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New Report Calls Ethiopia a High Risk for Apparel Sourcing

Ethiopia might be enjoying some good run as the most talked about upcoming sourcing spot but a new report says security and human rights concerns may serve to undermine all of that.

In a risk briefing on Ethiopia, risk management firm Verisk Maplecroft stated land rights for cotton production are likely to get more controversial as droughts intensify, and the likelihood of future protests affecting the apparel sector is “high.”

Ethiopia has put much of its efforts toward expanding its apparel sector. The government has put a 15-year cotton development strategy in place, it’s paved the way for investors to set up shop in the country, the country now has Africa’s largest industrial park in Hawassa, and two more industrial parks that will be designated for apparel are presently under construction.

All this aside, as the Verisk report noted, “the country’s reputation as a stable destination in an unstable region has been severely undermined by protests in 2016. When Verisk Maplecroft conducted on the ground research in February 2017, we found that these issues, along with concerns over labor rights, would likely pose major risks for cotton producers over the coming five to ten years.”

In October a spate of anti-government protests in Ethiopia’s Oromia region turned violent after dozens of people were killed in a stampede after police fired bullets and released tear gas to disperse protesters. When the government couldn’t quell the protests after a week, it declared a state of emergency, which both served to cast a negative pall on the up and coming country and brought about a U.S. State Department travel warning that said foreign factories were a target as several textile factories were attacked and some destroyed during the unrest.

Cotton producers still face a slew of risks

Though the Ethiopian government has continued to put money into the domestic cotton sector to help wean it off a complete reliance on foreign imports, Verisk’s risk scores point to serious concerns surrounding land grants, child labor and water pollution. (By comparison, however, Ethiopia had four areas of high concern compared to India which had serious risk concerns in six areas).

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“Many of these issues are unlikely to be resolved over the coming five to ten years,” Verisk said. “The labor law has a number of weaknesses, as confirmed by a legal advisory firm interviewed in Addis Ababa in February. The firm stated that protection standards were particularly low in agribusiness. Workers are frequently exposed to harmful chemicals, without repercussions for employers.”

Land disputes will threaten cotton production

Last year’s protests in Oromia came about because of a dispute over land ownership, according to Verisk.

As a foreign trade advisor interviewed in Ethiopia’s capital Addis Ababa explained to Verisk, foreign investors were once considered neutral, but that has changed with the controversy over the government’s land allocation policies.

“The government assigns ‘empty’ government-owned land to foreign businesses, but this often includes land that communities consider to be jointly-owned grazing land,” the report noted. As drought and food insecurity worsen and the country’s population doubles as its expected to over the next 30 years, concerns over land usage will likely worsen. “Although the government will continue to favor cash crops, investors are likely to become increasingly unpopular in the communities that they rely on for both their security and their workforce.”

Growth in the country will continue to slow

According to Verisk, there is a 67 percent chance that government stability will deteriorate over the next two years, mostly because the government isn’t addressing the underlying issues causing the protests.

“The cotton sector will be increasingly exposed to security and reputational risks, limiting the opportunity to expand sustainable production,” the report noted. “Therefore, businesses viewing Ethiopia as an opportunity to diversify their textile and cotton supply chains will need to navigate a multitude of risks across their product value chains.”