Preliminary analysis of a garment industry survey in Ethiopia on COVID-19 impact

The ILO conducted 20 semi-structured interviews with managers from garment and textile factories in Ethiopia from 1-3 April 2020. Presented here are preliminary summary results from the conversations.

Article | 16 April 2020

Workers wear protective masks in a SIRAYE programme garment factory during COVID-19 pandemic 

Presented here are preliminary summary results from the conversations. Further formal analysis will follow in collaboration with donor partners. Of the 20 firms interviewed, 12 are classified as FDI factories, with an average of 1,969 employees. Eight factories are classified as locally owned and are typically smaller in size, with an average of 427 employees.

In line with global trends, most garment manufacturers in Ethiopia are experiencing a production downturn in Q1 2020 due to COVID-19 disruptions.

• The average reported capacity utilization rate decreased by 30% in Q1 2020 relative to the same period in 2019.
o The average capacity utilization rate for Q1 2020 was 52.5%, as compared to a utilization rate of 75% in the same quarter in 2019.
o Over half of firms surveyed (11 of 20) reported a decline in their production capacity utilization. At the same time, six firms reported a 100% utilization rate in Q1 2020.
• Just under half of firms (9 of 20 firms) reported cancelled or reduced orders from their customers due to COVID-19-related disruptions – locally owned firms are more likely to report having already faced cancelled orders.
• Six firms reported that lack of access to raw materials has contributed to a production slowdown.
• Several interviewees also mentioned challenges related workers’ transportation to and from workplaces, as the government has imposed limits on bus capacity to ensure social distancing. There have also been increased business costs due to the need to provide additional PPE equipment and hand sanitizer.

Negative effects have already surfaced, with significant uncertainty in the short-term.
• One-fifth of surveyed managers report they have already reduced the working hours for employees in response to production slowdowns.
• Managers are concerned about employee retention, and half of respondents say employee layoffs are likely in Q2 2020. Locally owned firms are more likely to expect layoffs as compared to FDI firms.
• Two firms report to have already laid off workers.
• 70% of firms (14 of 20) project lower revenue in 2020 versus 2019, with half predicting a 20% or larger decline. All locally owned firms predict revenue decline, whereas only 55% of FDI factories expect overall revenue decline, perhaps reflecting more expected resiliency. Overall financial viability is a major concern for a majority of interviewees, but it is more likely expressed by locally owned firms.

Managers are open to alternative production modalities – smaller, locally owned firms are more predisposed to this strategy.
• Two firms have already started producing alternative products.
• Four of 12 FDI firms interviewed are willing to re-purpose their factories for the production of COVID-19-related products.
• Seven of eight of locally owned firms have indicated their openness re-purposing production. To support ramping up production, managers are requesting help to secure orders, access to new raw materials, and assistance with employee re-training.