The following research report contains market research, analysis, statistics and business intelligence relating to research on Textile And Apparel Sector In Ethiopia.

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ABSTRACT
1. ETHIOPIA HAS A COMPARATIVE ADVANTAGE IN PRODUCING
TEXTILES AND APPAREL. THE COUNTRY HAS A LARGE LABOR
POOL GIVEN ITS POPULATION OF 63 MILLION, WHICH IS
GROWING AT 3 PERCENT EACH YEAR. ITS LABOR FORCE IS
SKILLED AND DEMANDS LOW WAGES. THE COUNTRY'S CLIMATIC
CONDITIONS AND LAND RESOURCES FAVOR COTTON GROWING.
THE ETHIOPIAN TRADE MINISTER ONCE STATED, "IF THE
TEXTILE INDUSTRY CANNOT BE PROFITABLE IN ETHIOPIA, IT
CANNOT BE PROFITABLE ANYWHERE".

2. THE SOCIALIST REGIME, WHICH REIGNED FROM 1974 TO
1991, NATIONALIZED EXISTING TEXTILE AND APPAREL FIRMS
AND AT THE SAME TIME SET OUT TO EXPAND THE SECTOR. THE
AMOUNT OF LAND DEDICATED TO COTTON GROWING WAS
INCREASED TO SUPPLY LINT COTTON. LARGE TEXTILE
FACTORIES TO SUPPLY YARN AND FABRIC WERE BUILT. SOON
THE TEXTILE SECTOR WAS MAKING THE BIGGEST CONTRIBUTION
TO THE GROSS DOMESTIC PRODUCT AND BECAME ONE OF THE
LARGEST EMPLOYERS IN THE COUNTRY.

3. THE INEFFICIENCIES OF A COMMAND ECONOMY EVENTUALLY
TOOK A TOLL ON THE SECTOR. BECAUSE OF NEGLECT, LACK OF
COMPETITION, AND OUTDATED TECHNOLOGY, THE SECTOR COULD
NOT MEET INTERNATIONAL MARKET STANDARDS. AS A RESULT,
THE COTTON FARMING AND TEXTILE AND APPAREL SECTORS WERE
PRODUCING WELL BELOW CAPACITY.

4. REVITALIZING THE TEXTILE AND APPAREL SECTORS IS ONE
OF THE CURRENT GOVERNMENT'S GOALS. SINCE 1996, 14
FIRMS IN THIS SECTOR HAVE BEEN PRIVATIZED. THE
GOVERNMENT INTENDS TO PRIVATIZE 10 MORE FIRMS DURING
2001 AND 2002. THREE OF THE FOUR LARGEST COTTON FARMS
WILL ALSO BE PRIVATIZED DURING THIS PERIOD.

COTTON PRODUCTION

5. THE TOTAL DOMESTIC CONSUMPTION OF COTTON IS 20,000
METRIC TONS ANNUALLY. DOMESTIC PRODUCTION IS
APPROXIMATELY 15,000 METRIC TONS ANNUALLY. ANOTHER
5,000 METRIC TONS OF COTTON IS IMPORTED EACH YEAR.
COTTON IS FARMED AND PRODUCED ON STATE OWNED FARMS,
PRIVATE COMMERCIAL FARMS AND SMALL-SCALE PEASANT
HOLDINGS. THE TEXTILE-MANUFACTURING FIRMS MOSTLY SOURCE
COTTON FROM STATE FARMS AND PRIVATE COMMERCIAL FARMS.
ALTHOUGH SOME COTTON FROM PEASANT FARMS MAY GO TO
COMMERCIAL TEXTILE MANUFACTURING FIRMS, MOST OF THE
COTTON OUTPUT ON PEASANT FARMS IS DESTINED FOR THE
HAND-LOOM INDUSTRY.

6. COTTON PRODUCTION IN ETHIOPIA IS LIKELY TO INCREASE
FROM PRIVATIZATION AND PRIVATE INVESTMENT. DURING 2001
AND 2002, THE ETHIOPIAN GOVERNMENT INTENDS TO PRIVATE
THREE OF THE FOUR MAJOR STATE OWNED FARMS (MIDDLE
AWASH, NORTH OMO, AND TENDAHO AGRICULTURAL DEVELOPMENT
ENTERPRISES). THESE STATE-OWNED FARMS PRODUCE WELL OVER
HALF OF ETHIOPIA'S COTTON PRODUCTION. MORE PRIVATE
COTTON PLANTATIONS ARE BEING ESTABLISHED IN THE
SOUTHERN AND NORTHWESTERN PARTS OF ETHIOPIA. THERE IS
SIGNIFICANT POTENTIAL TO EXPAND COTTON PRODUCTION IN
AREAS NEAR TO ETHIOPIA'S MANY RIVER SYSTEMS.
----------------------------------------
TEXTILE AND GARMENT MANUFACTURING SECTOR
----------------------------------------

