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Study Finds Interest in East Africa Sourcing on the Rise

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Africa has been nicknamed the “new Asia” of the apparel industry of late and a new study reveals interest in the region is rising.

A McKinsey & Company report titled, “Sourcing in a volatile world: The East Africa opportunity” undertook to uncover East Africa’s true potential as a major garment sourcing hub, and found that 40 percent of surveyed buyers said Sub-Saharan Africa will become more important in the apparel sector in the next five years. In 2013, that number was just 24 percent.

When asked to rank which countries would be the most relevant future sourcing locales, respondents listed Bangladesh, Vietnam, Myanmar and Ethiopia—the first time an African nation was named in this context.

“There is extensive potential in Sub-Saharan Africa and it remains untapped. Nevertheless, it is essential to analyze the countries in this region at a granular level. At the moment, Sub-Saharan Africa has only a 0.56% share of the entire global volume of clothing exports. That equates to $2.6 billion,” McKinsey partner Achim Berg, who specializes in advising fashion companies, noted. “In order for all parties to achieve sustainable economic success, companies must work extensively with both governments and suppliers on social and compliance issues.”

Among the 40 chief purchasing officers (CPOs), collectively responsible for a sourcing volume roughly equal to $70 billion, 33 percent of U.S. buyers noted the Sub-Saharan region’s rising importance for their own sourcing strategies, but just 11 percent of European buyers seconded the sentiment. In terms of industry segments, McKinsey saw more interest from value-oriented and premium players than from middle-market apparel companies.

Of the 70 percent of respondents already sourcing from Sub-Saharan countries, slightly more than half deal directly with local suppliers, nearly 15 percent source via Asian suppliers’ headquarters and 32 percent use agents.

As wages rise in China and foreign exchange rates make sizeable shifts, the outlook on Africa has grown increasingly positive. And one key driver that might be painting the continent in a new light is the anticipated long-term growth of its employable population, which is expected to reach China-like levels by 2035.

Ethiopia and Kenya are the key countries currying favor in the Sub-Saharan region, each exhibiting what McKinley calls “the preferred mix of high dynamism and decent sophistication.”

Twenty-eight percent of those surveyed said they expect to start sourcing in Ethiopia by 2020 and 8 percent are planning to increase their sourcing share there. For Kenya, 13 percent said they would start sourcing there and 5 percent said they would grow their existing business.

But both countries face the strengths and weaknesses of a nascent apparel industry, naturally. “Infrastructure in both countries is a challenge, with roads, rails, and ports being challenging to navigate for many players. The number of trained garment workers at present is also a limitation for Kenya and Ethiopia,” according to the report. “It is clear from the analysis that Ethiopia has certain advantages in terms of costs, whereas Kenya’s garment industry has reached higher productivity levels. In all, either one has the potential to gain share in the global apparel-sourcing market.”

However, Berg said, Ethiopia and Kenya also need to work on ensuring social standards and legal security and fight corruption.

To what extent brands and retailers will tap the full potential of the Sub-Saharan market remains to be seen, but the surveyed CPOs, on average, said they plan to increase their currently very low level of sourcing from Sub-Saharan Africa nearly tenfold by 2020, from 0.3% to 2.8%.

In its overarching recommendations for brands doing business there, McKinsey noted, “For buyers, we suggest that it might be the right time to move from conducting pilot projects to making long-term commitments to suppliers in the region. More importantly, we suggest buyers evaluate East Africa as a true strategic sourcing option, rather than a short-term experiment. Partnerships and investments in the region are needed, as the markets as they stand today are not ready to play in the global leagues.”

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