GARMENT INDUSTRY :

PESTLE ANALYSIS OF
BANGLADESH AND ETHIOPIA

SOMA KAMAL TANDON

ASSIGNMENT
INTERNATIONAL BUSINESS
MHRDM – SEM III

1
INDEX

N TITLE PAGE NO
O
1 COUNTRY OVERVIEW 2
1.1 BANGLADESH 2
1.2 ETHOPIA 2
2 DEMOGRAPHICS 3
3 PESTLE ANALYSIS 4
3.1 POLITICAL
3.2 ECONOMIC
3.3 SOCIAL
3.4 TECHNOLOGY
3.5 LEGAL
3.6 ENVIRONMENT
4 THE GARMENT INDUSTRY : ASSESSING
BANGLADESH AND ETHIOPIA
5 RECOMMENDATIONS
6 REFERENCES

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1 COUNTRY OVERVIEW

1.1 BANGLADESH

Bangladesh is one of the world's most densely populated countries, with its people crammed
into a delta of rivers that empties into the Bay of Bengal. Poverty is deep and widespread, but
Bangladesh has in recent years reduced population growth and improved health and
education.

Formerly East Pakistan, Bangladesh came into being only in 1971, when the two parts of
Pakistan split after a bitter war which drew in neighbouring India. Bangladesh spent 15 years
under military rule and, although democracy was restored in 1990, the political scene remains
volatile. Islamist extremism has been rising in the usually tolerant country.

The low-lying country is vulnerable to flooding and cyclones, and stands to be badly affected
by any rises in sea levels.

With the help of international development assistance, Bangladesh has reduced the poverty
rate from over half of the population to less than a third, achieved Millennium Development
Goals for maternal and child health, and made great progress in food security since
independence. The economy has grown at an annual average of about 6% over the last two
decades and the country reached World Bank lower-middle income status in 2015.

1.2 ETHIOPIA

Ethiopia, located in eastern Africa, is the continent’s oldest independent country. Apart from
a fiveyear occupation by Italy in 1936-1941, it has never been colonized. In 1974, a military
junta, the Derg, deposed Emperor Haile Selassie (who had ruled since 1930) and established
a socialist state. Torn by bloody coups, uprisings, wide-scale drought, and massive refugee
problems, the regime was finally toppled in 1991 by a coalition of rebel forces, the Ethiopian
People's Revolutionary Democratic Front (EPRDF). A constitution was adopted in 1994, and
Ethiopia's first multiparty elections were held in 1995. A border war with Eritrea in the late
1990s ended with a peace treaty in December 2000, but border tensions between the two
countries persist. Ethiopia is one of the poorest countries in the world. The largely
agricultural economy remains vulnerable to climatic shocks, particularly droughts, and to
world commodity price fluctuations. The war with Eritrea from 1998 to 2000 also had a
devastating economic impact. However, Ethiopia has made significant progress in improving
its economic performance in recent years thanks to the implementation of sound economic
policies and financial support from the international community.

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2 DEMOGRAPHICS

COUNTRY

    Ethiopia     Bangladesh

Leader

Prime minister: Hailemariam President: Abdul Hamid 

Desalegn 

Population 96,633,458 166,280,712

Capital City Addis Ababa Dhaka

Largest city Addis Ababa (population: Dhaka (population: 10,356,500)

2,757,730)

Location Eastern Africa, west of Southern Asia, bordering the Bay

Somalia of Bengal, between Burma and
India

Area 1,104,300 km sq 143,998 km sq

Coastline 0 km 580 km

Independence date oldest independent country in 16 December 1971

Africa and one of the oldest in
the world - at least 2,000 years

Languages Amarigna 32.7%, Oromigna Bangla (official, also known as

31.6%, Tigrigna 6.1%, Bengali), English
Somaligna 6%, Guaragigna
3.5%, Sidamigna 3.5%,
Hadiyigna 1.7%, other 14.8%,
English (major foreign
language taught in schools)
(1994 census)

3 PESTLE ANALYSIS

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PESTEL analysis is a useful tool for understanding the macro-environment in which an
organisation operates. The analysis involves reviewing factors which will have an impact on
the organisation’s business and the level of success it will be able to achieve and may be
carried out as part of an ongoing process of environmental scanning, to inform overall
strategy development or to support the development of a new product or service. Undertaking
a PESTEL analysis can raise awareness of threats to ongoing profitability and help to
anticipate future difficulties, so that action to avoid or minimise their effects can be taken. It
can also alert the organisation to promising business opportunities for the future. The process
of carrying out the analysis will also help to develop the ability to think strategically. A
PESTEL analysis of Ethiopia and Bangladesh is done in the next few pages.

