160329 report on market study of ethiopian textile and apparel sector

1
Final Report
Market Study of Ethiopian Textile and Apparel Sector
For
Enterprise Partners
March 2016
Submitted by
Innovision Consulting Private Limited
Research | Technical Assistance | Project Management

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ACKNOWLEDGEMENT
The consultants from Innovision Consulting (Sadruddin Imran – Team Leader, Md. Mamunul Huda –
Textile and Apparel Sector Expert, Mathewos Bunaro Bukullo – National Expert) would like to
acknowledge the support provided by Enterprise Partners, who provided us with the guidance and
cooperation that was vital to the completion of this report. This report would not have been possible
without their relentless efforts.
We would also like to express our gratitude towards the actors of the value chain who were
quintessential sources of information and data during our field assessments. Our gratitude extends
towards concerned ministries, financial institutions, and government agencies. We acknowledge the
contribution of all the reviewers of the study process who took their time in providing feedback.
Finally, we would like to take the opportunity to thank the people of Ethiopia sincerely, for the
welcoming attitude they showed to us during our pleasant stay in Ethiopia.

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EXECUTIVE SUMMARY
Ethiopia, with a population of about 100 million is the second most populous nation in Sub-
Saharan Africa after Nigeria. Over the past years, the Ethiopian economy reports growth rates
of over 11 %. Agriculture is the primary base of Ethiopia’s economy (46% of GDP).
Recently, the Ethiopian government has shifted its economic policy and focused on economic
development through industrialization. Over the last five years, the government planned to
diversify the exports with a set for strategic sectors, where textile and garment manufacturing
sector is number one on the priority list in Growth Transformation Plan (GTP-I). To realize
the target the government of Ethiopia undertook following initiatives wisely and incessantly
at the highest level –
Allocation of adequate funds for the renovation of the existing textile manufacturing
sector
Adaptation of new technologies and management capacity
Drawing domestic and foreign direct investment by creating comfortable and
investment friendly environment
These efforts are taken to make Ethiopia the best sourcing destination of apparel and textile
products in Africa for international buyers and investors.
The textile and apparel sector is concentrated on spinning, weaving, knitting, finishing
(chemical processing) and garmenting. Ethiopia has 110 garments manufacturing factories
and forty textile units. 50% of the garments factories i.e. fifty-five garments factories are
operating as CMT (cutting + making+ trimming) adding nominal value in product chain.
Shell fabric and accessories are primarily nominated and arranged by buyers. Capacity
utilization of domestic factories is not encouraging, and it ranges from 35% to 55% only.
There are thirteen integrated factories at this moment, where employment ranges from 814
persons to 7000 persons. Labor forces in garments factories range from 60 to 2107 persons.
In the fields of export by volume, Ethiopia also shows huge promise as yarns, grey fabric,
garments and traditional handloom together totaled an export amount of over 160 million
USD in 2014/2015 compared to 60 million only five years before in 2010. In the last five
years, investment in the form of domestic and FDI has taken place considerably. The total
local investment in this sector by four firms was USD 47.67 million and five vertically
integrated FDI companies invested a total of USD 416 million. The trend is continuing and
encouraging, especially since FDI is coming mainly from biggest stakeholders of textile and
apparel products in the international market like China, India, South Korea, Bangladesh, etc.
Ethiopian Government has already taken the initiative to privatize state-owned projects as a
part of its economic reforms to attract an inflow of local and foreign direct investment.
However, despite positive performance, exports fell short of the ambitious targets set out in
the GTP-I. Albeit a 166.67% increase in export in the last five years, it was well short of the
target USD 1 billion by 2015 in GTP-1. On the other hand, the domestic market for Ethiopia
is made up of 101 million people, with population growth rate of around 2.6% per annum.
This situation translates into both a boon in the form of a huge market for apparel producers,
and a curse regarding export because import meets the domestic demand for apparels. The
total Ethiopian imports of textile and clothing were USD 142.6 million in 2007, and it
increased to USD 239.8 million in 2008, showing a significant increase of 68%.

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Ethiopia has some competitive advantages over other international competitors in textile and
garments sub-sector, which include:
1. Trends of the relocation of global buyers and investors for textile and apparel
product.
2. A large number of trainable young and less costly workers
3. Comparative lower cost of production.
4. Huge potential of indigenous raw cotton production
5. Preferential trade agreement and access to all major countries in the world
6. Huge domestic market potential
7. Favorable government policy and financial support and incentives for
manufacturing and export
8. Potential for 100% vertically integrated production facility
9. Engagement of International Agencies and NGOs
However, it is also infested with onerous challenges such has low productivity, capacity
utilization and quality, high level of bureaucracy and inefficiency in systems and processes,
weak associations and regulatory bodies, weak market linkages, tailbacks in IT, product
design, lack of skilled professionals and absence of network in the international arena.
A SWOT analysis was done of the Ethiopian Textiles and Apparels sector to identify areas of
improvement. Then, a detailed framework was used to do constraints analysis. We did it in
four tiers, both for apparel and textile sector:
1. At Production level
2. At Market level
3. At Input level
4. At Support Service level
From the constraints analysis, we found that underutilization of capacity, low productivity,
poor quality, poor technology, old machinery, traditional production methods, unskilled
workforce, and inadequate professional management staffs for marketing, merchandising,
quality control, production, product design and product development were key barriers to
growth. Most of the textile factories run below 40%-50% of their capacity, and productivity
is also very low as per international standard. All these result in higher cost of production to
compete in the market. Shortage of skilled workforces, the absence of experienced and
qualified professional management staff pose a challenge for the textile and apparel sectors to
remain competitive both in the domestic market and export market. Therefore, in spite of
competitive cost factors of production, preferential trade benefits as LDC, incentives and
huge policy support of government, the textile and apparel sector still is in infancy compared
to other majors textile and garments producing countries which do not have the benefits of
these leverages.
Expensive transportation and logistic cost, bureaucracy, lack of knowledge, lengthy customs
procedures, less clarity of customs rules and longer lead time of production and shipment,
inefficiency, etc. are some other reasons behind sluggish pace for development of textile and
apparel sector of Ethiopia.

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Interventions have been devised for all four levels, provided alongside timeframe of
implementation and levels of impact, ranked high, medium and low. According to the
different levels, a brief description of intervention activities includes:
At input level - assessment of present demand and future trend, quantifying monthly and
yearly requirement of items, formulating project profile for interested groups, etc. for the
improvement of backward linkage facilities like fabric and accessories for domestic and
export market.
At production level – process development in factories and skill development of workers,
the inclusion of modern production modules, tools and technique for operational efficiency,
capacity building of maintenance, incorporation of new machines and technology.
At market level - conducting a feasibility study for the regional market, promotional
initiatives, HR development in the key areas of business operation, exploring buying office
potential, product design, and development, strategic investment.
At support service level–training to customs people and C&F agents, coordination among
relevant actors in customs, automation of customs, engagement of expert professional in the
sector, capacity building of ETGAMA and ETIDI, establishment of IT-equipped and sound
business environment.

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ACRONYMS
AGOA African Growth and Opportunity Act
AS
BCI
Accessories Suppliers
Better Cotton Initiative
BDSP Business Development Service Provider
CMiA
CS
Cotton Made in Africa
Cooperative Society
CMT Cut-Make-Trim
CTA
CP
Cotton, Textile, and Apparel
Cleaner Production
DfID Department for International Development
EAL
ECCSA
EIC
EKI
EIIDE
Ethiopian Air Line
Ethiopia Chamber of Commerce and Sectoral Association
Ethiopian Investment Corporation
Ethiopian Kaizen Institute
Ethiopian Industrial Input Development Enterprise
ECPGEA Ethiopian Cotton Producer, Ginners and Exporters Association
ELSL
ESA
ESL
Ethiopian Logistic and Shipping Lines
Ethiopian Standard Agency
Ethiopian Shipping Line
EP
ERCA
ETIDI
Enterprise Partners
Ethiopian Revenue and Custom Authority
Ethiopian Textile Industries Development Institute
ETGAMA
ETP
Ethiopian Textile And Garments Manufacturers Association
Effluent Treatment Plant
FCA Federal Cooperative Agency
FCU Farmer’s Cooperative Unions
FDI
FI
Foreign Direct Investment
Financial Institution
FS
GF
GOE
Fabric Suppliers
Garments Suppliers
Government of Ethiopia
GPT I First Growth and Transformation Plan (2010 to 2015)
GTP II Second Growth and Transformation Plan (2015-2020)
Ha Hectare
HRM Human Resource Management
IC
IPDC
IOTEX
Inspection Company
Industrial Park Development Corporation
Institute of Technology for Textile, Apparel and Fashion Design
LA
LCL
MEF
Land Administration
Less than Container Load
Ministry of Environment and Forestry
MOE Ministry of Education
MOI Ministry of Industry
MOLSA Ministry of Labour and Social Affairs
MOT
MECC
MS
NRDC
Ministry of Trade
Ministry of Environment and Climate Change
Machine Suppliers
Natural Resource Defence Council
NRS National Regional State
PEPE
PaCT
Private Enterprise Programme Ethiopia
Partnership for Clean Textile
PTO Private Trade Organization

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PM
RIB
RSI
Packaging Manufacturers
Regional Industry Bureau
Responsible Sourcing Initiative
R&D Research and Development
SA South Africa
SHCF Smallholder Cotton Farms/Farmer
SME Small and Medium Enterprise
SNNPR Southern Nation, Nationalities, and Peoples Region
SOE State Owned Enterprise
ETIDI Ethiopian Textile Industries Development Institute
TVET
TF
Technical Vocational Education and Training
Transportation Facility
UNDP United Nations Development Program
UNIDO United Nations Industrial Development Organization
USAID United States Agency for International Development
USD
WTP
WDF
ZDHC
United States Dollars
Water Treatment Plant
Washing, Dyeing, and Finishing
Zero Discharge of Hazardous Chemicals
Conversion rate used: 1 USD = 20 Ethiopia Birr

