AGOA Attracts Foreign Investments To Ethiopia

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AGOA Attracts Foreign Investments To Ethiopia

Ethiopia attracted foreign investments of US$ 1.2 billion in the first six months of the 2016-2017 fiscal year, dominated by Chinese companies. The investment is helping Ethiopia develop as a manufacturing hub for the global textile market.

Out of the 124 foreign investors that expressed an interest in Ethiopia's textile and clothing sector over the past three months, 71 were from China. Indian clothing and textile industry could also be a significant future player, with more than 30 investor inquiries. "The bulk of recent investment is being made by Chinese companies in the textile and apparel sector," said Mekonnen Hailu, public relations director for the Ethiopian Investment Commission.

Investors include Chinese conglomerate Jiangsu Sunshine Group, which deals in wool textiles and garments. The company has decided to invest close to US$ 1 billion in Ethiopia. It is building a major textile manufacturing hub in Ethiopia for the same reasons that many other Chinese textile investors are choosing to relocate their textile operations to the East African country, says Helen Hai, vice-president of Chinese footwear manufacturer the Huajian Group and advisor to the Ethiopian government on industrial strategy.

"Chinese textile companies are moving closer to their raw material base, the cotton-producing countries such as Ethiopia. This is part of its value chain repositioning, a strategy most Chinese companies are adopting. Companies are also using Africa as a gateway to emerging markets on the continent and to the European market," said Hai, who helped broker the Jiangsu investment deal.

Ethiopia's economy has registered double-digit growth in recent years, making it one of the fastest growing in sub-Saharan Africa. The World Bank projects 8.9% growth this year. Foreign investment has played a critical role in the country's economic success, with the government offering favourable benefit packages to attract clothing and textile companies looking to relocate their manufacturing bases to Africa.

Incentives include preferential trade deals and land policies, which can give investors profit tax holidays for up to nine years. Duty free imports of machinery, equipment and construction materials are also incentives used to attract investors.

All exports of products made in Ethiopia to the US are duty- and quota free under America's African Growth and Opportunity Act (AGOA). The same benefits are also available for exports to the European Union under its Everything but Arms trade access for least developed countries. Furthermore, Ethiopia offers extremely cheap electricity at US$ 0.04 cents per kilowatt hour. It is now the second largest electricity producer in sub-Saharan Africa due to its hydropower dams. Ethiopia is the source of major rivers, such as the Blue Nile.

Such low costs are particularly attractive to Chinese companies. The rising cost of land and labour in their home country has spurred many of its textile and clothing businesses to eye moving production to African countries such as Ethiopia to tap their abundant cheap labor. Wages are approximately one tenth of what Chinese workers are paid, according to the investment commission.

"Ethiopia has a population of 100 million, the second largest in Africa after Nigeria and over 65% are under 20, making it a labor pool that is easily trainable to fit the requirements of the garment and textile industry," said Zemedeneh Negatu, global chairman of Fairfax Africa Fund and former managing partner of EY Ethiopia (Ernst & Young).

Local textile companies can also find reasons to be hopeful about the "foreign textile invasion," said Worku Zewde, general manager of Ethiopian knitted sportswear specialist Knit to Finish. "Investors are putting money into training the local workforce to help raise manufacturing standards. To satisfy foreign buyers, the quality of cotton production has also been improving. I expect these industry improvements will trickle down and benefit local companies."