By Mike Flanagan
The apparent benefits of Ethiopia also make the country a serious risk – both politically and commercially – for apparel and textile investors
(Just-Style) — The apparent benefits of Ethiopia make the country a serious risk – both politically and commercially – for apparel and textile investors, Mike Flanagan believes. And the partial destruction by rioters of the Saygin Dima mill illustrates all too well the short-term superficiality of too many ‘visionary’ sourcing strategies.
Since concern started to mount six years ago about rising wages in China, many businesses have been casting round for a country that might be a cheaper place to buy clothes from over the next decade.
Consultants consistently suggest looking at Africa, and the Ethiopian government has a well-written development plan for apparel and textile production – so naturally Ethiopia keeps featuring on ‘Where’s the next Shangri La?’ lists.
But that well-written government development plan is the problem; and our industry is in complete denial about it. The plan is not just running years behind schedule – which is almost inevitable in any government’s plans for encouraging textile and apparel production. Far worse: it is constructed on assumptions that are commercially and morally nonsensical.
Start with the violence at the Saygin Dima mill
Rioters attacked Saygin Dima, in Sabeta around 35 km from Addis Ababa, on 5 October. Its general manager said they wrecked about a third of the mill, reported to employ about 1,000 people in spinning and weaving cotton.
The riot was just one incident in a week-long wave of violence throughout the surrounding Oromia province, in which at least 55 people (though some reports claim 700) had been killed three days earlier during a police attack on a generally peaceful anti-government protest. Other businesses so far destroyed include Dutch flower farms.
Why the protests?
Protest in Oromia is nothing new. It has been going on for the past ten years, and the past few weeks’ violence isn’t new either, though it has recently escalated.
Protesters claim the government’s plan is based on massive State expropriation of land without compensation – and that the benefits are going to a tiny number of government cronies. Those protests have complex ethnic, human rights and sustainability sub-plots – but they’re protests that are the almost inevitable result of the plan, and that I’ve been pointing out for some time.
Those regional protests have been spiralling. After the deaths and destruction of the first week in October, the Ethiopian government declared a national State of Emergency on Saturday (8 October), and its first steps were to block all mobile internet ad social media in the country’s capital. New measures are emerging as I write.
What’s Ethiopia’s attraction to our industry?
At first sight, Ethiopia sounds perfect. Low wages, low energy costs from a large hydroelectric system, plans for ample local cotton supplies, State-funded factory complexes and even Africa’s first electrified railway to get finished goods to the port at Djibouti, 750 km away, in less than half a day. No wonder PVH recently announced its Ethiopian factory would contribute to taking Africa up to 25% of its production over the next five years.
Ethiopia inaugurates Africa’s first electric railway
But the apparent benefits of Ethiopia make the country a serious risk – both politically and commercially – for apparel and textile investors.
Why manufacturing in Ethiopia poses unique political risks
Ethiopia’s current carnage is closely tied up with the development plan that’s being touted as the answer to our industry’s perceived sourcing problems. It’s not just expropriating land. It’s imposing vast cotton producing areas into a country that struggles to grow enough food – at a time the world’s got all the cotton it needs. And grand plans like fast railways and huge hydro-electric programmes risk creating vast environmental damage.
Now Ethiopia needs more productive jobs, and you don’t get those jobs without proper manufacturing facilities, power and transport links.
But introducing all that infrastructure requires great political sensitivity – and the events of the past few weeks demonstrate Ethiopia simply isn’t able to manage huge change without creating intense suffering for its most vulnerable citizens.
The problems in Oromia province can’t be tackled by the apparel industry alone, in the way that safety problems in Bangladesh factories are being eliminated. They’re deep-rooted in how Ethiopia governs itself. And the problem isn’t only about political risks
Why manufacturing in Ethiopia poses unique commercial risks
The ransacking of the Saygin Dima mill is unlikely to have any knock-on effects on its customers – because it really hasn’t got any. Though owned by Turkish investors, in June this year local media reported it was about to be sold by the Ethiopian State to pay off debts to the government.
The mill has a chequered history, with exports of just $100,000 in the latest full year, and doesn’t seem to have ever used anything like its full spinning or weaving capacity. That’s common throughout Ethiopia’s textile industry, and is partly the result of a depressingly ill-conceived government strategy.
In spite of lots of ambitious sales objectives, Ethiopia’s government wants apparel made in Ethiopia to start life as cotton grown in Ethiopia. It produces less than half of one per cent of the world’s cotton now, and plans for expanded production are part of the programme that upsets protesters.
Whatever the protesters’ case, there simply isn’t enough cotton right now to feed the country’s mills – but the government has not relaxed its restrictions on importing the basic raw materials the industry needs to survive.
Developing a commercially viable integrated textile and apparel making industry in one country sounds fine – but scarcely anyone has ever managed it.
Even trying to develop one requires delicacy and nimbleness from government in knowing when and how to encourage imports or exports. It’s a nimbleness that big, experienced governments like those in China and India constantly fumble: and Ethiopia’s hasn’t even tried to understand how to do it.
Those risks aren’t paying off
So far, it’s the plan’s commercial problems that have undermined our industry’s development in Ethiopia. Though claims have been made of over $100m in exports for some years, Ethiopian textile imports into other countries come nowhere near that figure.
Now, faced with a serious stability problem, Ethiopia’s government is likely to re-establish control through substantial restrictions on human rights. Those restrictions may be of little concern to shoppers, but there’s a real risk they’ll faze shareholders in companies like H&M, PVH and VF that have boasted of Ethiopian plans as evidence of visionary management.
And nowhere in their boasts is there a word about the political instability of the area round Oromia. Which is where almost all the new manufacturing development is concentrated.