Today, East Africa is becoming a growing local free trade zone for goods, labour and services making Tanzania, Kenya, and Ethiopia a large hub.
Producing in East Africa – Benefits and Challenges
While factors such as political stability, education levels, infrastructure, and other issues affect individual nations within the region, each country is seeing increased growth within the sector despite challenges:
With over , Ethiopia has increased textile production capability and capacity. With easy access to land and a stable political environment, Ethiopia has fostered a liberalized free trade market economy. Foreign investment has risen from $166.5 million USD in 2013/145 to over $1.3 billion USD in 2016/17 and Ethiopia has targeted $30 billion USD in exports by 2030. Spurring this growth has been the ratification of the African Continental Free Trade Area (AfCFTA) which is expected to boost intra-Africa trade by more than 50% by progressively removing tariffs. Specifically, removal of tariffs on textiles and the settlement of some minor trade issues between countries such as Ethiopia and Kenya have paved the way for full ratification of the agreement. As the removal of tariffs accelerates among member countries, and as raw materials and environmental regulations impact Chinese and Asian manufacturers, Africa is poised to become an alternative to former powerhouses such as China, India and Turkey.
Despite the optimism, there are still numerous challenges for investment and growth. Infrastructure is poor, affecting transportation routes for cotton and finished goods. A new rail line to ports in Djibouti is expected to help, but more needs to be done. Supply bottlenecks are costly and lead times are long with production in Ethiopia taking 45-60 days longer than other countries. Finally, skills shortages affect quality awareness, effective management, and efficiency.
Kenya’s approach includes strong government efforts to provide a climate for textile growth. It’s use of English as an official language gives it significant advantages in global trade. It imposes import duties ranging from 0%-100% with an average duty of 25%. Imported goods are also subject to a VAT of 16% based on the CIF value of the freight. Kenya also offers a 10 year tax holiday, unrestricted foreign ownership and other incentives for exporting firms within the Export Processing Zone (EPZ). This has created approximately 300,000 direct jobs and almost 3.7 million indirect jobs for the economy. The sector also supports over 200,000 small-scale farmers producing local cotton.
Unlike Ethiopia, Kenya has a difficult time luring new textile investment. It is one of the largest importers of second-hand clothing which has affected the textile industry for many years as consumers prefer these second-hand goods locally. Many textile firms have worked to combat this trend by producing speciality or niche market goods such as uniforms.
The country also suffers from skills shortages in both production labour as well as effective management which impact textile quality control and reduce available quality management solutions. Electricity costs are higher and infrastructure constraints impacts logistics. The country also has complex regulations governing the industry and a contentious situation with trade unions within the textile sector.
As the world’s fourth largest producer of organic cotton, Tanzania saw its cotton exports rise by 55% in 2016 to $46.8 million USD, up from $30.2 million the previous year. It also has reserve agricultural capacity to produce even more depending on market and weather conditions. The country expects its textile and apparel sector to continue to grow as its political and social stability continues to grow as well. Tanzania also benefits from a lasting impact of colonialism including a cheap English-speaking workforce and good transportation infrastructure. It also benefits from duty-free access from EU and US markets and from South Africa. These factors have helped Tanzania become a leading sourcing sector and has driven increasing foreign investment.
Limitations include the country’s size and a lack of experience and expertise in higher end and high-quality goods. It has struggled at times with introducing value-added goods for export. Other constraints include weak regulatory processes, limited farmer knowledge and either low quality or limited availability of supporting services including quality management solutions.
As the second largest sub-Saharan exporter to the EU, Madagascar’s textile and apparel sector has begun to rebound. Like other East African countries, the AGOA enactment in 2000 saw seen exports to the US increase from $109.5 million USD in 2000 to $323.3 million USD in 2004. But additional political turmoil saw a reduction of almost 75% after 2009 until again stabilizing and returning to double digit growth by 2015. Since 2015, the Everything but Arms arrangement of the EU’s Generalised Scheme of Preferences (GSP) meant that once again, Madagascar textiles saw export shipments increased to over $320 million USD to the EU. Coupled with lower wages compared to other East African nations, as well as a deepening political stability, Madagascar has been able to offer a more stable investing environment.
Challenges to the island nation of 24 million include extreme poverty and poor infrastructure. Like many East African nations, lack of expertise, skilled labor and competent management impact the industry’s growth. The country also experiences high electricity costs and logistics issues at port locations.
Partnering for the Future
While the challenges facing East African fabric producers, garment makers, and cotton suppliers are numerous, there are partners that can assist in developing the skills and capabilities required to optimize performance through the period of growth. For countries such as Ethiopia and Tanzania who are further along in growth, SgT offers services to build and enhance a company’s appeal to brands including CSR auditing, production consulting and capacity building to optimize production processes and best practices.
Countries such as Kenya and Madagascar can benefit from services to build practical skills such as inline and final inspection, laboratory testing and quality control and quality audit solutions. For countries whose sector includes a heavy emphasis on cotton production or for those seeking a marketing brand appeal, SgT offers sustainability services for manufacturing as well as green claim and recycling. SgT offers a large scope of products and segment coverage to support and develop company’s capabilities, technical skills and many of the other issues that specifically challenge today’s East Africa fabric climate.
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