Cheap Labor: Israeli-Ethiopian Trade Reaches New Milestone In Garment Manufacturing

Written by Dana Sanchez

Israeli clothing manufacturer Bagir Group has shipped its first tailored trouser exports to the U.S. from its new factory in Ethiopia, completing an order for Swedish fashion giant H&M.

Bagir plans to make Ethiopia its main production base thanks to Ethiopia’s ability
to “produce top quality garments for less,” Bagir’s CEO Eran Itzhak told Just-Style.

“To produce formal trousers for export to the U.S. is an important milestone achieved for the Ethiopian site,” Itzhak said.

The factory is making 600 trousers per day and intends to increase this to 3,000 per day in the next 18 months, with jacket lines to follow. Production is expected to grow to 4,000 suits a day within three years.

Bagir supplies customers in the U.S., U.K., Europe, Australia and South Africa, including the U.K.’s Arcadia Group, whose brands include Burton and Topman, Just-Style reported.

Ethiopia offers manufacturers cheap labor, incentives for investors, low energy costs, proximity to the European market and duty-free export status for sales to the E.U. and U.S., according to Stock Market Wire.

Ethiopia’s garment sector has no minimum wage, Wall Street Journal reported. Garment workers in Ethiopia start at about $21 a month as of 2014, the Ethiopian government said.

That compares to Bangladesh’s minimum wage of $68 per month and China’s average wage of $500 in the Chinese textile sector, DW reported.

Bagir spent more than two years getting up to speed in Ethiopia, where it invested $1.5 million in a 50-percent joint venture with Nazareth Garments, whose factory produced uniforms for the Ethiopian police and Ethiopian airlines.

The 538,000 square-foot factory has 450 employees.

Expect more brands and manufacturers to do business in Ethiopia, Itzhak said. “You can already see huge investments coming from China.

“Yes, there are issues like the infrastructure, transportation, the lack of tradition, the need to bring people from Sri Lanka and Bangladesh to manage the lines – but this is
part of the sourcing game. I don’t see them as difficulties; I see them as challenges. And there is a big prize waiting for the ones who are willing to meet these challenges.”

Prime Minister Benjamin Netanyahu’s visit to Ethiopia in July was the first by an Israeli leader. He was accompanied by a large Israeli trade and investment delegation including 50 companies.

There are more than 140,000 Israelis of Ethiopian origin who follow the day-to-day growth in relations between the two countries, Ambassador Belaynesh Zevadia said in a Awramba Times report.

Netanyahu told Ethiopians he has encouraged Israelis to invest in Ethiopian businesses.

He cited the $1 billion spent in Ethiopia by Israel Chemicals Ltd., which bought a potash mine in the northern Danakhil region, as an example. He also talked about a $190 million irrigation contract Netafim Ltd. signed with a government sugar-cane plantation, Bloomberg reported.

While in Ethiopia, Netanyahu sought political support to block the frequent condemnations Israel receives at the United Nations.

“All African countries, all of them without exception, can benefit from a renewed cooperation with Israel,” Netanyahu said as he stood beside Ethiopian Prime Minister Hailemariam Desalegn at a press conference in Addis Ababa in July.

In September, Dutch and Israeli farms were attacked by anti-government protesters, triggering a 6-month state of emergency.

Ethiopia has enjoyed double-digit economic growth and weathered the global financial crisis of 2008, often topping the list of the fastest-growing economies in the world, VOA reported:

But the country’s state development model is beginning to show cracks as people express anger at being left out of its ambitious development projects.

Despite the unrest in Ethiopia, Itzhak said the country has “all the key elements,” including access to the U.S. through AGOA (the African Growth and Opportunity Act), competitive labor costs, government support and more potential to grow.

Risk aversion

There are other voices that are more risk averse, like Anuradha Mittal, executive director of the Oakland Institute, a California-based policy group.

“If I am a foreign investor, I look for opportunities,” Mittal said in a VOA interview. “I understand that there are risks, but in the face of this growing unrest where foreign companies have been targets, given all that has happened in terms of displacement of people and their lands given away to foreign investors, it would be astute to not go into a country like that.”