3.1 POLITICAL

ANALYSIS FACTORS ETHIOPIA BANGLADESH

Dominant Political Ideology Federal republic Parliamentary democracy
Suffrage 18 years of age; universal

Legal System Hybrid of European common

law tradition, and customary
law.
The Political Risk Index 4 3.5
The Political Stability Index 4.5 4.5
Freedom Ranking Civil Liberties CL 3 CL 5
Political Rights PR 4 PR 5
Freedom Status Partly Free Freedom Status Partly Free

Human Development Index 0.389 0.524

Fragile States Index 97.5 91.8

Member of ACP, IGAD, IMF, UN, AU  ACD, BIMSTEC, IMF, UN,

 SAARC
Corruption Perception Index  2.6 2.1

Bangladesh seems to be slight more stable and marginally less corrupt. Human development
has to be enhanced in Ethiopia

3.2 ECONOMIC

ECONOMIC ETHIOPIA BANGLADESH

GDP per capita $1,300 US $2,100 US

Unemployment Rate 17.50% 5.00%

Exports coffee, gold, leather products, live garments, jute and jute goods,
animals, oilseeds leather, frozen fish and seafood

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External Debt $11,990,000,000 $ $30,690,000,000 US

Exchange Rate birr (ETB) per US dollar - 9.57 taka (BDT) per US dollar - 68.554
(2008 est.), 8.96 (2007), 8.69 (2006), (2008 est.), 69.893 (2007), 69.031
8.68 (2005), 8.6356 (2004)  (2006), 64.328 (2005), 59.513
(2004)

GDP Mill.$ 72,523M.$ 206,684M.$

GDP per capita 795$ 1,284$

Debt 39,798 M.$ 65,452 M.$

Debt (%GDP) 54.86% 33.91%

Debt Per Capita 436$ 435$

Deficit -1,713 M.$ -7,493 M.$

Deficit (%GDP) -2.36% -3.88%

Expenditure (M.$) 13,335.10 26,642.00

Expenditure (%GDP) 18.38% 13.80%

Expenditure Per 146$ 165$

Capita

Fitch Rating B BB-

Corruption Perception 2.6 2.1

Index

Corruption Index 34 26

Competitiveness 109º 107º

Ranking

Human Capital 115º 99º

Ranking

Doing Business 159º 176º

Exports 4,611.6 M.$ 34,956.0 M.$

Exports % GDP 6.36% 15.67%

Imports 16,588.4 M.$ 41,490.0 M.$

Imports % GDP 22.87% 19.09%

Trade balance -11,976.8 M.$ -6,534.0 M.$

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 Trade balance % GDP -16.51% -3.43%

Bangladesh has made substantial progress in reducing poverty, supported by sustained

economic growth.  Based on the international poverty line of $1.90 per person per day,
Bangladesh reduced poverty from 44.2 percent in 1991 to 18.5 percent in 2010, and is
projected to decrease to 12.9 percent in 2016.

The country achieved the MDG 1 on halving poverty five years ahead of time, with 20.5
million people rising out of poverty during the 1991-2010 period. In parallel, life expectancy,
literacy rates and per capita food production have increased significantly.  Progress was
underpinned by strong economic growth, with 6 percent plus growth over the decade and
reaching to 7.1 percent growth in 2015/2016. Rapid growth enabled Bangladesh to reach the
lower middle-income country status in 2014.      

3.3 SOCIAL

SOCIAL ETHIOPIA BANGLADESH

Levels Of Education

Unemployment Rate 17.50% 5.00%

Human Capital Ranking 115º 99º

Career Expectations Ethiopia can be a

very potential
workplace
destination for
Bangladeshi textile
and RMG related
engineers and
experts.

Expenditure (%GDP) 18.38% 13.80%

Expenditure Per Capita 146$ 165$

Religious Beliefs Christian 60.8% Muslim 83%, Hindu 16%,

(Orthodox 50.6%, other 1% (1998)
Protestant 10.2%),
Muslim 32.8%,
traditional 4.6%,
other 1.8% (1994
census)

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3.4 TECHNOLOGY

TECHNOLOGY ETHIOPIA BANGLADESH

Innovation Ranking 110º 117º

The innovation rating of the two countries are not drastically different.

3.5 LEGAL

LEGAL ETHIOPIA BANGLADESH

Import The Ethiopian tax law allows for a duty Bangladesh made trading across
free importation of raw materials and borders easier by introducing a
machinery, equipment for fully automated, computerized
manufacturers. customs data management system,
ASYCUDA (Automated System
for Customs Data) World. This
reform applies to both Chittagong
and Dhaka

Custom Duty Custom duty exemption (100%

exemption from payment of custom
duty imported capital good and 15% on
imported spare parts)

Income Tax Exemption from income tax (for new Bangladesh made paying taxes
investment and those investors establish less costly for companies by
in regional areas like Gambella, reducing the corporate income tax
Benishangul/Gumuz, Afar etc.) rate. This reform applies to both
Chittagong and Dhaka.

Bangladesh made paying taxes

more complicated for companies
by increasing the time it takes to
prepare VAT and corporate
income tax returns. This reform
applies to both Chittagong and
Dhaka.