7. IN TERMS OF CONTRIBUTION TO GDP, THE TEXTILE AND
APPAREL SECTOR IS THE SECOND LARGEST MANUFACTURING SUB-
SECTOR AFTER AGRO-PROCESSING. THIS SECTOR EMPLOYED
ABOUT 30,000 IN 1998 (THE LATEST FIGURES AVAILABLE),
REPRESENTING 31 PERCENT OF THE TOTAL MANUFACTURING
LABOR FORCE. THE TEXTILE AND APPAREL SECTOR PRODUCED
$94 MILLION (647 MILLION BIRR) IN 1998. APPENDIX A
CONTAINS PRODUCTION DATA. WEARING APPAREL, HOWEVER,
ACCOUNTS FOR LESS THAN 10 PERCENT OF THE COMBINED
TEXTILE AND APPAREL PRODUCTION.

8. COUNTING ONLY MEDIUM AND LARGE-SIZED FIRMS (THOSE
WITH 10 OR MORE EMPLOYEES), THERE ARE 59 FIRMS IN THE
TEXTILE AND APPAREL INDUSTRY: 33 TEXTILE MANUFACTURERS
AND 26 WEARING APPAREL PRODUCERS. THE LARGE-SCALE FIRMS
ACCOUNT FOR THE BULK OF PRODUCTION AND EMPLOYMENT IN
THE SECTOR. THE FIRMS IN THE TEXTILE AND APPAREL
SECTOR ARE ENGAGED IN SPINNING, CUTTING, DYEING,
FINISHING AND SEWING. INFORMATION ABOUT THE INFORMAL
SECTOR IS DIFFICULT TO OBTAIN. ACCORDING TO A SURVEY
CONDUCTED BY THE MINISTRY OF TRADE, THERE WERE 7,600
ENTITIES IN THE INFORMAL SECTOR IN 1987.

9. SINCE THE MID-1990S, THE GOVERNMENT HAS BEEN
PRIVATIZING COTTON FARMS AND TEXTILE AND GARMENT
FACTORIES. TEN STATE-OWNED TEXTILE AND APPAREL FIRMS
WILL BE PRIVATIZED IN 2001 AND 2002. THE ETHIOPIAN
INVESTMENT AUTHORITY FIGURES REVEAL THAT APPROXIMATELY
$170,000,000 WAS INVESTED IN THE SECTOR BETWEEN 1992
AND 2000.

----------------
EXPORT POTENTIAL
----------------

10. THE TEXTILE AND APPAREL SECTOR DEPENDS ALMOST
ENTIRELY ON DOMESTIC CONSUMPTION. DURING 1996 THROUGH
1998, ONLY 1 PERCENT OF THE INDUSTRY'S ANNUAL
PRODUCTION WAS EXPORTED. THE PURCHASING POWER IN THE
DOMESTIC MARKET IS LOW; PER CAPITA INCOME IN 2000 WAS
$102. THE PROFITABILITY OF THE TEXTILE AND APPAREL
SECTOR WILL DEPEND ON INCREASING ITS EXPORTS. THE
AFRICA GROWTH AND OPPORTUNITY ACT (AGOA) OFFERS A
SIGNIFICANT OPPORTUNITY FOR ETHIOPIAN FIRMS TO ACCESS
THE U.S. MARKET.

11. IN AUGUST 2001, ETHIOPIA BECAME ELIGIBLE FOR THE
APPAREL BENEFITS. AGOA AFFORDS ETHIOPIA PREFERENTIAL
ACCESS TO THE U.S. APPAREL MARKET, WHOSE DUTY RATES
RANGE UP TO 18 PERCENT FOR APPAREL PRODUCTS FROM
COUNTRIES THAT DO NOT HAVE PREFERENTIAL TRADE
ARRANGEMENTS WITH THE UNITED STATES. ETHIOPIA
QUALIFIES FOR THE SPECIAL PROVISION FOR LESSER
DEVELOPED COUNTRIES UNDER AGOA. THIS MEANS THAT
ETHIOPIA CAN SOURCE YARN AND FABRIC FROM SUPPLIERS
WORLDWIDE UNTIL 2004. ETHIOPIA CAN ALSO SUPPLY FABRIC
AND YARN TO OTHER AGOA BENEFICIARIES THAT DO NOT
QUALIFY FOR THE SPECIAL PROVISION FOR LESSER DEVELOPED
COUNTRIES AND THAT MUST SOURCE FABRIC AND YARN FROM THE
U.S. OR AGOA-QUALIFIED COUNTRIES.

