1. ETHIOPIAN TEXTILE INDUSTRY PRESENT STATUS AND FUTURE GROWTH PROSPECTS R B CHAVAN IoTEX BAHIR DAR UNIVERSITY BAHIR DAR, ETHIOPIA rbchavan@hotmail.com

2. ETHIOPIAN TEXTILE INDUSTRY PRESENT STATUS AND FURTURE GROWTH PROSPECTS Prof. R. B. CHAVAN Institute of Technology for Textile, Garment and Fashion Design Bahir Dar University, Bahir Dar, Ethiopia 2010

3. TOTAL NUMBER OF PAGES 300 NUMBER OF CHAPTERS 11 REFERENCES 80 Chapter 1 Ethiopia: general information Chapter 2 Cotton production: Present status and future growth plans Chapter 3 Need for development of grading system for Ethiopian cotton Chapter 4 Assessment of textile sub-sector Chapter 5 Assessment of garment sub-sector Chapter 6 Current status of textile, home textile and garment sector in Ethiopia Chaprter 7 Handloom clusters and export Chapter 7 Handloom clusters and export Potentials of handloom sector Chapter 8 Quality standards care labels and packaging Chapter 10 Swot analysis and recommendations Chapter 9 Strategy for entry into export market Chapter 11 Business in ethiopia: opportunities, incentives and regulations References

4. PRESENT PRESENTATION CURRENT STATUS COTTON SECTOR GARMENT SECTOR TEXTILE SECTOR

5. COTTON SECTOR AREA CULTIVATED 110,000 ha PRODUCTION SEED COTTON 129,000 ton LINT COTTON 47694.4 ton YIELD/ha Seed cotton 1.17 ton STATUS 2009/10

6. IRRIGATED AND RAIN FED LAND Awash valley NORTH OMO (SOUTHERN REGION) ABABO (GAMBELLA REGION) GODE (OGADEN REGION) RAIN FED LAND GONDER (HUMERA REGION), SIDAMO (BILATE REGION) GAMO GOFA (ARBA MINCH REGION) WHERE THE ANNUAL RAINFALL IS MORE THAN 700 MM. COTTON CULTIVATION REGIONS

7. POTENTIALS FOR COTTON CULTIVATION LAND SUITABLE FOR COTTON CULTIVATION 3 MILLION HA PRESENTLY USED 110,000 HA COTTON LAND UTILIZATION 3.6% PAKISTAN 4 TH LARGEST PRODUCER OF COTTON LAND AVAILABLE 2.9 MILLION HA COTTON PRODUCTION 2.5 MILLION TON IF ALL THE LAND SUITABLE FOR CULTIVATION IS USED ETHIOPIA CAN BE ONE OF THE LARGEST PRODUCER OF COTTONIN WORLD

8. REGIONS AND LAND AVAILABLE FOR COTTON CULTIVATION High potential cotton Woredas land suitable % of Total producing areas 38 No. 1.9 million ha 63.3% Low potential cotton Producing areas 79 No. 1.1 millon ha 36.7% Total 117 3 million ha 100%

9. PLANTING AND HARVESTING PERIOD Planting and harvesting periods in different regions Area Planting period Harvesting period Lower Awash June to August November to January Middle Awash and Rift valley April to June November to December Upper Awash April to May September to November Hummera Mettema and Gambella June to August November to January

10. COTTON SPECIES, YIELD AND QUALITY PARAMETERS Species Name Seed cotton Yield with Irriga-tion Kg/ha Seed cotton Yield only Rainfed Kg/ha Quality index Length mm Strength lb/in Fineness mv Evenness % Maturity % Acalasi SJ-2 3250 -- 28.6 39.4 3.2 47.1 77.5 Deltapin t-90 3850 -- 27.7 38.3 3.7 47.7 78.7 Stonell e-1234 3854 -- 27.9 36.1 3.6 47.8 78.0 Carolina Queen 4960 -- 27.2 38.5 3.8 46.5 82.8 Cu-Okra 4950 -- 26.1 39.4 4.0 46.6 83.8 Cucurov A1518 5280 -- 27.0 37.0 3.8 46.6 82.1 Bulk 2020 2242 28.1 38.7 3.5 47.0 75.1 Arba 2030 30.3 40.0 3.5 47.1 77.0 Reba B-50 1804 26.3 36.4 3.2 48.4 70.9 Albar 1672 27.3 40.2 3.5 48.5 73.8

