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Manufacturing of Eco-friendly Textiles: A Case Analysis of an Industrial Park in Mekelle, Ethiopia

Desta, Asayehgn, Sarlo Distinguished Professor of Economic Development, Barowsky School of Business, Dominican University of California

Hadush Berhe, Assistant professor of Industrial Engineering, Ethiopian Institute of Technology, Mekelle University

Introduction


Because of extensive growth in infrastructure (roads, schools, railways, water, electricity), and the booming construction industry, Ethiopia’s Gross Domestic Product (GDP) had grown at the rate of 10% per annum from 2003/04 to 2014/15. At the same time, as measured by the international poverty line of less than $1.90 per day, the poverty trends in rural and urban areas of Ethiopia have decreased from 55.3% in 2000 to 33.3% in 2011 (World Bank. 2017).

Ethiopia has been attempting to use Benchmarking, Business Process Reengineering (BPR), Quality Management System (QMS), and the Kaizen managerial techniques to overcome its disadvantages in the production and marketing of manufactured goods. Nonetheless, Ethiopian manufacturing companies have been performing poorly in the international market (Desta, 2015). For instance, Ethiopia’s value-added (% of GDP) in manufacturing has ranged only from 6.00% in 2004 to 4.08% in 2015 (World Bank, 2016).

Beginning in 2014, the Ethiopian Industrial Parks Development Corporation (IPDC) sought the assistance of the China Civil Engineering Construction Company to overcome the abysmal industrial situation and to substantially improve productivity in the manufacturing sector (Xinhuanet, September 6, 2017); the IPDC has started establishing industrial parks in specific areas that have been designed for manufacturing businesses. In other words, the industrial parks have been zoned in either government-owned land, or helpless farmers were evacuated from their farmlands. Government officials claim to have promised the evacuated farmers priority of employment opportunities in the Park according to their skill levels, and they also encouraged these farmers to establish small and micro enterprises. However, Hailu (2017) argues that the evacuated farmers never received adequate compensation.

Nonetheless, the Ethiopian government is now actively soliciting foreign investors (from Greece, Bangladesh, South Korea, China, and other countries) to establish textile and garment manufacturing enterprises and to redesign the country’s manufacturing enterprise, thereby energizing Ethiopia’s future industrial growth (Ethiopian News Agency, August 02, 2009). Based on this vision, the Ethiopian Government has already established and inaugurated three industrial parks in Hawassa, Kombolcha, and Mekelle City at the cost of US $246 million, $90 million, and $100 million respectively.

More specifically, the IPDC has promised that the leased industrial park spaces will: 1) be equipped with all-encompassing utilities and infrastructural facilities with access to relatively cheaper transportation facilities (roadways, railroads, ports), high-powered electric supplies, gas lines, high-end communication cables, and large-volume water supplies) that meet international standards; 2) have access to export and income tax rebates (the IPDC have already arranged tax reduction schemes for the parks with the Ethiopian Investment Commission and Ethiopian Revenue and Customs Authority); 3) facilitate the industrial parks to outsource their management contracts to domestic and foreign investors; 4) serve as effective and efficient learning organizations for other domestic and foreign firms; 5) attract and promote environmentally-friendly domestic and foreign investors (who will employ green economy, zero-liquid discharge technology, and recycle about 90 percent of their water usage); 6) create a robust and competitive industrial base through technology transfer; 7) record innovative and leading eco-industrial parks that operate to foster competitive, export-driven manufactured products; and 8) elevate industrial competitiveness, enhance foreign exchange, and foster local employment opportunities so Ethiopia may achieve the middle-income status (IPDC, 2015). Thus, Ethiopia can promote technological transformation and economic integration by globally joining top textile and apparel producing countries (Xinhua, 2017, Economy, July 9, 2017).

It is too early to assess the full effects of the industrial parks. Nonetheless, given the level of high confidence that policy makers are drawing, and based on the optimistic trajectories industry insiders have been drawing about the industrial parks, Ethiopia appears capable of becoming the textile and garment manufacturing hub in Africa” (Xinhuanet, 2017). The general purpose of the study is to identify Mekelle Industrial Park’s strengths and weaknesses and to overview its opportunities and threats.

More specifically, the intention of the study is to: 1) analyze the internal strengths and weaknesses of the Mekelle Industrial Park’s textiles and garment industry, and 2) map out the external factors (opportunities and threats) that could affect its level of development as Africa’s center for textile and garment manufacturing.

The study focuses on the following central questions: a) Can the Mekelle Industrial Park have the capacity and the capability to attract innovative and competitive foreign firms, and b) could foreign enterprises spin off Mekelle Industrial Park’s research and innovation techniques to other domestic firms?

