Neat needlework required
Conversations around textile, garments, ready-to-wear and fashion generally are incomplete without any reference to agriculture or the manufacturing sectors of the economy.
Inclusive growth in Nigeria can be driven by several segments of the economy, including cotton farming. Data from the International Cotton Advisory Committee (ICAC) revealed that only 51,000 metric tons (mt) of cotton was produced last year. Meanwhile, industry sources suggest that the country has only 23 ginneries which have a combined capacity of 650,000mt of cotton seeds but produces just 60,000mt annually, representing c.10% capacity utilisation.
Africa produces about 1.5 million tons of raw cotton annually and 85% is exported unprocessed. Plexus, a global agribusiness company with primary focus on cotton, has opened an integrated textile and garment operation in Uganda. Based on their operations in Uganda, cotton valued at US$60m is transformed into finished goods and sold for US$700m. Plexus has some presence in Nigeria but not to the extent as in Uganda.
Essentially, Nigeria is losing out tremendously in the cotton farming market. The potential annual export value is estimated at US$6.5bn. Furthermore, industry sources reveal that the country’s annual import bill for textiles and ready-to-wear apparels is US$4bn. In the United States, cotton remains a leading cash crop which stimulates business activities for factories. The processing and handling of cotton post-farm activities generates more businesses and therefore jobs. Annual business revenue stimulated by cotton in the US economy has been estimated to exceed US$120bn, making cotton one of the country’s top value-added crop.
However, this may be an unfair comparison with Nigeria given that some of Nigeria’s limitations to a booming cotton industry are not experienced in the US. They include low quantity of seeds accessible to farmers, lack of adequate inputs, poor transport infrastructure and the list goes on. The federal ministry of agriculture and rural development highlighted in its policy roadmap the lack of an industry wide standardisation system as a core reason for underdevelopment within the segment.
The national accounts for Q1 2017 released by the National Bureau of Statistics show that the textile, apparel and foot wear segment grew by 1.2% y/y and contributed 23% to the manufacturing sector. It is the second largest contributor to Nigeria’s manufacturing sector. Undoubtedly, there is still room for improvement.
In June, the BUA group announced its intention to invest in a US$500m textile and garment cluster in Katsina State. This cluster is projected to house 500 SMEs. Apart from the direct benefits the state stands to gain such as job generation as well as improved internally generated revenue, there would also be a positive impact on the economy as a whole.
Nigeria’s fashion industry has experienced considerable growth with an increased number of fashion houses across the country (predominantly in Lagos). Although very good quality and trendy styles are obtainable, the prices are not always budget-friendly. Designers often blame the cost of imported fabrics and labour for the high prices allocated to their ready-to-wear garments. Based on the inflation reports released by the NBS since the start of this year, on a m/m basis, the price of clothing and footwear in the inflation basket has experienced a steady increase (i.e. since January to May), with the average for the five months at 1.3% m/m.
Indeed, a shift in mindset has been observed as Nigerian nationals are increasingly patronising African prints such as the “Ankara” which has also gained grounds on the global fashion scene. In addition to ready-to-wear garments, this fabric is used for accessories, footwear and in some cases household décor. The Lagos Ankara festival is set to hold in Q3 this year and promises to act as a catalyst geared towards stimulating activities within the industry.
Another development comes from Vlisco Group, the manufacturer of Dutch wax prints. The group signed an MoU with the Nigerian government in 2015 and is training tailors across the country. Vlisco has two factories and more than 30 retail stores in Africa. It plans to open its third factory in Nigeria.
Nigerians possess the same sophisticated fashion tastes and passion for fashion when compared to consumers globally. Interestingly, e-commerce has also received a boost from the country’s growing fashion industry.
The fashion industry is a good example of evolving trade patterns; it positively impacts commerce activities globally. Apparel consumption currently stands at US$500bn per year in Europe and the US, and US$350bn in China, India and South East Asia.
Nigeria’s growing middle class has a huge consumption appetite for fashion and its other related industries. Increased investments into the sector will yield high returns and effectively trim the country’s import bill. The FGN should explore creating a favorable business and investment climate for the sector to thrive.
Perhaps, a revision of the import duty and tariff for heavy machineries required for mass production of garments as well as for textile patterns and embroidery amongst others should be considered to enable already established fashion businesses scale-up. Additionally, sustainable intervention funds (that is, in addition to the N1bn Bank of Industry fashion fund) will also assist in giving the industry the necessary leg-up required.
The fashion value chain is wide-ranging, cutting across agriculture, manufacturing, packaging, logistics and e-commerce amongst others. Additionally, its export revenue potential would significantly increase the country’s non-oil revenue and the new jobs created would result in a wider tax net. On a macro note, Nigeria’s fiscal purse stands to gain from a fully functional fashion industry. However, structural challenges also need to be addressed to unlock the vast potential of the country’s fashion goldmine.
Chinwe Egwim is a Macro Economist & Fixed Income Analyst at FBN Capital