11. MARKETING CHAIN

12. COTTON PRODUCTION THOUGH COTTON CULTIVATION IN ETHIOPIA IS CARRIED OUT FOR CENTURIES IT WAS MAINLY BY SMALL SCALE FARMERS USING TRADITIONAL METHODS BEFORE 1960 COTTON WAS IMPORTED FOR THE PRODUCTION OF TEXTILES COTTON IMPORT 30% OF TOTAL IMPORTS IN THE COUNTRY. COMMERCIAL PRODUCTION STARTED IN 1960 ONWARDS 1960-1992 LARGE SCALE FARMING WAS CARRIED OUT BY STATE FARMS

13. 2008/09 Three state farms Upper Awash, Abobo, and Vegetable and Fruit Development Enterprise. Private farms Lower Awash, Middle Awash, Birale, Humera, Metema and Wollega Small-hold farmers Large number The traditional cottage industries including handlooms and handicrafts were fully dependent on cotton supplied by smallholders. PRIVATIZATION 1992 GOVERNMENT ALLOWED THE ENTRY OF PRIVATE FARMS Present stakeholders in cotton production State farms (2003) Tendaho, Middle Awash, Upper Awash, North Omo Abobo.

14. CULTIVATED AREA AND PRODUCTION SHARE Stake holder Area cultivated % Production share % State farms 30 32 Private farms 43 56 Small-hold farmers 27 12

15. PRODUCTIVITY OF COTTON Type of producer Productivity (T/ha) Rain fed Irrigated Small holders 0.5-1.0 - Private farms 1.5-2.0 2.0-3.0 State farms 1.5-2.0 2.0-3.0 Research institutes 3.5-4.5

16. GINNERIES Total 13 Functional 11 In planning 01 Ginning capacity 200,000 Ton per annum 2009/10 cotton production 227730 Ton Additional Ginnery in planning Location Number Private Addis Ababa 04 Gonder 02 Humera 01 Government Middle Awash state enterprise 01 Tendaho farm 01 South Omo farm 01 Abobo State Enterprises 01 Total 11

17. COTTON PRODUCTION CONSUMPTION, EXPORT AND IMPORT No. Year Lint Cotton consumption Cotton export Cotton import 1 2003/04 31,406 17,218.2 7,562 2 2004/05 16,579 16,156.7 8,189 3 2005/06 27,693 15,517.8 1,228 211.8 4 2006/07 34,184 21,465.5 6,177 669.4 5 2007/08 36,300 16,648.4 11,760 1,295.2 6 2008/09 47,694.4 15,624.9 14,907

18. FUTURE PROJECTIONS FOR YARN PRODUCTION, SEED COTTON REQUIREMENT, LINT COTTON, LAND (2010/11-2014/15) Land utilization 2008/09 3.60% 2014/15 18.10% S. No Year Yarn Production Ton/year Efficiency % Seed cotton Requirement ton Lint cotton Requirement ton Export projection Ton Total Lint cotton ton Land requirement Projection ha 1 2009/10 25858 68 87358 32322 - - - 2 2010/11 46425 90 158049 58478 16986 75464 171550 3 2011/12 60860 90 205609 76075 19364 95440 193655 4 2012/13 93465 90 315765 116833 22075 138908 374977 5 2013/14 127720 90 431491 159651 25166 184818 453533 6 2014/15 170097 90 574656 212622 28689 241312 542858

19. TEXTILE SUB AND GARMENT SUB SECTOR Ethiopia has long tradition of manufacturing textile on cottage industry scale Hand spinning Handloom weaving Major employment generation particularly rural areas TRADITIONAL TEXTILES Estimate 500,000 handloom weavers Even more number of hand spinners

20. INDUSTRIAL TEXTILE MANUFACTURING First integrated textile mill Dire Dawa Textile Mill Established by foreign capital in 1939. (Italian) This was the Beginning of the textile manufacturing on Industrial scale During 196o’s 5 large-scale integrated textile enterprises were established mainly by private capital , The socialist regime, which reigned from 1974 to 1991, nationalized private textile and apparel firms and at the same time established 4 more integrated textile mills to expand the sector in order to satisfy the domestic demand for regular textiles and substituting imported products.