-----
LABOR
-----

12. ETHIOPIA HAS A LARGE LABOR POOL. THE LABOR FORCE
IS ESTIMATED TO BE 36 MILLION, THOUGH 85 PERCENT WORK
IN THE AGRICULTURAL SECTOR. THE UNEMPLOYMENT RATE IS
ESTIMATED TO BE 40 PERCENT. LABOR IS READILY AVAILABLE
AND INEXPENSIVE. THE LEGAL MINIMUM WAGE RATE IS USD 14
(OR 120 BIRR) PER MONTH. THE AVERAGE WAGE IN THE
TEXTILE AND APPAREL SECTOR IS USD 50 (OR 424 BIRR) PER
MONTH.

13. ETHIOPIA ENJOYS LABOR PEACE. ALTHOUGH THE ETHIOPIAN
CONSTITUTION GUARANTEES THE RIGHT OF ASSOCIATION, ONLY
ABOUT 300,000 WORKERS ARE MEMBERS OF UNIONS. THERE IS
GROWING UNION CONCERN ABOUT THE PACE OF PRIVATIZATION
AND STRUCTURAL ADJUSTMENT AND RESULTING JOB LOSSES.
CHILD LABOR IS NOT A PRESSING ISSUE IN THE FORMAL
ECONOMY, BUT IT IS COMMON IN THE INFORMAL SECTOR. THE
MINIMUM AGE TO WORK AND EARN WAGES IS 14 YEARS OLD.
YOUNGSTERS BETWEEN THE AGES OF 14 AND 18 ARE NOT
PROHIBITED FROM NIGHT AND HAZARDOUS WORK. THE
DEFINITION OF HAZARDOUS WORK INCLUDES WORK IN FACTORIES
OR INVOLVING MACHINERY WITH MOVING PARTS.

---------------------
INVESTMENT INCENTIVES
---------------------

14. SINCE THE OVERTHROW OF THE MARXIST DICTATORSHIP IN
1991, THE CURRENT GOVERNMENT HAS BEEN TRANSFORMING THE
ECONOMY FROM ONE BASED ON A CENTRALLY PLANNED STRUCTURE
TO AN ECONOMY BASED ON FREE MARKET PRINCIPLES. THE
ECONOMY HAS BEEN UNDERGOING LIBERALIZATION,
PRIVATIZATION AND DEREGULATION. THE GOVERNMENT IS
COMMITTED TO ENCOURAGING PRIVATE SECTOR ENGAGEMENT IN
THE ECONOMY. SINCE 1996, OVER 200 STATE-OWNED
ENTERPRISES HAVE BEEN PRIVATIZED. PRICE, EXCHANGE, AND
TRADE CONTROLS HAVE BEEN EASED, ALTHOUGH SOME NON-
TARIFF TRADE BARRIERS REMAIN.

15. INVESTMENT FACILITATION. THE ETHIOPIAN GOVERNMENT
RECOGNIZES THE IMPORTANCE OF FOREIGN INVESTMENT IN
DEVELOPING ITS PRIVATE SECTOR AND REDUCING POVERTY.
THE INVESTMENT CODE WAS REFORMED RECENTLY TO PROMOTE
FOREIGN INVESTMENT. A ONE-STOP-SHOP CENTER IN THE
ETHIOPIAN INVESTMENT AUTHORITY WAS CREATED TO ASSIST
INVESTORS WITH OBTAINING NECESSARY APPROVALS AND
FINDING LAND TO LEASE. LOCAL CONTENT REQUIREMENTS ARE
NOT REQUIRED BUT ARE STRONGLY ENCOURAGED.

16. TAX STRUCTURE. ETHIOPIA'S TAX STRUCTURE SHOWS THE
GOVERNMENT'S OPENNESS TO PRIVATE INVESTMENT. SALES TAX
RATES ARE 4 PERCENT AND 12 PERCENT DEPENDING ON THE PRODUCT. THE
EXCISE TAX RATE RANGES FROM 10 PERCENT TO 150 PERCENT
ON SELECTED ITEMS. A 15 PERCENT VAT WILL BE INTRODUCED
IN JANUARY 2003. CUSTOMS DUTIES RANGE FROM ZERO TO
40 PERCENT. FIRMS CAN SEEK TRADE TAX EXEMPTION FOR IMPORTS OF
INVESTMENT CAPITAL GOODS, SUCH AS PLANT, MACHINERY, AND
EQUIPMENT. COMPUTERS AND VEHICLES ARE UNFORTUNATELY
NOT TAX EXEMPT. FIRMS CAN APPLY FOR DUTY DRAWBACK
SCHEMES, WHICH EXEMPT CUSTOMS DUTIES ON RAW MATERIALS
PROCURED FOR THE PRODUCTION OF EXPORT PRODUCTS.