Legislation The Industrial Parks Development

Corporation (IPDC) Board has set a
new plan for local investors in
HawassaPark in 2016. The plan
includes exemption of 30% income tax,

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 10% dividend tax if the companies use
their profits for expansion purposes, and
wage tax on foreign trainers hired by
the local companies for 10 years.
Investors will benefit from tax free train
transportation of products to Djibouti
and permission to use 10% of their
export earnings.

3.6 ENVIRONMENT

ENVIRONMENT ETHIOPIA BANGLADESH

Climate Cycles tropical monsoon tropical; mild winter

with wide (October to March); hot,
topographic-induced humid summer (March to
variation June); humid, warm rainy
monsoon (June to October)

CO2 Tons per capita 0.1 0.44

4 THE GARMENT INDUSTRY : ASSESSING BANGLADESH AND ETHIOPIA

Bangladesh is the second largest clothing exporter in the world. The contribution of this
sector accounts for 80% of the country’s export earnings. This sector accounts for 23% of the
country’s gross domestic product (GDP). The economy has grown nearly 6% per year since
the mid-1990s. Since the arrival of the garment sector in the late 1970s, the country’s poverty
rate has fallen from 70% to less than 25% in 2015. 2 There seems to be a strong positive
correlation between clothing export growth and poverty reduction. All these contributions
are, more or less, linked to the country’s clothing industry. There are about 7,000 (3,200
direct sourcing and 3,800 indirect sourcing) factories producing clothing for more than 200
foreign brands with a sales volume of 1.57 billion units in 2014. They employ 5.1 million
workers capturing a 5.1% market share 3 after China’s 38.6%. The country exported $25.5
billion worth of clothing in 2015 with a 49:51 combination of knit and woven clothing. In
Bangladesh, 75% of total manufacturing employment is in the textile-clothing sector, of
which 85% are women. On the other hand, 60% to 75% of the benefits of this value added
amount goes to retailers and producers.

On the other hand, the Ethiopian textile and apparel industry has huge potential and has
grown an average of 51% over the last 5-6 years. Half of Ethiopian textile and apparel
companies are SME’s of 500-1000 workers that are able to handle small run orders for Dutch
and European mid segmented fashion retailers. With70% of apparel products being exported
to the European Union, this market has preference for the Ethiopian government leading to an
investment friendly environment with a large variety of incentive schemes. The Textile
exports were over 123 million USD in 2015 and Imports are USD 521 Million (2015). With

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an average growth of 51% over the last 5-6yearsm the revenue from the sector is around 456
million USD. Around 60,000 persons are employed in about 150 medium and large size
textile factories. It contributes 6% of the country’s total export value. The top Export
Destinations are Germany, USA, UK, Italy, Spain

Bangladesh – Strengths

1. Availability of low cost labour compared to other countries in the region

The labour rates in textile industry (compiled by Warner International) show that the average
hourly wage rates for Bangladesh, India, Pakistan and Sri Lanka were respectively US$ 0.23,
$0.56, $0.49 and $0.39.

2. Large pool of skilled & semiskilled manpower

Being in the manufacturing of RMG for two decades, Bangladesh now possesses a large pool
of skilled & semiskilled manpower. Moreover, there are many unemployed young men and
women who can easily be converted into a skilled workforce if needed. 

3. Extensive experience

Given the fairly long learning curve in this industry, extensive experience in dealing with
foreign buyers, offshore bankers, shippers, and Clearing and Forwarding (C&F) agents is a
valuable asset for the exporters of Bangladesh. 

The apparel sector of Bangladesh mainly exports low-cost products to the international
market. But it can move into high value added products through diversification. This is not
impossible given her two decades of experience, good relationship with buyers, worldwide
reputation, and presence in quality-conscious United States and EU markets. Recently it has
already penetrated the difficult but lucrative quality-conscious Japanese market. 
Bangladesh – Weaknesses

1. Raw material Prices: Prices of cotton and other raw material used in textile industry fluctuate
rapidly in Bangladesh. The rapid increase in the price raw material affects the cost of production
badly.

2. Lack of Research and Development in Cotton Sector: The lack of R&D in the cotton sector of
Bangladesh has resulted in low quality of cotton in comparison to rest of Asia. Because of the
subsequent low profitability in cotton crops, farmers are shifting to other cash crops.

3. Lack of Modern Equipment: The inability to timely modernize the equipment and machinery
has led to the decline of Bangladesh textile competitiveness. Due to outdated technology the cost of
production is higher in Bangladesh as compared to other countries like India, Pakistan and china.

4. Increasing Cost of Production: The cost of production rises due to many reasons like
increasing interest rate, inflation and decreasing value of Bangladeshi Taka, which create problem for
a textile industry to compete in international market.

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5. Electricity Crisis: As a consequence of load shedding the textile production capacity of
various sub-sectors has been reduced by up to 30 %. Due to load shedding some mill owner uses
alternative source of energy like generator which increase their cost of production further. Due to such
dramatic situation the capability of competitiveness of this industry in international market effected
badly.

