Top garment firms eye cost-friendly Ethiopia for expansion

Top garment cos plan Rs 600 cr outlay; Ethiopia offers duty-free market access, cheap labour, power

With the cost of business going up in India and competition increasing from neighbouring countries, garment manufacturers are now looking at Ethiopia to set up manufacturing. Indian firms, which have lined up over Rs 600 crore in investments in that country, say Ethiopia gives duty-free access to Europe and US markets.

The companies setting up shop in the African nation include Raymond, Arvind Ltd, Best Corporation, and JJ Mills, among others.

Raymond is investing about Rs 130 crore in a plant to manufacture two million jackets. The company has expanded its footprint through the acquisition of a garment unit in southern Ethiopia.

"The rationale behind choosing Ethiopia was to get cost advantages in terms of labour, power, duties," Sanjay Behl, CEO-Lifestyle, Raymond, had earlier said.

Labour cost in Ethiopia is half that in India, and the local government does not insist on investing in land and buildings. Power cost is also below Rs 2 compared with Rs 7 in India, and there are duty advantages when exporting to Europe and the US, making products competitive for global markets.

R Rajkumar, managing director, Best Corporation Ltd, said, “We need to be competitive to stay in this business, for which we need lot of support from the local government, including tax advantages, which Ethiopia is giving”.

Duty-free to US and Europe is key attraction, which India doesn't offer. At present, this is the reason Indian players are not able to compete with Bangladesh, Sri Lanka and other countries.

The government in Ethiopia is developing industry estates and delivering them on a ready-to-use basis. Indian companies just need to move with their machines. 

Of course there are challenges, such as training of local people, and creating an eco-system, but Africa is going to be the next destination for garment manufacturing, Indian companies say.

Best Corporation, which will start production in the next six months, is setting up a 1,000-machine factory at a cost of Rs 30 crore to meet the demands of the US market. Ethiopia offers the company an advantage as garments attract no duty in that country, while man-made fibre garments suffer a duty of 15-30 per cent in India.

Arvind Ltd said that it has decided to set up a garment factory in Ethiopia to take advantage of lower labour cost, duty savings and lower shipment time to US markets. The company is planning to invest around Rs 100 crore.