21. TEXTILE MILLS, GARMENT FACTORIES AND ALLIED DATA Organization Government Private Cotton farms 5 (present 3) 5 Ginnery 4 7 Textile mills 7 2 Yarn and Sewing thread 2 - Fibre/Blanket 1 - Handloom 3 (organized) Very large number on cottage scale Garment 5 32 Business Associations Except agriculture 7 1 Educational institute 1 (Iotex) Few more started textile courses) Textile training centres 10 ?

22. CURRENT POSITION Daily production capacity Yarn 106 tons Knitted fabric 59 tonnes Woven fabric 264,000 meters most of the machines are outdated, some up to 50 years old, Spindles 237,000 Looms 1553 Knitting machines 95 country is leasing plants to private Ethiopian investors to increase productions yarn, woven and knitted fabrics

24. FABRICS AND ACCESSORY SUPPLY Domestic market Domestically produced fabric While in majority of cases the clothes for exports are made from imported fabrics. Even the use of accessories such as lining cloth, buttons and zippers depend on import, due to the absence of domestic manufacturing Export market Imported fabric Including the accessories like Zippers Buttons Lining cloth

25. THE MAIN EXPORT PRODUCTS Knitwear (Mostly 100% cotton) T-Shirts, polo shirts, sweaters Pyjamas, underwear Woven garments (Cotton and mixture) Casual shorts Trousers, shorts, Bermudas Work garments corporate fashion and uniforms Outdoor jackets Sports dresses Woven Home textiles Handloom Curtains Furnishing Household Textiles (Handloom) kitchen towels, gloves, napkins etc. table cloth, table mats, napkins sets bed sheets, cushion covers etc.

26. PRODUCTS Domestic Work wear Uniforms for schools, military, government agencies private companies. Exports According to buyer demand

27. GROSS VALUE ADDITION WITHIN THE TEXTILE AND GARMENT PRODUCTION Spinning 15 % Weaving 15 % Knitting 20 % Dyeing / Finishing 12 % Finished Garment / Product 35 %

28. TRENDS IN GARMENT SECTOR AND TYPES OF CO-OPERATION Type of business Buyer responsibility Ethiopian manf. Responsibility Export target gr. 1 Sub-contracting (CM business) Fabric, trims and accessories provided by the buyer Production (Cutting, sewing, pressing, finishing and packaging Garment industry 2. Advanced sub- contracting (CMT business). Fabric provided by the buyer Production Purchase of trims (e.g. buttons, zippers, interlining etc) Garment industry

29. Type of business Buyer responsibility Ethiopian manf. Responsibility Export target gr. 3 RTU (Ready to use) Business. Product samples/ Designs provided by buyer Production Purchase of trims Purchase of all fabrics, yarns and accessories, packaging material etc. Garment industry 4 Ready made business No responsibility Production Purchase of all fabrics and trims Development of basic product design Retail brand/private label Sales intermediaries Large retail

30. The majority of garment manufacturers in Ethiopia works on a CM / CMT The necessity to move from CM/CMT to RTU/ RTS type of co-operation is part of the development trends on the international garment markets . Type of business Buyer responsibility Ethiopian manf. Responsibility Export target gr. Collection business No responsibility Production Purchase of all fabrics and trims Development of product line (multiple products) Brand name marketing Image cultivation Life style concept Sales intermediaries Large retail Specialist retails

32. PRODUCTIVITY AND QUALITY (BENCH MARKS) IN MAJOR GARMENT PRODUCING COUNTRIES OF INSTALLED CAPACITY 1= Eastern and South China 2= Western and Northern China High productivity of Turkey 40 years experience Skilled labor force Qualified technical and managerial staff Qualified designers