6. Tight Monetary Policy: The continuity of tight monetary policy causes an intensive increase
in cost of production. Due to high interest rate financing cost increases which cause a severe effect on
production.

7. Lack of new investment: The unpredictable internal condition of Bangladesh cause a rapid
decrease in foreign investment that affected all industries but especially textile industry. [26]

8. Dependence on others for raw materials : The industry is heavily dependent on others
for outsourcing of raw materials such as clothing and accessories. Bangladesh is currently
importing raw materials (gray fabrics) for its RMG factories from countries like India, China
and Thailand under back-to-back L/Cs. In a quota free environment, these countries will
obviously try to export finished apparels to North American markets rather than sell fabrics to
countries like Bangladesh .With equal access to the world market, these direct competitors
will either stop selling materials to their competitors like Bangladesh (a strategic move) or
charge higher prices for their materials (because of increased internal demand). In either case,
Bangladesh will face difficulty in procuring the required raw materials at reasonable prices. 
9. Low productivity : Another major shortcoming of the apparel sector is the low
productivity of its workers. The labour productivity of Bangladesh is much lower than that of
Sri Lanka, South Korea and Hong Kong. Low productivity might erode the advantage of low
cost of labour of Bangladesh. 
10. Limited knowledge in international marketing information : Exporters of Bangladesh
also have limited access to current market intelligence and international trade information
because, so far, foreign buying houses have been dominating the marketing part of the
business. In a post MFA era, if these buying houses shift their bases to other countries,
Bangladeshi exporters may face serious problems in finding their ultimate buyers. 
11. Poor infrastructure : Poor infrastructure, frequent power failures, unfair dealings in
government offices and political instability with frequent and unscheduled hartals (strikes)
are additional problems.
12. Political instability : The political stability index is 4.5
13. Inefficiency in port management & Disruptive trade unionism: At present problems in
port management is a serious challenge to RMG industry of Bangladesh. The Chittagong Port
is the country’s economic lifeline with almost 90 percent of the exports and 75 percent of the
imports of Bangladesh entering and exiting through the Port. The Chittagong Port is one of
the most inefficient and corrupt ports in the world. A World Bank study estimated that
handling charges for a 20-foot container were $640 in Chittagong compared with $220 in
Colombo and $360 in Bangkok. The study added, inefficiency at Chittagong port could be
costing the economy as much as $600 million annually. Besides this, there are numerous
demands for “under-the-table” payments that are reportedly required at every step of export

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processing, from opening of letters of credit to the clearance of goods from Customs.
According to a survey, the hidden costs paid by importers per consignment ranged from Tk.4,
700 to Tk.36, 800 (about US$100 to $735). These inefficiencies and corruption seriously
hamper the competitiveness of Bangladeshi garment in the world market.

Besides numerous procedural, physical and/or infrastructure related bottlenecks; some

sociopolitical consequences have added fuel to the chronic go-slow and congestion problem
at the port. Some of these problems are frequent work stoppage by different service
providers, dock laborers, transport workers etc., excessive dock labor unionism (there are
about 30 different agencies/groups including 22 workers unions)., Politicization of Collective
Bargaining Agents (CBA), Direct involvement of powerful local politicians, elite and
musclemen and Illegal gratification practices (it has been a common phenomenon since
long). These vested interest groups are so powerful that they were able to stop the
Government’s attempts to construct a private container terminal near the Chittagong Port and
another at Patenga which were supposed to be funded by the Asian Development Bank. This
and many similar activities of different groups are undoubtedly unlawful but it seems that
nobody has the ability to stop it. For undue delays due to these sociopolitical factors, several
times, the Singapore based CFTC has imposed “Congestion Surcharge”. The potential danger
is that if immediate corrective action against these practices, Chittagong Port might be
declared as an exclusion zone by international shipping concerns. 

14. Other issues

Environmental issues, labour standard, Trade Related Aspects of Intellectual Property Rights
(TRIPs) etc. might also appear as a deadly threat to developing countries like Bangladesh. 
Other issues like child labour have already proved as a sensitive issue in the western market.
Compliance to the Rules of Origin4 (ROO) may threaten the future market access and
performance of RMG sector of Bangladesh. In the case of woven-RMG, a two-stage, and in
the case of knit-RMG, a three-stage transformation (cotton to yarn, yarn to fabrics, and
fabrics to RMG) process is required for imported yarn from India. Bangladesh exporters also
had to pay back exempted duties amounting to about US$60 million (as per an agreement in
October 1997) to EU on the grounds of ROO violation and circumvention.

15. Regionalism : The World Bank country study (1995) expresses its concerns that “Over
the medium term it is also possible that NAFTA may lead to a displacement of East Asian
RMG imports into the U.S. and Canada. To the extent these exports by the more efficient
East Asian producers are then diverted to the European Community, they may tend to
displace Bangladesh’s RMG exports into Europe”. In the US market another challenge will
come from Mexican apparel industry where it has zero tariff access because of NAFTA.
Mexico’s share in US clothing imports increased by over 200% in the period 1993-98.
Extension of NAFTA membership to the other Latin American and Caribbean countries may
aggravate the situation further. 

