Raymond is setting up a 2 million units per annum capacity plant in Ethiopia, at a total investment of $100 million, to manufacture and export woolen-blended, cotton-blended jackets, in order to take advantage of a more favourable duty structure and local incentives.
If Raymond exports from Ethiopia to the US it would not pay import duties of 18% which it would need to pay if it exports from India. Again exporting to Europe from Ethiopia would save the company 8%-12% in terms of import duties while exporting to Japan would give it a preferential access.
That’s because Ethiopia has a 10-year duty-free trade agreement with USA, Europe and a preferential trade pact with Japan. India does not have such agreements or advantages.
Apart from the trade benefits, Raymond is also being provided land on long-lease by the Ethiopian government. It will also get electricity at a price which is a third of the cost of power in India, apart from the labour charges, which are almost half of India. Thus Ethiopia, with favourable trade pacts combined with lower operating costs, would in turn reduce the cost of production for Raymond, and provide greater access to two of the biggest markets – the USA, and Europe – and a preferential access to Japan, another large market, and make it able to compete with other global companies. Currently, Raymond makes close to 2 million jackets at its Bengaluru facility—primarily woolen-blended and cotton-blended jackets—and exports part of them to the USA, Europe and Japan. In early September, the company had informed the stock exchanges that it would “invest to set up garmenting facility in Ethiopia, East Africa”.
In a response to an e-mailed query, Raymond noted it was exploring an option to set up a garment manufacturing facility in Ethiopia to be cost competitive for export markets.
The new unit will be housed in Raymond’s fully-owned subsidiary Silver Spark Apparel, through its Middle East-based unit in Sharjah. The unit is to be located at Awasa, in Ethiopia.
Silver Spark, a subsidiary of Raymond, was set up in 2003 for manufacturing suits and formal trousers, at a factory in Bengaluru. In FY15, Silver Spark Apparel reported a 27% fall in profits at R16.24 crore, while its revenue grew 25% from a year earlier to R392.78 crore.
The move to Ethiopia comes after Gautam Hari Singhania, chairman and managing director of Raymond, saying that the growth prospects of Indian textile sector were “constrained by many challenges” such as increase in wage costs, power tariffs and interest costs, as well as restrictive labour laws, and intensified competition from other low-cost countries like Bangladesh.” “Globally, favourable trade policy reforms would also allow the industry to expand its trade partners, improve its export competitiveness and contribute substantially to the nation’s income,” he told shareholders earlier this year.