Facilitating Indian investment in Africa

29 June 2020
ITC News
The challenge

Countries in the global south − including those in East Africa − need jobs and investment, and can offer comparative advantages to companies in emerging markets, like India, where wages are rising. There is great potential for high volumes of trade and investment between developing countries, but a lack of information and general perceptions of risk often impede the flow.

Yet, the advantages of South-South trade and investment are legion. The promotion of knowledge and technology transfer – when technologies are affordable, adaptable, and appropriate to the context of the developing countries – is critical among these.

The solution

The International Trade Centre’s Supporting Indian Trade and Investment for Africa (SITA) programme aims to improve the competitiveness of selected value chains, including in textiles and apparel, in five East African countries – Ethiopia, Kenya, Rwanda, Uganda and the United Republic of Tanzania – through the provision of partnerships with institutions and businesses from India. Funded by the United Kingdom’s Department for International Development (DFID), SITA works toward de-risking South-South investment by providing market intelligence and bespoke support to interested Indian investors.

The first step in investment facilitation is raising awareness among potential investors through building partnerships with crucial stakeholders such as sector associations.

Beyond presenting investment opportunities in East Africa at targeted events, SITA worked with sector associations to facilitate 16 investment delegations to East Africa from India, and from India to East Africa in the last five years. In the textile and apparel sector, SITA’s efforts led to two Indian textile companies establishing garmenting units in Ethiopia’s Mekelle Industrial Park in 2018.

One of these companies, KPR Mill Ltd, an integrated textile manufacturing company from India, opened its first overseas garment unit in the industrial park. The garment factory has a capacity of 10 million items each year and exports to Europe and the United States.

The decision by KPR Mill to open the production unit – KPR Export – in Mekelle. followed visits to Ethiopia and Kenya in 2018. The company had not considered international expansion before attending an awareness-raising seminar facilitated by SITA in July 2017. Impressed by the “plug and play” infrastructure available in Mekelle, KPR executives decided to invest within 36 hours of arriving in Ethiopia.

KPR Mill’s investment decision was partly motivated by the increasing cost of land, power and labour in India. Establishing a garment unit in Ethiopia also allowed the company to take advantage of free trade arrangements such the African Growth and Opportunity Act (AGOA) and the Everything But Arms (EBA) initiative, which allow for duty-free, quota free export to United States and Europe respectively. To date, India has not signed free trade agreements with these entities, posing a significant challenge to the textiles and apparel sector.

KPR Mill made an initial investment commitment of $20 million. Plans were put into action once the senior management team returned to India, made easier by the inclusion of their designated general manager in the first exploratory visit to Ethiopia. The company informed some of their American buyers about their plans, who agreed to purchase garments made in Ethiopia. KPR Mill also recruited 16 Ethiopian supervisors who were then trained in India and Ethiopia.

By July 2018, KPR Export Plc was registered as a subsidiary in Ethiopia. The complete set-up of the first garment unit took about two months. Extensive training of the general workforce took place, after around 600 people were identified with the support of the relevant government bodies. KPR’s action-oriented approach and emphasis on skills development ensured that their first containers were ready for export in January 2019.

In May 2019, then ITC Executive Director Ms. Arancha González and Mr. K.P Ramasamy, Chairman of KPR Mill Ltd., attended the official opening of the factory. Other dignitaries at the inauguration included Ethiopian State Minister for Trade and Industry Mr. Teka Gebreyesus, Mr. Debretsion Gebremichael, Vice-President of Tigray Regional State, Mr. Mayur Kothari, Convenor, India Business Forum, Ethiopia and Mr. Anteneh Alemu, Deputy Commissioner of the Ethiopia Investment Commission.

Mr. C. R. Anandakrishnan, Executive Director of KPR Mill, said: ‘With the support of ITC our speed of entry into Ethiopia, from planning to invest to starting operations has been good. ITC connected us with the right institutions and people in the country, and has provided key information about Ethiopia. This resulted in speeding up our decision-making ability.’

Ms. González said that the setting up of KPR Export was a great example of Ethiopia’s attractiveness and investment potential, and a demonstration of the successful effort by SITA in strengthening business linkages across the Indian Ocean.

‘With the support of the UK Department for International Development, at ITC we are pleased to have been part of KPR’s journey to invest in Ethiopia. We are particularly proud of the 1,500 news jobs that will be created at the Mekelle Industrial Park and the opportunities these provide, especially for women and youth,’ she said.

The results

The investment and establishment of KPR Export has led to the creation of 700 jobs in Ethiopia. At full capacity, the company will employ 1,500 machine workers who will produce 50,000 garment pieces per day for the world market. KPR Export is the second Indian textile investment in Ethiopia, facilitated by SITA. To date, 1,700 good jobs have been created by the two companies.

The future

East African governments have prioritized the textile and apparel sector, viewing it as critical for creating jobs and economic growth. Missing links in the sector currently include sustainability and a supportive business ecosystem. SITA hopes to address some of these challenges through activities to facilitate investment in textile mills and technology upgrading, as well as to harness Indian knowledge to support government plans for wastewater treatment plants.