When knowledge is lit, economy flourishes. Kanoria Africa Textiles, the denim plant set up by Kanoria Chemicals & Industries Ltd in Ethiopia, is more than just another investment happening in Africa. It is about upgrading the skills and knowledge of the workers in the country, helping to set production and quality standards, and aiding the development of the Ethiopian textile industry. In an exclusive interview with Reena Mital, R V Kanoria, Chairman and Managing Director, Kanoria Chemicals & Industries Ltd, talks about his long term vision for the Ethiopian industry.
How is Kanoria Africa Textile's denim plant progressing in Ethiopia?
It has taken us 27 months to get into production from the time we started construction. One challenge has been to deal with the ecosystem of Ethiopia. It has been a learning experience. And more importantly, a satisfying experience as we have played some role in the development of systems and procedures in this country. Our philosophy is to promote local talent. This has helped our workers learn new techniques and handle very sophisticated machines and equipments. As production base of textiles in the country grows, this will have a snowballing effect in creating skills. We believe in creating shared value for the society. We are working towards long term sustainability of our plant. Making money is obviously important, as the returns ultimately go back to society. We are one the largest investors in Ethiopia, we have invested approximately US$ 16 million of our own capital, and the balance is through borrowings. The Kanoria Group is mainly into construction chemicals business. This business of textiles in Ethiopia is more a passionate entry, not a strategic entry. I wanted to move into a new industry and new geography. That is what Kanoria Africa Textiles is. It has been an interesting though costly learning process. We have had to deal with many unforeseen ground realities. Things that are taken for granted in India are not so here. I am hopeful the future will be positive, but we still have some way to go before we can start making money.
Why did you choose Ethiopia for your denim plant?
I believe Africa is the next growth opportunity in the world. And within Africa, we felt Ethiopia was the best country to invest in for a number of reasons. Ethiopia has never been colonised, it is a peaceful country. There is a certain civility in society. It is a safe country. Ethiopia has a stable and proactive government, very much geared towards economic development of the country. Coming to the economics, we have sufficient power supply in Ethiopia, moreover power is inexpensive, with the likelihood of rates remaining low in the future. And we have our own power transmission, so there are no power outages. It is a cotton growing country, so some inputs can be sourced locally.The tax breaks also make Ethiopia an interesting investment destination. If we export 75% of our products, we are exempted from income tax, and customs duties on machinery and raw material imports. But again, this will only help once we break even. We currently target the US and European markets. We will develop the East African market, exporting to Kenya, Tanzania, Djibouti, etc. In East Africa, Kanoria Africa Textiles is the first denim unit.
When do you expect to break even?
Denim is a fashion industry. It will take six months to get marketing in place, develop a range of products, to get samples approved, and then start producing. It will take six months to realise 50-60% of the capacity and after a year, we will manufacture to full capacity of 12 million meters. Currently, we are manufacturing a range of denims from the low to high end, to attract buyers. If we get the qualities right, that will be a huge fillip to our marketing. Getting it right in Ethiopia is different than in India. In order to promote local talent, we have recruited workers and engineers from Ethiopia. We use the best trainers of the world – Werner International, which organises classrooms inside the factories. Quality will be dependent on both our training and the ability of the workers to learn. As I said, we will export 75%, and the rest will be for the Ethiopian market, which is a good market, with a large population.
Do you source the yarn locally?
Ours is a composite unit from spinning to processing. However, we do not produce the entire range of yarns. There are, to my knowledge, eight textile mills in Ethiopia who can supply the yarn. We are working with them towards the qualities we need. We have a state-of-the-art plant with high speed weaving machines, which require quality yarns to meet our standards. We also import yarn from Pakistan, which supplies the lowest priced yarn today.
What are the sustainability standards that you needed to follow in Ethiopia?
Ours is the world's first green denim plant. Sustainability is a subject that is very dear to my heart and we strictly follow the best environmental practices not only here, but even in our chemical business in India. At Kanoria Africa Textiles, we have a zero discharge facility, we have electric boilers. When we went for environmental clearance for our plant, the officials were surprised and felt that we will not be true to our word. But now, our environmental practices are the standard in Ethiopia. The prime minister spent half an hour in our factory's effluent treatment plant. Similar plants have been ordered in their industrial estates, from Arvind Envisol from Ahmedabad. We have become the catalyst for environmental standards in Ethiopia.
What is the level of the textile industry in Ethiopia?
We are helping build the textile industry. In spinning, the sector is reasonably good, however, we are the first integrated mill. The industry will develop over the years, as policies and systems are implemented and infrastructure is improved. Ethiopia has an enlightened leadership that is conscious of where they want the country to be in the next ten years. The process of change and development has begun, but it is a slow process, the same as we have experienced since 1991 in India. The country also has a serious forex situation, due to policy deficiency. I too have been trying to communicate this on every available forum. I believe the government should move away from just the physical control of exports, and towards insisting on value addition. Ethiopia is an importing nation. So if you import goods worth 100 dollars and export worth 120 dollars, that should be criteria of judgment, rather than saying that you should export 100 tonnes, which may not earn them any foreign exchange.
Where do you see the future of the Ethiopian textile and apparel industry?
Garmenting will grow rapidly with the support of AGOA, which gives them duty-free access to the US market. Duty on Indian made-ups is 14-16%, whereas Ethiopia enjoys 0% duty. The level of value-addition is also diluted under AGOA. Currently, Ethiopia hardly exports anything under AGOA. Its exports amount to US$ 98 million, which is meagre. There is a lot of potential to export from Ethiopia. The Ethiopian government has created excellent industrial parks for garmenting, and some of the leading players from India, Indonesia, Sri Lanka are setting up base there. There are huge infrastructure projects in progress for connecting Ethiopia with important ports and markets in the region. Today, the industry is watching us, to see how this project performs. We do not believe in making quick money and getting out. We have invested in Ethiopia with certain philosophies, and it will take us time. So you may not see success very quickly, but certainly the movement towards success is visible.