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2. Guiding principles or approaches 1 Considering the Private Sector as an Engine of the Industrial Development Strategy 2 Implementing Agricultural Development Led Industrialization Principle 3 Implement Export-led industrialization 4 Focusing on the expansion of labor intensive industry direction. 5 Implementing effective domestic-foreign investment partnership method 6 Implementing the direction where, the government will play a leading managerial role. 7 Implementing the principle that encourage the active participation of the public. 2 1. Industrial Development Policy & Strategy of Ethiopia

3. 2 Brief History of The Textile Manufacturing Industry in Ethiopia  The first Ethiopian textile manufacturing mill was established back in 1939 in Dire Dawa Town by the name Dire Dawa Textile Factory which marked the beginning of textile industrialization in Ethiopia.  The Industry had been growing sluggishly until 1991; by then there were only 19 Textile and Garment factories, all owned by the state due to the command economic policy of the country.  As a result of the free market economy declared in 1991, Textile and Garment manufacturing companies ranging from medium to large scale production capacity invested in the areas of Ginning, Spinning, Weaving, Finishing and Garmenting or a combination of two or more of the above have reached over 87.

4. Share of Local and Foreign Investments in terms of production capacity(IN Tons/day) Local Projects TurkishIndianTotal Spinning (ton/day) 8.514045193.5 Weaving (meters/day) 12,00088,746100,746 Knitting (ton/day) 6.68 Finishing (meters/day) 50,000

5.  Exists both new and expansion projects  Expected to be completed from two months to 18 months time  Will create daily production capacity of:  193.5 tons of spun yarn  110,746 meters of woven fabric  6.68 tones of knitted fabric  50,000 meters of fabrics finishing capacity Projects in the pipeline

6. Six year export by destination (‘000USD) Destination/Y ear E.C 2005/062006/072007/082008/092009/102010/11 Europe 8,383.00 9,555.00 9,717.00 11,195.00 16,332.0047,993.00 USA 1,429.00 2,311.00 3,263.00 2,847.00 2,652.003,579.00 Others 1,289.00 757.00 1,540.00 392.00 4,222.0010,670.00 Total 11,101.00 12,623.00 14,520.00 14,434.00 23,207.0062,243.00

7.  The Ethiopian Textile industry is highly fragmented sector..  Textile Industry comprises small-scale, medium-scale, large-scale, integrated & non-integrated, ginning, spinning, weaving, finishing, and apparel-making firms and enterprises.  The sector includes Handlooms, Power loom, Hosiery, Knitting, Readymade Garments units.  The organized Mill Sector comprises of Ginning, spinning Mills, and Composite Mills where spinning, weaving, and processing activities are done.  The Fiber and Yarn Sector of the textile industry includes Textile Fibers, Natural Fibers such as Cotton, Jute, Silk and Wool 7 The Structure of the Ethiopian Textile Industry

8. S. No. Area of Operation Number of Factories Current After few months After a year 1Ginning15 17 2Integrated Textile Mills161821 3Spinning345 4Weaving and/or Knitting334 5Handloom444 6Dyeing and Printing334 8Garment Factory41 81 9Blanket Factory444 Total8992140 Ethiopian Textile Manufacturing Industry Profile

9. Textile products export performance of last six years Year(Export in million USD) S/ N Types of product 2005/20 06 2006/20 07 2007/20 08 2008/20 09 2009/ 2010 2010/20 11 2011/2012 (9months ) 1yarn---3.78.59.15.1 2fabric4.24.44.63.76.323.06.9 3Garment6.989.76.66.726.747.8 4Hand woven products 0.10.20.4 1.73.43.5 Total 11.112.614.614.423.262.263.4 Yearly Growth in % 13.515.8-1.461.1168

10. Favorable condition  Textile Industry Considered as number one priority sector by the Government‘s Industrial Development Strategy.  Availability of some 3 million hectare of land and climate suitable for cotton cultivation, but only some 5 % utilized so far.  Huge potential for organic cotton cultivation.  Ethiopia, known as the water tower of Africa, Provides one of the Cheapest environmental friendly hydroelectric power supplies in the world (5US cents/kwh).  Low cost and easily trainable unskilled labor force (wages 40USD /month), less than Africa’s average.

11. …Favorable condition contd. Skilled labor in the sector is increasing rapidly as a result of fast growing education and training institutions in Textile Technology; two institutes, a couple of textile Engineering departments in different Universities and a lot of TVET Schools and private training institutions. Quota and duty free market access to the US and EU as well as COMESA markets. In addition Ethiopia signed with more than 16 bilateral trade agreement, which include China, India, Turkey and Russia. Ethiopia offers one of the largest domestic markets in Africa, given its population size and rapid economic growth.

12. Incentives Aim: To encourage investment and promote the inflow of foreign capital and technology into Ethiopia (both domestic and foreign). 1. Investment Incentives Tax holidays:-  100% Duty free importation of new or used machineries, equipments, construction materials and vehicles (used as capital goods for the investment) as far as it is not producible locally in Ethiopia.  Duty free importation of spare part of 15% of capital investment for the first 5 years of operation.  Ownership Transfer of invested capital goods to third party enjoying similar privilege.  It is possible to hire international expatriates free from income tax as far as they stay for no more than two years.  Reconciliation of VAT for materials purchased locally during the project period is possible if declared in 6 months time.

