International Trade: East Africa Part Advantages Of Ethiopia'S Textile Industry Development Cooperation

　　 On November 3, 2023, at the 6th China Textile Industry "Belt and Road" Conference, the Marketing Department of the China Textile Industry Federation, the International Trade Office and the Textile Industry Branch of the China Council for the Promotion of International Trade jointly released the 2023 National Guide for Foreign Investment and Cooperation in the Textile Industry. The compass introduced and analyzed the investment environment of 20 countries around the world, providing information guidance for textile enterprises to carry out the "Belt and Road" cooperation.

　　 At the beginning of the new year, the Secretariat of China Textile International Capacity Cooperation Enterprise Alliance has been authorized to share the above report with you in 20 issues according to the regional scope, hoping to add impetus to the "Belt and Road" cooperation and double cycle high-quality development of textile and clothing enterprises.

Country Profile

　　 geographical environment

　　 Ethiopia (hereinafter referred to as Ethiopia) is a landlocked country in northeast Africa, located in the center of the Horn of Africa, bordering Djibouti, Somalia, Kenya, Sudan and other countries. With a land area of 110.4 square kilometers, the plateau accounts for two thirds of the land area and an average altitude of nearly 3000 meters, known as the "roof of Africa". The overall climate is pleasant, with an average temperature of 16 ℃. The whole year is divided into dry and rainy seasons. The rainy season is from February to March and from June to September, and the rest of the year is dry season.

　　 natural resources

　　 Ethiopia is rich in natural resources. The forest coverage rate is about 15%. There are many rivers and lakes in Ethiopia. The coverage rate of clean water resources is more than 60%. Ethiopia is known as the "African Water Tower". However, due to insufficient technical capacity, the utilization rate of water resources is only 9%. So far, the fishery has not been effectively commercially developed. Mineral resources are also relatively rich, with proven gold, platinum, nickel, copper, iron, phosphate, marble, oil and natural gas reserves, but exploration and development lag behind.

　　 infrastructure

　　 Ethiopia is located inland and has no sea port. 85% of the import and export goods in the country are transferred through Djibouti port. Railway construction is relatively lagging behind. Highway and aviation are the main modes of transportation. In 2020, the national highway coverage rate will exceed 70%; There are more than 40 airports in China, including 3 international airports. Direct flights from China to Ethiopia can reach Addis Ababa, the capital of Ethiopia, through Beijing, Guangzhou, Shanghai and other cities. Ethiopia is rich in power resources. It is interconnected with the power grids of Sudan, Djibouti and Kenya. Its power construction level ranks among the top in Africa. However, the aging of equipment causes frequent power outages. At present, the Fuxing Dam Hydropower Project with an installed capacity of 5150 MW is under active construction. As the largest hydropower station in Africa, it is expected that the annual power generation capacity will reach 6000 MW after completion. In recent years, Ethiopia's telecommunications, postal and other digital infrastructure construction has started to develop, and the domestic and international express service level is expected to steadily improve.

　　 population distribution

　　 Ethiopia has a total population of about 110 million, which is the second largest country in Africa after Nigeria. The population under 35 years old accounts for 70% of the total population, and the labor force population is about 54 million. Ethiopia is rich in human resources. The whole country is divided into two municipalities directly under the Central Government (the capital city of Addis Ababa and the city of Deredawa) and 11 ethnic states, with an urbanization rate of about 27%. Ethiopia is a multi-ethnic country, and English is the common language. The literacy rate of the national population is 52%. There are more than 50 universities in China, and the quality of the labor force is relatively high.

　　 Macroeconomy

　　 Ethiopia is one of the least developed countries in the world. Its national economy is dominated by agriculture and animal husbandry, and its industrial foundation is relatively weak. In recent years, Ethiopia has made great efforts to strengthen infrastructure construction and develop manufacturing industry. The economy's dependence on agriculture has declined, and the proportion of industrial added value in gross domestic product (GDP) is close to 30%. According to World Bank data, Ethiopia's GDP in 2022 will be 126.78 billion US dollars, and the per capita GDP will be about 1027.6 US dollars. The World Bank's Business Environment Report 2020 shows that Ethiopia ranks 159th among 190 economies. According to the 2023 World Investment Report of the United Nations, Ethiopia will attract US $3.7 billion of foreign investment in 2022, making it the strongest foreign capital inflow country in East Africa, accounting for 42% of the total amount of foreign investment in East Africa. Manufacturing is one of the industries with the highest amount of investment in the country. According to the Statistical Bulletin of China's Foreign Direct Investment in 2021, as of the end of 2021, China's investment stock in Ethiopia is 2.81 billion dollars, and the textile and clothing industry is one of the key areas of cooperation between China and Ethiopia.

