Made in Africa? Why Not?

New countries are making the case they can be good homes for manufacturers, a change that China will have to adapt to

In the search for competitive costs and acceptable quality, new actors continuously take center stage. There’s always an unforeseen producer, an emerging country ready to offer more advantageous conditions to attract multinationals’ investments.

The combination is unchanging: low costs and favorable business climates. The affirmation of a few African countries in textile manufacturing is only the latest example of the sector’s mobility.

A recent study by McKinsey – drafted with the usual attention to data – finds that Ethiopia is one of the preferred destinations, No. 7 overall, for the first time. Giants like H&M, Primark and Tesco have already set up factories. Kenya is recording analogous growth, while smaller markets like Lesotho and Mauritius continue to improve their performance. These nations were the first to take advantage of the African Growth and Opportunity Act, which offers sub-Saharan countries the possibility to export clothing products to the United States without incurring tariff barriers. Now, this agreement is directing its benefits toward bigger countries in the process of gearing up: Ethiopia, Kenya, Tanzania and Uganda. East Africa has interesting potential: available labor, hydroelectric power and a wealth of raw materials, especially for sophisticated consumers demanding organic cotton for their pants and T-shirts.

In any case, it’s still too early to verify new equilibriums. Bangladesh remains a top destination, but it has suffered terrible work accidents with heavy losses of human life. The attraction of Vietnam, Myanmar, Turkey and India remain important. After these countries, only China surpasses Ethiopia as far as investment expectations. After decades of work, China can still dominate production, but that position is no longer unassailable. Its output has been diminishing since 2010, thanks to its unprecedented delocalization. It is actually Chinese investors who are heading to nearby countries or Africa. There, labor costs are lower and any barrier imposed by the United States can be avoided because the goods are officially “made in Africa.”

The collateral effect is evident: China could be breeding its competition. Economic history demonstrates that textile/clothing is one of the first sectors directing a country toward industrialization. Italian textile machinery – among the best in the world – has contributed to the emergence of many markets. Now, it’s Africa’s chance. Foreign companies need to control product quality and respect labor standards. Governments need to ensure transparency, acumen and visions for the future. These seem like relatively easy tasks, but can prove problematic. If this cycle turns out to be virtuous, the theater of emerging markets will be enriched with new players, and China will need to negotiate the change while controlling it via its investments.