33. INTERNATIONAL SYSTEM FOR PRODUCTIVITY INCREASE

34. Because of low labor cost, any improvement in productivity will provide a competitive advantage to Ethiopian garment sector. This should be possible because many garment factories are technically very well equipped it would be important to improve the qualification of the machine operators and internal production planning (e.g. material and work flow etc.) in order to improve productivity. This means that a productivity increase would not require large investments (compared to purchase of new machinery). IoTex can play a major role in productivity and quality improvement by providing training

35. AVERAGE PRODUCTION, TIME FOR SELECTED PRODUCTS (APPROX. IN MINUTES PER ITEM) The average production time per item in Ethiopia is currently significantly higher than in competitive supplying markets which shows, that the level of productivity is also comparably low. Products Countries Southeast Asia (e.g.China, Vietnam, Thailand) South Asia e.g. India, Pakistan, Bangladesh South Estern Europe (e.g. Romania, Bulgeria, Turkey) Ethiopia Basic T-shirt Cotton 6 9 8 35 Basic Polo shirt cotton 7 10 10 45 Basic mens casual trousers, cotton 20 20 25 120 Basic mens casual shirts, long sleeve 18 20 20 80 Mens formal jacket 150 130 120 300 Working overall, cotton 25 25 28 200

36. BENCHMARK ON PRODUCTION OUTPUT Products Average output per hour per operator (Approx. in No. of items per hour) Basic T-shirt Cotton 12-15 Basic Polo shirt cotton 12-15 Basic mens casual trousers, cotton 2-3 Basic mens casual shirts, long sleeve 2-3 Mens formal jacket 1 item each 2-3 hours Working overall, cotton 2

37. Besides a low productivity Ethiopian garment manufacturers likewise show relatively large production capacities but a capacity utilization of average approx. 20-30 % only. This was a result of lack in experience of the factory owners / investors regarding setup of garment production facilities and efficient production planning in general. The availability of production capacities in Ethiopia might be a future advantage but currently responsible for relatively high maintenance and depreciation costs.

38. QUALITY STANDARD Regarding the quality standard of the products in Ethiopia the quality of materials (yarns and fabrics) as well as the quality of workmanship has to be taken into consideration The cotton yarn produced in Ethiopia meets only partly international quality standards and customer requirements because of medium or short staple of raw cotton that is used. In addition to that the finishing of cotton yarn is not yet up to international requirements because of lack of know-how regarding dyeing, softening and other chemical treatments.

39. In case of imported yarns and fabrics material quality meets the export market requirements because purchase is usually made in major supplying markets such as China, India or in co-operation with buyer recommendation of yarn and fabric suppliers.

40. QUALITY OF WORKMANSHIP The quality of workmanship strongly depends on technical equipment and qualification of machine operators there are many garment factories with excellent machinery, lack of qualification and efficiency of operators and line inspectors / production management lead to quality problems and in many cases to an extremely low productivity. One of the reasons for this is the very recent setup of many Ethiopian factories and the fact that most of the factory owners / general managers do not have their origin in textile and garment business. (low garment business experience)

41. LABOR COST Garment production cost in different countries One of the competitive advantages of the garment industry in Ethiopia is relatively low production costs due to a comparably low level of salaries for machine operators. This advantage is partly compensated by low productivity and poor production planning. Basis: medium productivity level of approx. 60 % average number of machine operators 30 Country Approx. cost per working hour In the garment industry 2006 in US $ Germany 21.30 France 16.60 USA 14.90 England 14.60 Japan 11.80 Hungary 3.20 Poland 2.50 Romania 2.00 Bulgaria 1.90 Thialand 1.00 Srilanka 0.80 India 0.60 Pakistan 0.40 Bangladesh 0.30 China 0.25 Vietnam 0.25 Ehiopia 0.15

42. STATUS OF PRODUCT DEVELOPMENT Collection or product development of international standards does not yet exist in Ethiopian garment industry as most of the garment manufacturers were concentrating on setting-up the technical facilities and machinery park of their factories. Some Ethiopian companies started to create own design ideas or basic product designs for the domestic market but are not yet working in an efficient and appropriate manner suitable for prospective export markets. This is mainly due to absence of fashion design school Iotex has taken the lead in this direction As an Iotexian we all should be proud of this historical beginning