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TABLE OF CONTENTS
Acknowledgement ..................................................................................................................................2
Executive Summary................................................................................................................................3
Acronyms................................................................................................................................................6
1. Introduction.......................................................................................................................................13
2. Sector Profile ....................................................................................................................................15
2.1 Textile Sector..............................................................................................................................15
2.2 Garments Sector..........................................................................................................................16
2.3 Understanding the value chain....................................................................................................18
2.3.1 Generic Value Chain for textile and garments sector ..........................................................18
2.3.2 Subsectors, actors, and activities..........................................................................................19
2.4 Foreign Direct Investment (FDI), Domestic and Public Projects ...............................................27
2.5 Diversification of ownership in Textile and Apparel Sector ......................................................28
2.6 Export performance of the sector and Trade Deficit...................................................................28
2.7 Performance Analysis of GTP-I for Textile and Apparel sector of Ethiopia..............................30
2.7.1 Foreign exchange earnings...................................................................................................31
2.7.2 Gross value of production....................................................................................................31
2.7.3 Companies’ capacity utilization...........................................................................................32
2.7.4 Number of new jobs Created from new and expansion projects..........................................32
2.7.5 Number of new investment projects that started production................................................33
2.7.6 Ensuring raw cotton supply for textile factories ..................................................................33
3. Growth potential and constraints ......................................................................................................34
3.1 Potential for Future Growth of the Sector - Competitiveness.....................................................34
3.1.1 Relocation of global buyers and investors ...........................................................................35
3.1.2 Large number of trainable cheap young workers.................................................................35
3.1.3 Lower cost factors of production .........................................................................................36
3.1.4 Huge potential for growing own cotton ...............................................................................38
3.1.5 Potential of big domestic market .........................................................................................38
3.1.6 Potential for 100% vertically integrated production facility................................................38
3.1.7 Preferential international, regional, and bilateral trade/export agreement...........................39
3.1.8 Favorable government policy, financial support and incentives..........................................39

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3.1.9 Engagement of international agencies and NGOs................................................................40
3.2 Challenges of Textile and Apparel Sector of Ethiopia................................................................43
3.2.1 Productivity..........................................................................................................................43
3.2.2 Capacity Utilization .............................................................................................................44
3.2.3 Product Quality....................................................................................................................44
3.2.4 Product design and product development ............................................................................44
3.2.5 Human Resources Constraints .............................................................................................44
3.2.6 Weak backward and forward linkage facility ......................................................................45
3.2.7 Burden of State-owned mills................................................................................................45
3.2.8 Inefficient Customs..............................................................................................................45
3.2.9 Weak association (Ethiopian Textile and Garments Manufacturers Association)...............45
3.2.10 Lack of IT supported management/networking.................................................................46
3.2.11 International Market Network............................................................................................46
3.3 SWOT Analysis of Ethiopian Textile and Apparel Sector .........................................................47
4. Cross Cutting Agenda.......................................................................................................................48
4.1 Poverty Reduction Potential........................................................................................................48
4.2 Gender Issue................................................................................................................................49
4.3 Green Growth Opportunity.........................................................................................................50
4.3.1 Environmental Footprint of Readymade Garments Sector ..................................................50
4.3.2 Environmental Safeguards...................................................................................................54
4.3.3 Cleaner Production Initiative ...............................................................................................54
5. Constraints and interventions............................................................................................................56
5.1 Constraints Analysis ...................................................................................................................56
5.2 Constraint Analysis for Apparel Sector ......................................................................................58
5.2.1 Input Level- Constraints Analysis........................................................................................58
5.2.2 Production Level-Constraints Analysis................................................................................59
5.2.3 Market Level – Constraints Analysis...................................................................................60
5.2.4 Support Service Level – Constraints Analysis.....................................................................61
5.3 Constraint Analysis for Textile Sector........................................................................................65
5.3.1 Input Level- Constraints Analysis........................................................................................65
5.3.2 Production Level-Constraints Analysis................................................................................66
5.3.3 Market Level – Constraints Analysis...................................................................................67
5.3.4 Support Service Level – Constraints Analysis.....................................................................68

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5.4 Suggested Interventions and the Theory of Changes..................................................................68
5.5 Priority Interventions ............................................................................................................69
5.5.1 Modality and Principles of Sustainability for Fabric...........................................................69
5.5.2 Modality and Principle of Sustainability for Accessories....................................................70
5.5.3 Modality and Principle of Sustainability for Higher Productivity.......................................71
5.5.4 Modality and Principle of Sustainability for New Market and Strategic Investment in
Apparel Industry ...........................................................................................................................72
5.5.5 Modality and Principle of Sustainability for Expert Professionals......................................72
5.6 Other Suggested Interventions....................................................................................................73
5.6.1 Input Level - Summary table of interventions, theory of changes, actors and
impact/outcome.............................................................................................................................74
5.6.2 Production Level - Summary of interventions, theory of changes, actors and
impact/outcome.............................................................................................................................77
5.6.3 Market Level - Summary table of interventions, theory of changes, actors and
impact/outcome.............................................................................................................................82
5.6.4 Support Service Level- Summary table of interventions, theory of changes, actors and
impact/outcome.............................................................................................................................86
5.7 Execution period and sensitivity of impact of some selected interventions ...............................93
6. Annex................................................................................................................................................97
6.1 List of persons interviewed.........................................................................................................97
6.2 Bibliography ...............................................................................................................................99

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LIST OF FIGURES
Figure 1: Generic Value Chain of textile and garments sector .............................................................18
Figure 2: Process of how value addition is made from input level to end product level (approximate
value for 12 pieces garments) ...............................................................................................................19
Figure 3: Foreign Direct Investment in Ethiopia ..................................................................................27
Figure 4: Export Performance of Ethiopian Textile and Apparel Sector..............................................29
Figure 5: Major Export Destinations ....................................................................................................29
Figure 6: Trade Deficit of Ethiopia.......................................................................................................30
Figure 7: Capacity Utilization in the Sector..........................................................................................32
Figure 8: Jobs Created in the Sector .....................................................................................................32
Figure 9: Number of Investment Projects.............................................................................................33
Figure 10: Population distribution by age in Ethiopia ..........................................................................36
Figure 11: Wage rate distribution in global garments industry.............................................................36
Figure 12: Energy consumption in global garments industry...............................................................37
Figure 13: Challenges associated with doing business in Ethiopian garments industry.......................47
Figure 14: Environmental hazards in stages of textile and apparel value chain ...................................51
Figure 15: Environmental Impact of Readymade Garments Supply Chain..........................................53
Figure 16: Toxic chemical infused wastewater from Textile processing plant.....................................53

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LIST OF TABLES
Table 1: Annual Production Capacity...................................................................................................17
Table 2: Number of Factories in Textile and Apparel Industry............................................................17
Table 7: Activities of some major actors of core functions and service functions in Textile and
Apparel Sector ......................................................................................................................................22
Table 3: Plan in GTP-I and Actual Achievement by the Textile and Apparel Sector ..........................31
Table 4: Summary of Next Five Years Growth Transformation Plan (GTP-II) of Textile and Apparel
Sector ....................................................................................................................................................33
Table 5: Cost Factors of Production among various RMG exporting countries...................................37
Table 6: Upcoming Industrial Zones ....................................................................................................41
Table 8: Country-wise percentage of manufacturing job in Textile and Apparel Sector .....................49
Table 9: Processes and Resultant toxicities in wastewater ...................................................................51
Table 10: Potential savings from Cleaner Production practice.............................................................55
Table 11: The 10 best practices of cleaner productions in China reviewed by NRDC.........................55

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1. INTRODUCTION
The Textile and Apparel sector was the primary gateway to industrialization for a lot of
countries in the world. Initially, although the Textile and Apparel industry was mainly
concentrated in Europe and America, it has in recent times gradually shifted from developed
to developing countries in Asia: primarily due to the gradual increase of production cost and
rise in environmental pollution. In the late 70’s and early 80’s, China, India, Indonesia, South
Korea, Thailand, Turkey and partially Pakistan were major players in the market to produce
fabric and garments to meet global demand. Then, towards the 80’s, Bangladesh entered the
arena and gradually took over the 2nd place in the international garments exporting market,
only to be bested by China. At present, the global market for textile and apparel stands for
more than 1,100 billion USD and is expected to reach to 2,100 billion USD by 20251.
Concerning positioning in the value chain, USA, EU and Japan take up the upper tier in the
Textile and Apparel sectors in stages like designing, marketing, and distribution. On the other
hand, manufacturing value chain is mostly concentrated now in China, Bangladesh, India,
Vietnam, Pakistan and a few other new entrants.
Textile and Apparel is a now a global industry, with multinational companies continuously
searching for new sources of supply to have more competitive sourcing bases to sustain in the
market and ensure a better profit. Geographical relocation is a continuous process in the quest
for more competitive and sustainable sourcing. Due to the gradual increase in the cost of
production in China, Bangladesh, India and other Asian countries on wages, energy, land,
water, etc., global investors and buyers of Textile and Apparel sector are now focusing on
sub-Saharan countries like Ethiopia as an alternative sourcing destination for their products.
Ethiopia, with a population of about 100 million is the second most populous nation in Sub-
Saharan Africa after Nigeria. Over the past years, the Ethiopian economy reports growth rates
of over 11%2. Ethiopia’s economy is primarily based on agriculture (46%3 of GDP). Though
Ethiopia has a rich and prolonged history of traditional handloom and cottage industry for
more than 3,500 years, manufacturing of textile and garments on an industrial scale is still at
a primitive stage and is yet to open up to global export market. The establishment of textile
and apparel factories by the government of Ethiopia was basically for the import substitution
till 1991.
But Ethiopian government has shifted its economic policy and focused on economic
development through industrialization. Over the last five years, the government has
diversified the exports with a priority set for strategic sectors, where textile and garment
manufacturing is number one on the list in Growth Transformation Plan (GTP-I), followed by
Leather and leather products industries, Metal and engineering industries, Chemical
industries (including cement), Pharmaceuticals Industries and Food and Beverage industries.
This pragmatic economic policy is prudently aimed at channeling a vast unemployed young
workforce into income generating activities for poverty reduction. Ethiopia has every
potential to become next sourcing destination of global textile and apparel market in sub-
Saharan countries. It has some competitive advantages like:
1
Tot, Bui Van.2014
2
Pols, Dhyana Van der, Nash International BV. 2015
3