Ethiopia – Strengths

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1. Low cost The input costs for setting up industries are very low. Electricity costs just
US$0.03/KW. Water is free. Most garment companies use tab water- ground water or river
water. Cost of goods therefore far lower than any other producing nation

2. Young population : Most importantly, the population is very young, with a median age of
17.6 years, and it is highly trainable. So there is abundance of labour force of the right age
group.

3. Agricultural advantage : Ethiopia has a land area suitable for cotton plantations that is the
same size as that of Pakistan, which is the world’s fourth-largest producer. Out of 113 million
hectors of land, 56 million hectors are cultivable and water resources are also in abundant. So
if cotton can be produced in abundance, with low investment costs and a huge cheap labour
force, it is a great combo for setting up primary textile industries.

4. Government support : Strong financial support from the government including Tax
holidays up to 2-10 years depending on region and distant to Addis Ababa, Income tax
holidays up to 2 years for expatriate technicians/ trainers and other persons with desired
expertise that are willing to transfer knowledge and Import duty free equipment, machinery
and on spare parts and / or any goods needed to realize production

A 5 year Growth & Transformation plan (GTP) was set up for the sector which targets
improving capacity utilization of existing factories and new & expansion investments. The
goal is to reach a rise in production from US$583 million to US$3.1 billion, an export from
US$28.7 million to US$1.2 billion by the year 2014/15.

The Key growth Drivers are Government incentives in the form of the Ethiopian tax law
which allows for a

a. duty free importation of raw materials and machinery, equipment for manufacturers,
b. Custom duty exemption (100% exemption from payment of custom duty imported
capital good and 15% on imported spare parts),
c. Exemption from income tax (for new investment and those investors establish in
regional areas like Gambella, Benishangul/Gumuz, Afar etc.) The Industrial Parks
Development Corporation (IPDC) Board has set a new plan for local investors in
Hawassa Park. The plan includes exemption of 30% income tax, 10% dividend tax if
the companies use their profits for expansion purposes, and wage tax on foreign
trainers hired by the local companies for 10 years. Investors will benefit from tax free
train transportation of products to Djibouti and permission to use 10% of their export
earnings.

4. The Government of Ethiopia has prioritized a few industries to lead its ambitious
industrialization agenda, namely, sugar, textile and garments, and leather products industries.
These sectors are prioritized because of their expected linkages with the agricultural sector
and the desire to exploit the country’s potential comparative advantage in labour-intensive
products. These priority industries are expected to be exported-oriented in order to generate
the financial resources needed for capacity expansion in other manufacturing industries. This

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strategy sounds consistent with the country’s natural resource endowments and may allow the
country to take advantage of preferential trade arrangements such as The African Growth and
Opportunity Act (AGOA).

Ethiopia - Weaknesses

Infrastructure, power and energy conditions are still poor as like as most of the African
countries. Transport and logistics supports are other issues need to improve considerably and
it takes time.

1. Land Policy : In Ethiopia land belongs to the government. The farmer can farm it only as
long as he/she stays on the farm. He/she can not sell it or lease it legally. Tenure security
is vital for a successful agricultural development, especially in a country like Ethiopia
where 85% of the population lives in the rural area.
2. Underdeveloped Rural Infrastructure: The road networks are limited and do not reach
many villages in the rural areas. It is difficult to transport heavy items like seeds and
fertilizers especially during the rainy seasons. Farmers stop work and travel miles to
transport these items on the back of donkeys. This happens at pick times when farmers are
busy with farm chores.

3. Retention of Qualified Staff : The attrition rate to poor salary scales and incentives is
simply staggering and the government is not simply doing enough to reverse this scenario.

4. Recurring drought

5. Law & order situation

6. Lack of logistic support

7. Unskilled labour : Inefficient production 45% maximum. Lack of IT and CAD/ CAM in
production.

8. Limited availability raw materials- only cotton, No manmade fibers – only through
imports, Quality is low staple- 26mm

9. Bureaucracy

Competition

In a quota free world, the United Nations Commission for Trade and Development estimated
that removal of the MFA and tariffs by developed countries will expand exports of clothing
by 135 percent and textile by 78 percent. It is estimated that the value of imports of textiles
and clothing will rise by 305 percent in the US, 200 percent in Canada, and 190 percent in
EU. On the one hand, it is opening a vast market with unlimited export potentials; on the
other hand, it signals fierce competition from textile giants like China, India and, from
efficient producers like Thailand, Sri Lanka and Vietnam. Competition may also come from
Sub Saharan Africa and the Caribbean countries due to preferential treatment from USA
through TDA 2000. Different regional agreements like NAFTA also appear to be

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unfavourable for the RMG sector of Bangladesh. India & Pakistan biggest threat for
Bangladeshi RMG & textile export. The threat also will be the fierce competition from
efficient producers like Hong Kong, China, Thailand, and Sri Lanka, Vietnam and many SSA
and Caribbean countries. Threats might come not only from marketing but also from
outsourcing. More than 95 percent fabrics are imported from direct competitors in case of
Bangladesh.

