Sub-Saharan Africa has massive potential to be competitive in the production of cotton textiles and apparel, given its abundant human and natural resources. Despite the industrial opportunities, the region is still struggling to enter the global competition. This article talks about the potential and challenges faced by Sub-Saharan African countries.
Sub-Saharan Africa is a diverse region with an abundance of human and natural resources and a great potential to be competitive in cotton production and achieve inclusive growth. Its textile and apparel industry has major importance in terms of job creation and income generation. In recent years, Sub-Saharan African countries have attracted the attention of textile companies globally and have become a budding destination for textile and apparel sourcing. This sector is witnessing a remarkable growth for which the key reasons are foreign investments, investor confidence in the continent’s manufacturing and design capability, and the rising cotton industry. In 2021, the textile and apparel exports from Sub-Saharan African countries increased by 25 per cent to $5.14 billion, compared to exports of $4.11 billion in 2020.
It can be observed from Figure 1 that the import to export ratio for the Sub-Saharan African countries is much higher. This indicates that the region is unable to meet its domestic demands, unlike the other developing countries at a similar stage of economic growth. The higher import to export ratio indicates a financial gap and a lack of economic activity in the region. The textile and apparel industries in the Sub-Saharan African countries are facing increasing competition in the local market due to cheap imports from Asian countries such as China, India, and Pakistan.
Sub-Saharan Africa’s population is approximately 1.14 billion and growing at 2.7 per cent a year, of which 77 per cent are below the age of 35. 1According to United Nations projections, Sub-Saharan Africa will have the highest growth in working-age population anywhere over the next 20 years. By 2035, the working-age population in the region is expected to be as large as China’s —more than 900 million people. 2This massive labour pool is capturing the attention of several industries, including textile and apparel.
Cotton is one of the most important cash crops in Sub-Saharan Africa and has an important role in creating jobs, poverty reduction, and foreign exchange generation. The Sub-Saharan African region ranks fifth in the world’s cotton production and takes up 7.12 per cent of the global total with West Africa accounting for almost 75 per cent of the region’s production. Sub-Saharan Africa has made remarkable progress by increasing its cotton production to reach a total of more than 1.84 million tons in 2021. Currently, the cotton production in Sub-Saharan African region contributes 15.93 per cent of global exports and employs over 450,000 people. Within the apparel sector, the demand for natural fibres is expected to rise and cotton remains the primary natural fibre used. As per the United States Department of Agriculture (USDA), cotton lint exports of Sub-Saharan Africa are projected to expand by 14 per cent by 2025.3 An increasing share of these raw material exports goes to China and Southeast Asia, and then final goods are sold to consumers in the United States (US) and the European Union (EU). According to OECD agricultural outlook, Sub-Saharan Africa is expected to be the third-largest exporter of raw cotton in 2029.4
In the African continent, there are a total of six cotton basins among which the West African basin is the most important. Burkina Faso, Benin, Mali, and Cote d’Ivoire, the leading cotton-producing countries, have seen their volumes expand over the years due to expansion in area harvested primarily as a result of increasing government subsidies. The USDA forecasts the total area for cotton cultivation in Sub-Saharan Africa at 4,843 thousand hectares (ha) in MY 2022-23. Mali is expected to plant the largest area of 740 thousand ha, up 2.78 per cent from 2021-22, while Benin and Burkina Faso each are forecast to sow cotton on over 650 thousand ha in MY 2022-23, up 1.56 per cent and 9.24 per cent respectively from last year.
African Development Bank Group (AfDB) has estimated that up to 600 per cent of value can be created along the cotton value chain: from cotton production, spinning and twisting into yarn, to weaving and knitting into the fabric, followed by dyeing, printing, and designing. The textile industry of sub-Saharan Africa comprises various micro, small and medium enterprises (MSMEs), which can rapidly generate employment and help in women empowerment.5
African Growth and Opportunity Act (AGOA) AGOA is a US trade policy towards Sub-Saharan Africa since 2000. It is a non-reciprocal US trade preference programme that provides duty-free access to the US market for most exports from eligible African countries. AGOA promotes exports to the US and attracts investments to Africa, thus helping to accelerate economic growth. The Trade Preferences Extension Act of 2015 extended AGOA’s authorisation until September 2025. Currently, 36 Sub-Saharan African countries are AGOA eligible, of which 24 have eligibility for textile and apparel benefits.