Current situation of textile industry

　　 Industrial scale

　　 Ethiopia's industrial manufacturing level is generally low, and the industrial categories are not complete. At present, the textile and clothing industry is one of the manufacturing industries with great development potential in Ethiopia. Ethiopia's textile industry started late and has a small scale, but it has initially covered cotton ginning, spinning, weaving, knitting, dyeing, garment processing and other industrial chain links. Among them, garment processing industry is the main body of Ethiopia's textile industry chain, and also the link with high concentration of foreign investment. Ethiopia produces cotton with short cotton linter and good quality. It is a high-quality fiber raw material for making denim. The land area suitable for cotton planting in China is about 3.2 million hectares. According to the data of the International Cotton Advisory Committee (ICAC), Ethiopia will produce about 63000 tons of cotton in 2022/2023, with an annual consumption of about 56000 tons. By 2020, there are more than 130 textile factories, more than 120 garment factories and 10 traditional export processing factories in China, with about 50000 direct and indirect employees.

　　 international trade

　　 According to the data of Ethiopian Revenue and Customs Authority, Ethiopia's export of textile and clothing products to the world in 2022 will total 160 million dollars, including knitted clothing and accessories (80 million dollars, accounting for 47.8%) Woven clothing and accessories (US $50 million, accounting for 31.5%) and cotton yarn and woven fabrics (6.7%) are the main export textile and clothing products. Major export destinations (2021) include the United States (US $110 million, accounting for 66.2%), Germany (7.5%), Italy (4.6%), and China (3.5%).

　　 In 2022, Ethiopia will import US $650 million worth of textiles and clothing from the world, of which chemical fiber filaments and fabrics (US $290 million, accounting for 44.5%), woven clothing and accessories (14.4%) are the main categories of imports. China is Ethiopia's largest source country of textile and clothing imports. In 2021, Ethiopia will import fiber raw materials, textiles and clothing from China, amounting to 440 million dollars, accounting for 78%; In addition, India (accounting for 6.9%), Turkey (accounting for 3.1%) and Pakistan (accounting for 2.2%) are also the main textile and clothing import source countries of Ethiopia.

　　 Industrial layout

　　 Ethiopia's textile and clothing industry is mainly distributed in the industrial parks around the capital Addis Ababa and other regions. The park layout is an important organizational structure feature of Ethiopia's textile industry. At present, there are 9 textile and clothing industrial parks in the country (7 state-owned and 2 private). The main textile industrial parks include:

　　 Awasa Industrial Park, constructed by China Civil Engineering Group, is located in Awasa, the capital of South China, covering an area of 3 million square meters. It is a milestone in the development of Ethiopia Industrial Park, mainly producing woven clothing, sports and leisure clothing, etc., with relatively complete infrastructure.

　　 Meclay Industrial Park, constructed by China Civil Engineering Group, is located in the central area of Addis Ababa Bagtygra, with a superior geographical location, close to Bolei International Airport. Covering an area of 10 million square meters, it mainly produces various clothing products.

　　 Dre Dawa Industrial Park, built by China Civil Engineering Group, is located in Dre Dawa City, the second largest municipality directly under the Central Government of Ethiopia. It has an advantageous geographical location. Several roads and railways can directly reach the port of Djibouti, covering an area of 10 million square meters. It mainly produces textile and clothing products including cotton and blended fabrics, yarns and dyed fabrics.

　　 Adama Industrial Park, built by China Civil Engineering Group, is located in the capital of Oromia, with rich labor resources. It is close to Mojo, Ethiopia's land port, and 74km away from Addis Ababa, the capital. After the completion of the industrial park, it will drive the rapid economic growth of Adama City and surrounding areas and improve the industrialization level of Ethiopia. It mainly produces wool textiles, flax yarns, fibers, sportswear and other textile and clothing products.

Trade and investment policy

　　 Foreign trade policy

　　 Ethiopia is a member of the Common Market for Southeast Africa (COMESA), the Organization of Africa, the Caribbean and the Pacific (ACP) and the African Continental Free Trade Area Agreement (AfCFTA), and enjoys the African Growth and Opportunity Act (AGOA) of the United States, the EU's Comprehensive Preferential Arrangement (EBA) excluding arms, and zero tariff treatment for imports of 98% of China's taxable products. Ethiopia is also a beneficiary of the EU's preferential tariff policies. In 2012, it was listed as the first category country of the GSP. Since 2014, the EU has implemented a tariff free policy for products imported from Ethiopia.

　　 Preferential policies for investment

　　 In recent years, Ethiopia has implemented the policy of opening up to the outside world, carried out the reform of marketization and privatization of the economy, amended the investment laws and regulations five times, and encouraged foreign investment by increasing investment preferential policies, lowering investment threshold, expanding investment fields, implementing preferential tax relief and other measures. The textile and clothing industry has been listed as one of the industries that the government encourages investment. At present, the relevant preferential policies for investment given by the Ethiopian government are as follows:

　　 (1) Investment in new factories or expansion of existing enterprises in the manufacturing sector can enjoy corporate income tax relief for 1-9 years;

　　 (2) The textile and clothing industry, as a key area for the government to encourage foreign investment, can enjoy import tariff reduction and exemption policies for the construction of new factories or expansion of existing enterprises, including: production materials or building materials whose value does not exceed 15% of the total value of imported goods are tax-free for five years; Legal means of production, such as machinery, equipment and building materials, enjoy 100% exemption from customs duties and other import taxes; For the means of production and construction materials imported from the local place, the tariff included in the price can be applied for refund; The above tax-free materials can be transferred to other investors enjoying the same tax-free preference after entry;

