tigray rebels and Ethiopian armed forces clashed in Mek’ele during November, the company’s 18 locally-based Indian staff members escaped with less than a day of notice and the factory was shut overnight, Saravanan says. SCM, which operates 24 knitwear manufacturing units in Tirupur, had started Ethiopian operations in February 2018 after being persuaded to invest in building a unit by existing buyers.
“It was all new [for us] and without the background support [from the buyers], we would not have gone there,” he says. “Going into war and people being frightened was a very bad reality check for us because in India you would never have dreamt of these things.”
Meanwhile, Bangladesh knitwear giant the DBL Group has evacuated 103 of its Bangladeshi workers, flying them home from Ethiopia after they were trapped for 10 days in conflict-torn Tigray, where it also operates a factory, company officials say.
“All have returned home. They were evacuated to Addis Ababa on 14 November after violence erupted on 4 November,” MA Jabbar, the company’s managing director, told just-style.
In the meantime, the company is still operating its corporate office in the Ethiopian capital, where it is in communication with staff, and is conducting banking in the country, says Jabbar. “We’re keeping in touch with the ministries of industry and foreign affairs of Ethiopia,” he notes, adding that an Ethiopian army military camp has been installed near the factory, also in Mek’ele.
DBL set up the factory in 2018, seeking access to US markets through the African Growth & Opportunity Act (AGOA) and encouraged by orders from Sweden’s Hennes & Mauritz (H&M). Until the outbreak of the civil war, the factory employed roughly 2,000 workers, the majority being Ethiopians.
The escalating conflict centred around Ethiopia’s Tigray region near to the borders of Eritrea and Sudan comes as companies have been struggling to recover from the Covid-19 crisis.
Ethiopia’s textile and garment industry is a leading provider of jobs in the country’s manufacturing sector, with textile and garment factories in the country’s industrial parks employing 95,000 people at the start of the pandemic, with women accounting for 70% of these jobs. However, the collapse of international demand has hit the sector hard.
The UK and Germany recently set up a landmark US$6.5m fund aimed at saving thousands of jobs in Ethiopia’s textile and garment industry. Working in collaboration with the Ethiopian government, factories can apply for wage subsidies – similar to the furlough schemes operating in many countries including the UK and Germany – and incentives to reward businesses that are able to adapt in response to Covid-19.
The unrest is also a blow for industry and government plans to grow Ethiopia’s garment export sector.
Past Prime Minister Hailemariam Desalegn had targeted an additional US$1bn in textile and garment sales every year, to reach US$30bn annually by 2030. But these plans were scaled down by Prime Minister Abiy Ahmed who took power in April 2018.
While the government has been building and commissioning industrial parks, offering long leases for investors, seven-year tax breaks for imported raw materials and equipment, and favourable access to foreign markets such as the US and EU. In the 2016/2017 fiscal year, Ethiopia earned only US$89.3m from textile and garment exports out of a target of US$271m.
With additional reporting by AZM Anas.