Textination Newsline

• Sudanese and Chinese investors want to secure raw material supplies

Nairobi (GTAI) - Ethiopia has further successes in attracting textile companies: One British company is planning to invest USD 100 million, one Chinese company even plans to invest USD 220 million. This means that the textile sector is increasingly becoming a self-starter, as donors increasingly want to supply domestic industry with pre-products. Meanwhile, those who invest should not only raise the financial means, but also the raw material cotton, according to market experts.

The Ethiopian textile and clothing market has two new entrants: the British Intrade Co. UK Ltd. and the Chinese Wuxi No. 1 Cotton Investment Co. Ltd, Intrade intends to build a textile and clothing factory in the Mekelle Industrial Park (Tigray Regional State), which was opened in July 2017. Initial cost estimates are around USD 100 million. Intrade is an offshore company of the Sudanese Mahgoub-Sons Group. The company has reached an agreement with the Ethiopian Investment Commission to invest USD 200 million in three projects. The textile project is to be completed in 16 months.

Security of supply for cotton is becoming an issue
The Sudanese group is not only interested in textile production, but also with lucrative supply transactions for its own cotton. They have the capacity to supply 500,000 tons of long staple quality cotton annually, Wagdi Mirghani Mahgoub, Managing Director of Intrade says. The supply of raw cotton has become an increasing problem for the emerging Ethiopian textile industry since some Asian countries ordered export stops for the raw material, including the PR China and India. The African Plantation, which cultivates 33,000 hectares of agricultural land in Sudan, also belongs to the Mahgoub-Sons Group.

However, Wuxi No. 1 Cotton Investment has announced the second and larger textile investment of 2018: a textile factory will be opened shortly in the Dire Dawa Industrial Park. In a first phase, USD 80 million are planned, followed by further investments totaling USD 140 million. The company intends to install state-of-the-art textile machines to produce and supply goods for the demanding markets in Europe, Japan, South Korea and Southeast Asia. According to their own statements, partners are leading world machinery brands. Wuxi is already pursuing a project in the Ethiopian city of Adama and also has plans to grow cotton in Ethiopia.

Ethiopia is considered the first textile address in Africa
"Clothing companies are nomads," an industry consultant knows, "they go where it is cheapest for them. If wages and ancillary costs rise too much in countries like Bangladesh or the PR China, the caravan moves on." South of the Sahara, only Mauritius has made a name for itself as a producer of high-quality clothing. Attempts to establish larger-scale textile and clothing companies in Namibia and Lesotho have so far been unsuccessful. Meanwhile, Kenya and Ghana have production conditions that are far too expensive.

Ethiopia offers several advantages at the same time: Wages and ancillary costs are extremely low and far below those in China. The US Centre for Global Development found out that a worker in Ethiopian sweatshops earns an average of USD 909 a year. In Bangladesh, however, it is US$ 835 and in Tanzania and Kenya even US$ 1,776 and US$ 2,118 respectively. Another advantage: Ethiopian seamstresses are considered to be extremely hardworking and reliable. In addition, there is a tradition in textile and clothing production as well as in leather processing and thus there is a basic pool of trained specialists.

Infrastructure is making huge progress
Meanwhile, the supply of domestic cotton and leather needs to be expanded, because in the drought years 2016 and partly 2017 the supply of cotton was insufficient. The government is cooperating and is increasingly listening to the needs of producers. The infrastructure is currently undergoing sustained improvement, in particular the transport routes to the neighboring seaport of Djibouti, from where Europe can be reached more quickly than from the Far East. And, last but not least, the Ethiopian capital Addis Ababa has a capable air traffic hub with a dozen direct flights to the EU, including Frankfurt and Vienna. In addition, there is a modern air freight center.

Just as important as the delivery routes are the comparatively modern production conditions in the newly emerging industrial centers throughout the country. Everything here is "Made in China": fences, access controls, roads, electricity and water supply, waste and sewage disposal, workers' settlements. From a European perspective, this may look like Chinese dominance, but from an Ethiopian perspective it creates jobs, feeds families and earns foreign exchange. Under better working conditions than in Bangladesh, experts mean.