13. Incentives….. 2. Financial Incentives  Development Bank of Ethiopia (DBE) extends a 70% loan against 30% equity contribution in cash by the investor for Brand New Establishments.  Development Bank of Ethiopia (DBE) extends a 60% loan against 40% equity contribution in cash or in kind by the investor for used machineries and equipments or existing Establishments.  DBE’s extends loan with an interest rate of 8.5% and grace period of 5 years.  Co-financing, loan buyout, working capital and international loan repayments out of Ethiopia are some of the services DBE and many of the domestic banks extend to the private sector.  In addition, investments are constitutionally and by low (of Multilateral Investment Guarantee Agency of the World Bank) guaranteed of non commercial risks.

14. Operation incentives 2. Operation incentives Tax holidays:-  Income Tax Holiday for 2-8 years depending on export performance.  Exemptions From Export Customs Duties through a set of incentive schemes called duty draw back, voucher and bonded manufacturing warehouse  Exemption from customs duty of locally purchased raw materials on fast refund bases  On site (factory) inspection of imported raw materials and exportable products  Loss carry forward for maximum of half the income holyday period Incentive Continued...

15. S/NTypes of Material LocalImported 1 Cotton √ 2Fabric √ √ 3Accessories √ 4Chemicals √ √ 5Dyestuffs √ 6Packing Materials √ 15 Raw material sourcing

16. Taking into consideration.Government commitment.Favorable conditions. Investment, financial & operational incentive the owners of Ayka Addis Textile & investment group decided to invest in Ethiopian The case of Ayka Addis Textile &Investment Group 16

17.  Established by two Turkish investors in 2007 in sebeta town some 18 km west of Addis Ababa  Development Bank of Ethiopia has covered some 70 % of the project cost through long term loan while the remaining 30% was contributed by the owners  Currently has created employment for 6000 peoples & expected to increase to 10000 up on completion of its expansion Some facts about Ayka Addis Textile & investment group 17

18.  Main products: Yarn, knitted fabric and knitted garment  Production capacity: - 70,000 pcs garments per day Some facts about … 18

19.  Ayka is the leading textile & garment exporter in Ethiopia  Contributes more than 60% of the countries textile & garment export in 2010/2011 Export performance 19

20. Name of company plannedperformancePerformance in % Ayka Addis Textile & investment group 43,912,00047,243,000107.59 Last 9 Months export performance of Ayka USD 20

21. By the year 2014/15: - Increase production from USD 470 million to USD 2.5 billion - Increase production from USD 470 million to USD 2.5 billion - Increase export from 23.2 million USD to 1 billion USD - Increase export from 23.2 million USD to 1 billion USD - Employment increases from 19,000 to 40,000 - Employment increases from 19,000 to 40,000  The above targets will be achieved through: - Improving capacity utilization of existing factories - Improving capacity utilization of existing factories - New and expansion investments - New and expansion investments 21 GTP(Growth &Transformation plan) for the sector

22.  Shortage of long staple cotton  Shortage of container facilities  Lack of availability of natural and man made fibers other than cotton  Lack of efficient logistic & transportation system to & from the port  Long process to secure credit from the DB  Lack of trained & skilled manpower at all levels of the hierarchy 22 Challenges

23. Establishment of Textile industry development institute the institute provides complete and full-fledged supports and services to the textile industry in Investment, Production and Market activities. These includes:- Investment focused supports and Services  Collecting, analyzing, documenting and disseminating of information in regard to the sector’s investment.  Conducting feasibility studies for the sectors investment.  Consultancy services in technology selection and negotiation, construction, installation, commissioning and testing for the investors. Policy measure taken by The government

24. - Facilitating working capital and investment loan mainly through the development bank - Promotion and special supports for attracting FDI. - Facilitating easy and tax free import of machinery and construction materials for new investments - Availing rare construction materials such as cement - Giving priority service for the sector regarding electric power supply continued… continued…

25. …Supports and services Contd Capacity building  Training, benchmark implementation, laboratory testing and inspection, R & D, Certification of quality standards etc.  Technical consultancy and supports by availing local and foreign experts  Support in quality assurance and certification Market Oriented Supports and Services  Marketing capacity building ( training and consultation)  Logistics facilitation (transport, customs, finance, port, utility etc) value chain- input and output linkages.  Inputs facilitation (Sourcing and Supply chain)

26. - Facilitating working capital and investment loan mainly through the development bank - Promotion and special supports for attracting FDI. - Facilitating easy and tax free import of machinery and construction materials for new investments - Availing rare construction materials such as cement - Giving priority service for the sector regarding electric power supply continued… continued…

27. continued…  Facilitate input supply linkage with local raw material producers and market linkage with foreign buyers  Strengthening the already existing markets and assessing the new markets outlets for the sectors’ product.  Facilitation of tax free situations during export of products and import of raw materials and accessories, and also facilitation of market development.  Give training to workers free of charge

28.  Cost sharing support for payments to be done to expatriates  Facilitation of logistics for incoming raw materials and outgoing products with breakeven price  Facilitation of trade shows and work shops locally and globally  And also conducting sectoral research and studies and applying for the development of the sector Benchmarking Marketing Input supply Tax system

29. Fully equipped training facilities  Model spinning factory  Model weaving and knitting factory  Finishing facilities  Design and Garment training classes and facilities Modern chemical and physical laboratories Fully equipped library. Facilities

30. Thank you Hailu Belay ( PhD) Hailu Belay ( PhD) 30