The current conflicts have dampened the mood in Ethiopia’s economy. But growth is returning. Especially in the textile industry, locational advantages can be exploited despite some adversity. Ethiopia has much more to offer than cheap labour. With its own cotton deposits, a fully integrated textile chain and medium-sized, often family-run companies, the sector has a robust starting position. The country is also becoming increasingly important as a consumer market.
After Corona, Ethiopia’s economy is expanding again, albeit more slowly than until 2020. From a German point of view, it is no longer just about cheap production or the procurement of raw materials. With a population of over 100 million people, the East African country has developed into the second priority market in East Africa after Kenya.
Customs advantages for EU trade
At the end of 2022, the US suspended the tariff advantages for Ethiopia. Ethiopia can continue to deliver to the EU at zero duty. The only condition is that an important production step – such as knitting or ready-to-wear – takes place in Ethiopia. Materials from third countries may be used duty-free. There is still much to improve in the area of customs and tax bureaucracy. But Ethiopia is noticeably continuing on its course of economic liberalization.
SWOT analysis Ethiopia
|Demand from large population||Huge trade deficit and foreign exchange shortage|
|Ethiopian Airlines flies to many destinations in Africa||Crippling bureaucracy|
|Energy resources (wind, water, geothermal energy)||Authorities at different levels sometimes act very differently|
|Relatively little competition||Highly regulated economy; private commitment often not possible|
|High demand for infrastructure and capital goods||Armed internal conflicts, political insecurity, social tensions|
|Production for export (coffee, clothing, cut flowers)||High inflation|
|Opening up service sectors||Payment difficulties due to lack of foreign exchange|
|Mining and oil/gas production due to high prices||Rising debt, dependence on China|
Source: Germany Trade & Invest
Exploiting market potential
Large consumer goods companies are already demonstrating Ethiopia’s potential as a sales market: Unilever came to Ethiopia in 2016 and is already planning a turnover of 120 million euros for 2022 – with products exclusively “Made in Ethiopia”. Production for East Africa could also work for certain apparel products. In certain areas, such as (textile) medical devices, the state promotes import substitution.
Problem Foreign exchange shortage
Ethiopia’s huge trade deficit results in a chronic shortage of foreign exchange. This also puts a strain on textile and clothing manufacturers, as the purchase of precursors abroad is difficult. In order for local companies to make the leap to the international market and successfully establish themselves in East Africa, they urgently need partners from abroad.
Delegation visit creates contacts: In June, a delegation of 11 Ethiopian entrepreneurs visited Germany as part of Partner Africa Ethiopia. Companies from the spinning mill, knitting, weaving and ready-to-wear were represented. In addition to visiting several textile companies, the delegation was able to use the stay to visit the leading trade fairs Heimtextil and Techtextil in Frankfurt. “All delegation participants were enthusiastic about the exchange of experiences and the many new impressions,” says ETGAMA Managing Director Ageazi Hailemariam, who organized the delegation together with the entire mesh team. “We were able to use the leading trade fairs perfectly as exchange and information platforms.”