How to invest in a viable textile and cotton value chain in Africa
ITC’s approach to cotton value chain integration under the African Continental Free Trade Area needs the support of policymakers, business support organizations, investors and retailers on the continent and abroad.
Research by the International Trade Centre (ITC) shows that Africa has the potential to export €5.8 billion in cotton garments by 2026, of which nearly 15% could be destined for the African continent. This means that two-thirds of intra-regional export potential in the sector is yet to be unlocked. Despite relatively high current exports and export potential, import demand is high, reflected in an import value of €3.6 billion, projected to increase by 84% as of 2026.
Despite these promising numbers, this potential remains largely untapped as Africa imported a mere 7% of cotton yarn, 6% of cotton fabric and 9% of apparel from within the continent in 2022.
In addition, if all cotton-producing countries in the region fully developed their textile and apparel industry, and transformed cotton locally, the industry could generate up to 5.8 million jobs.
To satisfy demand from within the continent, it is important to develop a competitive textile and cotton value chain. Processing cotton locally instead of exporting it could also contribute to curbing carbon emissions by bringing supply chains closer to raw material supplies.
African cotton has a comparatively low carbon footprint compared to other cotton origins. Building on this sustainable base, the industry needs investment in modern environmentally friendly spinning and weaving/knitting facilities. For example, Benin has started to process its own cotton in a state-of-the-art industrial park with Asian investment and in 2023 Egypt invested in new modern spinning and weaving facilities to valorize its cotton.
However, according to ITC calculations, in 2021 Africa’s apparel exports to the world were much larger than intra-continental trade ($10.3 billion versus $961 million).
Any approach to value chain integration in Africa should therefore not neglect these opportunities outside the continent.
Given that the United States and the European Union, with its duty-free market access and very liberal requirements for rules of origin, are the largest markets for African apparel, policymakers also need to promote apparel manufacturing from imported fabrics.
Large Asian garment manufacturers with long-standing clients in Western markets will find it easier to set up garment facilities using Asian fabrics, instead of investing large amounts of capital into textile manufacturing. The skills, know-how and experience made under this business model can then be scaled to include textile manufacturing to serve traditional foreign and African countries.
Interventions are needed at each stage of the supply chain, and at enterprise, institutional and policy level, to improve shortcomings and link the stages closer together.
As a first step, let’s look at the national level: cotton-growing countries and regions need investment in sustainable textile industries, while those strong in garment making need “upgrading” to exploit opportunities on the continent and outside. To make this happen, ITC works with the garment industry in Egypt, Ethiopia, Madagascar, Morocco, Tanzania and Tunisia to increase the sector’s international competitiveness, with a special focus on environmental sustainability. Once competitiveness increases, it should withstand competition from Asian suppliers on the continent.
A second step should see collaboration at sub-regional level. ITC, for example, works with Madagascar and Mauritius for an integrated textiles and clothing solution to clients in the North as well as South Africa under the SADC (Southern African Development Community).
In North Africa and the Middle East, we foster collaboration and synergies between Egypt, Jordan, Morocco and Tunisia, building on the Agadir free trade agreement framework. In West/Central Africa ITC is part of the cotton partnership that develops a cotton to apparel value chain in the Cotton Four or C4 (Benin, Burkina Faso, Chad and Tchad) plus Côte d’Ivoire. Through industrial parks, large scale investments (and through apparel manufacturing based on third-country fabrics, 500,00 jobs could be created in manufacturing alone.
In addition, numerous types of African textiles are produced on the continent at artisanal level. Integrating a cotton-based regional value chain is not only important in terms of growth, sustainability and quality of life, but is also a question of promoting and preserving continental know-how.
ITC is working with artisans and cotton farmers in Burkina Faso, Mali, Côte d’Ivoire, Zambia and Tanzania to do just that and transform local cotton.
A third step focuses on a continental value chain: this requires policy reforms, especially an agreement on rules of origin that favour regional and continental trade, as well as a ban or at least reduction of imported second-hand clothing. The EU Waste Shipment regulation that foresees banning exports of textile waste, including second-hand clothing of low quality, to countries that cannot recycle the waste would help to reduce second-hand clothing penetration on the continent. Finally, policymakers need to address the imports of cheap, often dumped Asian fabrics.
It is crucial that policymakers, manufacturers and potential investors collaborate with brands and retailers on the continent so they can steer the supply to where the demand is. For example, the South African retail group Mr Price is keen to collaborate as their demand for home textiles alone could keep a mid-sized textile mill busy for a whole year.
However, garment exporters from Egypt, Morocco, Tunisia or some Sub-Saharan African countries (including Kenya, Madagascar, Mauritius, Lesotho, Ethiopia, among others) that cater to the United States under AGOA or the EU under the Everything but Arms (EBA) preferential scheme, are used to working with a retail sector that is very structured and follows a business model that evolved over decades.
In many African countries, on the other hand, retailing often takes place in the informal sector. Therefore, manufacturers that are set-up for relatively large volumes following strict client requirements and instructions will find it difficult to cater to African clients that follow a different business model.
Building a textiles and clothing value chain in Africa that caters to the large untapped continental potential as well as world markets requires the collaboration of policymakers, business support organizations, potential investors (most likely coming from the textiles and cotton industry in Asia) as well as buyers, both on the continent and foreign markets.
While cotton value-addition is an obvious policy focus, it would be easier to start with, or at least address in parallel, garment manufacturing that uses imported fabrics.
We know that there are willing investors, driven by the increasing costs in Asia in general and China in particular, who look to explore Africa to serve their traditional Western clients as well as the continent. These investors require conducive and stable policies, a good institutional infrastructure to support the sector as well as a skilled labour force, including middle managers.
Following the above steps could be instrumental in addressing these needs and building the African value chain for textiles and clothing to which the African Union aspires.
