Despite such a meager share of apparel exports, Ethiopia is now a hot topic for apparel buyers and the biggest reason is cost. Ethiopia's wages for garment workers are among the lowest globally, at below $60 per month, and work-permit costs for foreign workers are less than one-tenth those in neighboring Kenya. Additionally, Ethiopia has low electricity prices. The country has a strong supply of hydroelectric power, and while the power grid is not the most reliable, the Ethiopian government is building a separate grid for new industrial zones currently under development.
Ethiopia could someday become a source of raw materials: it has more than 3.2 million hectares of land with a suitable climate for cotton cultivation. Yet, barely 7 per cent of that land is being used today. The combination of low land-utilization rates, planning errors, low crop yields, and quality problems means Ethiopia has had to import cotton. Social compliance has also been an issue. For example, organic-cotton cultivation recently suffered a setback after garment manufacturers supplying European firms became entangled in land-grabbing accusations in Ethiopia's Omo Valley.East African countries, particularly Ethiopia and Kenya have the potential to become bigger players in garment manufacturing. But the road ahead #
Another problem is production efficiency, which currently runs between 40 and 50 per cent, and long lead times. Eighty per cent of the CPOs in our survey cited production inefficiency as a challenge to the growth of apparel sourcing in Ethiopia.
Like Ethiopia's, Kenya's apparel industry currently specializes in supplying high-volume bulk basics such as trousers, which account for 58 per cent of its exports to the US. The typical minimum order size is 10,000 pieces; the country's larger players have minimum order sizes of 25,000 to 50,000 pieces.
Kenya has benefited greatly from AGOA - 92 per cent of its apparel exports in 2013 went to the US, according to UN Comtrade. The EU's Economic Partnership Agreement isn't as much of an incentive: the overall duty-free advantage is less than that of AGOA, and the competition with low-cost Asian countries is stiff, as they too are benefiting from preferential agreements with the European Union. Some Kenyan manufacturers surveyed said they aren't eager to expand their business to Europe because they perceive European buyers as more demanding with respect to lead times, order sizes, and quality.
The capacity of Kenya's garment factories has grown markedly in recent years, thanks to foreign direct investments from Asia and the Middle East, as well as support from the Export Processing Zones developed by the Kenyan government. Factories have grown larger and more efficient; they now have around 1,500 employees on average compared with around 560 in the year 2000.
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