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43 million cheap potential workforces4
.
The potential of own raw cotton cultivation in 2.6 to 3 million hectares of land, out of
which only 5-6% of the land is being used at present for cotton production.
Cost factors of production like electricity, land leasing, water, etc. are much cheaper
than other competing countries.
Ethiopia has preferential trade agreements with USA, EU, COMESA and other 16
countries.
Sixty-five international textile investment projects have been licensed for foreign investors
within five to six years5. Retailers like H&M, Primark, and Tesco, have established offices in
Ethiopia in 2012 and are buying clothing/ finished products from Ethiopia. The foreign direct
investments (FDI) in the textile and apparel industry have grown significantly which include
the inauguration in 2010 of Ayka Addis, the Ethiopian subsidiary of the Turkish textile giant
Ayka Textiles, at a cost of USD 140 million. Other investors in the textile and apparel
industry are led by China and followed by India, Pakistan, South Korea and Bangladesh.
DBL group from Bangladesh is currently constructing a vertically integrated garment factory
with an investment of USD 30 million. Arvind, Velocity (with a target of USD 160 million
investment in four phases having 100 hectares of land leased in Mekele of Tigray region) of
India, MNS, Angels of Turkey, Shints of South Korea are among many other upcoming
brands.
The textile and apparel sector is primarily focused on the Five Years Growth and
Transformation Plan (GTP), showing ambitious growth objective. To realize the target the
government of Ethiopia undertook following initiatives wisely and incessantly at the highest
level –
Allocation of adequate funds for the renovation of the existing textile manufacturing
sector
Adaptation of new technologies and management capacity
Drawing domestic and foreign direct investment by creating comfortable and
investment friendly environment
These efforts are taken to make Ethiopia the best sourcing destination of apparel and textile
products in Africa for international buyers and investors.
4
5

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2. SECTOR PROFILE
The textile and apparel sector is concentrated on spinning, weaving, knitting, finishing
(chemical processing) and garmenting. According to paper made by ETIDI, Ethiopia has 110
garments manufacturing factories and forty textile units. 50% of the garments factories i.e.
fifty-five garments factories are operating as CMT ( cutting + making+ trimming) basis
adding nominal value in product chain. Shell fabric and accessories are primarily nominated
and arranged by buyers. Capacity utilization of domestic factories is not encouraging, and it
ranges from 35% to 55% only. There are thirteen integrated factories at this moment, where
employment ranges from 814 persons to 7000 persons. Labor forces in garments factories
range from 60 to 2107 persons6
.
Textile and apparel sector of Ethiopia can be broadly classified into two major sub-sectors:
Textile Sector – mainly fabric manufacturing sub-sector
Garments Sector – mainly garments/clothing/apparel making sub-sector
Sometimes spinning industry is also considered to be included in textile sub-sector along with
other integrated projects having spinning and fabric manufacturing facility. On the other
hand, garmenting i.e. garment manufacturing is considered to be garments sub-sector.
Projects having 100 % vertical facility from spinning to garmenting can be treated as
garments sub-sector, which is also the case for fabric making. The cotton and ginning sector
is also part of the overall textile and apparel industry, but we shall focus our discussion on
processes which follow the ginning and spinning processes.
2.1 Textile Sector
Ethiopia has a rich and long history of traditional cottage apparel and textile sub-sector for
3500 years or more. Traditionally yarn was homespun using old –aged drop wheels method
from cotton fiber supplied by smallholder cotton farmers. Fabrics were made out of the
homespun yarn by using the simple and traditional technology of weaving and knitting. This
cottage (micro/small) industry was family based, with women spinning cotton to make yarn
manually in the traditional manner, and men weaving this yarn to turn it into fabric for use
and sale in the market. The activities were traditionally carried out by small artisans called
“Shamane” (weaver). Their products met family needs, as well as those of the
locality/community. This traditional cottage industry continues to grow even today making an
important contribution to satisfying people’s requirement for textile/apparel and providing
large-scale employment to rural and urban households, making an important contribution to
nation building.
During world war-II, an Italian entrepreneur introduced a modern integrated textile mill in
1939 named Dire Dawa Textile Mills, followed by the establishment of five more large scale
integrated mills privately during the 1960s. If the socio-political and economic trends were
oriented towards free-market from that time on, garments and textile sector of Ethiopia could
6
Paper made by ETIDI for International Trade Fair held in Germany since 13 January to 15 January

16
have been quite different than what it currently is. Ethiopia might have been a bigger hub of
garments sourcing for the global market by this time.
But in 1974, the socialistic government of Ethiopia nationalized garments and textile sector
and opened up four more integrated textile mills as import substitute to meet domestic
demand for regular textiles and garments. Shifting to the socialistic/closed economy did not
succeed and gradually due to neglect, lack of competition, of varieties and old technology,
this sector could not stand strong to meet the international standard for future growth and was
forced to operate far beneath its capacity only in the domestic market.
Since 1991, after the inception of the free market economy by democratic government, the
emphasis was given to boost the private sector and modernize old plants with state of the art
machines and technology. Attention was given to attract new investment from domestic and
foreign investors for local and foreign markets. Thrust was given particularly for capturing
huge foreign market potential through proper industrialization of this sector. Presently this
sector has three spinning mills, fourteen weaving and knitting factories, eight handloom mills
(medium size), three dyeing and printing factories and thirteen integrated textile factories.
2.2 Garments Sector
Ethiopia has a long and rich history of traditional garments manufacturing in the forms of
individual tailoring and cottage industry. The fabric produced at household level was, and
still is used for making traditional clothes like Netala, Gabi, Kamis, Kuti and other garments
of their culture. This traditional apparel making at the micro level has been the main source
of production of garments to meet the need of citizens for centuries and is still playing a vital
role in rural employment and economic development.
Garments manufacturing at industrial scale was commenced by an Italian in the 1950s with
the name Addis Garments factory followed by the establishment of the public Akaki
Garments in 1963, Guide Garments in 1983 and Nazareth Garments factory in 1992. These
four state-owned garments factories dominated Ethiopia’s garments sub-sector for a long
time.
Since 1990’s, with the development of market economy, private and foreign capital started to
flow into the sub-garment sector. Over this period, twenty-four private owned factories were
in existence with more than ten workers. Of them, twenty survived as very small scale
factories.
Ethiopian garments sub-sector development was marred by the slow pace, focusing on
satisfying the demand for apparel in the domestic market, alongside playing in the export
arena, bringing in foreign currency. Ethiopian government subsidized the export. However,
after withdrawal of subsidy in 1991 by the government, factories which operated in the
export market started focusing more on the domestic market and engaged in making uniforms
for schools, military, government agencies, and private companies gradually slowing down
exports.
After a change of the socialistic regime in 1991, the new democratic government with free-
market economic concept and philosophy has given due attention and importance to
“Agricultural Development–led Industrialization” with more emphasis on

17
cotton/textile/garments sub-sector in Ethiopia. As a result of government policies, Textile,
and Garment manufacturing companies, ranging from medium to large scale, in the area of
ginning, spinning, weaving, finishing and garmenting have proliferated and stand today at
158. Twelve projects are under expansion phases, and six new projects are upcoming
currently at the stage of pre-investment7
. The Ethiopian Government is actively promoting
further modernization of the textile and garments sector with the objective of attracting local
and foreign investors and foreign buyers.
In recent time, the textile and apparel sector consists of around 130 medium and large scale
factories of which thirty-seven are foreign owned. In 2014, the export size of the sector
amounted to around 113 million USD and employed 37, 000 workers. The target set for 2020
is to realize an export growth of 1 billion USD. The sector now represents 6% of the county’s
export value.
The economic developments in the textile and apparel sector show enormous growth in
comparison to 2010/ 2011. Yarns, grey fabric, garments and traditional handloom together
totaled an export amount of just over 160 million USD in 2014/2015 compared to 60 million
only five years before in 2010.
Compared however to the targets set by the first Growth and Transformation Plan (GTP)
period, which started in 2010/2011 and had ended by December 2015 fiscal year, the
government had planned to earn 1 billion USD from textile/garments exports in the course of
those 4-5 years. The actual performance of the sector was about 456 million USD in those
years, and revised target in GTP-2 has been set to earn USD 1 billion by 2020 from
textile/garments sector, currently consisting of 110 garments factories (knitted and woven)
and four blanket factories.
Annual production capacity of the textile and garments sector, along with the number of
factories currently operating in Ethiopia is given in tables 1 and 2:
Table 1: Annual Production Capacity
Product Annual Capacity
Yarn 49 million kg
Woven Fabric 88 million meters
Knitted Fabric 30 million kg
Woven Garments 18 million pcs
Knitted Garments 62 million pcs
Source: Business Opportunity Report Ethiopia – Textile and Apparel Industry, Nash International BV, 2014
Table 2: Number of Factories in Textile and Apparel Industry
Value chain process Number of Factories
Ginning 15
Spinning 3
Weaving and Knitting 14
Handloom ( Medium size) 8
Dyeing and Printing 3
Integrated Textile 13
7
ETIDI.2014

18
Blanket Factory 4
Garment Factory (Knitted/Woven) 110
Total 158
Source: Paper made by ETIDI for International Trade Fair in Germany – 13th
January to 15th
January 2016
In recent times, namely the last five years, investment in the form of domestic and FDI has
taken place considerably. The total local investment in this sector by four firms was USD
47.67 million, whereas five vertically integrated FDI companies invested a total of USD 416
million. The trend is continuing and encouraging, especially since FDI is coming mainly
from biggest stakeholders of textile and apparel products in the international market like
China, India, Bangladesh, etc. These foreign investors not only provide employment of huge
idle workforce but also bring advanced technology, experiences, product development,
technique, know-how, information, sourcing base, foreign market access and international
network in the country. This opportunity enables this industry to have better access to the
foreign market particularly for the domestic producers who were traditionally domestic-
focused.
Backed by the gradual development of export performance, export growth geared up from
USD 62.2 million in 2010/11 to USD 85 million in 2011/12, USD 111.353 million in
2013/14 and USD 160 million in 2015.
2.3 Understanding the value chain
2.3.1 Generic Value Chain for textile and garments sector
The value chain in the textile and garments industry stretches from raw material production
through cotton and artificial fiber to yarn spinning, fabric weaving, dyeing and finishing,
garment sewing, trimming, to labeling, packaging, and delivery.
Figure 1: Generic Value Chain of textile and garments sector

