Doing Business in Ethiopia: Are You Aware Of This ONE Special Sector Strategy ?

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Addis_Ababa_City_View

First, a short story

A friend of ours recently returned back to London from Addis to give birth. It seems her trust in the British health care system has prevailed, but she prefers to spend most of her time in Ethiopia now.

“Gosh, I don’t know how you guys live in these small houses, I have no idea how I did it for all these years.” She says when we were all relaxing in the living room listening to her stories of success. Having taken the decision to start a business in Ethiopia’s capital from scratch just over a couple of years ago, she now runs a successful fashion boutique importing designer garments from Europe. And she has started her own fashion line using local fabric. She sells those garments abroad.

“So how is it going with your business?” I ask.

She smiles: “Thanks God, it is going very well. Very well.  Really. I did not expect it to go so well to be honest.” These are pretty much her exact words. “People in Addis just have a lot of money now. I don’t know where they get it all from.” She adds.

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Our friend’s business concept is simple: She got herself a ‘yellow card’, that’s what she called the licence to get you started. She rented a small shop and is now buying high-quality, fashionable garments selling those in her boutique alongside her own clothing line, which she is planning to expand for export.

Without being aware of it, she tapped into one of Ethiopia’s most dynamic sectors: the textile and apparel sector.

But before I tell you all that is special about this sector in Ethiopia right now, it may be worth mentioning quickly that Ethiopia’s image is changing at an extraordinary scale. Ethiopia is Africa’s fastest growing non-oil economy with a GDP annual growth rate counting a staggering 10-11% over the last few years, even if that has dropped slightly to about 8.5% in 2013.

The country was for decades a byword of poverty, and although it today is still one of the poorest countries in Africa it is growing at an immense speed; the hope is that much of that is trickling down to the poor segments in the society. Right now, new construction projects have completely changed the view of the capital city Addis, major wind farms and dam sites – the biggest in Africa – have made headlines, over 30 universities are spread across the country, a new light train railway is planned (including underground stations!) , and the number of millionaires in the country is growing very fast.

In the midst of such dynamics the question is: of which ONE smart sector strategy exactly should you be aware when contemplating doing business in Ethiopia right now?

Here it is: Textiles for Export

Look, this really is a fast advancing trend in Ethiopia right now that you should be aware of.  At the beginning of this year global fashion retailer H & M have started a small-scale production in Ethiopia. “I think that there is great potential in sub-Saharan Africa when it comes to production,” H & M CEO Persson told the media. ”We have started producing on a small scale in Ethiopia and we will see how it goes. It seems very interesting.”

Just a few months earlier it was announced that some of Turkey’s major textile companies will start production in Ethiopia. Ethiopia has become a very important partner for Turkey, the textile industry has a great stake in this, and this partnership is growing.

There is easy access to quality cotton and a wide range of fabrics in Ethiopia, including the sophisticated traditional embroidery, which remains very popular with the Ethiopian Diaspora and which could become trendy across the wider Africa region.

But there is really a much more powerful development happening in Ethiopia’s textile industry: “Ethiopia offers a number of advantages, said Thomas Ballweg, a procurement and technical consultant at GermanFashion. “On the one hand are the lower costs – much lower than in China – with 80 million people living there. And, it’s near the sea – and quick to get to Europe via the Suez Canal,” Ballweg said. “This could shorten delivery time by a third compared with coming from the Far East.”

Did you hear that? Experts suggest that Ethiopia could be the new Bangladesh or China regarding the production of cheap apparel and clothes for the global market!

The Ethiopian government is of course aware of this competitive advantage and invited Chinese investors to the country in January suggesting that China starts producing its textiles in Ethiopia. It would be exported from there as…’Made in Ethiopia’.

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Well, such developments explain the government’s optimism: The government aims to export more than a billion dollars worth of apparel by the end of the fiscal year 2014/2015. Well, that’s pretty much around the corner. In a bid to meet the government’s ambitious plan, 58 additional mid-level textile companies joined the export sector last September. But many struggle to keep up, as input is high, but plant and management capacities, and infrastructure often insufficient resulting in decreased output.

If you are Ethiopian living in the Diaspora, it would be a huge opportunity missed if you are not planning to tap into this growth story, having said that, the textile industry is of course just one industry on the rise, but one that receives special attention.

(note: by the way, the news about both the Turkish and Chinese textile investors are several months old, yet they still make up the featured headlines on the website of the Ethiopian Investment Agency today when I wrote this article. I just realized that when looking for a link to insert into this blog,…well, I take that as supporting evidence…)

It is slightly harder for non-nationals to do business in Ethiopia. The business environment is not an easy one to tap into, in particular compared with other countries in the East African region. But Ethiopia’s government is clearly driving two systems forward in their economic development agenda: The textile industry and…exports.

Now, to combine the two gives you a clear advantage in regard to the level of support you are likely to receive with your new venture and the market outlook (Tip: the combination agriculture/food and export is another top strategic sector combination for those planning to do business in Ethiopia).

Many of Ethiopia’s industries are state controlled and difficult to tap into. The textile industry may be a good strategic choice, as it seems that the government has clearly opened up this market and created a more enabling business environment.

A friend in Ethiopia told me: They have the material, the manpower, and the talent to make the products, what they don’t have are designers and business concepts that sell (that probably explains why the other friend did so well importing fashion labels from Europe and selling it to those with money in Addis).

Your smart business opportunity and strategy:

POSITION YOURSELF!

Your are tapping into a strong growth market that is fully supported by Ethiopia’s government.

Manufacturing companies and as we heard attractive designs are both needed. Important is that you do not try to be everything for everyone, especially during the start up. Find your niche, and remember that you do not need to own the manufacturing company to make this work. Look for mutual partnerships to get you started small, and then you can grow your business once you have tested your market and you know what works.

A related area would be the production of accessories for the textile industry, which is a great niche you could get into.

If you have some money to invest, the textile industry is a smart choice.

To position yourself now means aiming to be ready when Ethiopia reaches its peak as a global player in the textile industry, because that exactly is the goal.

If you are interested in this sector you should take the time to watch the latest YouTube Video ‘Textile Industry in Ethiopia’ as it provides a range of insights into the enabling environment and benefits. Click on the link to watch the video.

If you want to start something in Ethiopia and textiles are not for you, the second smart sector strategy, in my view, with similar exciting dynamics and outlooks is to combine agricultural goods with export. I shall cover that in one of my future blogs.

I will also continue to write about strategic business decisions for Africa, in various forms, because there is simply not much information in this regard out there.

I hope you find the article useful and it may have enhanced your idea of how to build a strategic business concept in other countries when doing business in Africa. Is there any area you can think of that I should explore? Please leave your comments below.

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Source:  http://africajumpstart.com/2014/03/20/doing-business-in-ethiopia-are-you-aware-of-this-one-special-sector-strategy/

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