17. INCOME TAX HOLIDAYS RANGING FROM ONE TO FIVE YEARS
ARE AVAILABLE DEPENDING ON THE PRIORITY AND LOCATION OF
THE NEW INVESTMENT. INCOME FROM PROJECT EXPANSION IS
ALSO EXEMPT FROM INCOME TAX FOR UP TO TWO YEARS
DEPENDING ON THE PRIORITY OF THE ACTIVITIES INVOLVED.
CAPITAL REMITTANCES BY FOREIGN INVESTORS ARE ALLOWED
AND ARE EXEMPT FROM TAXES. THE CORPORATE INCOME TAX
RATE IS 35 PERCENT.

--------------------
INVESTMENT DRAWBACKS
--------------------

18. ALTHOUGH ETHIOPIA PRESENTS MANY OPPORTUNITIES FOR
INVESTORS, IT SUFFERS FROM SOME DISADVANTAGES. THE
COUNTRY IS LANDLOCKED, HAS WEAK TRANSPORTATION AND
COMMUNICATIONS LINKS, HAS NOT PRIVATIZED LAND
OWNERSHIP, AND HAS NOT SUFFICIENTLY REFORMED ITS
FINANCIAL SECTOR.

19. TRANSPORTATION LINKS. ETHIOPIA USED TO ENJOY
ACCESS TO ERITREA'S ASSAB AND MASSAWA PORTS FOR ITS
TRADE TRAFFIC. WHEN THE 1998 ETHIO-ERITREAN WAR BEGAN,
ETHIOPIA WAS FORCED TO DIVERT ALL OF ITS TRADE FLOWS TO
THE PORT OF DJIBOUTI. IN THE SHORT-TERM, ETHIOPIA WILL
HAVE TO RELY EXCLUSIVELY ON THE DJIBOUTI PORT. THE
DJIBOUTIAN GOVERNMENT HAS HIRED A PORT MANAGER THAT IS
MODERNIZING THE PORT TO INCREASE ITS CAPACITY. IN THE
MEDIUM- TO LONG-TERM, PORTS IN SOMALIA, SUDAN AND KENYA
MAY BECOME OTHER ALTERNATIVES.

20. OVER THE LAST DECADE, THE ETHIOPIAN GOVERNMENT HAS
INVESTED IN EXPANDING THE ROAD AND RAIL NETWORKS. BUT
THE TRANSPORT INFRASTRUCTURE REMAINS IN A POOR STATE.
ETHIOPIA CONTINUES TO HAVE ONE OF THE LOWEST ROAD
DENSITIES IN THE WORLD.

21. COMMUNICATIONS SYSTEMS. SIMILARLY WITH
COMMUNICATION SYSTEMS, ETHIOPIA HAS ONE OF THE LOWEST
TELE-DENSITY RATES IN THE WORLD. THE GOVERNMENT IS
WELL AWARE OF THE URGENCY IN ADDRESSING THE SITUATION.
THE GOVERNMENT HAS INVESTED IN UPGRADING ITS LAND AND
MOBILE COMMUNICATIONS SYSTEMS, AND HAS RECENTLY
UPGRADED ITS INTERNET BANDWIDTH. PLANS ARE UNDERWAY TO
PARTIALLY PRIVATIZE THE FIXED LINE COMMUNICATIONS
SYSTEM IN 2002.

22. FINANCIAL SECTOR. THE FINANCIAL SECTOR NEEDS TO BE
FURTHER LIBERALIZED AND FOREIGN PARTICIPATION SHOULD BE
ALLOWED TO IMPROVE COMPETITION AND THEREFORE SERVICES
PROVIDED TO THE PRIVATE SECTOR AND CONSUMERS. FOREIGN-
OWNED FIRMS CAN ACCESS LOCAL CAPITAL, ALTHOUGH LOCAL
FIRMS REPORT THAT ACCESS TO CAPITAL IS DIFFICULT.

23. LAND OWNERSHIP. THE COUNTRY'S LAND TENURE SYSTEM
IS AN IMPEDIMENT TO INVESTMENT. THE GOVERNMENT DOES
NOT ALLOW PRIVATE LAND OWNERSHIP. INVESTORS CAN,
HOWEVER, LEASE LAND FOR UP TO 99 YEARS. THE ETHIOPIAN
INVESTMENT AUTHORITY FACILITATES THE LAND LEASE
PROCESS.

