Risk managers warned of threats to Ethiopian cotton supplies

Clothing industry experts may have identified east Africa as the industry’s next major sourcing location but risk managers have been warned there are plenty of challenges in some east African countries, which could threaten supply chains. These forecasts often single out Ethiopia as the most attractive investment prospect. The government espouses a ‘dirt to shirt’ policy and the country boasts favourable investment conditions. However, Verisk Maplecroft has forecast that there is a 67% chance that Ethiopian government stability will deteriorate in the next two years due, primarily, to the government’s failure to tackle the underlying cause of recent protests. It warned: “The cotton sector will be increasingly exposed to security and reputational risks, limiting the opportunity to expand sustainable production. Therefore, businesses viewing Ethiopia as an opportunity to diversify their textile and cotton supply chains will need to navigate a multitude of risks across their product value chains.” Emma Gordon, politics senior analyst, Africa Verisk Maplecroft, explained: “The government’s 15-year cotton development strategy is expanding the cotton farming sector. “Despite this, the country’s reputation as a stable destination in an unstable region has been severely undermined by protests in 2016. These issues, along with concerns around labour rights, would likely pose major risks for cotton producers in the coming five to ten years.” Cotton producers face multiple social and environmental risks, she concluded. Cotton-specific risk scores identify serious concerns around land grabs, child labour and water pollution. Many of these issues are unlikely to be resolved during the coming five to ten years, according to Ms Gordon. The labour law has a number of weaknesses and protection standards were particularly low in agribusiness. Workers are frequently exposed to harmful chemicals, without repercussions for employers. This has been a significant problem for the flower sector. Numerous Dutch firms sourcing from Ethiopia have faced reputational damage domestically as a result. Cotton farmers would face similar accusations, reducing the likelihood that Ethiopian cotton could be used in sustainable fashion lines, warned Ms Gordon. Beyond labour rights, one of the biggest problems facing the sector is protests over land usage. The 2015-2016 protests were sparked by a dispute over land ownership. Several agribusiness and textile assets were attacked and in some cases destroyed. The protests have been quashed, primarily through the use of a repressive state of emergency, but the underlying drivers have not been resolved. It is therefore highly likely that similar protests will erupt again during the coming five to ten years. Local experts warned that foreign investors used to be seen as neutral, but this has changed due to controversies over the government’s land allocation policy. The government assigns ‘empty’ government-owned land to foreign businesses, but this often includes land that communities consider to be jointly-owned grazing land. Concerns over land usage are likely to intensify as drought and food insecurity worsen. This, along with population growth rates that may see the population double in the next 30 years, will therefore increase competition over fertile land. Investors are likely to become increasingly unpopular in the communities that they rely on for both their security and their workforce. On the plus side, the government has repeatedly stated that both cotton and textiles are priority areas, and despite the inherent risks, these sectors are therefore highly likely to continue expanding. The government offers a generous raft of incentives to investors in the sectors, including exemption from numerous tax and customs duties for up to ten years.

Risk managers warned of threats to Ethiopian cotton supplies

Want to read this article?

Read Next

Sompo pledges lead capacity, expansion and local empowerment in France and Spain

Transactional risk market set to rebalance on back of M&A activity, says Chubb

Global insurers’ market capitalisation grows as results improve

More than 70% of global workforce exposed to climate change-related health hazards: ILO

MNK Group acquires Costa Rican insurer Oceánica de Seguros

Sompo pledges lead capacity, expansion and local empowerment in France and Spain

Transactional risk market set to rebalance on back of M&A activity, says Chubb

Global insurers’ market capitalisation grows as results improve

More than 70% of global workforce exposed to climate change-related health hazards: ILO

MNK Group acquires Costa Rican insurer Oceánica de Seguros

Want to read this article?

Read Next

Sompo pledges lead capacity, expansion and local empowerment in France and Spain

Transactional risk market set to rebalance on back of M&A activity, says Chubb

Global insurers’ market capitalisation grows as results improve

More than 70% of global workforce exposed to climate change-related health hazards: ILO

MNK Group acquires Costa Rican insurer Oceánica de Seguros

Related Articles