Xu Yingxin: New Oasis For Investment In China's Textile Industry

　　 Guide reading

The overall production capacity of indigenous textiles and clothing in Africa is decreasing, but the consumer market is growing slowly. China's textile industry has maintained a sustained growth trend in non investment.

Africa's textile and garment industry: huge room for development

Opportunities for textile industry to invest in Africa

Textile industry's investment in Africa

Some African countries with investment advantages in textile industry

Prospects for investment cooperation between China and Africa

Over the past forty years since reform and opening up, through hard and painstaking efforts, China's textile industry has changed from "small" to "big", from "weak" to "strong". At present, China's textile industry is leading the world in terms of its industry level and scale. It is the largest producer, exporter and consumer of textile and clothing in the world. In the past ten years, with the deepening of the "one belt and one way" construction, the pace of China's textile industry's global layout is speeding up, and Africa's emerging markets with opportunities and challenges are beginning to enter the Chinese textile industry's vision. If Southeast Asia and South Asia are the first choice for Chinese textile enterprises to invest abroad in the past decade or so, the African continent is expected to become a new oasis for China's textile industry's international investment in the future.

Africa's textile and garment industry: huge room for development

Compared with the average development level of the global textile and garment industry, the overall development of the textile and garment industry in Africa is lagging behind. There is much room for improvement in the production and sale of raw materials, upstream textile, printing and weaving, and downstream clothing and home textiles.

　　 Africa has many high quality cotton producing areas, but cotton yields are not high. 。 Cotton is one of Africa's most important economic crops. Benin, Mali, Chad, Burkina Faso and other four cotton countries represented the sub Saharan South Africa and the North West equator are important areas for high-quality cotton raw materials in Africa. Cotton production accounts for about 2/3 of the total in Africa. Seed cotton production in Africa accounts for about 6% of the world's total. At present, the annual output of cotton is about 1 million 400 thousand tons. With the continuous expansion of cotton planting area in Africa, the output is expected to increase further.

However, although the planting area of African cotton is increasing, the output growth rate is relatively slow. The main reason is that the overall yield of cotton in Africa is weak. Compared with the major cotton producing countries such as the United States, India and China, the yield per unit area of African cotton is very low. According to the data from the US Department of agriculture (USDA), during the 2018 to 2019 planting season, the average cotton yield per cotton producing country in Africa is only about 25 kg per mu, while the average cotton yield per unit area in the world is around 53 kg per mu, and the US yield per unit area exceeds 62 kg per mu, while China has exceeded 110 kg per mu level.

　　 The value chain of African textile industry is highly dispersed, and the overall capacity is decreasing. The development of industry is mainly driven by FDI. 。 Most African countries have not yet formed a complete textile industry chain. In recent years, the overall capacity of textile industry is also decreasing. According to ITMF statistics, from 2010 to 2017, the production capacity of African ring spinning decreased year by year, and the number of spindles decreased from 5 million 200 thousand in 2010 to 3 million 500 thousand. Rotor spinning capacity is also declining, from 169 thousand in 2012 to 151 thousand. Shuttleless loom capacity increased, installed capacity increased from 14 thousand in 2011 to 19 thousand in 2017. Therefore, although some African countries are rich in cotton, they still need to import large quantities of textile fabrics and accessories to produce products such as garments. The manufacturing cycle is long, the added value of products is low, and the industrial technology capability is also very weak. Terminal products are inferior to imported products from Asia, both in terms of quality and price. In recent years, the selling of transnational second-hand clothing in Africa has caused great pressure on the development of native textile industry in Africa.

　　 At present, the development of textile industry in Africa depends mainly on foreign investment drive. 。 As Ethiopia and other countries began to attract foreign investment in textile industry and made some progress, many African governments began to follow suit and launch corresponding incentive policies, hoping to develop their own textile industry and raise their employment rate with the help of foreign capital and technology.

　　 The trade deficit of Africa's textile and clothing trade is obvious, and the adverse balance is increasing rapidly. According to the relevant data of the United Nations Trade Commodity Statistics Database (Comtrade), in 2010, Africa's textile and clothing exports totaled 14 billion 800 million US dollars, with an import volume of US $18 billion 100 million. In 2016, the export volume of African textiles and clothing fell to US $13 billion 600 million and imports increased to US $21 billion 500 million. The trade deficit between 2010 and 2016 expanded from US $3 billion 300 million to US $7 billion 900 million, with a growth rate of 139% and a compound annual growth rate of 5.7%. This shows that the overall production capacity of native textiles and clothing in Africa is decreasing, but the consumer market is growing slowly, and the trend of demand enhancement is more obvious.