According to the ideas of the Ethiopian government, the country is undergoing a transformation process: away from an agrarian-based economy and towards an industrial state. By 2025, the country is expected to reach middle-income status and to become Africa's largest industrial production hub. To achieve this, Ethiopia is investing heavily in roads, railways and power generation, health and education, urban and rural development and the creation of industrial clusters.

Customs advantages in the USA and Europe
Ethiopia has so far benefited from the African Growth and Opportunity Act (AGOA) of the USA, which, for example, allows savings of 16.8 percent in import duties on cotton trousers and 30 percent on synthetic shirts. Ethiopia also has duty-free access to the EU market under the Everything but Arms initiative. Fears that US President Donald Trump might stop AGOA have not yet come true.

Ethiopian exports of textiles, clothing and leather products
(including footwear; in US$ millions)

SITC-Commodity Group	2014	2015	2016
61 Leather and leather goods	97.51	98.20	78.63
65 Yarn, fabrics, finished textile products and related articles	39.34	39.12	29.61
84 Clothing and apparel accessories	55.53	77.94	68.25
85 Shoes	33.88	37.69	43.80
Total	226,26	252,95	220,2

Source: Comtrade

German exports can be expanded
German sales representatives of technology for the textile, clothing and leather industry are not yet well positioned in Ethiopia. According to preliminary figures from the Federal Statistical Office (SITC 724), only EUR 2.84 million of relevant technology where sent to Ethiopia in 2017, though 169 percent more than in the previous year.

Ethiopian imports of machinery, equipment and parts for the textile and leather industries
(SITC 724; in USD millions)

Supplying Country	2014	2015	2016
Total	131.30	170.51	111.10
.. PR China	43.87	42.40	62.07
..Italy	6.38	11.75	11.72
..Japan	4.40	10.11	6.89
..Turkey	4.86	19.14	4.92
..Other Asian countries, not specified	1.85	1.87	4.11
..India	6.07	6.49	3.06
..Germany	9.22	9.08	2.44

Source: Comtrade

 

• Exports increase
• Domestic demand rises

Poland strengthens its position as a major furniture producer. Many companies are expanding their capacities. The industry structure is very fragmented. Among the small to large companies, a certain consolidation trend is noticeable. There are also numerous micro-companies on the market. Furniture exports are expected to increase again in 2018, and the demand for housing, office and shop fittings is also growing in the country itself.

Poland is an important producer of furniture that is heavily exported, especially to Germany. The producers are expanding their capacities: For example, at the end of October 2017 the Austrian company Egger started construction of a large chipboard factory in the south of Biskupiec (Bischofsburg), which is scheduled to start operations in the fourth quarter of 2018. It is being built on 85 hectares of land within the Warmia-Masuria Special Economic Zone (SEZ) and is expected to produce around 650,000 cubic meters of slabs annually.

The value of this investment amounts to almost EUR 240 million. The products are intended for both domestic and foreign customers. They should meet strict environmental standards and be up to 30 percent of recycled wood. 400 new jobs will be created in the new factory itself and another 600 will be created in cooperating companies.

An important buyer of chipboard will be the furniture industry, which also invests by itself. According to the daily Rzeczpospolita, the company Meble Wojcik plans to build a production facility as well as a warehouse and logistics warehouse for a total of EUR 12 million. These are to be equipped with automated production lines and logistic equipment. In addition, the further development of the IT system is planned so that the production can be adapted very fast to individual customer requirements. The investment project will create at least 120 jobs. The sales of Meble Wojcik in 2017 amounted to more than EUR 100 million.

New sawmill planned
A project of comparable value is being undertaken by the manufacturer of upholstery furniture DFM, which wants to produce wood frame elements in Dobre Miasto (Guttstadt). A modern sawmill is being built there, the construction elements of which are not only intended for DFM itself, but for other customers also.

The furniture manufacturer Szynaka Meble wants to raise more than EUR 5.3 million to build a new warehouse in Ilawa (German Eylau). There 30 employees will be employed. Among other things, the procurement of a modern software for material management is planned.

The six plants of Szynaka Meble produced furniture worth around EUR 235 million in 2017 (on a zloty basis) +5 percent compared to 2016. For 2018 the company expects a growth of 15 percent, mainly due to increased exports to North America, where it intends to sell one-fifth of its production.

