Since 2013 fashion apparel companies such as H&M, Primark, and Tesco have looked to East African countries as potential sourcing destinations. In recent news the renewal of the African Growth and Opportunity Act (AGOA) in certain countries in sub-Saharan Africa that gives duty free access to U.S. products has sparked renewed interest in the fashion apparel industry. But the challenges in the East African textile industry call into question whether it is ready to be the next major sourcing-hub. And the question on the table is whether the East African textile industry has sparked enough interest for the industry to pursue next steps.
In 2014 McKinsey created a study to assess the true potential of East Africa to grow into a major garment-sourcing hub. The study took place across the African continent where factories in Kenya and Ethiopia were visited and stakeholders, manufacturers and buyers, were interviewed. In addition McKinsey conducted three separate surveys of chief purchasing officers (CPOs) with a series of questions focused on East Africa. The survey included 40 apparel CPOs representing a combined $70 billion in purchasing volume in 2014.
The Survey Results:
McKinsey found that East Africa could indeed become a more important center for apparel sourcing, but only if stakeholders—buyers, governments, and manufacturers—work together to improve business conditions in the region. Of note is that nearly three-quarters of survey respondents said, as they did in 2011 and 2013, that over the next five years they expect to reduce their purchases from Chinese firms. This means that China would take a major hit in the industry, yet it doesn’t seem likely it’ll stop the billion dollar export apparel industry in China.
The Most Likely Countries to Source:
Countries specifically like Ethiopia and Kenya, and to a lesser extent Uganda and Tanzania, are seen as the most likely areas for sourcing. The governments have already begun to develop its domestic textile and garment industries.
The challenges in the African Textile Market:
As stated Ethiopia and Kenya appear to be the most likely areas of sourcing. But each of the two countries has strengths and weaknesses. The McKinsey research and interviews revealed, for example, that Ethiopia has cost advantages whereas Kenya boasts higher production efficiency. Challenges common to both countries include poor infrastructure, cumbersome customs processes, a dearth of technical and managerial talent, and low levels of social and environmental compliance.
Other issues include the organic-cotton cultivation which suffered a setback after garment manufacturers became entangled in land-grabbing accusations in Ethiopia’s Omo Vally. Eighty percent of the CPOs in the McKinsey survey believes that production efficiency and long-lead times are major issues. 80 percent also cited production inefficiency as a challenge to the growth of apparel sourcing in Ethiopia. The government is already attempting to tackle these issues.
In terms of what’s going on in Kenya’s garment factories, it is quite the opposite as to what’s happening in Ethiopia. The market has grown impressively in recent years thanks to foreign direct investments from Asia, the Middle East, and the Export Processing Zones developed by the Kenyan government. According to McKinsey, factories have grown larger and more efficient, employing more than 1,000 employees on average when compared with around 560 in the year 2000.
However, within Kenya’s borders, there is a lack of local upstream industry. Manufacturers must import fabrics which means longer lead times and delays. It could take up to 40 days just for fabrics to make its way through customs into a garment factory. High labor costs and paltry monthly wages for garment works make honing the apparel industry an uphill battle. Include energy costs, because the power supply is spotty, and factories are spending four times as much just to keep the lights on.
Clearly there is still a lot of work to be done. And questions remain whether East Africa is ready to be the next major sourcing-hub and how will the government overcome these issues to become a new fashion superpower.