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Velocity Apparelz to Establish Vertically-Integrated Industrial Park in Ethiopia

Vertically-integrated textile parks may be the way forward for manufacturing in Ethiopia.

Talk on the eastern African nation was abundant at last week’s Sourcing at Magic, as many—in both footwear and apparel sectors—see ample opportunity there.

Siddarth Sinha, founder and CEO of Dubai-based Vogue International Agency, which operates Velocity Apparelz, has seized some of that opportunity and wants others in the apparel supply chain to share in it.

“The days of doing everything on your own and trying to hide information and being extremely secretive about what you are doing are gone,” Sinha said in an interview on the sidelines of the tradeshow. “Today is a day of collaborations, of trying to set up ventures that support each other and I think that’s where the world is going.”

Velocity Apparelz started production at its 100,000-square-meter (a little less than half a square mile) facility in Mekelle, a city in northern Ethiopia, earlier this year and the first shipment is slated to set sail for the U.S. next month.

But more than its own garment production, which will center on denim and knits, Velocity wants to create and operate an industrial park on the 10-million-square-foot plot where its factory sits.

“We are huge garment manufacturers, we require a lot of raw materials,” Sinha said. And instead of importing fiber from one country, sending it to a fabric manufacturer and factoring in the added time in development to account for all that transit, Sinha wants to establish a vertically-integrated area in the zone. “We are going to try to attract, apart from other sewing facilities, other fabric manufacturing facilities in the industrial zone so we can guarantee their sales as a start-up. Whatever they produce, we’ll be able to buy.”

Because Velocity would operate the zone, incoming manufacturers would have access to the company’s owned and operated logistics for trucking between Mekelle and the major port in Djibouti.

Compliance would also be a responsibility Velocity takes on for the zone, so that any buyer interested in buying garments from the firm could be confident in the responsibility of the rest of the supply chain.

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Interested manufacturers would be screed and vetted, their building plans would be reviewed, as would their social responsibility, quality and compliance standards. Velocity has its eye on certain companies to have as neighbors in the zone and Sinha is in the ongoing process of presenting them with Ethiopia’s opportunity.

“We’ve even asked our buyers to suggest people who they think would be right, so we are trying to get them involved as well, trying to create things in such a manner that everybody is on board,” Sinha said.

Velocity also operates factories in the United Arab Emirates and Egypt, with customers including Zara, Levi’s and VF, and in some cases clients have expressed interest in making at the company’s Ethiopia facility.

For now, however, all eyes are on trying to improve the country’s logistics. The lowest lead time out of Ethiopia at present is 27 days and relying on the trucking to get goods to port is costly and won’t help cut that production time.

The government in Ethiopia is keen to bring manufacturing to the country in a big way and has already started investing in logistics improvements to help it get there. A new railway between the landlocked country’s capital, Addis Ababa, will connect to the port of Djibouti to help ease and speed trade. Operations are expected to begin in early 2017.

“I think once the trains are up and running it’s going to be great and it’s going to help a lot with costs,” Sinha said. As of now, the cost to get a 40-foot trailer from the factory to Djibouti runs as high as $5,000, but the lower labor and energy costs still keep FOBs for garments out of Ethiopia competitive with other major producers.

The new rail from Addis to Djibouti won’t help Velocity too much as it’s Mekelle factory is hours away from the capital, but plans are also underway for a rail to run from the Mekelle region to Djibouti by 2018.

“We have to work very quickly at arriving at a high level of efficiency,” Sinha said, speaking not just for his own factory but for manufacturing in Ethiopia as a whole. “As the economies of scale come up, that’s when things turn around, and that’s why we set up so large in Ethiopia—it’s the fact that scale is key to being successful.”