Location of the Meble Wojcik, DFM and Szynaka Meble projects is also the Warmia-Masuria SEZ, located in a wood rich area. According to press reports, the manufacturer of shop fittings Modern-Expo plans to build a factory in Lublin. In the first three quarters of 2017, the Polish furniture industry invested a total of around EUR 200 million, according to the main office of CIS. On a zloty basis, the amount stagnated compared to the same period of the previous year.

The sector structure is fragmented
The furniture industry plays an important role in the Polish industry. Around 25,800 companies in Poland are involved in the manufacture of furniture and interiors. Nevertheless, elements and components are also imported, including from Germany. More than 90 percent of the companies are micro-companies, which, according to the market research firm B + R Studio, together however account for 10 percent of the domestic sales only. Only about 90 companies are classified as being large. Together with the approximately 320 medium-sized companies, they sell about three quarters (76 percent) of the relevant products. Small businesses account for a part of 14%. According to CIS at the end of 2017 there were around 161,000 employees in the furniture industry, around 6,000 more than the year before - (+4 percent).

Turnover of Polish furniture manufacturers (in EUR billion)

2013	2014	2015	2016	2017 1)	2018 2)
7.5	8.4	9.3	10.0	10.5	11.1

1) Estimation; 2) Forecast

Source: B+R Studio

For 2018 B + R Studio expect total domestic sales of more than EUR 11 billion, which represents a 3.1% increase on Zloty basis compared to 2017. For years the market leader has been the Polish subsidiary of the Swedish Ikea Group, with revenues of around EUR 1 billion in 2016. Far off is the domestic group Black Red White, which raised a total of EUR 335 million in 2016. It estimates its turnover in 2017 at around EUR 400 million (on Zloty basis +16 percent); the export share is 35 percent.

The company Nowy Styl, which specializes in office furniture and chairs, comes third, with revenues estimated at EUR 340 million in 2017 (+8 percent compared to 2016). The mattress manufacturer Correct follows with a turnover of EUR 291 million in 2016, ahead of the stock exchange listed company Fabryka Mebli Forte with EUR 252 million, which aims to reach EUR 400 million revenues for 2020. Forte will take its 5th factory in operation in late 2019 / early 2020, increasing its production capacity to 6.5 million pieces of furniture annually.

Of importance is also the manufacturer of upholstery furniture Com.40 Limited. Seating is by far the most important category of furniture produced in Poland, accounting for almost half of the total sales.

Exports revive
According to the B + Studios the furniture exports are expected to rise to EUR 10.6 billion in 2018. On a zloty basis this means an increase of about 2 percent compared to 2017 with an estimated EUR 10.1 billion, when the exports fell by 1 percent. Domestic demand for furniture is also increasing thanks to residential and commercial property construction. The increasing purchasing power of the population also makes it possible to replace old facilities with new ones. Imports complement the offer of domestic industry.

Furniture sales in Poland (in EUR billion)

2013	2014	2015	2016	2017 1)	2018 2)
1.2	1.2	1.3	1.3	1.4	1.5

1) Estimation; 2) Forecast

Source: B+R Studio

The industry is suffering from an increasing labor shortage, which leads to higher wages. According to CIS, the average gross wages in 2017 were EUR 833 per month compared to EUR 738 in 2016. On Zloty basis, this corresponds to a nominal growth of 7.3 per cent.

Contact addresses:

Ogolnopolska Izba Gospodarcza Producentow Mebli (OIGPM)
(Polish Chamber of Commerce of Furniture Producers)
Contact: Michal Strzelecki
Al. Stanow Zjednoczonych 51, pok. 614
04-028 Warszawa, Polen
T +48 (0)22 517 78 39
oigpm@oigpm.org.pl
http://www.oigpm.org.pl

B+R Studio Analizy Rynku Meblarskiego
Market research institute for the furniture market:
Head of the Analysis Department: Martin Czyrnia
MD Connect Sp.z o.o.
ul. Oleska 35
46-380 Dobrodzien, Polen
T +48/507 96 66 23
brstudio@brstudio.eu
http://brstudio.eu

Furniture producers	Internet addresses
Egger	http://www.egger.com
Meble Wojcik	http://www.meblewojcik.com.pl
DFM	http://www.dfm.com.pl
Szynaka Meble	http://www.szynaka.pl