Search for Ever Cheaper Garment Factories Leads to Africa
“Africa is a huge opportunity to demonstrate how the industry can work together,” said Colin Browne, managing director of product supply and Asian sourcing for VF Corp., which owns such brands as Lee, Wrangler and Timberland. He pointed out to the factory owners a key advantage in Africa: it’s one of the few places where it’s possible to go from fiber to factory in one place.
Africa is the final frontier in the global rag trade—the last untapped continent with cheap and plentiful labor. Ethiopia’s garment sector has no minimum wage, compared with Bangladesh, where workers earn at least $67 a month, according to the International Labor Organization. Garment workers in Ethiopia started at about $21 a month as of last year, the Ethiopian government said.
Most countries in Africa benefit from a free-trade agreement with the U.S., an arrangement that saves retailers money. And, unlike other emerging economies such as Vietnam and Cambodia, many African countries can grow their own cotton, which shortens production time.
Mr. Browne’s thinking marks a change of mind-set. For more than a decade, Asia has dominated clothing manufacturing, churning out cheap clothes on inexpensive labor that are shipped to malls world-wide.
But over the past few years, rising production costs in China and several deadly factory accidents like the collapse of Rana Plaza two years ago in Bangladesh have forced apparel companies to hunt for alternatives from Myanmar to Colombia to Ethiopia.
Ethiopia was recently identified as a top sourcing destination by apparel companies, according to McKinsey & Co., which surveyed executives responsible for procuring $70 billion of goods annually—the first time an African country was mentioned alongside Bangladesh, Vietnam and Myanmar.
Several clothing giants are beginning to source in Africa. VF expects to start getting some of its pants sewn in Ethiopia this year. Calvin Klein and Tommy Hilfiger parent company PVH Corp. has been making some of its clothes in Kenya for at least four years. Others with sourcing in sub-Saharan Africa include Wal-Mart Stores Inc., J.C. Penney Co. and Levi Strauss & Co.
Whether or not Africa’s role as a supplier expands, those efforts show the lengths to which big apparel makers are willing to go to find new, low-cost sources of production. Consumers have been conditioned to expect a plentiful supply of cheap clothing, which has pressured the margins of companies like VF and PVH.
“In the global economy, light manufacturing is constantly moving,” said World Bank’s Guang Z. Chen, who was the country director for Ethiopia until last month and is now a director for several countries across southern Africa. “We see the possibility of this kind of industry moving away from Asia, because the labor cost is rising in China rapidly.”
Chinese garment workers earned anywhere from $155 to $297 a month as of Jan. 1, the date when many countries adjust their wages annually, the ILO said. Garment workers in China tend to do more sophisticated production while basic cutting and sewing goes to countries with lower wages.
VF is hoping to accelerate the move to Africa. It teamed up with its biggest rival, PVH, to try to convince suppliers to come with them. They invited their 20 best suppliers from countries such as China, India and Sri Lanka on a 10-day trip in April 2014 with a goal of getting them to invest in opening their own factories in Africa—with the promise that the American brands would place orders there in return.
Ethiopia holds the most promise for developing garment production in Africa, factory owners and brands say.
“Ethiopia seems to be the best location from a government, labor and power point of view,” says M. Raghuraman, chief executive for corporate marketing and branding at Brandix Lanka Ltd., Sri Lanka’s largest clothing exporter, which is interested in Africa’s garment potential.
On the outskirts of Addis Ababa, the government recently built the $250 million Bole Lemmi industrial park exclusively for foreign investors in the garment industry. Giant hangars occupy land where barley, peas and the local grain teff used to grow.
The work floor of the Bole Lemmi factories are one level—a safety improvement over the multilevel factories in Bangladesh that have claimed hundreds of lives in fires and collapses.
At the MAA Garment & Textile Factory in Northern Ethiopia, 1,600 workers spin cotton, dye fabric and sew it into T-shirts, leggings and other basics for international retailers like Hennes & Maurtiz AB’s H&M chain, Tesco PLC, Asda Stores Ltd.’s George label, and German clothing company Kik Textilien und Non-Food GmbH.
“Investors are coming here from Sri Lanka, Bangladesh, China, India and Turkey,” saidFassil Tadesse, chief executive of MAA’s parent company, Kebire Enterprises, and president of the Ethiopian Textile and Garment Manufacturers Association. So far, Africa barely registers in garment manufacturing. And it will take years for any other country to seriously challenge China.
China exported $177 billion of clothes in 2013, according to the World Trade Organization figures available, nearly eight times more than No. 3 Bangladesh, which took 20 years to become a powerhouse. (Italy, ranked No. 2, exports slightly more clothing than Bangladesh.) Many African countries lack roads to transport finished clothing, and landlocked Ethiopia doesn’t have a port. The workforce is untrained in sewing clothes. All of sub-Saharan Africa accounts for less than 1% of global clothing exports.
Some apparel companies remain interested despite those hurdles. They are drawn to the cheap labor and to the inexpensive power, which in many countries is the second-biggest factory cost after workers. The Ethiopian government is building a railway to the port in neighboring Djibouti to help exports leave the country more quickly.
VF is planning another trip to Africa this year, after receiving queries from suppliers who weren’t on the 2014 trip.
William McRaith, PVH’s chief supply chain officer, spoke about Africa’s potential at an industry conference last year. “The dynamics of that region are far more interesting than China was” at a similar point in its development, he said.