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Investment Opportunities in the Cotton, Textiles, and Garments Industry in Tanzania

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Investment Opportunities in the Cotton, Textiles, and Garments Industry in Tanzania INVESTMENT OPPORTUNITIES IN THE COTTON, TEXTILES, AND GARMENTS INDUSTRY IN TANZANIA AUGUST 2019 This investment brief has been built based on ~35 stakeholder interviews conducted with key players across the cotton, textiles, and garments value chain Production Ginning & Yarn Fabric Final Product/ Garment Buyers Government/ Processing Processing Manufacturing Associations Completed • Chato Ginning • Urafiki Tanzania Global • Prime Minister’s Cooperative • Olam • 21st century • Mazava • Zara (Inditex) Office (PMO) Union (CCU) • Alliance • Sunflag • Tooku • Ex-PVH contact • Textile and • Ukiliguru • Sifa Threads • Mbeya Knitwear • East Africa Canvas Garment Research Yarn processing • Sunflag* Limited Manufacturers Institute • Tabotex • A to Z Textile* • Hennes & Mauritz Association • Tanzania • 21st Century* (H&M) (TEGAMAT) Cotton Board • World Bank (TCB) Global/Regional Tanzania Consultant • TAL Apparel • Best Western Hotel • Textile • Crystal Group • Advent Construction Development • Village Industry • Shanta Gold Unit (TDU) • Shydee Mine/Acacia • Rainbow packaging • Muhimbili Hospital • Aga Khan Hospital • Medical Stores Department (MSD) • Nabaki Afrika Outreach n/a Ginning • Mwatex Global Global complete, no • Gaki • NIDA • Carrollas • Max Fashion interview • Columbia packaging • Phillips-Van Heusen conducted Yarn processing • Big Agnes (PVH) • Dahong • Walmart 2 *These players are vertically integrated in Tanzania Tanzania is a powerhouse for cotton production in East Africa; 30% of locally grown cotton feeds the local textile industry while the rest is exported PRODUCTION VOLUMES ACROSS MAJOR MARKETS FOR LOCAL COTTON MAJOR COTTON PRODUCERS IN 2017 IN 2017 Total production, ‘000 MT Percentage of total production, % (2017) 217 15% 16% 78 13% 32 13 Ethiopia Uganda Kenya Tanzania 8% 30% In year 2017 Tanzania was leading in cotton production in the EAC region. With a 74% increase in cotton harvest in 2019 Tanzania has become a cotton 18% powerhouse in the EAC region Local market Bangladesh Mauritius However, 70% of the cotton lint produced in the country is exported abroad mainly to Bangladesh, Export market Indonesia Others India, and Indonesia. Only 30% of cotton lint is India consumed locally Source: FAOSTAT, Cotton production by each country, 2019; UNACTAD, Cotton and its by-products in the 3 united republic of Tanzania, 2016.; OEC, Where does Tanzania export Raw Cotton to?, 2017 The majority of cotton that is sold locally is used to produce traditional fabrics and garments for local and regional markets Input Value-addition activities Output Yarn processing Fabric processing Garment manufacturing Bedsheets Curtains Finished non- ~14.6% of 70% of traditional fabric T-shirts lint is yarn is exported exported Polo Garment factories Sportwear • Sunflag • 21st Century Denim • NIDA Non-traditional Raw cotton Lint Yarn Fabric Uniforms fabric for garments Shirts, other apparel Local tailors Kitenge, Kikoy Cotton seed Kanga This segment of the value chain is broken down in Maasai shuka more detail on the next slide Traditional fabric Source: Dalberg interviews 4 Once raw cotton is ginned, cotton seed is further processed into husk, cotton cake, oil and linters used in a range of products for local markets Input Value-addition activities Output Animals feed 10%-14% of seeds are reserved for next season Husk Natural Fertilizers 25%-27% Soap & Cosmetics Cotton cake 45%-55% Pharmaceuticals Cooking oil Cotton seed* De-linting Dehulling Kernel pressing Or extraction Oil 12%-16% Margarine Mattress stuffing Linters Photographic films 8%-10% * There is 4% waste cotton cumulated across all stages but not shown in the mapping above 5 Source: UNCTAD, Cotton and its by-products in the united republic of Tanzania, 2016, Local garment manufacturers catering to global markets in the US and EU need to import yarn and/or fabrics to maintain global quality standards Input Value-addition activities Output Fabric processing Garment manufacturing T-shirts 85% of fabric used Denim Imported fabric Garment Baby clothes manufacturing 15% of fabric used • Mazava • Tooku • A to Z Sportwear Imported yarn Locally-manufactured fabric Polo Imported Source: Dalberg Interviews 6 In the long term, Tanzania’s ambition is to improve the quality of locally grown cotton such that it can be used in for value-added products in the global market The Cotton-To-Clothing Strategy 2016- The Government prioritized the following 2020 prioritized the following objectives activities to meet these objectives: for the cotton value chain: • Increase production of cotton in Tanzania • Improve economic outcomes to make it the leading cotton producer in for farmers