Should we be wary of Ethiopia?

There is much talk of Ethiopia as the next “go to” apparel sourcing location right now, but how much is hearsay and how much should the Bangladesh Ready-Made Garment (RMG) industry fear this new rival needs scrutiny.

The international apparel community is flooded with talk of the growing prowess of Ethiopia as the “new kid” on the apparel sourcing block. But what is the reality of the situation and what can the Bangladesh RMG industry learn from and, indeed, do about this new challenger to the sector, are questions we must consider.

The efforts of the Ethiopian government to promote the nation’s apparel industry cannot be denied. They have invested in a range of economic incentives including the construction of freshly built industrial parks for garment manufacturing, with the explicit goal of positioning Ethiopia as one of the world’s top exporters of textile and garments.

These efforts have been rewarded, with the East African country opening its doors over the past years to a range of international apparel brands including H&M, Calvin Klein and Tommy Hilfiger, allowing access to factories for production of low-cost garments in the aforementioned industrial parks.

This enviable uptake from leading brands has led the country’s authorities to predict that they can boost their clothing exports to a total of USD 30 billion a year from its current USD 145 million.

However, “all that glistens is not gold” as the old saying goes and, as a recent report from May 2019, “Made in Ethiopia: Challenges in the Garment Industry’s New Frontier” by the New York University Stern Centre for Business and Human Rights explains, “For all of its potential, the apparel industry in Ethiopia has already encountered difficulties. The government’s eagerness to attract foreign investment led it to promote the lowest base wage in any garment-producing country—now set at the equivalent of USD 26 a month.”

Therein, I feel, lies the crux of the matter: has the recent upsurge in interest in Ethiopia as a sourcing hub been driven purely by workers’ salaries? If so, surely this flies in the face of the principles the Bangladesh RMG industry are trying to establish for a sustainable apparel industry and is, surely, not a path that we can dare follow or challenge!

Admittedly, the upturn in Ethiopia’s apparel producing fortunes should be applauded as it has offered an abundance of opportunities to the 105 million populace of the land-locked nation that has been wrecked by much publicised civil war, famines and droughts over the last 40 years.

In many respects, the emergence of the Ethiopian apparel industry bears similarities to the nascent Bangladesh RMG industry some 40 years ago and this, I feel, is what we need to bear in mind when considering Ethiopia as so called “competition”.

Since its inception in the 1980’s, the Bangladesh RMG industry has seen significant growth and is now established as the second largest supplier of apparel globally. We have trodden a long path to attain this status; this is a road that countries like Ethiopia are just starting along and, in that respect, I question whether any parallels should be drawn between the two.

Yes, we are both apparel producing hubs and, yes, we have lower wage strata than other parts of the world but there I feel all similarities end. As should the ongoing rhetoric about the threat that Ethiopia poses to the RMG industry of the nation.

First, and foremost, amongst all of the factors for us to consider are the advances that our country has made in producing ethical, sustainable, environmentally sound apparel products. In reaching this the industry has had to go through a steep learning curve. We must not ignore the investments that have been made in the sector over recent years, the rise in wages and the increase in the cost of raw materials and services (gas and electricity).

We have now reached a stage where we no longer have to chase the “bottom dollar” on product as the viability of that approach is not sustainable in the long term and the industry should be gearing up to produce product with integrity.

Chasing the “race to the bottom” is a race that Bangladesh will lose, so let us in the RMG industry be bold enough to not don our running shoes, and instead choose another discipline to participate.

To my mind, the rising interest in Ethiopia from brands and retailers should summon a sea-change in attitude which the Bangladesh apparel industry should embrace. The western world, which constitutes the biggest apparel export market for Bangladesh is moving away from the “race to the bottom” model which Ethiopia is currently pursuing. Indeed, Bangladesh itself has been trying to move away from such a model, which many believe is losing relevance in a world where sourcing hubs are under such great scrutiny, particularly regarding workers’ rights, safety and well-being.

To put it another way, a garment sourcing destination can no longer compete simply by telling brands and retailers that it has extremely cheap labour. There has to be more depth in what is being offered, whether it be product integrity, sustainability, environmental credentials, great logistics or brilliant infrastructure.

It is these factors that we in the Bangladesh RMG industry should be promoting to our customers and we should not be fixating on workers’ salaries and, indeed, should be moving away from the mass volume commodity apparel items that we have previously been renowned for producing. There is nothing wrong with walking away from a fight that we cannot win—rather we risk damaging the long-term welfare of the sector if we do try and compete at the base level.

The next pieces in the jigsaw to consider are the actual level of success achieved by the Ethiopian apparel industry and the actual size of the threat that it poses to the Bangladesh RMG sector.

The New York University’s report highlights four important factors that we should consider when regarding Ethiopia as a contender on the apparel manufacturing circuit.

The first are the most recent figures showing that Ethiopia’s garment exports are worth around USD 145 million, some considerable way short of the estimated USD 30 billion being touted by government figures. It has taken the country several years of extremely hard promotion of its textile industry to reach such a figure and there have been plenty of ups and downs along the way. Figures for garment exports have consistently fallen way short of government forecasts over the past five years.

The second is, ironically, the low labour cost in the Ethiopian apparel sector. Despite the fact that these may have appealed to certain buyers, the reality is somewhat different, with disenchanted workers not performing effectively and with alarmingly low levels of efficiency. As the report states, “Rather than the compliant, cheap workforce they may have assumed they would hire in Ethiopia, the foreign-based suppliers have encountered employees who are unhappy with their compensation and living conditions and increasingly willing to protest by stopping work or even quitting.”

Let me be clear here: Bangladesh is by no means perfect on these issues and we all know workers in the RMG sector of our country should be paid more. But if, we are making a comparison with Ethiopia, there simply is none. Wages here, and associated job opportunities and career progression, are now that much greater. Bangladesh has progressed, slowly but surely on these issues despite significant teething issues along the way.

The third factor concerns raw materials, almost all of which, at the current time, need to be imported into Ethiopia. The government promoted the availability of more than three million acres for cotton cultivation, whereas only 148,000 acres are being used as local farmers switch to sugar, sesame, and other crops with a higher cash yield. As a consequence, local manufacturers still have to import nearly everything they need to make finished apparel.

The final factor concerns bureaucratic red tape, which was supposed to be untangled at the manufacturing parks in the country but still remains very much in evidence based on the most up-to-date reports, which also suggest exporters aren’t allowed to consolidate smaller orders into one shipping container, resulting in the shipment of partially full containers and a rise in transport costs. In short, getting shipments in and out of Ethiopia is not a straightforward task.

Again, while Bangladesh might not have got everything right, its logistics, including ports and associated infrastructure are exemplary, while much has been done to reduce burdensome red tape in recent years. We are all, in Bangladesh, on the same page when it comes to such issues.

With all of this considered I question the threat that the Ethiopian apparel industry poses to the Bangladesh RMG sector. If we ignore the like-for-like wage comparisons and the urge to chase volume of commodity apparel products, we can continue to develop the industry in a sustainable, responsible manner for the years to come.