To partially answer these questions, the study is organized into two sections. The first section maps out a brief description of the Mekelle City. Based on a detailed SWOT analysis given in the main part of the research paper (see Desta and Berhe, 2017), section two draws tentative baseline conclusions and draws research implications for the future.

The Mekelle Industrial Park

The city of Mekelle is located in Tigray National Regional State in the northern part of Ethiopia. The city features a city administration, a municipality, seven sub-cities, 33 kebelles and 105 Ketenas. According to the Central Statistical Authority projection, the population of the city of Mekelle is roughly 261,168 (Liveihood, 2017). Mekelle City has economic linkages with the surrounding towns, other regions and the Addis Ababa city. With respect to education, Mekelle City has a number of primary, secondary, TVET, and private and government higher educational institutions.

The City of Mekelle is endowed with a 24-hour electric supply from the centrally-located national grid. Though limited, the City of Mekelle has access to mobile, internet, postal and telephone services. Though very marginal, Mekelle’s main water supply source is potable underground water, distributed intermittently through a piped network. Residents and employees can ride a daily inter-urban transport service to and from Addis Ababa and other major cities and towns in Ethiopia.

The Mekelle Industrial Park that was established in 2017 is located about five kilometers from the main city of Mekelle. The Park covers an area of 100-hectares of land, located along key economic corridors and customs facilities that enable the transport of imported raw materials directly from the customs post situated along the line of the industrial park. The Mekelle Industrial Park was established to replicate other benchmark industrial park development centers. Thereby, a focus group, and other administrative teams from the Mekelle Industrial Park visited the Komolcha, Bole Lemi, and the Hawassa industrial parks.

According to Mekelle Industrial Park management officials, the Park was established to contribute to the industrialization process of the nation in general, and the Tigrai Region in particular. To facilitate the construction, operation and other issues related to the industrial park, the following government branches and stake holders were set up to render support: 1) the Industrial Parks Development Corporation is assigned to regulate the construction and administration of the park; 2) the Ethiopian investment commission is assigned to attract foreign investors; 3) the Ethiopian Custom and Revenue Authority is assigned to enforce and supervise incentives of tax exemptions given to prospective investors; 4) the Tigray Bureau of trade, industry, and urban development is assigned to facilitate and prepare investment land, power, and other infrastructural facilities: 5) Mekele University has been assigned to provide  long-term training to Park employees; 6) The Mekelle garment college and TVETs, Industrial Park development cooperation are assigned to develop entrepreneurship and to encourage the development of small-scale business owners within the park; 7) The Tigray office of occupation healthy and safety is assigned to control hazards arising in or from the workplace that could impair the health and wellbeing of workers and the community; 8) the Tigray Bureau of labor and social affairs is assigned to encourage and assist investors to balance and confirm the availability of trained workers); 9) the Ministry of Industry is assigned to promote the expansion of investment in the textile and apparel industry and remain competitive); and 10) the Ethiopian kaizen institute facilitates is assigned to introduce its kaizen system of continuous improvement techniques.

SWOT ANALYSIS, Tentative Conclusions and Policy Implications

In principle, each industrial park is supposed to be unique and is required to have its own vision, mission, and value statements. However, the IPDC has interestingly used one aggregate vision, mission, and value statement for all industrial parks in the country. Stated briefly, industrial parks established in Ethiopia are expected to boost eco-industrial parks development operating through the highest standards of professionalism. The parks are also expected to enhance exports, transfer technology, generate employment, and achieve middle-income status. Finally, the parks are expected to be “innovative and leading eco-industrial parks and operator[s] in Africa by 2025.” The mission and vision statements of all the parks demand the highest level of integrity and professionalism. As learning organizations, the parks are expected to be effective, efficient, and environmentally-sensitive in order to achieve customer satisfaction.

The vision, mission, and value statement of the Ethiopian Industrial Parks are too vague and general. However, given no choice, the preliminary understanding of the operative capacity and capability of the Mekelle Industrial Park and the SWOT analysis, that is, the internal factors (Strengths and Weaknesses) and external tools (Opportunities and Threat) were collected using: a) brainstorming method, b) previous research experience, and, c) interviews with industry managers, government agencies and employees. In short, the SWOT analysis (See Desta and Berhe, 2017) identifies the Park’s leverage or competencies (value added); realizes and magnifies new opportunities; minimize limitations; and proposes some ways of preparing and undercutting future threats.

