Malik Warit Araf
A majority of people do have tendency to base the factor of success on a few linear aspects. What people don’t realize is that success is a multi-dimensional outcome. A key factor behind success is luck. And what the apparel industry of Ethiopia and every individual connected with its economy doesn’t have is luck itself.
African nations, in general, have it tough to grow. Weak domestic currency and declining revenue from commodities make it hard for them to advance economically. However, Ethiopia is different. It is a country born from the ashes and ruins of human conflict. Slowly but steadily, they started to rise from their demise and became a hub for industries and investments among the African countries.Least developed countries(LDC) are often appealing prospects for business purposes. With relative political stability and a proper government that made foreign investments easier, Ethiopia attracted attention from around the globe. The government’s direct involvement in different projects around the nation to create more money flow and employment opportunities also made Ethiopia a lucrative opportunity for international brands. Moreover, other factors such as cheap labor, low-tariff access to markets are also positive sides Ethiopia can bring to the table that the other African countries can’t.
Since Ethiopia comes up as an abundance of opportunities, a lot of countries jumped in. Global apparel companies like H&M, Decathlon, PVH, Tesco or Primark became the first of many buyers which started sourcing from for the garment factories of this East African nation. In fact, H&M started way back in 2014. Furthermore, after Ethiopian government’s decision in 2015 to introduce the Growth and Transformation Plan and establishment of many industrial zones around the country, many foreign companies started its operations in the country. In addition, observing the success of other companies, many new foreign entities also started to move for funding projects in Ethiopia. In 2017, American Company PVH also decided it was time to do business here. China became another strong stakeholder for the growth of Ethiopian apparel industry. Due to the apprehension of trade war with US, many Chinese enterprises have been investing in different industries of Ethiopia.Even from Bangladesh, DBL Group had joined with its global peers to start an apparel operation in Ethiopia. The Korean company Youngone which has big operations in Bangladesh and many others also started their operations with a goal to maximize their global apparel business.
Thanks to retailers’ keen interest to have manufacturing base in the country, the Ethiopian apparel industry bloomed. According to the data provided by the federal government, currently, Ethiopia has more than 200 industries around the country. The Ethiopian industry had an average growth rate of 51% from 2013 to 2018. More than 60,000 workers were employed directly in the apparel industry, and the majority of the workers were women.
Naturally, a country like Ethiopia needs to start from the ground when structuring its different corporations and ecosystems. But, if ethnic tension is an ever-lurking presence, it is incredibly tough to set things in any manner. One such crippling issue is the Tigray war. With the ongoing Covid-19 pandemic and the war itself, the portion of the population that suffered the most was the ordinary people. Among them, the apparel industry was one of the places where it was hit the most.
Since November 2020, the bloody war between Ethiopian government forces and rebels from the northern Tigray region has left the nation’s economy devastated and ruined its infrastructure, in addition to blow the growth of the economy.Civilian infrastructures such as health care facilities, schools, places of worship and houses were indiscriminately attacked and destroyed.
The United Nation has reported that large-scale destruction and appropriation of property by various actors, including armed forces, militias, and civilians, as the war in Ethiopia waged on.
Since the start of the war, government forces have been accused of targeting and destroying telecommunications infrastructure, with most areas in Tigray cut off from network connectivity as the war intensified.
The conflict in Ethiopia is taking a heavy economic toll. The high cost of the war imposed a heavy burden on the economy especially after stagnation hit all the world’s economies because of the Covid-19 pandemic. As a result, international institutions lowered their estimates for Ethiopia’s economic growth to 2 per cent from 6 per cent in the previous year, according to the World Bank.The real gross domestic product (GDP) growth averaged 10.9% in 2004-2014, driven by economic reforms. This made Ethiopia a model for economic recovery in Africa and one of Africa’s fastest growing economies up to 2019.
The Secretary-General of the United Nations Antonio Guterres, in August 2021, said that the conflict in Ethiopia had already drained over $1 billion from the country’s exchequers. Due to the worsening economic situation, the Ethiopian central bank suspended all lending and money transfers as well as all coverage for direct imports. The move has largely caused a crisis in the exchange market and a lack of foreign reserves. As a result, the official exchange rate of the local birr currency, as well as the black market exchange rate, dropped significantly. The USD-birr exchange rate dropped to 45, after the local currency was trading 35 to the dollar last year. Parallel market rates went up to as high as 75 to the dollar, especially after the Ethiopian government declared mobilization of the public for the fight against the Tigray rebel force.
The annual inflation rate soard from 18 % before the war over the Tigray region to 34.2 % in October. Food prices spiked 40.7% to a 10-year high, threatening the living standards and food security of Ethiopians, to further exacerbate poverty and unemployment.
The ongoing war has scared investors away from the Ethiopian market. Investments in the Tigray region and gradually whole Ethiopia bore the brunt of the war. Many factories and mines were shut down across the region. Foreign companies closed their operations in Ethiopia. Global apparel fashion giant PVH Corporation has closed its manufacturing facility, the largest garment factory in Ethiopia’s model industrial park in Hawassa. The company’s decision was encouraged by the US Administration’s suspension of Ethiopia’s membership in the African Growth and Opportunity Act (AGOA) due to gross human rights violations during the current conflict.
The ongoing conflict has a direct impact on the country’s foreign trade. Every month, Ethiopia is losing some $20 million in export revenue after the industrial facilities in the Tigray region were shut down, according to data from the Ethiopian Ministry of Trade and Industry. The annual revenue is estimated at $7.3 billion, more than 85 % of Ethiopia’s foreign trade passes through Djibouti port.
There are indications that if the war continues, Ethiopia will fail to pay off due its foreign loans, especially as the government increased borrowing in recent years to finance infrastructure projects.In October 2021, Moody’s Investors Service lowered Ethiopia’s sovereign credit rating, a sign of the country’s deteriorating economy and growing concerns over the country’s ability to pay off debts. In February 2022, the Ethiopian government sought help from the International Monetary Fund to benefit from debt relief under the G20 “Common Framework” aimed at helping the country to alleviate the damage caused by the Covid-19 pandemic.
Ethiopia lost some of the development aid that has been crucial for its economic growth and sustainability. The European Union suspended budget support worth 88 million euros (US$107 million) because of the war in Tigray region. The suspension caused a huge loss for Ethiopian economy which relied on foreign aid to fund various development projects across the country.
The war has threatened the sustainability of the Ethiopian economy and created a big obstacle for its apparel industry.