　　 (3) The minimum investment amount of foreign investors in a single investment project is 200000 dollars, and the minimum investment amount of foreign investors in joint ventures with domestic investors is 150000 dollars. Foreign investors are not subject to the minimum investment amount if they use the profits or dividends obtained in Ethiopia for reinvestment;

　　 (4) In order to attract foreign investment, the Ethiopian government will introduce the new Ethiopian Investment Law in 2020 on the basis of the preferential investment policies of the 2015 Industrial Park Law. The preferential policies provided by Ethiopia Industrial Park for textile and clothing enterprises mainly include: income tax relief for 10-15 years; 80% of the products of enterprises in the park are used for export or provide raw materials for exporters, and they can enjoy an additional 2-4 years of enterprise income tax exemption; Foreign employees of enterprises in the park enjoy personal income tax exemption for 5 years from the issuance of business license; Textile clothing and leather export processing enterprises in the park will be given subsidies for staff training costs and foreign personnel recruitment costs, which will be 85%, 75%, 50% and 25% of the total costs in the first to fourth years respectively; Developers of manufacturing parks can enjoy preferential rent.

　　 exchange control

　　 Ethiopia's legal currency is Birr, which can be directly exchanged with US dollars. It can also be indirectly exchanged with other hard currencies according to the exchange rate with US dollars, but cannot be directly settled with RMB. In recent years, due to the serious shortage of foreign exchange, Ethiopia's local currency Birr depreciated seriously against the US dollar, and the exchange rate risk increased significantly.

　　 Ethiopia implements foreign exchange control. Foreign funded enterprises (or project teams) can open foreign currency accounts in local banks. Remittance is free but cannot be withdrawn (banks convert local currency). Foreign exchange remittance as capital investment can be filed with the national bank. According to the current laws of Ethiopia, foreign-funded enterprises can convert the profits and dividends to repay the principal and interest of external loans, the payments related to the technology transfer agreement, the income from the sale, liquidation or transfer of shares or ownership to local investors into foreign exchange, and freely remit abroad in a tax-free manner. However, due to the shortage of foreign exchange,

Cooperation between China and Ethiopia in textile industry

　　 In recent years, with the accelerated pace of production capacity cooperation between China and Ethiopia's textile and clothing industry, China has become one of the largest sources of foreign investment in Ethiopia's textile industry. More than 30 Chinese textile enterprises have been put into operation in Ethiopia, with a cumulative investment of about $450 million, employing more than 13000 local employees, and playing a positive role in expanding employment, increasing taxes and improving people's living standards in Ethiopia.

　　 With the deepening of investment cooperation, the textile and clothing trade between China and Egypt has also become increasingly close. In recent years, the trade scale has remained basically stable under the impact of COVID-19. According to Chinese customs data, the total import and export volume of textiles and clothing between China and Ethiopia in 2022 will reach US $510 million, including US $480 million of Chinese exports to Ethiopia. The main export products include clothing and clothing accessories (US $180 million, accounting for 37.5%), chemical fiber filaments and fabrics (US $110 million, accounting for 22.9%), knitted fabrics and crocheted fabrics (10.4%), etc. The scale of China's textile and clothing imports from Ethiopia is small, only about 6% of the scale of China's textile and clothing exports to Ethiopia, but it has maintained a rapid growth in recent years. In 2022, the amount of China's textile and clothing imports from Ethiopia will be about 28.6 million dollars, of which the import scale of natural fibers and products is the absolute main body, cotton, hemp Wool yarn, fabric and other natural fiber raw materials and products accounted for more than 90% of the total import.

Summary and suggestions

　　 (1) In recent years, Ethiopia's economic development has been relatively stable on the whole, and its business environment and foreign investment attraction level rank first in East Africa. The government regards the textile and clothing industry as one of the priority industries in China, and actively improves the investment environment and prospects of the textile industry;

　　 (2) Garment processing is the main link of Ethiopia's textile industry chain. Relying on rich labor resources and relatively low salary levels, it has attracted many international brands and Chinese leading enterprises to set up factories in Ethiopia, forming a good industrial development atmosphere.

　　 (3) Ethiopia is one of the member countries of the Common Market of Southeast Africa and the Free Trade Area Agreement of the African Continent. It enjoys the relevant preferential tariff policies granted by the United States and the European Union, which is conducive to the development of relevant trade and investment cooperation.

　　 (4) The overall level of national economic development is relatively backward, the infrastructure construction and industrial supporting capacity are insufficient, and the market radiation capacity is limited. Domestic political party conflicts and ethnic conflicts, tense situation in some areas, high security risks still exist, and enterprises' investment in Ethiopia has strong uncertainties;

　　 (5) Enterprises can combine their own reality, mainly invest in garment processing, rely on Ethiopia's local cotton raw material advantages, and extend to the upstream spinning and weaving links to meet garment processing needs. However, the required surface and auxiliary materials are still mainly imported, with a long manufacturing cycle. Enterprises also need to pay attention to the Ethiopian government's investment restrictions on dyeing and finishing.