5. RECOMMENDATIONS

According to data collected by Doing Business, starting a business in Bangladesh requires 9.0
procedures , takes 19.5 days, costs 13.8% of income per capita for men, while starting a
business in Ethiopia requires 14.0 procedures , takes 35.0 days, costs 69.3% of income per
capita for men. While Bangladesh is impacted by floods, Ethiopia has to face droughts. At
present Bangladesh has a minor advantage over Ethiopia in terms of the garment industry in
terms of political stability, corruption index, fragile state. However in the next few years, the
African continent is expected to thrive. The Ethiopian Government is committed to improving
its World Bank’s Ease of Doing Business EODB ranking and has been engaged in reviewing
its Commercial Code, which has remained unchanged for the past fifty years. The first draft
of the Commercial Code was released for review in 2016. Areas targeted for revision include
the business tax code and the registration process. The Ethiopian Investment Commission set
up a Doing Business in Ethiopia review committee that started conducting commercial
dialogues with foreign private companies to identify the major stumbling blocks to trade and
investment in Ethiopia.

While Bangladesh is trying to be the ‘next China’, Ethiopia is trying to be the ‘next
Bangladesh’. If China is considered as the biggest supplier of textiles and garments,
Bangladesh is said to be the cheapest. The African countries, especially Ethiopia can be
another cheap source of RMG; and the western retailers are eyeing the hidden opportunity
there. Many of the western apparel buyers are certainly looking at Ethiopia as an alternative
source to the Asian tigers for very cheap textiles and apparel. In fact, some renowned buyers
including the giant H&M and Primark have already invested in some projects in Ethiopia as
an acid test.

If we analyze the wider pattern of the movement of global textile industry we can see that it
all started from US, then moved to Europe, then to Japan, South Korea and then to China.
With production costs rising in China, the industry moved towards southern Asian countries
like Bangladesh and India. With industrialization, as the costs of doing business is also
increasing in Asia, the only left next destination for mass production remains the African
countries; and with a proactive government approach Ethiopia is likely to acquire the biggest
piece of cake. Though it’s early days for the African nation as they are disdainfully weak in
infrastructure, logistics and transport supports, but it is also true that they have started strong.

International trade has its own way to move on. Comparative advantage is what international
trade always looks for. Bangladesh became a RMG-hub because the industry was enjoying
some absolute and some comparative advantages over other RMG manufacturing countries.
Most of the transferred orders from China, India, and Turkey were being captured by
15
Bangladesh in the recent past due to advantage over wages and production costs. And due to
the same reasons big retailers are now also investing in the sub-Saharan African countries in
quest of more cost efficiency and more profitability. Ethiopia has now become a potential
country in Africa after the Asian giants as a fast fashion discount garment supplier. For
several years, Bangladesh has enjoyed the second position in the global apparel trade, behind
China. But that position now seems to be under threat from Africa.

The excellent performance of African nations in garment exports has greatly hurt
Bangladesh’s figures. According to data from the International Trade Centre, garment export
from 39 sin Saharan countries together amounted $2.6 billion in 2016 and is likely to cross
the $3 billion mark in 2017. Much of the advantages these countries enjoy comes from duty
free and quota free access to goods, including garments to the US under the African Growth
and Opportunities Act (AGOA)

Bangladesh will stop getting the benefits of duty free access to markets in the developed and
developing world once it reaches the middle income group bracket. In fact, in anticipation of
the forthcoming changed scenario, Bangladeshi garment makers have invested in different
African companies especially in Kenya and Ethiopia.

Businesses are always looking for cheaper production solutions. In fact some Bangladeshi
apparel conglomerates are also investing in Ethiopia for better profitability. The cost of
running industry in Ethiopia is still scathingly low and businesses are trying to utilize the
opportunity.

Ethiopia currently has one of Africa’s fastest growing economies. Unlike others, it is not
driven by natural resources, but large public investments with foreign money. Government’s
new industrial mega-zones are customized for the expansion of the textile and leather
industry. Abundant lands, abundant labour forces, materials, raw materials are at a stage of
opening up. Bole lemi is one of the several economic zones that the government have
developed in the outskirts of Addis-Ababa where there are investors from Pakistan, India,
Taiwan, Korea and China.

Further Ethiopia enjoys the trade benefits from African Growth and Opportunity Act
(AGOA) in terms of exporting apparel articles to the US. AGOA IV provides duty-free and
quota-free treatment for eligible apparel articles made in qualifying sub-Saharan African
countries till 2025.