44. ANALYSIS SUMMARY Very good technical equipment, very low production costs very low productivity Inadequate staff qualification (e.g. production and marketing) Absence of export marketing to benefit from competitive advantages

45. TEXTILE AND GARMENT EXPORTS Export in 2004/2005 USD 4 million (approx. 0,5 % of total Ethiopian exports) 2005/06 USD 11.0 Million 2007/08 USD 12.6 Million 2008/09 USD 14.6 Million 2009/10 USD 25 million The textile and garment sector in Ethiopia currently plays a minor economic role for the country Export of China and Turkey China USD 81billion Turkey with USD 11 billion. Export targets 2010/11 USD 500 million 2014/15 USD 1 billion

46. FOREIGN INVESTORS CAN PARTICIPATE IN ETHIOPIAN’S TEXTILE INDUSTRY The government of Ethiopia invites companies to participate in the investment of Ethiopia's textile industry by establishing cooperation with Ethiopian public enterprises. Foreign companies can participate in this industry in the following three forms: a) Joint venture b) ownership c) Contract Management

48. Investors have the advantage of Common Market for Eastern and Southern Africa (COMESA), with access to 20 countries and 380m people, Trade rulings that allow duty free exports of textiles through the African Growth and Opportunity Act (AGOA) of the United States, and Everything But Arms (EBA) initiative of the European Union (EU). Liberal government incetives EXPORT AVENUES FOR INVESTORS

49. FOREIGN INVESTMENTS TURKEY INVESTMENT AYKA Textile Industry relocates to Ethiopia Largest Turkey textile company Established in 1988 at Istanbul Relocating textile and garment activities in Ethiopia 2006 Registered as local subsidiary company Ayka Addis PLC Capital USD 100 million Share holders AYKA textiles Yusuf Avdaniz Gurkav Kavalikli AYKA is first largest investment in Ethiopia The company has been granted 15,000 sqm of a plot in Alem Gena, 18Km west of Addis Ababa, from the Oromia Investment Commission. The factory was inaugurated by the Minister of Trade and Industry, and Oromia State Chief in 2008.

50. The company has become fully operational from April 29,2010 Inaugurated by Prime Minister Ato Meles Zenawi AYKA Addis has plans to manufacture its products in two phases, The first phase spinning and knitting, second phase finishing and garment production. Production capacity Spinning plant 20 tons per day Knitting and dyeing plant 40 tons per day. The shifting of Ayka Textile Industry of Turkey, has made the local Government optimistic about the possibility of other big textile companies relocate their bases in Ethiopia. Aim to Create 1000 jobs export worth USD 70 million per year when both the phases become fully opertional

51. U.S. FIRMS PARTNER WITH ETHIOPIA’S ALMEDA TEXTILES IN LONG-TERM APPAREL DEAL Almeda Textiles is a member of the Effort Group, and two U.S. companies, Atlas Manufacturing Group and Pinnacle Textiles, signed agreements in Addis Ababa establishing long term relationships in the apparel sector. Atlas is placing orders with Almeda worth $3 million for T-shirts and other garments for delivery throughout 2010, Pinnacle has forecast orders of kitchen wear valued at $7 million for the same period. These partnerships will lead to initial production volumes of more than one million units of T-shirts, kitchen wear and uniforms per year, providing jobs to over 1000 Ethiopians.

52. NEPSA TEXTILE PLC Nepsa Textile Plc, which is a subsidiary of one of the major textile producers in Turkey, opening a factory in Ethiopia with an initial investment capital of ETB 25 million. Oromia regional government has already provided a 7.5 hectare plot of land to the company in Sebeta, Oromia zone. Nepsa Textile Plc will supply 50% products to domestic market 50% export market including Turkey. Nepsa Textile’s investments in Ethiopia will be beneficial in terms of technology transfer job creation

53. GOVT & TURKISH JV SETS UP TEXTILE UNIT A joint venture, between the Government of Ethiopia and investors from Turkey, has established a new textile unit with an investment of US $78.5 million in Sebeta. It is located at a distance of about 24 km from Addis Abba, which falls under the Oromia Special Zone. This unit will start the manufacturing in January, 2011. The industrial unit was named as Saygin Dima Textile Factory, after the Turkish company – Saygin and the region where the unit is located – Dima. It is going to start three units on a plot of land that was approved by the Investment Board of Oromia Regional State. The company plans to set up facilities for spinning, weaving, and dyeing of textile products. The Privatisation and Public Enterprises Supervising Agency (PPESA) owns 60 percent and 40 percent ownership is held by the Turkish company. MoTI is expecting to generate $50 million from the functioning of these units.