Opportunities for textile industry to invest in Africa

The textile industry's comparative advantage in Africa has five specific points.

First of all, Africa has a large number of young labor force (average age of 20 years old), and will maintain a high level of labor supply in the long term, and the price of labour is very competitive.

Secondly, some African countries have the advantages of oil and other energy sources, as well as raw materials such as cotton supply.

Third, most African countries enjoy preferential trade policies in the United States and Europe. For example, the "African Growth and Opportunity Act" (AGOA) in the United States allows nearly 40 countries in sub Saharan Africa to export textiles and clothing products to the United States without quota. The EU and Africa's "all except tax exemption (EBA)" agreement also allows African countries to export textile and garment products with quota free tariffs to EU Member States.

Fourth, African countries have introduced a number of preferential incentives in recent years, such as export incentives, foreign exchange control loosely, investment tax exemption policy, export tax rebate treatment and so on, creating favorable business environment for foreign investment.

Fifth, Africa's per capita fiber consumption (2.6 kg) is far below the global average (12 kg), which has great room for growth. With the rapid growth of the middle class in Africa and the dominance of the dominant population structure, the potential of Africa's huge consumer market can not be underestimated.

Challenges for textile industry to invest in Africa

However, from a practical perspective, the textile industry's investment in Africa is also facing greater challenges. The main reasons are as follows:

　　 Political stability, policy continuity and environmental security risks are common challenges for non investment enterprises. 。 The stability of the political situation, the sustainability of investment related policies and the safety of social environment are the primary problems faced by textile enterprises in capital investment and capacity cooperation for African countries. For example, the persistent political turmoil in Egypt seriously hampered the development of textile enterprises in Egypt. In March 2018, the sudden resignation of Ethiopia's prime minister also had an impact on the confidence of textile enterprises in Ethiopia. The change of investment policy caused by government changes and security risks such as social order and threat of terrorism are all factors that interfere with the choice of Africa as an investment destination for textile enterprises.

　　 Some African countries have weak infrastructure facilities, and the textile industry chain has not yet formed. 。 The development of the textile industry needs relatively mature infrastructure, such as adequate and stable water and electricity supply, smooth and convenient land transportation and so on. The backward infrastructure is the difficulty of some African countries. Taking Ethiopia as an example, although the government is trying to improve its supporting facilities, the actual situation is still not satisfactory. At present, its logistics, transportation and warehousing are inefficient and expensive. At the same time, the textile industry has many upstream and downstream processes, and the industrial chain is closely linked. The textile industry chain of some African countries is not perfect. The supply of raw materials and accessories are dependent on imports, resulting in an extended manufacturing cycle, which can not meet the stringent requirements for quick response orders, while production costs have increased correspondingly.

　　 Ethiopia textile workers

　　 The operational skills of front-line workers in the textile industry of African countries need to be improved, and the lack of senior management personnel in some countries. 。 Because of the slow development of the textile and garment industry in China, many African textile workers have weak operation skills and lack professional skills training teachers. For the labor-intensive production factories such as spinning and clothing manufacturing, there is a lack of senior management talents, and the cost of human resources training in the early stage of investment enterprises is higher.

　　 In some African countries, the financial system is weak and foreign exchange control is strict. Enterprises are facing difficulties in financing and repatriation of profits in the countries where they invest. In some African countries, their financial system is weak, unable to provide financial loans, or the procedures for applying for loans are complicated, and they can not be approved in a short time. In the early stage of overseas investment, the textile industry needs a lot of money for building, equipment procurement and raw material preparation. If the host country can not provide loan services, some enterprises will have difficulty in realizing project construction on the basis of domestic self financing. At the same time, many African countries are very strict in the profit repatriation of overseas investment enterprises due to the fragility of the financial system.

