Garment-making find new low cost home in Ethiopia

As base salaries are soaring in China, low-end manufacturing is now moving to cheaper locations around the world, and frontier African nations like Ethiopia are positioned to reap the benefits.

With extremely low wages, cheap and stable electricity and improvement of transport infrastructure, the most populous country after Nigeria is to build a reputation for producing garments, shoes and other products base.

The sector is still in its infancy in what was for decades a communist economic slump run. Bureaucracy and poor transport links mean business costs are not as low as they could be.

But the investment of the state in areas of the plant and the arrival of Turkish companies, India, the Gulf and China suggest industrialization is finally taking root in the giant East African where many still depend on subsistence farming.

“We have to move because of the evolution of manufacturing in China, due to the sharp rise in wages and raw materials,” said Nara Zhou, spokesperson Huajian, a Chinese company that makes more than 300,000 pairs boots and sandals per month for retailers such as Guess a factory near the capital.

“Ethiopia has the stability, the government is eager to industrialize and there is also the cost of labor little here – a tenth compared to China,” she added.

High growth rates

For years, investors gave Ethiopia a wide berth, wary of the heavy role in the economy by a government leaking liberalization seen in other African countries and which has retained its monopoly on telecommunications and bar Aliens in the financial sector.

However, in recent years, the commercial logic of the production of the plant began to outweigh the concerns and wider effects are dramatic.

The government expects gross domestic product (GDP) growth to 11 percent a year, and even though the International Monetary Fund is more sober its forecast of 8.5 percent for this year indicates Ethiopia is one of Africa of – and the world – the most dynamic economies.

Despite socialist roots government, there is no minimum wage, leaving companies such as Huajian pay wages of $ 50- $ 70 a month – even higher than the average per capita income.

“Almost all young people in this locality is now working here,” said Desta, one of 7,500 employees Ayka Addis Textile and Investment Group, a Turkish-owned factory 20 km (13 miles) west of the capital.

“We all struggled to make ends meet in advance. We can now afford healthcare or sending a child to the school itself,” Desta, who did not give his name family, added.

Cheap energy

With 90 million people already and forecasts annual growth of the population to over 2 percent until 2030, the government is desperate to attract investment and use of labor.

To this end, he said he put in place incentives such as tax exemptions and subsidized loans to investors with rates as low as 8 percent interest – even lower than the reference rate of 9.75 to percent in South Africa, the most developed economy of the continent.

Ethiopia is also investing heavily in hydroelectric power to boost the scope of a grid that provides electricity at 5 cents per kilowatt hour compared to 24 cents in neighboring Kenya.

“The availability of energy and the cost is cheaper than any other country in the world. We provide power, land and labor very cheap,” said the Minister of Trade and the Industry Tadesse Haile, Ethiopia wants to export 1.5 billion worth of textiles annually in five years, from only $ 100 million today.

Other East African countries such as Kenya and Uganda are also pursuing textile investment, but can not compete on input costs against Ethiopia, where wages are 60 percent lower than the regional average said Jaswinder Bedi, chairman of the Kenya-based African cotton from 27 countries and Textile Industries Federation.

“Ethiopia is a new player,” Bedi said. “They are growing and they are growing rapidly.”

BOTTLENECKS

Even so, bureaucracy and transport impose a significant cost to businesses, leaving Ethiopia languishing at 141 in an index of the World Bank logistics of world trade published last year.

Importing or exporting a container takes an average of 44 days compared to 26 for Rwanda, another African country the landlocked East.

“Our logistics costs are second to entry,” said CEO Ayka Addis Amare Teklemariam Reuters. “It affects the company’s competitiveness.”

To this end, the government says it pays funds equivalent to two thirds of GDP in new infrastructure each year, the expansion of the road network 136,000 km per next year, from only 50000 km in 2010.

It also has big plans to build 5,000 km of railway lines by 2020, from less than 800 km at present.

“Infrastructure development is something of Ethiopia is working seriously,” Tadesse said.

Reference: Reuters

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