How China is outsourcing fast fashion to Ethiopia

Ethiopia is swiftly becoming the new hub of fast fashion. Ultra cheap labour, tax incentives, little to no corruption, and a government that is as want of industrial development as fast fashion companies are desperate for tax breaks.

The Horn of Africa that was once characterized by drought and conflict is now poised to be the promised land producing bulk quantities of cheap garments at even cheaper prices.

But who is winning?

The women working as seamstresses at these factories earn 25 dollars per month. One can imagine the savings for companies like H&M, Levi’s, Guess and PVH brands Tommy Hilfiger and Calvin Klein who all manufacture in Ethiopia, continually looking to improve margins and cut supply chain costs. But the question remains if countries like China, India, Sri Lanka and Bangladesh are outsourcing their production to cheaper Ethiopian factories, what does that say about labour conditions and fair wages for the Ethiopians?

The setting for Ethiopia’s growing fast fashion hub is the Hawassa Industrial Park. Funded with 250 million dollars of Chinese investment there are currently four parks, with plans to open eight more by 2020, according to Bloomberg, who dubbed it “the great Beijing outsourcing experiment.”

Companies are exempt from five years of tax

The tax break is very attractive, with companies exempt from income tax for the first five years of business. Also exempt are duties and taxes on the import of capital goods and construction supplies. “The plan is to create a total of 2 million jobs in manufacturing by the end of 2025,” the Ethiopian Investment Commision stated in Bloomberg.

Of course there are grey areas, and a dark one at that. The industrial development of the country could at any time clash with the unstable political situation that threatens the outbreak of a civil war. Unresolved ethnic conflicts linger, and as the second most populous African country with 105 million people, it is the 6 procent minority that dictate politics and security forces.

Still, the Ethiopian government is hoping to create a robust and competitive industrial base, even if the country is in a state of emergency. It is working to ensuring agricultural transformation, enhancing export capacity and building itself as a global manufacturing sector.

Credit: Hawassa Industrial Park, SET Programme, Overseas Development Institute