Ethiopia is one of the five most dynamic economies on the African continent. According to the World Investment Report 2016, the country ranks second in terms of foreign investment in the textile industry after Vietnam. China, a privileged partner, is developing numerous infrastructures. Growth is on the rise. But at what cost?
Ethiopia, the second most populous African country in the continent with more than 100 million inhabitants, has experienced GDP growth for 10 years (10% in 2015, 6.4 in 2016 and 7% 2017). GDP per capita has doubled. Yet, with 675 euros per capita in 2016, it remains one of the lowest in the world.
But the country wants to become a middle-income country by 2025. Today, agriculture remains the country’s socio-economic pillar with 39% of GDP, 80% of jobs and 85% of exports, according to the French Ministry of Economy and Finance . So to boost its economy, the country has decided to double the pace and develop its manufacturing industry in the textile sector. Ethiopia wants this industry (currently 5% of GDP) to rise by 20 to 25% within ten years to make it the main base of its economy.
Five-year plans for growth and transformation of the economy
A Growth and Transformation Plan (GTP) was set up by former Prime Minister Meles Zenawi, obsessed with the Ethiopian “rebirth”. The first phase of the GTP was completed in 2015 and its record proved the capacity for good economic governance. 60% of the objectives in the realization of infrastructures have been achieved. With a reserve: the take-off of the manufacturing sector and the increase in exports.
“Our industry is still in its infancy, we have to transform our essentially agricultural economy and focus on industrialization that will enable us to be part of the middle-income countries by 2025,” said Minister of State Tadesse Haile ‘industry.
The second phase of the plan (GTP II, 2015-2020) is a continuation of the first phase and, at the macroeconomic level, aims to maintain double-digit growth in a stable economic environment.
“Made in Ethiopia”
In 2015, the State created a special unit: the Industrial Park Development Corporation. Thirteen parks will be built for this purpose. To encourage foreign companies to establish factories in the country, the price of land is sold off, hardly a euro per square meter per month.Electricity and communication network, roads, railways are also built. A new railway line between Addis Ababa and Djibouti will enter service in October 2017.
By 2020, 150 textile and apparel companies should be operational and the sector generate $ 30 billion in just over ten years. Bogale Feleke, Ethiopian Deputy Minister of Industry said in July 2017: “We intend to increase our area of cotton cultivation. At present, only 20% of the three million hectares are used For this crop when we aim to reach 80%. “
“In total, the textile clothing industry could generate 400,000 jobs in sub-Saharan Africa and exports could double in 10 years,” said the Fashionomics team, “says the African Development Bank .
For Mayur Kothari, head of the Indian Business Forum: “There is no doubt that Ethiopia will be a leader in this region of Africa because there is a huge population, good guidelines, Investment in infrastructure, political stability, natural resources are immense , adds Madeleine Rosberg on Forbes Africa , they have enormous development potential for the textile industry, to the point that Ethiopia could become the new Pakistan. With the largest livestock in Africa and 45 million hectares of arable land for cotton production, the country has all the cards in its hands to become the new African Lion.
In a children’s underwear factory in Addis Ababa
A new Eldorado
According to the 2016 edition of the World Investment Report, Ethiopia is the second largest foreign direct investment in the textile industry after Vietnam. For this, Ethiopia offers several advantages: abundant energy at low prices thanks to hydroelectricity. Another asset is a very cheap young workforce estimated at 47 million people. A worker in a clothing or footwear factory earns 36 euros a month, five times less than a Chinese.
Moreover, the government offers a very attractive tax regime to foreign companies, under certain conditions, the exemption from income taxes or the exemption of customs duties or taxes on certain imported equipment goods specifies the agency Ecofin . The best example is the African Growth and Opportunity Act (AGOA), which allows certain African countries, including Ethiopia, to be exempt from customs duties on a group of goods exported across the Atlantic to Economic development, explains Le Monde .
This American law, adopted in 2000, makes non-taxable goods produced by these African countries and sold on American soil. However, according to Salomon Simunegus, quoted by Le Point : “the majority of companies based in Bole Lemi (suburb of Addis Ababa NDLR) exports to the United States, for brands like Tesco, H & M, PVH.” By 2016, Ethiopia would have exported 35 million euros of textile production. This East African country is one of the African states that benefit from the AGOA agreements.
China and Ethiopia, hand in hand
For all these reasons, Ethiopia is dreaming of a new factory in the textile world. It has succeeded in attracting many foreign investors, including China. In total, there are 279 Chinese companies operating in Ethiopia. In 20 years, Chinese investments totaled more than 3.4 billion euros and would have created 111,000 jobs, says Le Monde .
In 2016, external sales of clothing totaled 93 million euros. Ethiopia will inaugurate two new industrial spaces in the north of the country.Financed by Chinese capital, the latter aim to seduce big names of clothing and underwear like Vanity Fair or H & M, according to Fashion Network .
This partnership between China and Ethiopia is “win-win”, confirms Sisay Gemechu, CEO of the Industrial Park Development Corporation in Ethiopia. Ethiopia needs China because it needs investment and infrastructure to open up its territory.
Ethiopia more attractive than Bangladesh
For Ethiopian Prime Minister Hailemariam Desalegn, the goal is to make the country the “textile hub” of Africa. And to seduce the multinationals coming from Europe, Asia and America, like large groups like H & M.
In April 2013, the collapse of a textile building in Bangladesh (the Rana Plaza) killed 1,138 people. H & M decided to relocate its plants in Ethiopia. Since the company was established in the country, the average growth of the textile and clothing sector in Ethiopia has grown to 51% and 60,000 jobs have been created. This disaster resulted in a Bangladeshi textile sector crisis, prompting foreign investors to relocate 58 factories to Ethiopia.