TEXTILE PUZZLE

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In GTP I, the government had planned to generate one billion dollars from textile exports. However, it has earned 427 million dollars in the entire GTP I period, including three quarters of this fiscal year.

It was in 1939, during Ethiopia’s brief occupation by Italy that the first garment factory was established. Since then, the sector has come a long way and 130 medium and large scale textile factories have opened, of which 37 are owned by foreign investors.

Hawassa Textile S.C. is one of the oldest companies, which was established in 1989 under state ownership but as of 2011, the ownership was transferred to Dukem Textile Plc at a cost of 37 million Br. The company produces bed sheets and foam mattress covers, school uniforms, workers uniforms and thread. Of all its products, only thread has made it to the international market, said Eyasu Atnafu, general manager of Hawassa Textile S.C.

According to Amanuel Girma, branch manager of Almeda Textile, just like Hawassa Textile S.C., his company also exports only 20pc of its total production, the rest being sold in the local market. Almeda Textile Plc, established in February 1996, by the Endowment Fund for the Rehabilitation of Tigray (EFFORT), with a capital of 594 million dollars, employs 2,500 people. It has a yearly production capacity of 7,020tn of yarn, 16,751,100tn of grey fabric, 15,387,000tn of processed fabric, and about one million pieces of basic shirt equivalent garments.

This trend is being followed by other textile manufacturers who have submitted their export plan to the government but have failed to fulfill it. Else Addis Industrial Development Plc, which is part of the Turkish company Else Group, is a textile factory built in Adama, 98Km from Addis Abeba, on a 200,000sqm area. The company submitted its plan to export around nine million dollars’ worth of textile products in the nine months of 2014/15 fiscal year but failed to do so by exporting only around three million dollars worth of textile products, according to data from the Ethiopian Textile Industry Development Institute.

The same data show also that Etur Textile Plc, an Ethiopian and Turkish investment company, had planned to derive around 10 million dollars from its exports but made only around two thousand dollars. There is also a company like Adama Spinning Factory, which has exported nothing, despite a plan for two million dollars of exports.

All of these companies failed to fulfill their commitment to the government to export at least 80pc of their production, in line with the government’s aim to enhance foreign currency earnings while working in 90pc to 95pc of their total production capacity.

In the first Growth and Transformation Plan (GTP) period, which started in 2010/11 and will end by the end of this fiscal year in about two months, the government had planned to earn one billion dollars from textile exports. However, export earnings during the entire GTP I, including three quarters of this fiscal year, were only around 427 million dollars, although the expectation was one billion dollars.

Presenting its six-month report of the 2014/15 fiscal year on the performance of the industrial sector to the House of People’s Representatives, Ahmed Abitew, industry minister, pointed out that a major factor contributing to the lower performance of the textile industry was the growing inclination of the textile factories towards the local market versus the international market.

Though there is no official and recorded data on how much of the products are sold locally, the Ethiopian Textile Industry Development Institute is aware of such activities and had even sent warning letters to some of the companies, although that did not achieve much, said Bentihun Gessesse, corporate communications director of the institute.

According to the textile factories Fortune approached, the main reason for the tremendous focus on the local market is the companies’ inability to compete in the international market.

The high cost of production that they incur has made it difficult for them to be price competitive in the international market, said Amanuel. The cost of cotton, which is 60pc of the total cost of production is sold for a higher price than the international market price, said Mengistu Gessesse, marketing manager of Kombolcha Textile S.C., a state owned company established in 1984.

Currently, a kilo of cotton is sold for 34 to 36 Br in the domestic market while at the international market the same amount costs around 26Br. Bentihun, however, argues that the cost issue could not be an excuse for failing to be competitive internationally, claiming that the government has conducted a thorough study on the given price.

Low productivity was the other reason raised in relation to local product competitiveness in the international market. The difference between the ability and skill of an employee in China or another country’s textile factories and Ethiopian textile factories cannot be compared, the former having high productivity, said Eyasu.

For this to improve, the government is developing a benchmark that defines the production capacity of an employee on a daily basis and which will also be a standard for calculating the amount of wages, said Bentihun.

“We are not saying there is no problem in the sector but we expect these factories to fulfill their commitment at least by exporting 80pc or their total production as there are so many incentives the government is providing them to smoothen their way and be competitive in the international market,” he added.

Among these government incentives for textile investors, are land, duty free privileges and financial loans. Investors who wish to engage in the textile sector can access loans for 70pc of the total cost of their establishment if they can bring 30pc of the total cost. Moreover, these investors can also benefit from export opportunities that are created through initiatives such as the African Growth and Opportunity Act (AGOA), the Common Market of Eastern and Southern Africa (COMESA) and the many bilateral trade agreements concluded with Western countries, including the Netherlands, Belgium and Luxembourg.

Therefore, the problem is lack of commitment from the side of textile investors, who would like to take shortcuts and access the easy local market, concluded Bentihun. If this action continues, the government will be forced to withdraw the incentives it is now providing, he added.

Sourced here  http://addisfortune.net/columns/textile-puzzle/

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