Ethiopia’s economy is primarily based on agriculture but over the last 5 years, the government has been keen on diversifying exports with priorities focused on strategic sectors like textile and garment manufacturing.
Ethiopia’s long history in textiles began in 1939 when the first garment factory was established. Based on Ethiopian country data, in the last 5 to 6 years, the textile, and apparel industry have grown at an average of 51% and more than 65 international textile investment projects have been licensed for foreign investors, during this period.
The growth in the textile industry is directly linked to the Government’s move to set up an industrial development strategy. This step of the Ethiopian Government to prioritize designing incentives and policies to attract investment in view of worldwide competition has played a big role in the development of their economic status.
How to Invest in Ethiopia?
As indicated in their country data, the textile industry in Ethiopia appeals to foreign investors mainly due of the three major components of a successful investment:
- Low manpower cost
- Raw materials and
- Low energy costs.
A foreign firm with an interest in investing in Ethiopia has to go through the Ethiopian Investment Commission or EIC.
The steps before starting a business in Ethiopia include:
- Obtaining an Investment License and construction permit
- Notarization of required documents
- Grading of construction contractor
- Securing land for the project
Challenges faced by the Ethiopian Textile Industry
Although Ethiopia is a recommended market for investment in textiles, there are still a lot of challenges that the country and investors are facing.
One of these challenges is the efficiency in factories which is as slow as 40 to 45% in production both in textile or garment assembly units. This problem is mainly due to underdeveloped processes and lack of education amongst manpower.
Another challenge is the cycle time and delivery. Cycle time can extend up to 150 days due to the lack of available raw materials. Country data indicates only 40% of the total needed materials are available in Ethiopia while 60% are imported. As compared to other countries, production in Ethiopia takes about 45 to 60 days longer.
The lack of marketing is also a concern for the textile industry in Ethiopia. Many factories with state-of-the-art machinery are currently idle. Ethiopian companies need to adopt a more aggressive marketing strategy to eradicate this concern.
Challenges also include restrictions in technology specifically in the underdeveloped digital processing of transactions. Manual arrangements via phone and lack of efficient systems using basic technology tools such as emails etc is a hampering factor too. Hopefully, in the years to come, the government will see bigger opportunities associated with better technology and make these available to its people.
Hence, the textile industry in Ethiopia has much room for development. This can be achieved with the help of the government and its vision. An improved political and economic environment that includes industrial upgrading and customs advancement is sure to make the Ethiopian business environment more inviting for international players.