24. INDUSTRIAL DEVELOPMENT ZONES. ETHIOPIA DOES NOT
HAVE ANY EXPORT PROCESSING ZONES. PLANS TO DEVELOP
INDUSTRIAL ZONES IN SEVERAL REGIONAL CITIES ARE UNDER
DISCUSSION.

-----------------------------
BEST PROSPECTS FOR U.S. FIRMS
-----------------------------

25. INVESTMENT OPPORTUNITIES EXIST FOR U.S. FIRMS TO
INVEST IN COMPANIES THAT ARE BEING PRIVATIZED. THE
OVERSEAS PRIVATE INVESTMENT CORPORATION IS OPEN FOR
COVER IN ETHIOPIA.

26. PROSPECTS ALSO EXIST FOR U.S. EXPORTERS BECAUSE
TEXTILE AND APPAREL FIRMS ARE CONTINUALLY UPGRADING AND
MODERNIZING THEIR PRODUCTION PROCESSES BY BUYING NEW
EQUIPMENT AND MACHINERY AND SEEKING GLOBAL MARKET
INFORMATION. EXPORT OPPORTUNITIES ARE AVAILABLE FOR
U.S. PRODUCTS AND SERVICES IN THE FOLLOWING PRODUCTION
AREAS: COTTON FARMING AND MILLING; CHEMICALS AND DYES;
PACKAGING MATERIALS; SPINNING; WEAVING; DYEING AND
FINISHING; CUTTING; SEWING; INSPECTION AND QUALITY
CONTROL; WATER TREATMENT AND BOILERS; TRAINING; AND
MARKET RESEARCH.

27. REGARDING TRADE FINANCE, THE SERVICES OF THE EXPORT
IMPORT BANK OF THE UNITED STATES ARE ONLY AVAILABLE FOR
SPECIALLY FINANCED TRANSACTIONS. AN EX-IM SHORT-TERM
INSURANCE PILOT PROGRAM WILL START IN ETHIOPIA IN 2002.
THE LOCAL PRIVATE BANKS PROVIDE FINANCING BUT REQUIRE A
LARGE PERCENTAGE OF ANY LOAN IN COLLATERAL, USUALLY
CASH OR DURABLE CAPITAL.

28. PRICE IS THE MAIN FACTOR CONSIDERED BY MOST
POTENTIAL BUYERS OF EQUIPMENT AND MACHINERY. THE SECOND
FACTOR IS LOCAL AVAILABILITY OF SERVICE AND SPARE
PARTS. HIGH QUALITY IS USUALLY THE THIRD ELEMENT
CONSIDERED.

-------------------------------
29. APPENDIX A: PRODUCTION DATA
-------------------------------

PRODUCT TYPE 1996 1997 1998

COTTON FABRICS (SQ. METERS) 47,599 34,577 38,030
NYLON FABRICS (SQUARE METERS) 5,161 4,193 4,722
ACRYLIC YARN (TONS) 277 2,420 1,257
COTTON YARN (TONS) 4,440 3,133 2,657
SHIRTS (DOZEN) 10,939
12,376 16,266
NON-LEATHER APPAREL (DOZEN) 26,407 21,883 35,988
SWEATERS (DOZEN) 5,317 5,161 2,165

--------------------------------------
30. APPENDIX B: BACKGROUND INFORMATION
--------------------------------------

COUNTRY COMMERCIAL GUIDE:
WWW.USATRADE.GOV/WEBSITE/CCG.NSF

ECONOMIST INTELLIGENCE UNIT, COUNTRY PROFILE ON
ETHIOPIA: WWW.EIU.COM

ETHIOPIA INVESTMENT GUIDE:
WWW.ETHIOINVESTMENT.ORG

ETHIOPIAN INVESTMENT AUTHORITY WEBSITE:
WWW.ETHIOINVESTMENT.ORG

AFRICA GROWTH AND OPPORTUNITY ACT: WWW.AGOA.GOV
31. THIS REPORT WAS PREPARED BY THE U.S. EMBASSY IN
ETHIOPIA AND THE U.S. DEPARTMENT OF COMMERCE.

DISCLAIMER
Information in this report relies on sources including Government Publications, Opinions of industry experts and other public sources. Infomat can accept no responsibility for the accuracy or completeness of such information or for loss or damage caused by any use thereof. All prices subject to change without notice.

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Published: 2006 August
Market: Mens Womens Childrens
Region: Ethiopia
Industry: Textiles
Pages: 45
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