Ethiopia is currently US’s 101st largest goods trading partner with $872 million in total (two
way) goods trade during 2013.  US foreign direct investment (FDI) in Ethiopia (stock) was
$11 million in 2012 (latest data available), a 22.2% increase from 2011.

Ethiopia is also enjoying the Generalised System of Preferences from the EU, which is the
system of preferential access granted by the EU to developing countries and Least Developed
Countries (LDC). Ethiopia is categorised as the latter and benefits from zero tariffs under the
Everything But Arms (EBA) strand of the arrangement.

16
In addition to the US, an increasing number of global retailers such
as H&M, Tesco and Primark have begun sourcing clothing from sub-Saharan Africa.
Swedish fashion giant H&M, in particular, has been open about the opportunities it sees for
producing apparel in Ethiopia. They have already started producing on a small scale in the
country. DBL group which is a platinum supplier for H&M in Bangladesh has invested in
Ethiopia to set up a production plant. At present, and like many others, H&M sources around
80% of its garments from Asia, including Bangladesh. But the law and order situation,
political instabilities and working conditions in the factories always push them to find out a
sustainable and sound place to source from. Another retailer, discount apparel group Primark,
began sourcing from Ethiopia last year, while Tesco is currently making efforts to raise
working conditions and ethical standards before it begins sourcing garments from the Horn of
Africa country. Countries like Turkey, China and India are also investing in Ethiopia.
Presently, H&M, Tesco, Primark and ASDA are producing garments in Ethiopia. At present
there are 60 garment factories, 15 textile mills, 28 leather tanneries and 18 shoe factories
currently operating in the country.

Bangladesh has a huge educational structure in textile and RMG, producing around 5000
graduates every year. And many of them now are not getting job within the country as the
sector is not growing at the pace it was envisioned. Ethiopia needs experts who can run
machinery and manage production floor. Ethiopia can be a great destination of Bangladeshi
textile and RMG expert to work over there. The Ethiopian government provides a subsidy to
the textile industries in hiring experts from abroad. Bangladeshi fabric mills can consider
exporting fabric to Ethiopian RMG makers.

It is early days for Ethiopian textile industry and their aim of being the next Bangladesh
needs lots of work to be done. They have some advantages over the wage and production cost
factors but to be a sustainable supplier, capacity and productivity are keys. But, with Ethiopia
emerging rapidly as another cheap source of discount garments, western retailers now at least
have some choice if they do not feel comfortable to rely completely on suppliers like China
or Bangladesh.

Ethiopia is aiming to generate 30 billion USD from the export of garment and textile by the
year 2025. This is a very ambitious target to hit for a country whose shipments are only
115million USD 8 years before the year 2025.By 2016 Ethiopia has an ambitious plan to
reach $1 Billion export of textiles and clothing and by 2020 they have a view to emerge as an
important sourcing destination of textiles. With their natural and demographic resources, the
ambition seems most likely given that they can first cope up with their infrastructure and
transport facility development. The government is on the right track as they have a master
plan for power generation and transportation and with great interest from the western world
in investment Ethiopia is becoming a potential country for industrialization. Through the
Textile Industry Development Institute of Ethiopia (TIDI), they have already equipped with
training, service and testing facilities. So, with a 90 million population of a median age of
17.6 years, Ethiopia has the potential to become the pioneer in industrialization in the coming
years in Africa.

17
While the economy is growing rapidly, presenting many opportunities, there are also hurdles
to doing business in Ethiopia. The 2017 World Bank’s Ease of Doing Business report
(EODB) ranked Ethiopia 159th out of 189 countries; a drop of 11 rankings from that of last
year. The World Economic Forum (WEF) identified burdensome customs administrative
procedures, the high cost of logistics, and access to credit and foreign exchange as major
challenges to small and medium-sized enterprises (SMEs) in Ethiopia.
However, according to the United Nations Development Program (UNDP’s) 2015 Human
Development Index (HDI), Ethiopia is one of the top 10 countries that has realized the most
gains, particularly between 2010 and 2015.  This report applauded Ethiopia’s achievement in
improving life expectancy at birth, education, and Gross National Income per capita. It also
noted that strong economic growth over the past decade has enabled Ethiopia to lift close to
10% of the population out of poverty.

The agriculture sector has historically been the engine of the Ethiopian economy, but it has
recently given way to the service sector. The National Bank of Ethiopia (NBE) notes
agriculture, industry and services have contributed 36.7%, 16.7% and 47.3%, respectively, to
GDP in 2015/2016. The agricultural sector’s share of GDP shrank by more than 25%
between 2005 and 2016, while the service sector’s share grew by 27% during the same
period. The construction industry, particularly roads, railways, dams and homes, is the main
driver of growth in the industrial sector, contributing more than half of the sector’s growth.
Service sector growth is mainly dominated by expansion in communication and transport
services, hotel and restaurant businesses, as well as wholesale and retail trading.

