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  • Out of Africa: The great money migration

    the great money migration out of Africa

    Bahar Dar, Ethiopia - The figures are staggering: At least $1.8 trillion illicitly flowed out of Africa between 1970 and 2009.

    This is far more than the external aid the continent received over the same period, and almost five times its current external debt. According to researchers, the continent also loses at least $100bn a year in this financial haemorrhage.

    African leaders convened this week in the Ethiopian city of Bahar Dar to discuss illicit financial flows and what can be done to staunch them. A study commissioned by the Tana High Level Forum on African Security, which organised the conference, found that illicit flows from Africa grew at an average rate of 12.1 percent per year since 1970, and that capital flight from West and Central African countries accounted for most of the illicit flows from sub-Saharan Africa.

    Illicit financial flows consist of money earned illegally and then transferred for use elsewhere. The money is usually generated from criminal activities, corruption, tax evasion, bribes and smuggling. Yet the numbers tell only part of the story - a story that exposes how these highly complex and deeply entrenched practises have flourished, with a devastating impact on Africans' efforts to extricate themselves from grinding poverty.

    This scourge eats into the gross domestic products of African countries, draining foreign exchange reserves, reducing tax collection and investment inflows and worsening poverty. 

    "The costs of this financial haemorrhage have been significant for African countries. It has heightened income inequality and jeopardised employment prospects. In the majority of countries in the continent, unemployment rates have remained exceedingly high in the absence of investment and industrial expansion," said Kenya's Central Bank Governor Dr Njuguna Ndungu.

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  • H&M buying clothing from Ethiopia

     

    STOCKHOL - Clothing retailer H&M Hennes & Mauritz AB is looking to Ethiopia as a new low-cost country in which it will produce clothing, as it races to keep shelves stocked at a growing number of stores around the globe.

    The Swedish clothing retailer relies heavily on Bangladesh for clothes production and a move to Africa would expand its sourcing footprint, but not replace its commitment to production in Asia. One supplier says H&M is looking to source one million garments a month from Ethiopia.

    A spokeswoman said the fashion company has placed test orders with Ethiopian suppliers and says large-scale production can begin as early as this fall. H&M is adding stores in a number of markets, a move needed to help offset stagnant same-store sales in some regions.

    “As a growing global company we have to look at how we guarantee that we have the capacity to deliver products to all our stores where we have a rapid pace of expansion,” H&M spokeswoman Camilla Emilsson-Falk said. “We are doing that by increasing production in our existing production areas and also by looking at new ones.”

    H&M joins a host of rivals looking for alternatives to areas such as southern China, where costs are rising. The Sanford C. Bernstein investment-research firm estimates costs per unit manufactured in Ethiopia were more than half the cost of China as of 2011, which is the latest data available.

    But rising costs in Ethiopia could be a problem in the future. Bernstein analyst Anthony Sleeman said costs rose 18% in Ethiopia in 2011 versus 2010, compared with a 7.7% spike in China. At that rate, Mr. Sleeman expects Ethiopia’s costs per unit will exceed China’s by 2019.

    Still, retailers see advantages in getting a more diverse footprint, and are looking to source closer to the markets they sell in because of a need for lower shipping costs and reduced lead times. Depending on how H&M’s retail network expands, the proximity of production could help offset production cost disparities.

    “We know that [Spain's] Inditex sources from Morocco and Tunisia,” Société Générale analyst Anne Critchlow said. “If [H&M] can play a part in supporting the development of this industry in Ethiopia while benefiting from lower delivery costs and perhaps shorter lead times to Europe than from China, then I think, ‘Why not Ethiopia?’ “

    Ms. Emilsson-Falk said H&M’s test orders in Ethiopia aren’t related to media reports earlier this year that the company was looking for store space in South Africa, and there are no concrete plans for a store in South Africa.

    The spokeswoman reiterated H&M’s long-term commitment to Bangladesh and said the company is growing and increasing sourcing in all the markets where it is active.

    H&M says low production costs aren’t the only thing it looks at as it makes deals with new suppliers. The company says it strives to work with suppliers over the long term that can offer the capacity and quality that H&M needs and that can meet H&M’s conduct rules.

    Ethiopia isn’t a newcomer to the textile and garment industry, and it has aggressive plans for growth in coming years. The first garment factories were built in 1939 during the fascist Italian occupation.

    The Ethiopian government has said it wants to revitalize its textile and garment industry, and has set a target of $1 billion in textile exports by 2016. In order to reach that target, it is bringing in foreign investors to modernize machines and factories.

    The country’s ability to successfully expand its garment industry could help it achieve its goal of moving from primarily an agricultural economy to an industrial one. The nation has been supporting this push for more than a half decade.

    “Ethiopia not only gives infrastructure support but financial support,” said Rajeev Arora, executive director of the African Cotton and Textiles Industries Federation. He cited competitive interest rates, cheap land and labor, and tax breaks from the government as key incentives leading to extraordinary rates of foreign investment over the past five years.

    The nation’s textile and apparel exports totaled about $99 million for the 12 months ended in June, up 17% from the prior year, according to Fassil Tadesse, president of the Ethiopian Textile and Garment Manufacturers Association. Ethiopia hopes to reach $500 million in these types of exports next year.

    Mr. Tadesse added that it will be difficult for the country to reach its goal of $1 billion in such exports by 2016, but not impossible. “There’s a lot in the pipeline,” he said. “Turkish companies, Indian companies and Chinese companies are coming now.”

    The government has eased the process for companies wanting to establish textile manufacturing in Ethiopia by eliminating trips to multiple offices and setting aside industrial parks for the building of factories, he said.

    H&M established its office in Ethiopia’s capital of Addis Ababa about a year ago, and has been buying clothing from a number of manufacturers including Mr. Tadesse’s Kebire manufacturing company. He said he alone sells H&M about 150,000 “test” garments a month. He didn’t provide a dollar figure for the sales, saying that the prices varied depending on the garments.

    “They are trying to form a cluster of companies because their need is one million pieces per month,” Mr. Tadesse said.

    Tesco PLC and the British arm of Wal-Mart Stores Inc., known as George, are also buying clothing from Ethiopian manufacturing plants, Mr. Tadesse said. He said he wasn’t aware of any U.S. investors yet and stressed that while U.S. trade deals with Africa are beneficial, they aren’t enough on their own to develop an industry.

     source: wsj

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