Fortune News | Dec 27,2018
The Oromia Public Enterprise is edging closer to bagging Ayka Addis Textile Factory for 1.82 billion Br. The factory, 20Km west of Addis Abeba, in Alemgena, Oromia Regional State, has been idle under the management of the Development Bank of Ethiopia (DBE) from late 2018 following the default of two billion Birr loans taken before it started operations.
Sources from the policy bank confirmed the public enterprise won the foreclosure a month ago.
According to Adare Assefa (PhD), the head of the Oromia Public Enterprise, no bidders showed interest until the enterprise decided to buy the textile factory last month. He believes it will create more job opportunities in the area and awaken daunted businesses that previously served the factory employees.
"We've made the first 20pc of the payment," he said.
The Enterprise administers 56 companies under its fleet with the factory expected to be operational in the coming six months and planning to source raw materials by entering into a vertical integration deal with farmers. According to Adare, enterprise management plan to transfer full ownership to private investors in the long run. He disclosed three individuals and two companies administered by the Enterprise have 25pc shares but withheld their identity.
Leben Girma has worked at the Eltiex Textile Factory for over two decades.
"It's been long overdue," he said. According to him, the success of factories can be guaranteed when diverse stakeholders are involved. In this particular case, Leben believes the well-equipped textile factory with a spinning machine can partner with small garment enterprises.
The policy bank, headed by Yohannes Ayalew (PhD), has been paying salaries for over 4,300 Ayka Addis employees. According to Adare, the Enterprise will take over and hire additional 5,700 employees.
Ayka Addis was established in 2006 by three Turkish shareholders with 679 million Br paid-up capital out of the authorised capital of one billion Birr. Ayka Addis borrowed 813 million Br from the DBE and became operational in 2010, shipping products to Germany, Spain, the US, Japan, France and Canada for eight years. This could have allowed earning 400 million dollars from exports with annual average revenue constituting 28.4pc. However, the factory can not return its loan on time.
The Commercial Bank of Ethiopia is in a similar situation floating a bid for Saygin Dima and Selendawa Textile, after failing to return their loans with no interest.
Adare said experts conducted a feasibility study on the factory and inspection of idle machinery over the past four years, similar to the one conducted by the then Ministry of Trade & Industry upon the request of DBE a couple of years ago.
Ethiopia earned over 175 million dollars from textiles export in the last fiscal year, constituting 4.27pc of the total export revenue. Following Ethiopia's ban from AGOA in October 2021, Philips-Van Heusen Corporation (PVH Corp), the first international apparel company to step foot following the establishment of Hawassa Industrial Park, announced it had terminated its operations. Losing their significant international buyers, the companies including textile factories under the industrial parks have been struggling to make ends meet ever since.
Ethiopia generated 240 million dollars from exporting under AGOA three years ago, accounting 40pc of the total shipments the country sent to the US.
However, the market's difficulty did not stress out the Enterprise Head hopeful the privilege will be reinstated soon.
He believes the factory can generate enough revenue by producing garments and distributing them to the domestic market.
"There is still a good domestic market chain," he said.
For Yoseph Getachew, an investment consultant with over a decade of experience, the suspension of AGOA coupled with insufficient power supply and raw materials has made the industry unattractive to investors.
According to him, the domestic market is not enough as foreign currency is essential to import raw materials and spare parts.
"The government should lobby to return to AGOA," Yoseph told Fortune.
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