In December 2016, Moody’s reaffirmed Ethiopia’s credit worthiness at ‘B+’, while S&P and
Fitch gave Ethiopia a ‘B’. These ratings reflect Ethiopia’s stable outlook and prospects for
continued economic growth in the short and medium-term, and are on par with neighboring
Kenya and Uganda.

The Ethiopian textile – and apparel industry has huge potential and has grown an average of
51% over the last 5-6 years. With a key focus on Foreign Direct Investments (FDI) the
government is driven to open up their textile- and apparel market to mid- en large scaled
foreign investors. Retailers like H&M, Primark and Tesco have established offices in 2012
and are buying clothing- finished products- from Ethiopian manufacturers. For smaller scaled
textile industry companies the sector however offers large potential as well. Half of Ethiopian
textile- and apparel companies are SME’s of 500-1000 workers that are able to handle orders
for Dutch and European mid segmented fashion retailers.

Commenting on the development Ranjan Mahtain, Chairman and CEO of Hong Kong based
Epic Group, said “The one thing that is unique in Ethiopia is that there has never been such
an organized roadmap dedicated to apparel and textiles … not in any country in the world”.
Hence it is recommended that a joint venture is made with a low cost garment manufacturing
company in Ethiopia which has the basic infrastructure and can be utilised to export the
garments to Germnay, USA, UK, Italy and Spain and reap the benefits for the next eight
years till the AGOA rules expire in 2025. Experts may be sourced from India, Bangladesh
and Pakistan.

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References: 

http://www.investopedia.com/terms/s/swot.asp

http://en.wikipedia.org/wiki/SWOT_analysis

http://ctb.ku.edu/en/table-of-contents/assessment/assessing-community-needs-and-
resources/swot-analysis/main

http://www.bangladesh-web.com/view.php?hidRecord=261807

http://moshiur008.blogspot.com/2011/08/swot-analysiss-of-bangladesh-economy.html

https://mkastleyvisuals.wordpress.com/tag/swot-analysis-of-bangladesh-textile-industry/

http://wiki.answers.com/Q/SWOT_of_RMG_sector_of_Bangladesh

http://www.academia.edu/3314975/Competitive_and_Business_Environment_analysis_of_R
MG_industry_of_Bangladesh

http://www.assignmentpoint.com/business/human-resource-management/report-on-garments-
industry-in-bangladesh.html

http://mygoldenbengal.wordpress.com/2014/03/30/india-pakistan-biggest-threat-for-
bangladeshi-rmg-textile-export/

http://textilebulletin.com/present-situation-rmg-sector-bangladesh-2013/

http://bgmea.com.bd/home/pages/TradeInformation#.U_FuxqPT31U

http://www.textiletoday.com.bd/magazine/698

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The Political Risk Index

It is a proprietary index measuring the level of risk posed to governments,corporations, and

investors, based on a myriad of political and economic factors. The Political Risk Index is
based on varied criteria* including the following consideration: political stability, political
representation, democratic accountability, freedom of expression, security and crime, risk of
conflict, human Development, jurisprudence and regulatory transparency, economic risk,
foreign investment considerations, possibility of sovereign default, and corruption. Scores are
assigned from 0-10 using the aforementioned criteria. A score of 0 marks the highest political
risk, while a score of 10 marks the lowest political risk.

The Political Stability Index

It is a proprietary index measuring a country's level of stability, standard of good governance,

record of constitutional order, respect for human rights, and overall strength of democracy.
The Political Stability Index is calculated based on a given country's record of peaceful
transitions of power, ability of a government to stay in office and carry out its policies vis a
vis risk credible risks of government collapse. Threats include coups, domestic violence and
instability, terrorism, etc. This index measures the dynamic between the quality of a country's
government and the threats that can compromise and undermine stability. Scores are assigned
from 0-10 using the aforementioned criteria. A score of 0 marks the lowest level of political
stability and an ultimate nadir, while a score of 10 marks the highest level of political
stability possible, according to this proprietary index.

Freedom Ranking

This ranking quantifies political freedom and civil liberties into a single combined index on
each sovereign country's level of freedom and liberty. The initials "PR" and "CL" stand for
Political Rights and Civil "CL" stand for Political Rights and Civil Liberties, respectively.
The number 1 represents the Liberties, respectively. The number 1 represents the and most
free countries and the number 7 represents the least free.

Human Development Index

HDI is a composite index that measures the level of well-being in 177 nations in the world. It
uses factors such as poverty, literacy, life-expectancy, education, gross domestic product, and
purchasing power parity to assess the average achievements in each nation. It has been used
in the United Nation’s Human Development Report since 1993.

Fragile States Index

Fragility as a heightened exposure to risk combined with a low capacity to mitigate or absorb
these risks. This situation of vulnerability can lead to violence, conflict, chronic
underdevelopment and protracted political crisis

Innovation Ranking

21
The Global Innovation Index provides detailed metrics about the innovation performance of
127 countries and economies around the world. Its 81 indicators explore a broad vision of
innovation, including political environment, education, infrastructure and business
sophistication. and innovation in agriculture and food systems

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