19
3.95 KG ¬ $ 5.04 3.16 kg = $ 10 2.75 kg = $ 16.50 12 pcs = $ 25
(FOB)
12 pcs = $216
Figure 2: Process of how value addition is made from input level to end product level
(approximate value for 12 pieces garments)
2.3.2 Subsectors, actors, and activities
There are four inter-connected market systems functional here, and their dynamics/characters
and relevant actors are mentioned below. Core functions/roles of major actors in this sector
are explained very briefly in table-7.
Market 1 - Cotton: Farmers/Co-operatives/exporters from 3rd country (Supply) and
Ginners/spinners (Demand)

20
Market 2 - Yarn: Ginners/Spinners/outside suppliers (Supply) and Textile factories –
Weaving/Knitting Factories (Demand)
Market 3- Fabric: Weaving/Knitting (Supply) and Garments Manufacturing (Demand)

21
Market 4 - Garments: Garments Factories (Supply) and Domestic/International
Buyers/Consumers (Demand)

22
Table 3: Activities of some major actors of core functions and service functions in
Textile and Apparel Sector
Sl.
No Name of
Organization/
Authority
Role of Core Actors
Cotton Market Yarn Market Fabric Market Garment
Market
1 Ginners
Association
Purchasing cotton
from producers /
traders
• Providing
quality
Ginned cotton
2 Financial
Institutions
•Providing
required finance
for supply of
cotton from
abroad
•Providing
required financial
support to the
small farmer
cotton producers
and unions
• Providing the
importers with
supply of
foreign
exchange
• Providing the
importers with
supply of
foreign
exchange
• Providing
financial and
technical
support
• Facilitating the
exporters
system in
coordination
with Ethiopian
Revenue and
Customs
Authority
• Providing
financial and
technical
support
3 Cooperatives •Produce enough
cotton for the
yarn producers
and ginners
•Ginning cotton
supplied from
small farmers/
cotton producers
4 Transport
Facilitation
•Transporting
cotton products
from the small
farmers to the
ginners and Yarn
manufacturers
•Providing
transport
service from
cotton
producers and
ginners to the
yarn
manufacturers
•Providing
transport
service from
yarn
manufacturers
to fabric
manufacturers
•Providing
transport
service from
accessory
suppliers to the
yarn
• Facilitating
transportation
services as
required
• Facilitating
transportation
services

23
manufacturers
5 Industry Inputs
Supply
Development
Enterprise
•Supplying
cotton to yarn
manufacturing
companies
from ginners,
cotton
producers and
by importing
•Supplying
cotton to
Fabric
manufacturing
companies
from ginners,
cotton
producers and
by importing
6 Machine
Suppliers
Supplying
machines for
production of
yarn
•Supplying
machines for
production of
fabric
•Providing sewing
machines to the
garment
factories
7 Development
Partners
•Providing support
in cotton
cultivation
technology and
productivity
•Funding studies in
cotton production
and quality
supply of cotton
•Providing
support in
quality raw
material supply
especially
quality lint
cotton
•Providing
support in
producing
accessories and
chemicals from
local sources
•Conducting
technology
transfer studies
so as to
develop the
production of
fabric
•Support in
market
development
•Support in
Business
linkages
•Finding
international
buyers
•Support in trade
fair
participations
•Support in
product
development as
per the
international
buyers
requirement
8 Technology
Providers
• Providing
support in
cultivation
technology
9 R&D Institutions •Conducting
studies regarding
the quality cotton
supply problem
in the sector and
the country at
large
•Conducting
studies
regarding the
yarn
production and
constraints in
the production
•Conducting
studies
regarding the
fabric
production and
constraints in
the production
•Conducting
studies
regarding how
to connect
overseas
markets and the
export policy
implementation
10 Accessories and
Chemical
Suppliers
•Supplying
Sufficient
accessories and
chemicals to
yarn
manufacturers
•Supplying
Sufficient
accessories and
chemicals to
fabric
manufacturers
11 Ethiopian
Textile and
•Working closely
with cotton
•Providing
market and
•Backward and
forward
•Backward and
forward

24
Garment
Manufacturers
Association
producers,
ginners and
exporters
association in
providing
support to
cultivation and
quality cotton
production
technology
support to yarn
manufacturers
business
linkages with
yarn
manufacturers
and garment
manufacturers
•Working with
machinery
suppliers and
chemical
suppliers
business
linkages with
fabric
manufacturers
and
international
and domestic
buyers
•Working with
machinery
suppliers and
accessories
suppliers
12 Buyers/Internati
onal and
Domestic
•Providing bulk
orders and
samples to the
garment
manufacturers
13 Garment
Factories
•Buying fabric •Supplying
Garments to
buyers
14 Inspection
Companies
•Conducting
inspection of the
finished
products as per
the international
standards to
meet the buyers
requirement and
increase
productivity
15 Fabric Suppliers •Supply to
garment
manufacturers
and domestic
market
16 Private trade
organizers
•Organizing trade
fairs and
opening the
door for the
manufacturers
to participate
and develop
business linkage
and also market
development
17 Packaging
Manufacturers
•Providing the
fabric
manufacturers
with
packaging
•Supplying
quality
packaging to the
finished product
manufacturers
to pack as per
the buyers
requirement

25
18 Ethiopian Air
Lines
•Transporting the
finished
products during
export
•Transporting the
raw materials
like fabric and
accessories
Sl.
No
Name of
Organization/
Authority
Role of Support Actors
Cotton Market Yarn Market Fabric Market Garment
Market
19 Ministry of
Industry
•Supporting the
institutions in
delivering their
responsibilities
regarding cotton
•Building the
capacity of the
institutions
related to the
development of
cotton
•Developing
strategies and
policies for
cotton
development
•Supporting the
Institute in
capacity
building,
market
development,
quality control,
business
linkages
•Supporting the
Institute in
capacity
building,
market
development,
quality control,
business
linkages
•Supporting the
manufacturing
sector
institutions in
developing
market,
accessing,
organizing trade
fairs, designing
policies
20 Ministry of
Environment and
climate change
•Assuring that
cotton processing
is
environmentally
friendly
•Supporting the
implementing
agencies to
consider
environment
issue according
to the CRGE
policy
•Supporting the
implementing
agencies in
formulating
environment-
related policies
in the sector
21 Ethiopian
Revenue and
Customs
Authority
•Facilitating the
customs issues in
input supply
importing
•Implementing
export incentive
schemes and
serving the
manufacturing
sector
•Facilitating the
input supply
importing to
manufacture
yarn
•Facilitating the
input supply
importing to
manufacture
Fabric
•Facilitating the
customs issues
while exporting
the finished
products
22 Ethiopian
Standards
Agency
•Playing quality
assurance role
for the
products
•Setting standards
for the identified
products in the
textile sector
•Inspecting the
products against

26
the set
requirements
and standards
23 Ministry of
Trade
•Promoting trade
especially
export
promotion
24 Ethiopian
Textile Industry
Development
Institute
•Technical,
engineering,
capacity and skill
development
support
•Technical,
engineering,
capacity and
skill
development
support
•Technical,
engineering,
capacity and
skill
development
support
•Support in
technical,
engineering,
capacity and
skill
development
support, Market
development,
Business
linkage,
investment
promotion
25 Regional
Industry Bureau
•Supporting the
small farmers in
using
technologies to
produce quality
cotton
•Promoting
market in the
regions
26 Land
Administration
offices
•Providing land
resources to
Cotton producers
•Providing land •Providing land •Providing land
27 Ethiopian
Industrial Parks
Development
Corporation
•Providing fully
equipped
shades and
developing
industrial parks
for the sector
•Providing fully
equipped shades
and developing
industrial parks
for the sector
28 Ethiopian
Kaizen Institute
•Working in
quality control
•Working in
quality control
•Working in
quality control
•Working in
quality control
29 Ethiopian
Investment
Commission
•Serving new
investments in
acquiring
investment
license
•Serving new
investments in
acquiring
investment
license
•Serving new
investments in
acquiring
investment
license
30 Ethiopian
Logistics and
Shipping Lines
Enterprise
•Providing
transport
service for the
raw material
importers
•Providing
transport
service for the
raw material
importers
•Providing
transport service
for the raw
material
importers and
finished product
exporters
31 Ethiopian
Chambers of
Commerce and
Sectoral
Association
•Supporting in
market
promotion and
investment
promotions
32 Ministry of •Investment •Investment •Investment •Investment

27
Foreign Affairs promotion and
visa services for
foreign
expatriates
promotion and
visa services
for foreign
expatriates
promotion and
visa services
for foreign
expatriates
promotion and
visa services for
foreign
expatriates
33 Ministry of
Finance and
development
Cooperation
•Designing
policies and
approving
regarding the
sector support
34 Ethiopian
Embassies
•Investment
promotion and
visa support
2.4 Foreign Direct Investment (FDI), Domestic and Public Projects
From August 22, 1992, to May 29, 2014, seventy-seven textile and apparel FDI projects were
established in Ethiopia. Out of these projects, thirty-six were Garments Factories, of which
six were 100% export oriented. Textile and Garments projects were fourteen, and Textile
projects were twenty-one. One Cotton Farming and Ginning, two Yarn Making and
Processing units, one Fabric and Yarn export factory and seven others like Made-up,
Synthetic, Towel, Blanket, Bed Sheet projects were also on the list8
.
There were a total of 107 projects established from March 1992 to December 2014. These
include sixty-five Garments Factories, six Textile and Garments Factories, nineteen Textile
Factories, one Sewing Thread Factory, one Made-Up Textile Factory, one Thread Dyeing
Factory, one Yarn Producing Factory, one Socks Factory, one Garments Accessories
Factory, three Carton Factories and eight others projects9
.
Figure 3: Foreign Direct Investment in Ethiopia
Source: Ethiopia Domestic, Public and FDI Investment Statistic 1992 to 2014/2015
8
Ethiopia Domestic, Public and FDI Investment Statistic 1992 to 2014/2015
9
Ethiopia Domestic, Public and FDI Investment statistic 1992 to 2014/2015

