It’s Now or Never for Ethiopia’s Garment Industry

The Ethiopian government has an ambitious plan—it wants to create over 350,000 jobs in the textiles and garment industry, marked as a sector that can both rake in foreign exchange as well as generate jobs. The biggest of these parks is the HIP, which can employ about 60,000 workers at full capacity. At present, however, the figure stands at 30,000. A total of 12 industrial parks have been planned across the country, some of which like the BLIP and HIP are operational. The main export destinations are the US, Germany and the UK. The textiles come from China and India.

The country has a host of issues to grapple with, all of which have a direct or an indirect bearing on the workforce. Even as Gronemeyer and Fink were beginning to explore the subject in early 2020, the COVID-19 pandemic hit Ethiopia (like all other countries). The pandemic was still raging when armed conflict broke out in the Tigray region. The two-year conflict subsided in November 2022, but violence has now erupted in the north-western Amhara region.

For a country that needs to draw heavily from rural/agrarian communities, the violence has had a pronounced detrimental effect. To make matters worse, the US in January 2022 terminated Ethiopia, besides Mali and Guinea, from the African Growth and Opportunity Act (AGOA) trade preference programme due to "actions taken by each of their governments in violation of the AGOA Statute."

But the issue that the researchers sought to examine in some ways was agnostic of other extraneous factors. The ground truths remained the same; and the explanations and interpretations differed on basis of who the questions were posed to.

For the managerial interviewees, it was almost as if low productivity performance justified low wages. The refrain almost seemed predictable. Most workers come from an agrarian background, and have a very different understanding of time and work cycles. They find it difficult to adapt to a factory lifestyle and take time to become conversant with formal employment with subjects like rights and contracts, and regulations like punctuality and leaves. Then, there are social obligations that range from nursing and childcare to funerals and weddings.

However, as Fink explains, "In many ways these are expected in a country which is in the early stages of industrialisation. But the feedback that we got from the workers presented a very different picture (compared to what employers had to say)."

The basic wage that workers get simply does not cover the cost of living in a big city. At the time of the survey, the average (monthly basic salary was 1,449 Ethiopian birr (ETB) (equivalent to about €26). Ironically, many (about two-third of the workers surveyed) had to seek support from their families living in the countryside in spite of being wage-earners. There are both internal and external factors that don't make a garment job so attractive.

There are cultural barriers. Many managers are expats and communication problems are commonplace. Besides, Ethiopians don't like being shouted at, and this seemed to be a recurring problem. Either the quality of food at the canteen is abysmal, or there is no canteen at all. Toilet visits are strictly regulated, often leading to kidney disorders. Often, company buses leave only when workers who work overtime are set to return home. Affordable accommodation close to the industrial parks is woefully inadequate. As a result, workers have to trudge a long way, which is both expensive and time-consuming, apart from wearing them out.

Both companies and industrial parks are trying hard to ameliorate matters. Measures include incentives and supplementary benefits, besides training programmes and setting up of cooperatives that sell food at low price points. Free accommodation is also now being offered.

But as the researchers conclude: "Compensation plays a central role in employee retention, though not the sole one. So far, this point has not been seriously addressed by companies."

Gronemeyer and Fink narrow down the issue thus: "Investors often underestimate the importance and impact of labour and social issues. Only when they have reached full operational strength they try to manage the symptoms of dysfunction, such as absenteeism, turnover and strikes. Employers rarely conduct a sound root cause analysis to identify the true causes of conflict and therefore operate with low efficiency and profitability.

"Government agencies often fail to provide the necessary social infrastructure for the production site. The initiative to develop investment zones usually comes from the Ministry of Trade or the Ministry of Finance without sufficient consultation with the ministries responsible for the labour market, housing, transport and social services."

From the work of these researchers, it is clear that the way out is not difficult. The comprehensive research results and actor-specific recommendations for action will be presented in two book publications (an anthology and a monograph): Industrialization in Ethiopia: Awakening - Crisis – Outlooks—The Example of the Textile Industry (edited by by Reimer Gronemeyer and Michaela Fink; Springer) and Labor Turnover in Ethiopia's Textile Industry—A Hotspot of Social Transformation (by Michaela Fink; Transcript).

The recommendations rest on the twin planks of social sustainability and social compliance.

Recommendations for companies:

• Increase basic wages to at least living wage level (also against the background of high inflation and increased productivity in many companies). Employees (incl. newcomers) should be able to cover their living expenses from their basic salary. Employers should not calculate wage incentives and overtime payments as a fixed component of monthly remuneration. 
• Improve quality and diversity of canteen food (also in order to keep employees healthy and to maintain their efficiency). When planning meal times, take into account that some employees may have long journeys to work and should therefore not fall into the second shift for breakfast, for example. All companies should offer canteen meals.
• Take more account of workers' needs in terms of holidays/off-days and sick leave. All companies should provide leave entitlements also in the first year of employment according to the legal requirements (allow for leave days in relation to the time of employment). Implement more employee-friendly regulation on sick leave.

Recommendations for the Government of Ethiopia:

• Introduce a minimum wage for workers in the textile sector on the basis of a living wage.
• Introduce incentives for companies to pay their workers fairly. 
• Build accommodation on the site of the IPs and rent it out to workers at a subsidised price.
• Pension levy system: Investigate the effectiveness of the transfer of deposits in the event of a change of employer in the private sector; in principle, pension levies only make sense if workers can live on their salary in the present.

None of these are difficult to implement, if Ethiopia wants to yank off from that never-ending cycle of low productivity and high labour turnover.

Gronemeyer and Fink underscore and conclude: "The Ethiopian government offers various incentives to investors. It can therefore be assumed that Ethiopia will remain an attractive location for the global textile industry even with rising labour costs. Examples from other countries show that high labour productivity can make up for higher wages paid in the sector. Conversely, this means that better pay reduces turnover and increases productivity so that ultimately both employees and employers would benefit."

It's now up to companies to make up their mind: whether they want Ethiopia to remain an also-ran (the pun is very much intended, given that country's glorious legacy of long-distance runners), or provide that escape velocity it badly needs to break free from that vicious circle.