AGOA gives major importance to Africa’s emerging textile and apparel industry as the primary sector for trade benefits. This sector is considered to hold the highest potential for promoting Africa’s export competitiveness and overall growth by generating greater employment due to its relative labour intensiveness. Joseph Phi, group chief executive of Li & Fung company said in an interview for the McKinsey’s State of Fashion “As a company, we have started to look at Africa. We’re talking about Ethiopia, Kenya, Madagascar, and the like because they’re duty-free countries to America.”6 AGOA removes import duties that can be as high as 32 per cent for certain articles of apparel, providing exporters with a significant boost to their competitiveness in the US market. In 2021, total US imports of textile and apparel from AGOA countries were $1.64 billion, an increase of 17.24 per cent when compared to $1.40 billion in 2020.
In a December 2021 proclamation, US President Joe Biden terminated AGOA preference benefits for Ethiopia, Guinea, and Mali, effective January 1, 2022. These countries failed to meet eligibility requirements regarding human rights (Ethiopia, Mali), political pluralism and the rule of law (Guinea, Mali), and worker rights (Mali).7 On the other hand, China announced new investments in Ethiopia in its Forum on China-Africa Cooperation (FOCAC) ministerial meeting in December 2021. China presented its vision for China-Africa relations for the next three years, under the theme ‘Deepen China-Africa Partnership and Promote Sustainable Development to Build a China-Africa Community with a Shared Future in the New Era.’ China will encourage its businesses to invest at least $10 billion in Africa in the next three years and will establish a platform for China-Africa private investment promotion. China also aims to increase its imports from Africa to a total of $300 billion in the next three years.8
The Prosper Africa initiative was started in 2019 with the goals of increasing trade between the US and African countries and supporting investment by US companies in African countries. This initiative has engaged 17 US government agencies, including the United States Agency for International Development (USAID), the United States Trade and Development Agency (USTDA), the Export-Import Bank of the United States, and the United States International Development Finance Corporation, to coordinate and provide support for the initiative’s goals. It works with private sector actors, governments, and multilateral organisations in African countries to increase communication and cooperation and strengthen institutional channels for investment.9
In September 2021, under the Prosper Africa Initiative, the USAID Africa Trade and Investment programme was devised to enhance USAID’s ability to boost trade and investment in the African continent. It is nearly half a billion-dollar programme that is expected to generate thousands of African and American jobs and deliver billions in exports and investments by 2026. The continent-wide programme will improve and develop cooperative trade and healthy business environments. USAID is also seeking potential partners in the textile and apparel sector to support vertical integration in East Africa and offering $250,000 to $1,000,000 for businesses generating employment and increasing trade and investment across East Africa.
Asian Investment in Sub-Saharan Africa
The investment of Asian companies in Sub-Saharan Africa’s textile and apparel industry has both benefits and limitations for the continent’s own internal production. The arrival of Asian apparel and cotton manufacturers in Africa offers access to more modern technology and advanced management techniques that can benefit local producers. In contrast, local producers are struggling with the cheaper imports from Asia. China poses the largest threat to Sub-Saharan African textile and apparel industries as its textile and apparel exports to the region exceeded $19.51 billion in 2021. There was an increase of 26.6 per cent compared to exports in 2020. China is not the only Asian exporter of textiles and apparel to Sub-Saharan Africa, though the next largest, India and Pakistan, were far behind, at $2,415 million and $485 million, respectively, in 2021.
The arrival of Asian buyers in Sub-Saharan Africa is mainly driven by the rising demand in the Asian textile industry. China has become the world’s largest cotton consumer, and because the domestic cotton price in China is much higher than the price in the African market, exporting cotton to China has become highly profitable. In 2021, $1.27 billion worth of raw cotton was imported from the region, out of which $295 million worth of cotton was imported by China alone. Over the years, countries such as Pakistan and Indonesia have also experienced strong growth in their textile industry. Pakistan imported $438 million worth of cotton lint from the Sub-Saharan African region in 2021, with an increase of over 500 per cent in 2 years. According to OECD-FAO Agricultural Outlook, Sub-Saharan African cotton exports will continue growing at around 2.9 per cent per annum in the coming decade, increasing the region’s market share to 18 per cent, with Asia being the major destination for shipments.
The apparel manufacturing industry has witnessed development in some countries of East Africa, especially Ethiopia, as the region presents some attractive conditions for foreign investments.