Government officials are very optimistic that the industrial parks thus far established in Ethiopia could transform Ethiopia into Africa’s fashion hub. More particularly, the Mekelle Industrial Park is expected to be a formidable regional center for textile and garment manufacturing in Northern Ethiopia. However, mission, vision and value statements used for the Mekelle Industrial Park are too general and were not developed based on shared agreement of the major stakeholders of the Mekelle Industrial Park. In addition, the values of the industrial park were not described in clear behavioral terms. To achieve its visions, the strategic paths (i.e., resource priorities, organization structure, issues that need daily organizational attention) were not articulated to initiate strategically (See for example, Stanford University School of Graduates, 2017).

To be unique and more appropriate, the Mekelle Industrial Park needs to bear a well-constructed vision that includes a core ideology (the essential purpose of the organization—why it exists, the core values, and what it stands for), and a clear picture of what the organization will become and the major term results to be accomplished.

Given this, it is suggested that instead of using a general vision statement, the Mekelle Industrial Park needs to be driven by an innovative and cradle-to-cradle production system in order to be the world’s best sustainable textile enterprise. Thus, Mekelle can become one of the leading eco-industrial park operating in the Tigrai region by 2025.

On the other hand, the mission or purpose of Mekelle Industrial Park needs to describe the boundaries how it will achieve its stated objectives. In short, the mission of the Park must be specific and clearly stated, it must measure what it claims, it must be attainable and relevant (add value), and it must be accomplishable. To fulfill these, Mekelle’s Industrial Park must be designed to be ethical, transparent, and it must deliver value-added products and services to its global customers through innovative technology.

The core values or boundaries within which the Mekelle Industrial Park will operate in pursuit of its vision must: 1) adhere to global thinking, 2) respond quickly to changes in customer requirements, 3) maintain delivery requirements, 4) strive to exceed expectation, 5) be fair, empower, and inspire employees to perform beyond the best, 6) create environmental sustainability, and 7) play a role in social, corporate, and community responsibilities.

Using the mission, vision, and value statements developed for the country as a proxy, a preliminary SWOT analysis of Mekelle Industrial Park’s textile and garment enterprises indicates that it faces the following internal (strengths and weakness) and external (opportunities and threats) challenges.

From a strengths point of view, the production cost of Mekelle Park is reputed to provide high quality textile and garment products thanks to its cheaper resources. If asked, the nearby academic and training institutes would not hesitate to share their invaluable knowledge and research on the Kaizen management system, total quality management (TQM), supply chain management systems, and fruitful outsourcing techniques. If managed well, the Mekelle Industrial Park would undoubtedly provide high-quality value-added services. As a result, the Mekelle Industrial Park would differentiate itself by providing unique products to its international customers.

In terms of weakness, the Mekelle Industrial Park will likely be challenged by water scarcity and lack of adequate business infrastructures (such as transportation, lack of automation, electricity, telephone lines, aged existing technology, video-conferencing, electronic document process, electronic data interchange, intranet, internet, and outdated technology). The existence of magnanimous bureaucracy and the outlandish corruption in the state and throughout the country are also likely to be formidable challenges. Meanwhile, the coordination of the stakeholder, composed of government agency support bodies, academic institutions, non-government agencies, would hinder the park’s day-to-day operations. Finally, since Ethiopia is landlocked, the enterprises operating at Mekelle’s Industrial Park may not have timely access to global, environmentally friendly facilities, which would likely mean costly access to overseas suppliers and the international market.

In terms of strategic growth opportunities, the Mekelle Industrial Park could take advantage of government’s venture on high volume cotton production, lower duty access to the EU markets, and access to East African markets for textile and clothing items. The enterprises operating in the park could initiate their creativity to produce globally-oriented, high-value textiles such as flame-retardant, acid- and rain-proof fabrics. In addition, the government could train and promote local garment designers and provide financial support to designers participating in international design competitions.

However, since consumer fashion preferences can be volatile, Mekelle Industrial Park will likely face challenges. The Ethiopian government will have to help the various industrial parks to handle the rampant counterfeiting, the illegal importing of cheaper textile goods, and the smuggling of garments and textile products. Unless the government remains vigilant, foreign producers will likely use the industrial parks as source for the transshipment of foreign products and for relabeling and re-exporting processed products to protected markets as Ethiopia’s products.

Given these challenges, Mekelle Industrial Park’s future success depends on its ability to effectively predict and respond to various dynamic changes. Mekelle Industrial Park must be accommodated by proactive enterprises that can swiftly and regularly respond to consumer demand, and can source the newest merchandise on reasonable terms (See, Timetric. 2017 for another textile business).

 

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