Tanzania. The long-term target is to attain one million tonnes by 2023 • Improve employment • Improve domestic cotton processing within outcomes, including Tanzania by facilitating investments along profitability of the value chain the value chain and expanding value addition at the AMCOs level • Increase export value and • Facilitate financing through the Tanzania volumes to regional and global Agriculture Development Bank (TADB) to drive priorities above markets The Cotton-to-Clothing Strategy has been successful in increasing production, and it will now need to shift its focus on increasing quality in coming years Source: Government: Our Current, Future Plans for Cotton Sub-Sector (2019); Tanzania’s Cotton to 7 Clothing Strategy 2016-2020; Dalberg Interviews Today, there are various barriers along the value chain that limit Tanzania’s ability to develop value-added products, especially for the global market Production & Garment Yarn processing Fabric processing Market Ginning manufacturing Low quality cotton Lack of standalone fabric Lack of standalone fabric Garment production by Tap into US/EU markets Tanzania currently produces mills for supply of yarn factories for supply of fabric importing fabric Global buyers are aiming for medium staple cotton, which In Tanzania, existing fabric In Tanzania, existing Garment manufacturing (that “80% Africa 20% Asia” converts into lower quality mills are vertically standalone garment factories will ultimately drive vertical sourcing strategy by 2025. yarn and fabric that is not integrated. Thus, there are no source imported fabric. There integration) can first be This shift in sourcing strategy accepted by global markets. players to take in any are no players to take in fabric tapped into through importing will drive buyers’ appetite to There are several barriers to processed yarn from a from a standalone fabric mill. fabric. It is least capital- and push their manufacturers to investing in high-quality standalone spinning mill even This is only relevant if quality of technical-intensive, and invest in Tanzania cotton, including harvesting if it imports yarn. This is only cotton improves results in high employment tools, poor ginning relevant if quality of cotton Global market Global equipment, availability of improves high-quality cotton for blending Acceptable cotton quality Vertical integration by sourcing local cotton Expand on existing markets for most buyers Through vertical integration that sources local cotton, Tanzania can capitalize on and expand and tap into higher-end The medium staple cotton existing penetration into local and regional markets. Today, one vertically integrated local markets produced today is generally manufacturer (sourcing local cotton) exports 60% end garment sales to regional markets, and the Quality of garments (both acceptable by most regional rest of the 40% to local markets. There is a second vertically integrated player (sourcing local from a cotton and finishing buyers, but may require cotton) who exports 20% of its end garment products to regional markets, and the rest of the 80% lens) produced will have to be market upgrading when high-end to local markets. Both manufacturers sell all their textiles to the local market improved if higher-end Regional Regional buyers are targeted buyers in e.g. MENA, are Vertical integration for new manufacturers that tap into local cotton can be done through 1) targeted integration from within a company or 2) sourcing from standalone suppliers. A strong vertical integration model built for local and regional markets build a strong base for vertical integration for Acceptable cotton quality Saturated market by global markets in the future for all buyers Chinese imports The medium staple cotton The local market is saturated produced today is acceptable by Chinese imports of for the textiles (e.g. kitenge, garments and traditional khanga) and garment (e.g. T- fabrics (e.g. kitenge). Unless Local market shirts) produced for the local imports are curbed, market expansion of local production will be difficult = High barrier = Medium barrier = Low barrier 8 Source: Dalberg stakeholder interviews Tanzania can take a three-step approach to overcome barriers and create a fully integrated cotton-textiles-garments industry over 10 years SHORT-TERM MEDIUM-TERM LONG-TERM 0-3 years 3-5 years 5-10 years Inconsistent quality Improved quality of High-quality of local raw cotton local raw cotton local raw cotton • The current quality of cotton does not • Efforts to improve quality of cotton • Over time, the quality of Tanzanian meet global standards for garment production and handling will lead to cotton will improve and it will meet the manufacturing catering to global improvements in staple length, which can quality standards and consistency Production markets. This cotton can be used in the then be blended with higher-quality
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