54. INDIAN INVESTMENT SPINTEX INDIA Spintex was established in India in 1972. It has been producing machinery for spinning, weaving and knitting. The company will fully own the factory in Ethiopia. Spintex, has received 50 hectare of land at the Kombolcha Industrial Zone in the Amhara Regional State. It will produce 100 Tons of yarn/day, which is five times the capacity of Ayka Addis. it will export one billion USD worth of products a year in seven years time. The arrival of Spintex is expected to be a major boon for the sector. Spintex has also plans to cultivate cotton on 50,000 ha land

55. THE ITALIAN INTERVENTION ON TEXTILE AND GARMENT SECTOR Programme Aid of Italy decided to assist the Ethiopian Ministry of Trade and Industry with the rehabilitation of seven textile and garment public industries already included in the list of public enterprises to be privatized with a budget of 9 million euros. Currently, these textile and garment factories are either on their way to be or are already privatized. Gulele Garment was bought by a local investor while Adey Ababa and Ediget Yarn are under negotiations to be leased by Italian and local entrepreneurs with an option to buy. Akaki Garment has garnered the interest of a Turkish investor. The Privatizing Agency is evaluating the purchasing offers for Addis Garment. The Kombolcha Textile and the Ethio-Japanese Synthetic Textiles are in the pipe line to begin the privatization process.

56. ETHIOPIAN GOVT. BANS COTTON EXPORT OCTOBER 23, 2010 The Ethiopian government has banned the export of raw cotton due to an increase in demand from local textile and garment manufacturers and a hike in the international price, sources at the Ministry of Trade (MoT) disclosed According to Assefa Aga, general manager of Ethiopian Cotton Producers, Ginners, and Exporters Association (ECPGEA) "The local demand for cotton this year is expected to be 57,000tn while supply is expected to be 51,000tn,“ "If there is no ban on exports, local textile producers will be forced to import cotton from other countries for a lot of foreign exchange." The proposal for the ban on the export of raw cotton, was drafted by the Ethiopian Textile Industry Development Institute (ETIDI),

57. The reason for the ban, aside from the gap in supply and demand, is the gap in the foreign exchange earned when raw cotton is exported as opposed to when value has been added to it. According to Endalkachew Sime, secretary-general of ETGMA, "A kilogramme of raw cotton may be sold for a maximum of 2 dollars," " A kilogramme of garments that requires 1.2kg for its production can be sold for 15 dollars." This is consistent with the draft Five-year Growth and Transformation Plan (GTP), which aims to increase export earnings and import substitution. At the end of the five years in 2015/16, revenues from the export of textiles are expected to reach 100 million Br, according to the GTP.

58. The MoTI aim to have annual revenue of US $500 million by 2011 (2008/09 14.5 million USD) for which the Government must bring nearly 191 enterprises that can make the capital investment of $1.6 billion. GOVERNMENT’S AMBITIOUS AIMS MOTI aims to install around 48 spinning units, 31 for grey textile production, 22 in knitted sector, 53 in woven, 31 in garments 6 for finished textiles. Export earning USD 1 billion per year

59. We as Iotexian technologists and designers have greater responsibility and major role to play in providing technology support in terms of Producing quality technical manpower Human resource development Technology development through research Technology transfer Whole nation is anxiously looking at our out put I AM SURE WITH HARD WORK AND COLLECTIVE EFFORTS WE WILL COME WITH FLYING COLORS

60. DON’T THINK WHAT NATION IS GIVING TO US THINK WHAT WE CAN GIVE TO NATION John F Kennedy Let us all imbibe the above message for nation building