With low labor costs, even lower energy costs and a sizable, available workforce, Africa is primed for investment and savvy manufacturers want their share of the pie.
To enlighten interested companies on opportunities and challenges when sourcing in Africa, expert panelists at last week’s Africa Sourcing and Fashion Week in Addis Ababa, shared their insight on investing in the region.
For Siddharth Sinha, founder and executive chairman of Velocity Apparelz Companies, which has manufacturing operations in Ethiopia, it was the African Growth and Opportunity Act (AGOA) that made the company even consider the region.
“We had a need for expanding capacities,” he said. “AGOA was the reason we came here. We traveled the entire country for six months and what we found was that we just loved the people of Ethiopia, the attitude, the drive that exists. The entire situation of Africa is just right.”
Africa, Sinha said, is really the last frontier for labor-intensive product.
Its population of 1.1 billion, 70 percent of which are under age 30, makes Africa rich with a young and able labor force. And its need for jobs means garment industry, with its low required skill level, could considerably shift the country’s economic conditions.
Africa also grows 6 percent of the world’s cotton, for one, and if local players can turn the region into a fabric producer, Africa’s speed to market could start to be more attractive.
Sanjay Jadhao, whose Jadhao Layland manufacturing group is just starting to show interest in sourcing in Africa, also likened the region to Bangladesh because of its rapid rise.
“If you look at Bangladesh in the early 90s, they were nowhere on the map, so things can change here,” he said. “It took Bangladesh 20 years, but I believe it will take Africa only five years—everything is already in place.”
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Roy Ashurst, PVH’s production and sourcing hub leader for Africa and the Middle East, posed a question to Mr. Bandera, a panelist from New Wide Garments, PVH’s largest supplier in Kenya, about the manufacturing group’s plan to invest in the fabric supply chain to address speed to market, and Bandera said New Wide already has plans in place to become vertically integrated in the next three years.
As many may, Sinha said he expected to meet security issues, government resistance and corruption in Ethiopia as is apparent in many developing nations, but found little, if none of that in the country.
“In reality, this place is completely safe, the government is so proactive and they are so keen on developing the country,” he said. “And there is no corruption here at all. We’ve been here two years and not had one incident of anybody asking for anything.”
Power has been a constant concern in terms of its availability and reliability when looking at Africa, but with Ethiopia’s already stable energy at low costs, coupled with the under-construction Grand Ethiopian Renaissance Dam (previously known as the Millenium Dam) slated to be the largest hydroelectric power plant in Africa and the eleventh largest in the world once completed, power in the country will hardly be a problem.
But with any developing nation, nothing is all smooth sailing. In Ethiopia, the willingness to improve conditions hasn’t quite permeated all levels of government, policy issues still remain and the country is going through the growing pains of moving from agro to industry, Sinha explained. Ethiopia’s customs structure could also be developed to allow for easier—and speedier—movement of imports and exports.
Infrastructure has also been challenging and the region is imploring foreign investors to support logistics improvement and development of roads, ports and railway networks.
The investment environment in Africa is already gaining momentum and the region’s existing investors are expecting positive returns.
“We are thinking of this as a socioeconomic project. The biggest asset is the workforce,” Sinha said. “We are committed. We are doing housing [for workers], we have plans for schooling. We don’t want to develop as an industry just to take. We want to give and take, create a sort of township concept.”
Jadhao added, “Ethiopia has an advantage Bangladesh didn’t have because Bangladesh has no raw materials in its country.”