28
2.5 Diversification of ownership in Textile and Apparel Sector
Ethiopian Government has already taken the initiative to privatize state-owned projects as a
part of its economic reforms to attract an inflow of foreign direct investment and local
investors. Ownership of the state-owned establishments has been changed from public to
private to suit the running transformation strategy.
Most of the public enterprises are large scale and play leading roles regarding employment
and production and are located mostly in densely populated large or medium cities. Eighteen
projects are in Addis Ababa, the capital of Ethiopia, six in Amhara and five at Southern
Region (SNNPR). Ethiopia’s textile industry is shaped by medium and large private and
public enterprises. The main product of these enterprises is 100% cotton textile. The
spinning, weaving, and finishing enterprise were mainly under the public sector and larger in
size, with the capacity to employ 700-800 employees at each establishment, whereas knitting
and garments units are relatively smaller in size.
Investor Categories in Textile and Apparel Sector:
Foreign Investor for Export Market
Foreign Investor for Local Market
Foreign Investor for Both Markets ( Export and Local )
Local Investor for Local Market
Local Investor for Foreign Market
Local Investor for Both Markets ( Export and Local )
Joint Venture (Foreign + Local) for Both Markets
2.6 Export performance of the sector and Trade Deficit
The economic development of textile and garments sector is not very encouraging though it
has huge potential. The targets set in GTP-I from 2010/11 to 2014/201510
were as follows:
Increase the gross value of production of textile and garment industry sector from USD
470 million in 2002 EFY (2009/2010) to USD 2.5 billion at the end of 2007 EFY
(2014/15)
Increase foreign exchange earnings from the textile and garment industry sector from USD
23.2 million in 2002 EFY (2009/10) to one billion at the end of 2007 EFY (2014/15).
Raise capacity utilization of the textile and garment industries from 40% in 2002 EFY
(2009/10) to 90% at the end of 2007 EFY (2014/15). Attract new investors who will be
interested in investing in the textile and garment industry sector and ensuring forty-eight
projects start production by the end of 2007 EFY (2014/15).
Create new job opportunities for about 40,000 citizens during the plan period.
The total export of this sector for yarn, grey fabric, garments and traditional handloom was
USD 60 million in 2010/11 and has gone up to USD 160 million in 2014/1511
. This translates
10
Annual GTP performance report EFY 2006 (2013/2014)
11

29
to a 166.67% increase in export in the last five years, still falling short of the target of USD 1
billion by 2015 in GTP-1.
Figure 4: Export Performance of Ethiopian Textile and Apparel Sector
Source: Business Opportunity Report Ethiopia – Textile and Apparel Industry, 2014
Figure 5: Major Export Destinations
Source: ETIDI, 2013
Ethiopia is more of an import based country for textile and apparels. There is huge trade
deficit which is gradually getting bigger, resulting in an acute shortage of hard currency
required to promote the textile and garments export sector. While in 2007 the total Ethiopian
imports of textile and clothing were USD 142.6 million, in 2008, it increased to USD 239.8
million, showing a significant increase of 68%. It imports apparel value of about USD 720
million each year to meet domestic demand. Local producers are more engaged in the
domestic market with their limited capacity, quality, and technology and contribute to meet
about 42% of the local demand. Most large factories are state-owned and operate as an import
substitute. Factories were established primarily for import substitution purposes and were not
technically or managerially equipped to enter the export market. China, Indonesia, India, and
U.A.E are the major countries exporting textile and clothing to Ethiopia, with their market

30
share totaling approximately 70% (China 53.3%, Indonesia 5.8%, India 5.6% and U.A.E
5.3%). The other major exporting countries to Ethiopia include Thailand, Taiwan, Turkey,
UK, Pakistan, and Korea Rep. in order of their market share. If we see the following export,
import and deficit chart, it is vividly clear that balance of payment i.e. trade deficit since 2005
has become wider every year, at its highest in 2014.
Figure 6: Trade Deficit of Ethiopia
Source: Paper made by ETIDI for international Trade Fair in Germany – 13th January to
15th January, 2016
The domestic market for Ethiopia is made up of 101 million people, with population growth
rate of around 2.6% per annum.12 The country records an impressive economic growth rate of
10.3%.13
There is a gross assumption that 1% increase in economic growth results in 0.8 %
increase in consumption, out of which, 0.4% in apparel. Hence, Ethiopian domestic market in
itself is sizable enough to bolster the growth of the apparel sector.
2.7 Performance Analysis of GTP-I for Textile and Apparel sector of
Ethiopia
As a key contributor for generating foreign currency through industrial growth, the
authorities aimed to have yearly revenue of approximately US $500 million from the garment
industry by 2013, and USD 1 billion by 2015, for which the Government was to approve of
approximately 190 enterprises to make capital investments of US $1.6 billion14. These
companies and factories were supposed to include approximately forty-eight threading,
thirty-one grey textile production, twenty-two knitting, fifty-three woven, thirty-one garment
and six finished textile enterprises. There is also a commitment to support the industry
12
http://www.worldometers.info/world-population/ethiopia-population/
13
http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/countries/ET?display=graph
14
GTP-I

31
throughout the value chain, thereby ensuring that costs are contained domestically, instead of
requiring the foreign exchange to purchase products such as trim and components. But the
real performance was far below the target in GTP-1 regarding investment in setting up
manufacturing projects and regarding achieving the export target of USD 1 billion by 2015.
Ethiopia currently has fifteen ginning, three spinning, fourteen weaving and knitting, eight
handlooms, three dyeing and printing, thirteen integrated textile, four blanket factories and
110 garments factories (knitted and woven) and revised target has been set to export USD 1
billion by 2020 in GTP-II.15
The review of textile and apparel sector GTP-I was done by the government at the end of
EFY 2006 (2013/14). It explains the performance of the sector on various criteria set out in
the GTP-I.
2.7.1 Foreign exchange earnings
In 2013 (2006 EFY), USD 111.35 million foreign exchange was earned in this sub-sector,
which is 15.9% of the target of USD 700 million. The year-on-year growth accounted to USD
12.36 million (12.5% growth) .Out of USD 111.35 million in exports, wefts & wrap, textile,
garment and traditional clothes have the share of 25.3%, 5.7%, 64.8% and 4.2% respectively.
This shows that value added products (garment & traditional clothes) encompass a share of
69%. In the past four years, the export performance of the sector increased from USD 23.2
million in 2009 (2002 EFY) to USD 111.35 million in 2013 (2006 EFY). Even if the export
performance of the sector increases from year to year it is far short of the GTP target. The
sector’s foreign exchange target for the year 2007 EFY is USD 520 million.
Table 4: Plan in GTP-I and Actual Achievement by the Textile and Apparel Sector
Source: GTP-I review
2.7.2 Gross value of production
The target set in GTP-I was USD 2.5 billion gross value of production from textile and
garment industries in 2014/15 (2007 EFY). But due to lack of data for the year 2012/13 (2005
EFY) and 2013/14 (2006 EFY), its performance could not be measured.
15
Paper made by ETIDI for International Trade Fair held in Germany since 13 January to 15 January
Textile
and
Apparel
Sector
EY - 2002
2009/2010
EY - 2003
2010/2011
EY - 2004
2011/2012
EY - 2005
2012/2013
EY - 2006
2013/2014
Average
growth
(%)
Plan Actual Plan Actual Plan Actual Plan Actual Plan Actual
Export
in
Million
USD
53.5 23.21 85.1 62.2 171.3 84.6 211.7 99 350 111.4 58.39

32
2.7.3 Companies’ capacity utilization
On average the capacity utilization was 62% and 56% for textile and garment factories
respectively in the year 2013/14 (2006 EFY). It shows an increment of 2.3% & 4% from that
of 2012/13 (2005 EFY). In 2012/13 (2005 EFY), the capacity utilization of textile and
garment factories was 60% & 52% respectively. This shows the capacity utilization of the
sector is below the target i.e. 90% at the end of the GTP-I. In the year 2014/15 (2007 EFY), it
was planned to achieve the capacity utilization of 67% for textile & 58% for garment
factories.
Figure 7: Capacity Utilization in the Sector
2.7.4 Number of new jobs Created from new and expansion projects
The number of jobs created in 2013/14 (2006 EFY) was 2,635 i.e. 23.5% of the targeted
11,198 jobs. This number shows a decline of 55.4% to that of the previous year due to the
low-performance projects in the pipeline. In the past four years, 15,806 new jobs were
created from new and expansion projects of textile & garment factories. This is 39.5% of
40,000 new jobs targeted at the end of the GTP-I. For 2014/15 (2007 EFY), 12,000 new job
opportunities were forecasted from new & expansion projects.
Figure 8: Jobs Created in the Sector

33
2.7.5 Number of new investment projects that started production
It was planned to provide support for nineteen new investment projects to start production in
2013/14 (2006 EFY). In this year, six new and one expansion project started production,
achieving 36.8% of the plan. 2013/14 (2006 EFY) performance shows 16.7% increment from
the previous year. In 2012/13 (2005 EFY), four new and two expansion projects started
production. In the timeline of the past four years, 20 projects started production, i.e. 41.7% of
forty-eight projects targeted till 2014/15 (2007 EFY). The next year plan is to support thirteen
new and one expansion project to start production.
Figure 9: Number of Investment Projects
2.7.6 Ensuring raw cotton supply for textile factories
In 2013/14 (2006 EFY), from the planned 219,000 hectares of land, 125,000 hectares was
cultivated for cotton production, which was 56.8% of target. It shows increment from the
previous year’s cultivation in 54,000 hectares of land. In terms of productivity, it was planned
to achieve 2.3 ton per hectare but the actual performance was 1.6 ton per hectare (69%). In
2012/13 (2005 EFY), cotton productivity was 1.5 ton per hectare. In 2013/14 (2006 EFY),
34,000 ton of lint cotton was supplied to the market for textile factories, which was 53.2% of
the planned 64,000 ton. In 2013/14 (2006 EFY), it was planned to produce 350,000 ton of
raw cotton whereas the sector achieved 200,000 ton (57%). By 2014/15 (2007 EFY), it was
targeted to cultivate cotton on 200,000 hectares to produce 340,000 ton of raw cotton and to
achieve productivity of 1.7 ton per hectare.
Table 5: Summary of Next Five Years Growth Transformation Plan (GTP-II) of Textile
and Apparel Sector
Description
EY - 2007
2014/2015
Base year
EY - 2008
2015/2016
EY - 2009
2016/2017
EY - 2010
2017/2018
EY - 2011
2018/2019
EY - 2012
2019/2020
Production (in billion
USD)
1.094 2.701 3.994 5.122 7.079 8.661
Export (in billion
USD)
0.15 0.215 0.300 0.494 0.700 1.00
Production Capacity

