NBE report reveals industrial parks have suffered USD 45mln revenue losses

Ethiopia’s economy has taken a significant hit since its suspension from the African Growth and Opportunity Act (AGOA) in January 2022, with 18 foreign companies leaving the country, over 11,500 jobs lost, and industrial parks suffering a combined revenue loss of USD 45 million.

A new report by the National Bank of Ethiopia (NBE) reveals the extent of the damage, highlighting the challenges faced by the textile and leather industries, which were heavily reliant on duty-free access to the US market.

The report, titled ‘Impact of the Suspension of AGOA on the Export of Leather and Textile Products in Ethiopia,’ was conducted by the NBE’s Domestic Economic Analysis and Publication Directorate and published in its Birritu newsletter.

It provides a detailed look at the economic fallout from Ethiopia’s removal from AGOA, a US trade program that grants tax exemptions to eligible sub-Saharan African countries. The Biden administration moved to delist Ethiopia from the preferential trade program in late 2021, accusing the government of committing human rights violations during the two-year northern war.

Since then, close to 11,500 employees have been laid off at industrial parks across the country, with the hardest-hit areas being the Hawassa Industrial Park (4,321 jobs lost), Mekelle (2,885), and Bole Lemi (1,097), according to the report.

The job losses have disproportionately affected young women, who make up a significant portion of the workforce in Ethiopia’s garment factories. The report notes that efforts have been made to relocate these workers to other companies, but fails to elaborate on how successful these efforts have been.

Meanwhile, no less than 20 companies have either shut down or scaled back operations. Flagship Hawassa Industrial Park alone saw eight companies leave, while Bole Lemi and Adama lost five and three companies, respectively.

“Following Ethiopia’s removal from AGOA due to the United States government’s accusations of human rights violations during the northern Ethiopia conflict, both the value and volume of its textile and leather exports declined. Additionally, 18 companies have closed, and more than 11,000 jobs have been lost,” it reads.

Despite poor penetration of the US market, AGOA offered significant benefits to Ethiopia, particularly its textile and leather industries, since its inception in May 2000.

Data from the US Commerce Department indicates that Ethiopia exported goods valued at close to USD 277 million to the United States duty-free under the trade program in 2021. Textiles and apparel accounted for more than 90 percent.

While the report claims the fallout from the AGOA suspension has not been as severe as was predicted by the Ministry of Industry, which expected significant economic disruption and an estimated one million jobs falling into risk, the effects are undeniable.

For  instance,  Hawassa Industrial Park, which employed over 35,000  workers, was severely affected as major investors, such as PVH (the  parent company of brands like Calvin Klein and Tommy Hilfiger),  withdrew following the suspension.

The report also notes that the departure of key investors has disrupted supply chains that were previously geared towards the US market, while indicating that export-oriented companies across all industrial parks have experienced a sharp decline in export capacity due to the termination of contracts with international clients.

“Some companies have shifted their focus to the domestic market as a result. The [Industrial Parks Development] Corporation’s production has decreased, and many companies that exited did not properly hand over their facilities or equipment, preventing the Corporation from finding new investors to replace them. As a result, the vacated production sheds remain non-operational,” it reads.

The NBE report underscores the need for Ethiopia to diversify its export markets and reduce its reliance on AGOA. Its authors note that while the program provided significant benefits, its suspension has exposed the fragility of Ethiopia’s export-oriented industries.