Leaders of the textile and garment industry are pressing with desperate calls for policy intervention, confronted with a flood of contraband trade, high excise taxes, and dwindling sales. The Ethiopian Textile & Garment Manufacturers Association (ETGMA) warns that failure to respond in time will threaten the survival of several of its 200 members. The Association’s leaders pleading for a further reduction of excise taxes to zero, which were lowered from eight to five percent last year, citing the rising cost of inputs.

They blame the proliferation of thrift shops that freely sell contraband items, fearing they undermine their market. These shops are stocked with vast quantities of used clothes smuggled into the country, creating an unfair competition for domestic manufacturers. According to the Association's Secretary General, Agazi Gebreyesus, approximately 10,000 second-hand clothes enter the market daily in areas like Taiwan, Efoyta, and Enken.

Studies the Association commissioned, presented to officials of the Customs Commission, discovered that locally produced and imported textile products account for around 47pc of the apparel market while the rest is flooded with used contraband brands. The influx of contraband goods, mostly second-hand clothing from European and American markets, is attributed to lax customs enforcement. Over 71.22 billion dollars worth of such items were shipped globally last year. Ethiopia, along with Kenya and Tanzania, is one of the destinations.

However, Tegegene Derese, head of Inspection at the Customs Commission, denied claims of inadequate inspection procedures, crediting customs officers for preventing contraband shipments. The Commission's efforts, which included confiscating over nine billion Birr worth of contraband clothes last year, tripled the number of total confiscations in 2019.

"We do everything we can," he told Fortune. "Few might slip past our control."

However, domestic manufacturers feel this is insufficient compared to the scale of the problem; it is likely a tenth of the actual figures that are reported. Agazi warned that the influx puts about 350 manufacturers at risk, with wide price disparity as these imported items often cost a tenth of those produced locally.

"Our profits have plunged fivefold," said the Secretary General.

Last month, he directed his members' plight to the ministries of Finance, Industry, Revenues and Federal Customs Commission as well as the State Minister for Finance, Eyob Tekalign (PhD).

Compounding the issue is the excise tax regime. Introduced three years ago on luxury or health-risk items, the tax scope has broadened to include everyday commodities like cooking oil, bottled water, and clothes. Despite a reduction from eight to five percent last year, the textile industry argues that this is insufficient given the rising cost of inputs and the economic downturn. They are advocating for a complete removal of the taxes to stay afloat.

However, the federal government is determined to increase revenue collections, aiming to raise an additional seven billion Birr from excise taxes during the budget year to meet 477.7 billion Br in revenues.

According to Wasihun Abate, the Ministry of Finance's senior tax advisor, the excise tax is imposed not only on luxury items but also on commodities with high tax-generation potential, even if they are small in percentage terms. He argued that the manufacturers' problems are beyond tax issues.

"Removing these taxes might not significantly boost industry performance," he told Fortune. "They've not figured out where the problem lies."