34
Ginning (in ton ) 77,520 79,102 82,266 82,865 90,176 94,922
Spinning (in ‘000
ton)
69.05 94.96 135.23 177.36 238.28 313.28
Weaving (in million
m²)
230.88 290.33 376.83 467.86 598.69 757.72
Knitting (in ‘000 ton
)
43.61 68.92 88.73 109.68 141.74 179.66
Finishing woven (in
million m²)
97.85 220.92 289.41 361.53 465.48 592.00
Finishing Knitted (in
‘000 ton)
17.97 53.33 69.06 85.72 111.25 141.47
Woven Garment (in
million pcs shirt )
23.32 71.51 91.35 105.34 129.30 140.15
Knitted Garments
(in million pcs t-Shirt
)
39.94 103.70 162.50 201.69 274.69 314.38
Capacity
Utilization/%
Ginning 49 50 52 54 57 60
Spinning 68 70 75 80 85 90
Knitting 65 70 75 80 85 90
Dyeing and Finishing 63 66.4 70.5 75 78.8 83
Garment 54 59 64 68 72 75
Garment production
(minutes per T-Shirt)
18 17 16 15 14 12
Raw Cotton
Production (in
Million ton)
0.168 0.36 0.52 0.7 0.99 1.375
Job Creation 12,000 42,125 53,442 68,845 83,935 99,653
Source: GTP-II Plan
3. GROWTH POTENTIAL AND CONSTRAINTS
3.1 Potential for Future Growth of the Sector - Competitiveness
Ethiopia, as a country, has a huge potential for rapid growth in textile and apparel sector both
for domestic and export market. It has a long and rich history of weaving and garmenting at
household level for centuries dating back to last 3500 years. The textile and garments sector
has matured throughout the years, yearning for development. Major factors, which are
considered to be important for export-oriented industrial development, do exist in Ethiopia.
Potential exists for Ethiopia to be the hub of Africa for global textile and garments sourcing
in future.
If we look into the possibility of prospect in textile and garments sub-sector, we can see some
encouraging advantages that Ethiopia has over other major stakeholder countries of
international textile and garments business. Some of these advantages are listed below with
elaboration.
1. Trends of the relocation of global buyers and investors for textile and apparel
product.
2. A large number of trainable young cheap workers
3. Comparatively lower cost of production.

35
4. Huge potential of indigenous raw cotton production
5. Preferential trade agreement and access to all major countries in the world
6. Huge domestic market potential
7. Favorable government policy and financial support and incentives for
manufacturing and export.
8. Potential for 100% vertically integrated production facility
9. Engagement of International Agencies and NGOs
3.1.1 Relocation of global buyers and investors
Continuous effort for a better sourcing alternative for textile and apparel products brings
great opportunity for Ethiopia for the development of textile and apparel sub-sector after
1991 when the country shifted from closed economy to open market economy system by the
democratic government. Free market economic philosophy has opened up windows for
Ethiopia to take advantages of its competitive leverage for textile and apparel sector greatly.
Global buyers and investors in apparel businesses look around to have a competitive sourcing
base where the cost of production is less to curb their business cost. Ethiopia is also the safest
country in African region socially and politically. Since 1991, democratic government is in
power with free market economic policy. Ethiopia is the HQ of African Union and called the
capital of Africa. In terms of geographical positioning, Ethiopia also has a competitive
advantage. Ethiopia is located in between east and west. East is the main sourcing destination
of textile, garments and its raw material like cotton, yarn, dyes, chemicals, fabric, thread,
button, zippers, labels, hung-tag, poly bag, machinery, spare parts, etc. and west is the main
market for garments and garments machinery. This strategic location will give dividends in
future in terms of less lead time for shipment and less transportation cost of container. Air
freight of goods from Ethiopia to USA or Europe is less than half of Asian counterparts.
From all these perspectives, Ethiopia is well positioned to attract international buyers and
investors.
3.1.2 Large number of trainable cheap young workers
Ethiopia is a land of about 100 million people. 50 % of which are below 20 years of age and
60-70 % are within the age group of 16 to 40. Garments industry is tremendously labor
intensive which demands a huge number of workers and can accommodate newcomers with
no previous work experience. It needs a couple of weeks or months for a fresh trainee to
become Semi-skilled. Population growth of Ethiopia is estimated about 2.6 to 3 % annually.
The 43 million strong unskilled workforce can serve as a boon for the industry. Distribution
of population according to age group accordingly demography is shown below:

36
Figure 10: Population distribution by age in Ethiopia
Age
Gender 0-14
years
15-24
years
25-54
years
55-64
years
65
years+
Male 21376243 9557462 14023218 1826602 1242171
Female 21308454 9692275 14176263 19191212 1511558
Total 42684697 19249737 28199481 21017814 2753729
Source: CIA Fact book
3.1.3 Lower cost factors of production
Ethiopia has no predetermined minimum wage, and the minimum wages in practice is much
less than other countries, and many folds less than some major textile and apparel
manufacturing countries. Other cost factors of production like energy cost, water cost, land
leasing rate, corporate tax etc. are much less than other countries.
Figure 11: Wage rate distribution in global garments industry

37
Figure 12: Energy consumption in global garments industry
Table 6: Cost Factors of Production among various RMG exporting countries
Comparison of Cost Factor of Production
Attribute Unit cost Ethiopia Bangladesh India Pakistan Turkey China
Minimum
wages
USD per
Month
40 74 125 80 600 175
Electricity
Cost
USD per
KWH
0.04 0.11 0.10 0.08 0.10 0.28
Vietna
m 0.95
Bank
interest
rate
Annual
rate of
Interest
%
7.5-8.5
(Govt)
12-13
(com.
bank
13-15
(Govt)
14-17 (com.
Bank)
7-9 (Govt)
12-14
(commercial
bank)
7.5
(Govt) 13
(
commerc
ial bank )
10 (Govt)
10 (
commercia
l bank )
5.5
(Govt)
5.5 (
commer
cial
bank )
Water
consumpti
on
USD per
Cubic
meter
0.31 0.34
$ 0.38/CM
ETP
Myanmar
0.88
Land
leasing
rate
USD per
Square
meter
.30-.75
(IP) 0.35
– 2 non
(IP)
2.75 (EPZ)

38
3.1.4 Huge potential for growing own cotton
Ethiopia is a land with tremendous raw cotton cultivation potential. It has about 2.6 to 3
million hectares of land suitable for cotton production. Only 5-7 % of the land is being
utilized at present with traditional method using recycled seeds. Hence, productivity per
hectare, at 0.8 to 1.7 ton/ha is much less than the average of 2.8 to 3.5 ton /ha. There is
promise for Ethiopia to be one of the major cotton producing countries in the world if proper
initiatives are taken to bring in more land for cultivation, widen irrigation, introduce
advanced technology and technique, adopt better harvesting management system, minimize
repeated use of traditional recycling seeds and give emphasis on R&D.
3.1.5 Potential of big domestic market
Ethiopia has a large domestic market of 101 million people, 60-75% of which are young
people between the age group of 14-40. Annual population growth is 2.6%. So, domestic
market demand for textile and apparel is getting bigger gradually each year. Hidden
unemployment in Ethiopia is about 20-30%. Given the forecasted growth of the population, it
will be doubled to 180 million by 2025-2030. It is imperative that for Ethiopia, high labor
intensive industries like textile and apparel must grow rapidly and mature a lot faster than in
other developing nations to offer employment opportunity to the idle workforce.
Government’s plan is to mature the sector within 5-10 years. Ethiopia is basically an import
based nation and in 2007 the total Ethiopian imports of textile and clothing were US$ 142.6
million, which increased to US$239.8 million in 2008, showing a significant increase of
68%. Presently garment imports value is at USD 720 million each year which is 700% more
than the export to the international market. This increasing local demand presents a
tremendous opportunity to grow for the textile and apparel sector of the country. This
opportunity can be tapped by the gradual expansion of production base in the country and
through scaling up of efficiency in terms of quality, productivity and price and by more
policy support from the Government on duties for local producers.
3.1.6 Potential for 100% vertically integrated production facility
Ethiopia has been a cotton producing country for centuries and has a history of traditional
household spinning and weaving at the cottage industry level. Textile and garments
production at industrial level started in 1939 but did not flourish due to the restructuring of
the country in 1974 in a socialistic manner. Since then, due attention was not given to
required modernization and technical advancement in the changing environment of the sector
to cope up with the demand in the global apparel market. However, the current democratic
government, with free market economy policy, has set priority for industrialization through
massive growth of textile and garments sector aimed at tapping export market. The textile
and apparel sector in Ethiopia has the enormous possibility to be a 100% vertically integrated
sector. The prime raw material in textile and apparel sector is cotton, and Ethiopia has the
potential to cultivate pore cotton in 2.6 to 3 million hectares of usable land, which can be a
good source of cotton supply for growth of forward integrated industry like spinning, fabric
manufacturing and garmenting. In response to the increasing demand for green sourcing of
apparel products in the international market, global buyers are gradually inclining towards
organic sourcing from a single integrated factory/country. They prefer less engagement, less
monitoring and less time to do their business. Ethiopia can rightly position itself to take
advantage of this changing tendency of procurement in the global textile and apparel
market.

