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Upstream Focus: ETGAMA’s Ageazi Hailemarium on Foreign Investment, Free Trade & Fabric Supply

Upstream Focus is Sourcing Journal’s series of conversations with suppliers, associations and sourcing professionals to get their insights on the state of sourcing, innovations in manufacturing and how to improve operations. In this Q&A, Ageazi Hailemarium, secretary general at the Ethiopian Textile and Garment Manufacturers Association (ETGAMA), discusses raw material supply challenges and avoiding “hit-and-run” buyers.

Name: Ageazi Hailemarium

Title: Secretary general

Organization: Ethiopian Textile and Garment Manufacturers Association (ETGAMA)

What’s the number one question or concern you hear from your members now that was never really a consideration before?

The textile and apparel sector is a long value chain, which starts from the agricultural sector with cotton farming to garment manufacturing and fashion design. Supply-side constraints challenge the competitiveness of the sector. Supply of raw material is identified to be the most challenging problem affecting the competitiveness of all actors across the cotton-to-apparel value chain. Manufacturers import fabric, accessories, yarn, chemicals, dyestuff and packaging materials, and there are also some particular cases in the past where cotton is also imported. The high dependence on imported raw material with limitation to access foreign currency is the biggest challenge of the textile and garment industry of Ethiopia.

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Investment policy in the textile and apparel manufacturing sector is a top-down approach, allowing more investment to come in the downstream of the value chain, which is the apparel subsector. With more investment in the apparel subsector, increased demand for raw material, or fabric, has been realized, and this was supposed to attract more investment in the textile sector. However, the sector’s competitiveness is still affected by the supply-side constraints since the textile subsector is not currently meeting the raw material needs of the apparel subsector in terms of quantity, quality and variety of fabrics, as it is the same with supply of cotton to the textile manufacturers.

Hence, I would suggest further incentive to attract more investment envisaged to create the backward linkage in the industry.

Logistics and customs are also the main areas to improve the ease of doing business, considering the fact that there are high costs and lead times affecting competitiveness of the sector, especially in the global market.

Cancellation of the preferential market access of AGOA (African Growth and Opportunity Act) is a major concern for actors in the industry, especially those manufacturers that used to operate under AGOA market access with significant contribution to the export of the Ethiopian textile and apparel sector. The duty-free and quota-free benefit of AGOA not only promoted the export but also attracted more investment and job creation in the textile and garment industry. Hence, this is also one of the major concerns of the textile and apparel industry.

How should factories be evaluating potential brand and retail partners differently now compared to before the pandemic?

Buyers require quality but may look into lower costing and quicker delivery. Factories need to make sure the speed to market is very critical for buyers. Factories also need to evaluate which buyers are a hit-and-run, or one-time order, verses buyers that have interest in strategic partnership.

How can the relationship between these parties evolve?

More trade show and panel discussions to create awareness is important. Buyers should also visit factories to understand the level of capabilities. A buyer delegation to Ethiopia with factory visits and understanding doing business in Ethiopia is important.

Additionally, provide a platform for factories to showcase their capabilities with B2B meetings with buyers.

What should be manufacturers’ top lesson from the pandemic? How can they address this in their operations?

Maintain the social and environmental compliance in the factory to avoid or control future pandemics. They should also strengthen the OHS (occupational health and safety) committee. Educate and share knowledge with all in the factory; health and safety information should not be kept with management only. And the planning department should work on plan A and B for each order process.

What is the state of apparel production capacity in Ethiopia? From your perspective, what is the outlook for 2023?

Local investors are joining the platform to grow the export market. FDI (foreign direct investment) has dropped due to AGOA. There needs to be more focus on Europe, Japan and African markets through the AfCFTA (African Continental Free Trade Area). Projections are that 2023 exports will drop by 40 percent.

How can the Ethiopian government best support the domestic apparel industry during this time?

There is a need to address the pressing challenges that limited growth and competitiveness of the textile and apparel sector in order to fully exploit the huge potential and realize the envisaged foreign currency earning and growth expected from the sector. 

It is important to be conscious of the fact that some of the preferential market access, such as AGOA, has a time limit to reverse some of the special advantages like the third country fabric provision. Therefore, the government should actively attract targeted investors that can provide the backward linkages in terms of fabric production.

Adequate working capital and foreign currency must be availed to manufacturers to overcome the prevailing critical shortage that threatens the very existence of manufacturers in the industry.

Similar to the FDIs (foreign direct investments) within the industrial parks, it is also recommended for support organizations like customs, banks and investment agencies to prepare accountable and effective special window access to the local enterprises.

If companies aren’t already producing in Ethiopia, why should they consider using it as a sourcing location?

A large younger population for production for the next 40 years and quality stitching.

What keeps you up at night?

Policy issues that are affecting by large the competitiveness of the industry; finance, especially FOREX and bank facilitations, high tax, logistics, customs, etc.

What makes you most optimistic?

The growth of the sector and the potential of the sector to create employment. The policy measures to liberalize the financial sector is a good start, which will hopefully ease access to finance and attract more investment into the sector to increase job creation.