Ethiopia, one of the fastest-growing countries in Africa, has attracted global suppliers from developing economies, such as China, India, Turkey, and various global brands. Several companies have been investing in Ethiopia’s textile and apparel industry while many have already relocated their industrial capital there. Ethiopia is emerging as a viable option for non-resource-intensive countries. It has more than 3.2 million ha of land with a favourable climate for cotton cultivation. However, only 82 thousand ha of that land (~3% of the total) is being used today for cotton cultivation. The combination of low land-utilisation rates, planning errors, low crop yields, and quality problems has led Ethiopia to import cotton from other countries. If worked properly, Ethiopia has the potential to establish entire production chains from harvesting cotton to producing finished products.
The Ethiopian Investment Commission (EIC) has increased its efforts to attract foreign direct investment (FDI) by strengthening the private sector and increasing investment to accelerate Ethiopia’s resilient economic development. In cooperation with the private sector and global actors, it has initiated a specialised Industrial Parks programme to generate $30 billion in export revenue from the textile and apparel sector by 2030. The Industrial Parks programme is the core of the Ethiopian government’s rapid industrialisation goal and has been building industrial parks like the Hawassa Industrial Park. The EIC is currently targeting large companies that can quickly create jobs and has attracted organisations like Jiangsu Sunshine Group, H&M, Arvind Mills, and Raymond Limited.
Ethiopia’s low labour costs make it an attractive textile and apparel-sourcing destination. Its average monthly payment for a factory worker is about $25. In comparison, Chinese textile and apparel industry workers earn $340 a month, those in Kenya earn $140 and those in South Africa earn $242. Work-permit costs for foreign workers are less than one-tenth of those in Kenya. Additionally, Ethiopia has low electricity prices and has a strong supply of hydroelectric power. The price of electricity in Ethiopia is $0.020 per kWh which is far less than its Asian counterparts like Bangladesh and Pakistan where electricity costs are $0.102 kWh and $0.134 kWh respectively.
China has become Ethiopia’s most important economic partner in the last decade. Across trade, investment, infrastructure financing, and aid, no other country has such depth of engagement in Ethiopia. Chinese firms of all sizes and sectors are bringing capital investment and management know-how to the country. In doing so they are accelerating the progress of Ethiopia’s economy. In 2021, China exported $543 million worth of textile and apparel to Ethiopia out of which 56.72 per cent i.e., $308 million worth of apparel was exported. The exports majorly consist of T-shirts, singlets, trousers, jackets, and suits. Chinese firms have realised Ethiopia’s potential for higher output and reasonable productivity levels. Their entry into Ethiopia was driven mainly by its low labour cost and its committed political support which highlights the country’s comparative advantage. Other major selling points include low-cost electricity, a large and young labour force, and favourable access to the US and EU markets. Currently, Ethiopia’s population is approximately 120 million, which is equivalent to 1.47 per cent of the total world population. The median age of people living in Ethiopia is 19.5 years.
In 2021, Ethiopia exported $356.98 million worth of textile and apparel. The top exports were apparel ($333.68 million) and cotton ($11.88 million), which were exported mostly to the United States ($259.81 million), Germany ($16.85 million), and Spain ($12.91 million).
Chinese investment: Trade between China and Africa has been asymmetric and characterised by China’s import of raw materials from the region, and the latter importing manufactured goods from China. Its emphasis on investment in natural resources has reinforced many Sub-Saharan African countries’ dependence on raw materials and unskilled labour. Countries in the region have limited their potential by not developing the internal capacity to add more value locally by making semi-finished and finished goods. Continued reliance on raw material exports for revenues and growth has created concern, as this deprives African people of the opportunities and benefits that they may be able to derive from their natural endowments and slower the pace of development. Moreover, growing trade between China and Sub-Saharan Africa has contributed to the loss of hundreds of thousands of manufacturing jobs in industries that could not compete with less expensive Chinese imports.
The increase in China-Africa trade often comes along with a trade imbalance to the advantage of China. In 2021, South Africa had a trade deficit of $1.34 billion in the textile and apparel sector with China, with imports more than twice as high as exports. Also, like the rest of Sub-Saharan Africa, South Africa’s exports to China consist mainly of low value-added commodities, whilst its imports are mainly high value finished products.