39
3.1.7 Preferential international, regional, and bilateral trade/export agreement
New export opportunities have been created for Ethiopia through initiatives such as US
African Growth and Opportunity Act (AGOA), the Common Market of Eastern and Southern
Africa (COMESA – nineteen African countries ), the “Everything But Arms” program that
has been set up to provide access to the E.U. market and many other bilateral trade
agreements among sixteen countries, including Russia, Japan, China, Canada, Norway,
Australia, Turkey, Switzerland, Netherlands, Belgium, Luxembourg etc. This ensures
leverage of duty-free, quota-free and zero tariff export facility to their market, which some
other major textile and apparel producing countries like China and Bangladesh do not have
access to. There is a huge gap in realizing of these advantages, which if properly harnessed,
can generate massive cost savings for producers and manufacturers of textile and garments
products
3.1.8 Favorable government policy, financial support and incentives
To attract domestic and foreign investors to invest in textile and garments manufacturing
industry, particularly for export market, the Ethiopian government has set series of
investment friendly favorable policy support, soft financing and incentive packages so that
new investors, be it foreign or domestic, feel confident and spirited to come into the sector for
investment with the expectation of reasonably high and hedged return for their investment.
Railways to Djibouti port from Addis Abba is one of them. Main policies and regulations are:
100% duty-free importation of machinery and equipment
Duty-free import facility of spare parts of 15% of capital goods for first five years of
operation.
Corporate income tax exemption (CIT) for 1-9 years. Period of exemption differs
according to the location and product export ratio (60% to 80%)
Income tax exemption for 2-7 years for manufacturing investment. The rule here is
“the closer to Addis Ababa- the lesser the years” to promote industrialization around
the country.
Losses incurred during the CIT exemption period can be carried forward to maximum
five income tax periods ( one period is six months)
Corporate tax holidays depending on the size of the investment and the locations.
Mostly it is 0-10% against regular corporate tax of 25-30%
It is possible to hire international expatriates free from income tax for first two years
Vat is 15% and reimbursable on a monthly basis.
Reconciliation of VAT for materials purchased locally during the project period if
possible declared in six month time.
Onsite (factory) customs inspection/clearance of imported raw materials and
exportable products
State-owned logistic enterprises (Ethiopian Shipping Line, Ethiopian Airline, Dryport,
and Maritime) provide their services at break-even cost.
Entrepreneurs involved in export will be entitled to fast customs service (low-risk
level)
The sector gets all the possible support it needs to smoothen sector policies
regulations via Capacity building through MOI-Ministry of Industry, ETIDI and
consulting service.
Export incentives: duty drawback, vouchers, export credit guarantee schemes

40
IP’s (Industrial Parks): If a foreign firm decides to set up a project in one of the IP’s
constructed by the government, they will take a lease of the shed, or building space at
a rate of USD 1/m²; depending on the location of IP. It may vary to maximum USD 2-
3/m². In comparison: Eastern Industrial Park as constructed by Chinese charges USD
27/m².
Electricity tariff of 2.7 cents per KW ( EU is 10-12 times more)
Ethiopia does not have minimum wages at this moment. It differs from USD 40 for
entry level workers to USD 70-80 for more experienced workers per month.
Apart from these policy changes, the Ethiopian government has set series of incentives
scheme to attract FDI by group efforts of Invest Ethiopia, Development Bank of Ethiopia and
Ethiopian Investment Commission (EIC). These incentives schemes are:
Voucher scheme: a printed voucher having monetary value which can be issued to
pay duties at the time of exports
Now for Ethiopians, National Bank Ethiopia provide 70:30 ratio of project financing
without any collateral.
For large scale financing particularly for foreign investors, DBE provides financing
on the basis of 50:50 ratio
The interest rate is 8-8.5 % terms for investment and co-financing based on ten years.
DBE does not fund SMEs, except for micro- finance programs funded by
development partners.
Working capital can be financed additionally with the Commercial Bank of Ethiopia
provided that the project passes bankability criteria.
3.1.9 Engagement of international agencies and NGOs
International agencies like USAID, UNIDO, WB, DFID, EP (PEPE), Solidaridad and other
donor agencies and NGOs are actively engaged in facilitating capacity building in the sector.
They are providing technical, technological, marketing, sourcing, R&D, need assessment
study and other transformation support activities for smoother and faster shift to the
industrialization of textile and apparel sub-sector.
Given above reasoning, the reality is that unemployment (hidden) rate is 30% of the
professional population out of total 100 million people at present. The present population
growth rate is 2.6 to 3 % annually, which will lead to doubling of the population to 200
million by 2025-2030. It is imperative that for Ethiopia, most labor intensive industries like
textile and apparel must grow rapidly and mature a lot faster than in other developing nations
to offer employment opportunity to the idle workforce. Ethiopian government anticipates
maturing this sector within 5-10 years’ time and is formulating a series of strategic plans and
actions in this line.
The domestic potential of cotton production, as a basic raw material for fabrics and garments,
has now the due attention of the government. Wider availability of local cheap labor force,
competitive cost factors of production and government policy support offer promising future
for textile and apparel sector of Ethiopia. This may be the best alternative at this moment for
job creation and poverty reduction.
So we can see a huge growth potential of textile and apparel sub-sector for the domestic and
international markets if the discussed advantages and leverages are rightly capitalized with

41
due acumen. Evidence shows that competitiveness of Ethiopia in the textile and apparel
sector is high which is supported by the facts that there are many recent establishments of
textile and garments manufacturing companies shifting from developed and developing
countries to Ethiopia. This includes European, Chinese, Turkish, Pakistani, Bangladeshi and
Indian companies who have opted to invest in Ethiopia.
Apart from secondary data sources, we did field work and took interviews of about 32 major
stakeholders of textile and apparel sector. Some of them include foreign investors, service
sector actors and chemical suppliers. General feedback from them is captured in the
following table:
Table 6 details out some of the upcoming industrial zones underway in Ethiopia. Some are
undertaken by the government, some are private sector investments, and there are also a few
public-private partnerships.
Table 7: Upcoming Industrial Zones
lndustrial zone Developer Location Size Status Remarks
Bole Lemi I Government 15 km
South East
of Addis
Ababa
center,
about 30
minutes’
drive
156ha; 20
factory
sheds
Fully
occupied;5 in
operation; all
sheds
completed
Sheds of 5,500m²
and 11,000 m² only;
more than one shed
possible; 12 tenants
from Taiwan,
Korea, India, China
& Pakistan; of
which 10 in
garment, 1 each in
footwear& gloves;
no labor supply
Bole Lemi 2 Government Adjacent
to Bole
Lemi I
186 ha; 15
sheds and
parcels of
land
planned
sheds and
parcels a
F/S done;
detail design
stage
F/S done by Korean
company; WB
assists with finance
& TA. (Sheds,
infrastructure, etc.);
for garment &
100% sales growth
achieved each year as
confirmed by H&M
(apparel buyer).
100% sales growth
achieved each year as
confirmed by Bezema
Dyes & Chemicals N. BE
Plc. (dyes and chemical
supplier).
At least two or three new
applications are being
submitted for project loan
each month as confirmed by
the Commercial Bank of
Ethiopia.
Almost all new and old
projects has gone for
expansion or under
process of expansion.
Many new projects are in
the pipe line in the
industrial zone as well as
outside industrial zones.
Highest loan disbursement of
over Birr 6894 m (63 projects)
which is 25.26%, was made in
Apparel and Textile
manufacturing sector out of 38
sub-sectors (Development
Bank of Ethiopia).

42
land
planned
footwear investors.
Kilinto Foreign
developer
preferred but
state
development
also possible
20 km
South of
Addis
Ababa
Center
308 ha.
with the
possibility
of
expansion
F/S done;
detail design
stage
F/S done by Korean
company; WB
assistance: for wide
sectors including
agro-processing,
electronics,
furniture etc.
furniture, etc.
Hawassa
(previously
Awassa)
175km
South of
Addis
Ababa,
half day
drive
270ha Government is
looking for foreign
developers for these
zones; if there is no
taker, government is
willing to invest
according to specs
required by tenant
firms. A. foreign
group is moving
into Hawassa with
infra cost shared by
group and
government. F/S of
Dire Dawa was
conducted by China
Association of
Development
Zones. Indian
Government will
support Kombolcha
with a loan of
$50 million.
Dire Dawa East of
Addis
Ababa,
300km
from
Djibouti
border
1,500ha F/S done by
Chinese;
detail design
stage
Kombolcha North of
Addis
Ababa
near
Dessie
1,000ha F/S done by
Indian
government
fund
Eastern
Industry Zone
JiangSuQi
Yuan Group
(China)
South of
Addis
Ababa,
about 2
hours’
drive
500 ha in
total; 11
sheds of
10,000 ha
each
10 Chinese
films; sheds are
fully occupied;
Phase2
construction
started
The first IZ in
Ethiopia; developed
by a Chinese private
group with Chinese
government
support; Huajian
has been operating
here in 2 of the
factory sheds
Huajian Shoe
City
Huajian Jemo area
inside
Addis
Ababa
138ha Land
procured;
designing stage
Expanding from
Eastern Industry
Zone to its own
zone; detail design
to be finalized
Gaizo JV of Ayka
&
government
Jemo &
Gulale
area
s inside
Addis
Ababa
3 factory
apartments
'4-5
stories high
start
construction in
early 2015
Plan to invite 50
Turkish
export-oriented
textile companies;
Gaizo means
Garment Industrial
Zone.

