Textile Fabrics and Garments - INVESTMENT OPPORTUNITY - iDiasporan

Textile Fabrics and Garments

by Embassy of Ethiopia

Description

State-owned and private textile and garment factories make textiles the largest manufacturing industry in Ethiopia. The industry employs about 30,000 workers and has a share of 36% of the entire manufacturing industry. An industry-specific institute slated to become a separate Department for Textile Engineering was set up at Bahir Dar University as a result of a Government initiative to promote quality products.

The main textile products manufactured in Ethiopia are cotton and nylon fabrics, acrylic yarn, woolen and waste cotton blankets and sewing thread. The domestic potential of cotton production as a basic raw material is far more than the current installed spinning capacity demands. The availability of cheap labor is a major factor for making the industrial sector one of the strategic industries for export development.

Ethiopia's textiles and clothing industry is undergoing major development, aided by the presence of a cheap, skilled and highly-motivated workforce. This surge has been helped by the country’s impressive economic growth over the past years. Ethiopia’s enormous export potential is made possible by the wide availability of raw cotton and other natural fibers and Ethiopia’s access to domestic, regional and international
markets. Ethiopia’s long history in textiles began in 1939 when, under Italian occupation, the first garment factory was established. The country’s current textiles industry encompasses spinning, weaving and processing.

Ethiopia has five public textile factories producing mostly work-wear garments for the domestic market. Numerous privately-owned factories produce shirts, suits, work clothes and uniforms for national and foreign markets. The basis for the full cycle of business opportunities and the enormous growth potential for the textile industries is the local production of cotton. Large-scale production is carried out under irrigation, mainly in the Awash Valley, which has more than 50,000 hectares under cultivation. Another 45,000 hectares of high-quality cotton is cultivated by small-scale farmers. There still exists huge potential for the expansion of cotton cultivation in Ethiopia, especially in the Omo-Gibe, Wabi Shebelle, Baro Akobo, Blue Nile and Tekeze River basins. The production of cotton is well integrated into thetextile sector, with garment factories relying heavily on domestically produced cotton.

Available within Ethiopia are all essential ingredients for a competitive textile industry: raw materials, low wages and low energy costs. This gives the country a comparative advantage over other countries and regions. The Ethiopian Government is actively promoting the further modernization of the textile sector with the aim of attracting foreign investors that can penetrate the global market.


  •  Stable Economic Environment:

    • Ethiopia has been able to achieve macro-economic stability
    • Stable annual economic growth in double digits since 2003
    • Stable exchange rate
    • Government commitment to private sector
    • Safe and secure working and living environments identified by the U.N. and the International Chamber ofCommerce (ICC) as key assets for investors in Ethiopia
    • Absence of corruption - Ethiopia is described by the U.N. and ICC as “exceptional…in its almost complete absence of routine corruption.”

     

    2. Liberalized Economy:

    • All major economic sectors are liberalized for investment and marketing
    • Remittance out of Ethiopia from invested capital (dividends and interest) is permitted
    • Remittance also permitted for principal and interest payment on external loans, payments associated with technology transfer, proceeds from sales or liquidation of an enterprise, salaries and other payments
    • 100% foreign ownership of investment is permitted.
    • $100,000 minimum initial investment required from foreign investors to start a business, reducing to $60,000 where the foreign investor is in a joint venture with a domestic partner ($50,000 for consultancy or publishing business). This figure reduces to $25,000 (in cash or in kind) for foreign investors working in partnership with adomestic investor in the areas of engineering, accountancy, architecture, auditing services or business/management consultancy.

     

    3. Security of Investment:

    • Government guarantees (Investment Code 1991) and constitutional protection from expropriation
    • Ethiopia is a signatory to the main international investment related institutions, for example, it is a Member of the Multilateral Investment Guarantee Agency (MIGA)
    • Ethiopia is also a signatory of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States
    • Professional one-stop-shop for foreign investment through the Ethiopian Investment Agency (EIA)

     

    4. Significant Tax Incentives:

    • Customs Import Duty - 100% exemption on all import of investment capital goods (plant machinery, construction 
    • materials, etc.) including spare parts worth up to 15% of
      the imported investment capital goods; plus exemption for
      import of raw materials needed for the production of
      export goods
    •  Export Customs Duty - Products and services developed
      in Ethiopia are exempt from export tax

     

    5. Conducive Tax Environment:

    • Corporate income tax (tax on profit) is 30%
    • Excise tax is levied (minimum 10%) on selected local or imported products
    • Turnover tax at 2% for priority sectors such as tractors, combine harvesting, grain mill etc. and 10% on other
    • sectors Customs duty on unexempted imports ranges from 0 to 35%
    • Income tax ranges from 10 to 35% on monthly income of $16.50 and above
    • Withholding tax is payable on imports at 3% of cost, insurance and freight
    • 15% VAT is payable on businesses with a turnover above$54,000
    • Dividend tax (on income derived from dividends from a share company or withdrawals of profits from a private
    • limited company) at 10% Royalty tax (on income derived from technology and intellectual property rights) at 5%
    • Capital gains tax - share of companies 30%; business, factory or office buildings 15%; residences 0%
    • Rental income tax (on annual rental income) between and 35% dependent on level of rental income
    • Stamp duty - Leasing 0.5% of value; registering title to property 2% of value; contract of employment 1% salary; bonds 1% of value, etc.Tax treaties to avoid double tax payment are signed withseveral countries, along with bilateral treaties for theprotection and promotion of investments 

     

    Trainable Labor:

    • Ethiopia presently turns out more than 10,000 university graduates per year, including business, management, economics, accounting, law and engineering graduates
    • 151 technical and vocational education and training schools in Ethiopia
    • Private universities and colleges flourishing in Addis and regional cities
    • The average private sector wage is about $25 per month, with graduate salaries ranging from approximately $85 to $105.
    • Expatriate employees permitted in senior positions, with prior consent from the Ethiopian Investment
    • Commission (where employer is sole or major owner or shareholder of enterprise). Expatriate experts are also permitted, as long as the investor trains his/her replacement within a designated time period.
    • Good standards of spoken and written English

     

    Land:

    Land is available on a leasehold basis of up to 99 years. In response to the country’s drive to attract foreign investment, regional governments are now expected to allocate land to investors within 60 days of receiving their applications. The lease of urban and rural land varies according to location, type of investment and class of land. In the capital city of Addis Ababa, prices range from approximately $1.50-$13.25 per square foot in the Central Business Zone. The Government generally is willing to negotiate with individual
    business to provide incentives to get the capital investment required.

     

    Security:

    Ethiopia is politically stable and its popular tourist destinations are safe and secure.

  • In recent years, the global market has become increasingly accessible to countries such as Ethiopia. New export opportunities were created through initiatives such as AGOA (the African Growth and Opportunity Act), COMESA (the Common Market of Eastern and Southern Africa) and the many bilateral trade agreements concluded with Western countries, including the Netherlands, Belgium and Luxembourg.

    Ethiopia is also part of the “Everything But Arms” program that has been set up to provide access to the E.U. market for Lesser Developed Beneficiary Countries, free of duty and without quota restrictions, for all export products except arms.

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