Logistics challenges : Although the Sub-Saharan African region is developing rapidly, its countries score relatively low on the World Bank’s Logistics Performance Index (LPI). None of the countries from the region, except South Africa (33rd rank), was able to secure a rank under 60 in the LPI of 2018. Identifying ways to optimise costs and operational efficiency is exceedingly difficult in Sub-Saharan Africa’s fragmented markets. According to the International Road Federation, Sub-Saharan Africa accounts for only 6 per cent of global road networks despite representing 17 per cent of the global landmass. This creates major challenges in the transportation of goods and intraregional trade for the African continent. The terrible and inaccessible roads condition and a lack of connecting highways are disrupting trade and the development of supply chains for textile and apparel markets throughout the region. Moreover, the lack of road infrastructure has caused difficulties in sourcing products to fulfil domestic orders. African Development Bank has suggested that the continent needs $130-$170 billion of annual investment in infrastructures such as roads and railway facilities to double its manufacturing output capacity by 2025.
Table 1: Logistics data of South-East Asian Countries and Sub-Saharan African countries (2018)
Conflicts and civil strife: Low-intensity conflicts, civil strife, and war have been a common and persistent phenomenon in Sub-Saharan Africa and act as a major threat to economic growth and sustainable development in the region. The Central African Republic, Mozambique, Ethiopia, and Cameroon are the hotbeds of civil war in Sub-Saharan Africa. The year-long conflict in the Tigray region of Ethiopia has led to the suspension of AGOA benefits to that country. This means that Ethiopia no longer has duty-free access to the US market which has raised concerns over the future of Ethiopia’s textile and apparel industry. In 2021, more than 70 per cent of Ethiopia’s total textile and apparel export value was exported to the US under AGOA. Cameroon’s Northwest and Southwest regions are also facing conflicts for more than three years now and have resulted in significant socio-economic disruption.
Productivity: Labour productivity is a key factor that drives economic growth. A highly productive economy means that more goods can be produced with the same or fewer resources. Sustained growth in labour productivity is fundamental for improving working conditions, increasing wages, and boosting enterprise competitiveness and profitability. Low labour productivity has been a major bottleneck in Sub-Saharan Africa’s economic growth. It is clear from figure 14 that Sub-Saharan African countries’ labour productivity has not improved over the years as it should have, while its counterpart Asian countries’ labour productivity has improved significantly over the years. In 2021, labour in India was nearly twice as productive, Indonesia more than 2-fold, and China more than triple that of Sub-Saharan Africa.
Power infrastructure and cost : Sub-Saharan Africa faces major infrastructure challenges, the most severe of which are those in the power sector. Not only is the region’s energy infrastructure poor but also costly and unreliable. Persistent electricity scarcity and high costs have crippled the region’s economic growth and prevented it from attaining its several sustainable development goals. In 2021, Sub-Saharan Africa’s share of the global population without access to electricity was 77 per cent. Causes of this scarcity include the recent COVID-19 pandemic, lack of generation capacity to supply power to grid-connected regions, absence of proper grid infrastructure to deliver this power, and inadequate regulations to provide steady revenue to maintain and invest in new generation capacity. West Africa has one of the lowest rates of electricity access in the world; only about 42 per cent of the total population, and 8 per cent of rural residents, have access to electricity.10 The region’s inability to provide reliable electricity has led to the growth of inefficient and expensive on-site private electricity generation in industrial, commercial, and even residential sectors.
In Sub-Saharan Africa, Burkina Faso has the most expensive electricity at $0.199 per kWh for households and $0.439 per kWh for businesses. Electricity cost in Indonesia, China, Vietnam, and Bangladesh is less than in most of the countries in Africa.
High inflations : Inflation is a constant problem around Africa as the continent is majorly import-dependent. Sub-Saharan African countries’ total import in 2021 was $27.94 billion while export was $5.14 billion. This vast difference in the import-export value has made Sub-Saharan African countries inevitably susceptible to various economic challenges such as high inflation and volatile exchange rates. The region’s inflation rate was 14.5 per cent in April 2022 and Zimbabwe, Ethiopia, Angola, Ghana, and Nigeria were among the most expensive countries.
Doing business in Sub-Saharan Africa presents considerable challenges, but the abundance of natural resources and trade agreements have attracted attention to industrial opportunities in Sub-Saharan African countries. The region’s textile and clothing industry holds a lot of potential for value-added benefits and job creation. Several factors like large population, low wages, and cotton production provide a convenient environment for the development of the textile and clothing sector in Sub-Saharan Africa. While expanding trade, however, global fashion brands should be cognizant of environmental pollution, ensure sustainable production, provide safe working conditions and women empowerment. These steps will help in the sustainable growth of the textiles and apparel industry in the Sub-Saharan African region and help to ensure social and environmental compliance.
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