43
Kingdom Linen Kingdom
Group (Hong
Kong)
South end
of Addis
Ababa
30ha Negotiating
land&
designing
largest Chinese
linen producer
Ethio- Turk
International
lndustrial City
Akgun
Group
(Turkey)
Sanda fa,
3Skm
North of
Addis
Ababa
1,300 ha in
total, 100
ha for
phase 1
Environmental
impact
assessment
Near Addis Ababa
water reservoir;
need to
clear environmental
check
George Shoe
City
George shoe
(Taiwan)
Mojo;
South off
Addis
Ababa,
about
2-hour
drive
50 ha Design Stage Building tannery
and
leather-related
facilities for use by
George Shoe and
other
Taiwanese
companies;
expanding from
Bole Lemi I.
3.2 Challenges of Textile and Apparel Sector of Ethiopia
Given the fact that, though Ethiopia has a great potential for huge growth of export-oriented
textile and apparel industry associated with a favorable policy, incentives package, financial
and technical support with comparative leverage on cost of production, a lot of steps need to
be taken to exploit the niches.
Ethiopia is lagging behind in many areas and needs quick attention and improvement, some
of which are : management efficiency, burden of state-owned mills, inefficient customs,
weak linkage throughout the value chain, weak association (ETGAMA), productivity,
capacity utilization, product quality, product design, product development, product
diversification, foreign market exploration, lead time, IT supported management/networking
and other infrastructural facilities.
Cheap labor, low-cost factors of production and incentives package are not sufficient to
promote foreign investment for the growth of the sector. Amicable and transparent business
environment are also important factors required to attract foreign investors in the country.
Ascertaining of long lasting stable investment policy, a guarantee of return on investment,
easy access to land acquisition, power supply, water etc. also are important prerequisites for
sectoral growth. Some of the issues are discussed here in brief:
3.2.1 Productivity
The average productivity of Ethiopian textile and apparel sector is very low, at just one-
fourth (1/4) of the average international standard. Production of shirt per worker per shift is
5-7 pcs whereas it is about 20-25 pcs shirt per worker per shift internationally under the same
condition. Ethiopia produces 147 meters of woven fabric per loom per shift against 350
meters per loom per shift of international standard by Rapier machine. Ethiopian textile and
apparel sector was domestic focused and state-owned as an import substitute. Hence, lack of

44
modernization, of fair competition and accountability results in production inefficiency
eventually.
3.2.2 Capacity Utilization
Plant capacity utilization ranges from 22%-68% with an average of around 40% against the
international best practice of 97%-98%. Average machine efficiency is 58-85% against 93-
94% globally for loom shed; 40-60% machine efficiency in knitting against the international
best practice of 85%. Apart from that, 300 days are utilized for production in Ethiopia instead
of 350 days as international best practice16
.
3.2.3 Product Quality
Product quality is sub-standard for export. Early projects were to produce for domestic
market. This domestic market is not quality sensitive. Big projects were state-owned hence,
there was no substantial pressure to maintain quality level, and quality control approach was
not seriously considered to be put in place. Total Quality Management, Six Sigma or any
other tools and techniques were not adopted as quality control practice, which resulted in
traditional production with no quality parameter to be followed in the production process to
ensure quality.
3.2.4 Product design and product development
There is acute lacking in product design and product development for the export market.
Ethiopia is used to producing traditional clothes like Netala, Gabi, Kamis and other product
of own culture and supplying to institutional buyers like schools, military, government
agencies and private companies. It is at infancy for product designing and development for
international buyers. Ethiopia is conceptually immature on fashion design and running
fashion trends for international market because of their limited access to the international
market.
3.2.5 Human Resources Constraints
This sector is suffering for lack of right people in the right place. Primarily textile and apparel
industry requires qualified sophisticated management skills in the area of organizing,
manufacturing, equipment and plant selection, factory lay put, sourcing of raw materials,
production planning, capital management, marketing/merchandising and sales. Higher
entrepreneurial and management skills are required for this business. Highly sophisticated
manufacturing technology needs highly skilled supervision and technically sound engineering
staffs and management. Due to high labor intensiveness, this industry faces a shortage of
skilled workers. Adequate numbers of a qualified set of professionals, with due acumen, are
required for different types of activities like marketing, merchandising, product development,
promotion, production and R&D. Ethiopia has a shortage of such capable and experienced
professionals to perform with efficiency in line with the international standard.
16
Benchmarking of the Ethiopian textile industry, UNIDO draft report, April 2010

45
3.2.6 Weak backward and forward linkage facility
Ethiopian capacity base is very weak, throughout the value chain, for the export market.
Forward value chain like garments industry itself is in an infancy stage with 110 small,
medium and large factories. On the other hand, yarn, fabric and accessories support is not
sufficient to feed the need of forward linkage factories. There are few accessories factories,
which are running below 50% of their capacity, yearning for demand. Foreign-owned
companies are sourcing their raw materials and accessories from other countries. Forward
value chain base is not big enough to create a huge demand pressure for backward value
chains industry to grow. Coordination among actors in the integration process of the value
chains is not strong enough. The sector is suffering for lack of strategic investment priority
for local investors.
3.2.7 Burden of State-owned mills
Most of the state-owned mills are overburdened with excessive overhead, bureaucracy, less
accountability, over employment and massive inefficiencies. They are incurring losses and
weakening national economy, stigmatizing the sector. State-owned factories need to be
privatized immediately to suit the free market economic policy. The state cannot take a dual
role in the free market economy, competing with its own people, investors and producers.
The state should play a supportive role with responsibility instead.
3.2.8 Inefficient Customs
Ethiopian customs lack in providing standard customs service to its people. They are not
experienced and efficient in exercising best customs procedures and practice in textile and
apparels sector. They are not familiar with different types of goods and materials, machines
and equipment, accessories and spare parts, H.S. codes pertaining to this sector. They have a
lack of understanding to apply rules and regulations for clearing and forwarding consignment
to and from the port. Sometimes they hold containers for weeks or months to apply right
judgment because of ambiguity. Custom activities are not systemized or automatic.
Allegations against customs people, as reported, are plenty for their poor service, harassment
and corruption.
3.2.9 Weak association (Ethiopian Textile and Garments Manufacturers Association)
As an association, ETGAMA is new, comprising eighty members. It is yet to mature and take
the lead for the future prospect and growth of textile and apparel sector of Ethiopia.
ETGAMA is yet to set out a clear target objective, mission, and vision. ETGAMA has to
stand strong as an organization and has to dictate the course of actions for the players in this
sector.
As an association of private entrepreneurs of textile and apparel sector of Ethiopia,
ETGAMA is supposed to set a target for 1 billion USD export from this sector by 2020 in
GTP-II, not the government, with respect to the free market economy. The government has to
play a facilitating role for the exporters in achieving their target. But the vision must be set by
manufacturers. The government is neither manufacturer nor exporter, rather a facilitator to
exercise its capacity in the best possible ways to facilitate the association to achieve its target.

46
So, huge capacity building is necessary for ETGAMA for it to be able to help the government
in formulating strategies, policy, rules and regulations needed to create a more export friendly
environment for the sector to grow. ETGAMA need to focus on the common interest of the
sector other than the singular interests of individual members of the business body. So,
coordination and cooperation among members need to be enhanced and group cohesiveness
needs to be developed for a common goal and interest. They should work hand in hand for
sectoral growth.
3.2.10 Lack of IT supported management/networking
Ethiopia lacks in IT based communication and management practice. The computer is used
mainly for data entry only. As a result, the sector is unable to catch up to the rest of the
world, where globalization has led to a revolution in the use of IT. Globally, this sector is
now equipped with modern software based modules for production management, CAD/CAM
utilization, resources management (ERP), raw material sourcing and business management.
Online banking, online custom service and online information sharing have become very
essential tools and techniques to conduct textile and apparel business worldwide. Nowadays,
buyers conduct business online across countries, sitting in their home office. They get
updated on each and every hourly development of activities like- hourly production, cutting,
sewing, finishing, packing, number of dedicated machines, number of workers in the
production lines, status of materials in-house, inspection report of daily production and so on.
They have access to fabric making in one country, accessories in other countries and
garments production in different countries through IT administration- all from a single
source. They hold management meetings through video conference/Skype. International
business cannot be thought of without IT-friendly environment, particularly for garments
business, which is almost always between different countries, perhaps thousands of miles
apart. Tech-savvy managers in all management level are vital for sector’s development. It is
very important for communication and connectivity with external textile and apparel market.
3.2.11 International Market Network
The International market base of Ethiopian textile and apparel sector is very small. It is
mostly concentrated to few buyers from EU countries particular to Germany and USA. This
present market base has to be strengthened and more new markets to be explored, including
the regional market. Markets for existing products have to be searched along with the
development of new products to meet the demand of international market. Organizing trade
fairs, attending fairs, reaching potential buyers and investors are some efforts Ethiopia is to
pursue.
Apart from all above, Ethiopia has many other limitations and needs to work hard for
improvement on those areas which includes: High lead time, high MOQ, poor social
compliance, bad house-keeping, weak backward value chains etc.
McKinsey & Company, a leading management consulting firm conducted a Chief Purchasing
Officer (CPO) survey of leading apparel companies in Ethiopia. The bottlenecks they
identified in the Ehiopian Garment Industry are highlighted below:

47
Figure 13: Challenges associated with doing business in Ethiopian garments industry
Source: McKinsey & Company CPO Survey, 2015
3.3 SWOT Analysis of Ethiopian Textile and Apparel Sector
SWOT analysis provides a consolidated viewpoint from all perspectives on the textile and
apparel sector at present in Ethiopia. It highlights potential niches to be tapped for the
development of textile and garments sector, for employment and poverty elimination. The
analysis also focuses on limitations which have to be overcome . This analysis is done for all
major actors of core functions and service functions like local and foreign
investors/manufacturers, development partners like EP, the government of Ethiopia, relevant
ministries, international buyers etc. to shed light on areas that need to be given due attention
by relevant actors for smooth growth of the sector.
Table 7: SWOT of Ethiopian Textile and Apparel Sector
Strength
•Availability of abundant workforce
•Huge potential of producing own raw material like raw cotton and organic cotton
•Cheapest electricity cost- up to five times cheaper than other manufacturing countries
• Cost factors of production are much less than other textile and apparel producing nations.
•Low rent and lease up to 1-2 USD per m² for factory building
•Air freight cost is less than half of other producing countries of Asia
•Central ETP provision in IP areas by the government
•Significant and increasing domestic market
•Preferential access to USA, UK, EU, COMESA and 16 other countries
•Strong policy, financial and incentive support from the Ethiopian government
•Loss carried forward for half of the investment period
•Tax holiday for 2-8 years

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