Some African countries with investment advantages in textile industry

Africa is the second largest continent in the world and the second largest continent. The total area of Africa's land is 30 million 200 thousand square kilometers, which is more than 3 times that of China's land area, with a population of about 1 billion 200 million, with an average age of 20 years. There are 54 countries in Africa. They are divided into five regions in North Africa, East Africa, West Africa, Central Africa and South Africa according to their geographical location. Although most countries have abundant natural resources such as agriculture, energy and mineral resources, the comparative advantages of different regions are quite different.

Ethiopia, in East Africa, has become a new hot spot for textile enterprises in recent years because of its stable macroeconomic and political situation, the government's incentive measures to the textile industry and the construction of professional parks, cheap and large scale demographic dividend, cheap electricity and zero tariffs on exports to Europe and the United States. Jiangsu sunshine group and Ethiopia signed a $980 million wool spinning project agreement, which is being implemented step by step; Wuxi's first cotton and 300 thousand spindles cotton textile project started construction and is about to go into production; Wuxi Jinmao invested 40 million dollars in Ethiopia to start the yarn dyed fabric and garment factory; Guangdong Huida signed a cooperation agreement with Ethiopia Investment Committee in 2016, and 210 thousand square meters of textile and garment industrial park also entered the construction stage.

Egypt in northern Africa has a long history of the development of the textile industry and cheap and high-quality cotton raw materials. Its superior location in Asia Europe Africa joint, the relatively complete infrastructure in the country, abundant human resources and lower production costs all have the leading edge in Africa. After the stable political situation in Egypt, the government actively adjusts its economic structure, revise the investment law, launch a number of incentives, and focus on attracting foreign investment in the textile and garment industry. It has also become a new choice for the global layout of textile enterprises. At present, the Sino Suez TEDA economic and trade cooperation zone is one of the main areas for Chinese textile and garment enterprises to invest in Egypt. The textile project of Shaoxing Keqiao Lei Chu Knitting Co., Ltd., which invested 30 million US dollars, is officially signed. After the project is completed and put into operation, the annual output value is expected to reach US $40 million, which will solve the local employment of more than 500 people. Shandong, a leading textile enterprise in China, has plans to invest in the region.

Madagascar, an island country in southeastern Africa, has been developing textile and garment industry as one of its key objectives in recent years. While actively attracting foreign investment, it is also planning to build a professional textile and garment industrial park in China. Madagascar has a pleasant climate and abundant labor force, and has the advantage of tax exemption for textiles and garments exported to the United States and Europe. Inner Mongolia deer King cashmere Co., Ltd. has been working in Madagascar for 20 years, and plans to further improve its industrial chain in Madagascar.

　　 Prospects for investment cooperation between China and Africa

Complementary advantages are one of the important factors to promote Sino African textile cooperation. According to statistics from Ministry of Commerce, from 2018 to 2018, the non net investment amount of textile industry amounted to US $253 million (including some withdrawn funds). In 2015, it was only $19 million 20 thousand, reaching a new high of over 110 million in 2017. Although the textile industry's investment in Africa dropped to US $63 million 800 thousand in 2018, the textile industry has maintained a sustained growth trend for non investment in recent years. From the perspective of investment category, cotton textile industry, chemical fiber industry and downstream garment processing industry are involved in the upstream of the textile industry chain. From the perspective of investment area, it covers a wider area, and the northern, Eastern and southern African countries are key investment destinations for the textile industry. From the perspective of specific investment countries, Ethiopia and Egypt are the most important investment countries in the textile industry.

Risks often exist with opportunities, especially for Chinese textile enterprises. However, we must admit that under the current political and economic environment at home and abroad, the opportunity to invest in Africa is good and has great attraction for many textile enterprises. From the government level, the Forum on Sino African cooperation has pointed out the direction for the future development of China Africa relations. At the same time, it has laid a good foundation for Chinese enterprises to carry out non productive cooperation in many aspects, such as political, economic cooperation, promoting cultural exchanges and ensuring peace and security. From the support of the association, many textile industry associations represented by China spinning Union are actively carrying out production cooperation for enterprises to "go out", especially for non investment cooperation services. They play a unique role in data collation, investment policy analysis, landing project support, investment research and inspection, and bridge construction of government enterprises and so on.

China and Africa have profound traditional friendship. The close cooperation between China and Africa under the new global situation can not only help to jointly meet the challenges of economic globalization, but also seek common development and achieve "win-win". Against this background, China's textile enterprises invest in Africa, and the future can be expected.