Project Title Or Company Name

Project Costa Growth & Employment Project (GEM) Federal Ministry of Industry, Trade & Investment World Bank Assisted

Final report – Fashion Segment

Reliance Restricted 15 May 2018 | Version 1.0 (Final) 15 May 2018 | Version 1.0 (Final)

Reliance Restricted Federal Ministry of Industry Trade & Investment Growth and Employment (GEM) Project Block G, Room 225 Old Federal Secretariat, Area 1 Garki, Abuja

Ernst & Young Nigeria Final Market Study Report - Fashion Segment 15 May 2018 UBA House 10th Floor Dear Sirs, 57, Marina Lagos In accordance with your instructions, we have performed the work set out in your engagement agreement dated 11 September 2017 (the “Engagement Agreement”) in connection with the market study of four (4) value chains across different locations (the ey.com “Market Study”). Purpose of our Report and restrictions on its use This final report was prepared on the specific instructions of the Federal Ministry of Industry Trade & Investment for the Growth and Employment (GEM) project objectives, and should not be used or relied upon for any other purpose. This Report and its contents may not be quoted, referred to or shown to any other parties except as provided in the Engagement Agreement. John Uwajumogu We accept no responsibility or liability to any person other than GEM or to such party to whom we have agreed in writing to Partner-Transaction Advisory Services accept responsibility in respect of this Report, and accordingly if such other persons choose to rely upon any of the contents of Ernst & Young, Nigeria this Report they do so at their own risk.

Transaction Advisory Services Nature and scope of the services T +234 1 844 9962 The scope and nature of our work, including the basis and limitations, are detailed in our engagement letter. M +234 815 082 9090 F +234 1 844 9963 This final written report comprises the Fashion segment market assessment, where we have summarised our key findings, E [email protected] together with references to the supporting analysis. Our work commenced on 11 September 2017 and was completed on 15 May 2018, therefore, does not take account of events or circumstances arising after 15 May 2018. Whilst each part of our Report addresses different aspects of the terms of reference for this engagement, the entire Report should be read for a full understanding of our findings and advice. We appreciate the opportunity to provide our services to Federal Ministry of Industry Trade & Investment. Please do not hesitate to contact us if you have any questions about this engagement or if we may be of any further assistance. Yours faithfully,

John Uwajumogu

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Dashboard 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Table of contents 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Introduction International Nigerian Market sizing Overview Overview 1 2 3 4

Page 4 Page 6 Page 10 Page 14

Value chain Competitive Policy, legislation Business factors landscape & case studies impacting ma ... 5 6 7 8

Page 20 Page 30 Page 36 Page 43

Policy factors Risk assessment Strategic impacting ma ... recommendat ... 9 10 11

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Project Costa: Final report – Fashion Segment | Page 3 of 83 15 May 2018 | Version 1.0 (Final) 1 Introduction

In this section Page

Project background, objectives and coverage 5

Project Costa: Final report – Fashion Segment | Page 4 of 83 15 May 2018 | Version 1.0 (Final)

1 Introduction 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Project background, objectives and coverage 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Project background Project objectives and methodology

• The Government of Nigeria has emphasized the importance of diversifying the • The objective of this study is to provide the GEM project with a deep market economy, supporting sectors that have potential for growth and creating massive understanding of selected value chains (VC) within Nigeria, and an appraisal of their employment. competitiveness in relation to other countries recognized for significant trading in these value chains. • In line with this commitment, the Government has sought the World Bank’s partnership to help Nigeria support Micro, Small and Medium Enterprises (MSME) • The study methodology adopted involved all three research parameters namely operating in different high potential sectors throughout the country. desk research, qualitative interviews with industry stakeholders and a quantitative survey of selected value chain players across several states. Value chain players • This support is being implemented under the Federal Ministry of Industry, Trade surveyed were drawn from the following sub-sectors: and Investment (FMITI) and operationalized in the Growth and Employment (GEM) Project by the Project Implementation Unit (PIU). 1. Textiles: Locally manufactured semi-finished and finished fabrics

• Project support addresses cross cutting sector issues, assistance to specific 2. Leather: Raw, semi-finished and finished leather products clusters, and more direct support to firms channeled through a platform called the Business Innovation and Growth (BIG) Platform providing various trainings, 3. Accessories: Semi-finished and finished accessories technical assistance and grant schemes.

Scope of study

Fashion is best defined simply as the style of clothing/accessories worn at any given time by groups of people. The global fashion industry encompasses the design, manufacture, distribution, marketing, retail, advertising, and promotion of all types of apparel (men’s, women’s, and children’s) from expensive haute couture and designer fashions to ordinary everyday clothing. For the purpose of this report, the Nigerian fashion industry has been sub-categorized into 3 broad markets, as defined below.

Textiles: Leather: Accessories: Locally produced woven fabric and yarn, locally Locally produced leather stock, imported leather Locally produced and imported jewellery and beads produced clothes, imported clothes, imported fabric, stock, locally produced and imported leather shoes, (earrings, necklaces rings) as well as wrist watches. imported second hand clothes. Also includes hats belts and bags. Also includes ancillary items like cufflinks, buttons and scarves. and non-prescription eyewear.

Project Costa: Final report – Fashion Segment | Page 5 of 83 15 May 2018 | Version 1.0 (Final) 2 International Overview

In this section Page

International Overview 7

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2 International Overview 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... International Overview 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

The Global Fashion Scene Table 2.1: Fashion Spend for the leading global fashion countries ► The global fashion industry is estimated at US$1.9trillion, based on aggregate fashion spend in 2017. The fashion industry accounted for about 2.4% of the world’s aggregate US$'bn 2015 2016 2017E 2018F 2019F 2020F 1 Gross Domestic Product (GDP) in 2017. USA 402.5 410.9 426.3 440.8 456.3 472.3 ► The global fashion industry is dominated by the United States of America, China, India and China 258.8 254.1 272.0 302.4 330.6 359.5 Western Europe. Table 1.1 shows a breakdown of fashion spending in the leading fashion markets, and the aggregate annual contribution to global fashion. India 86.7 92.6 106.4 117.2 128.5 140.8

► The global spend in the leading fashion countries has been driven mainly by population size UK 99.9 92.4 91.5 97.4 102.3 108.1 and disposable income per capita. Japan 82.5 91.8 91.6 91.6 93.3 97.7 ► Global fashion brands have been drawn to the Chinese, Indian and Brazilian markets Brazil 76.5 76.7 85.3 88.5 90.9 96.1 primarily due to the demand created by high population and increasing spending power. Zara entered the Indian market in 2010; and in 2015 the company announced record Germany 77.5 78.2 78.9 77.0 80.8 82.4 revenues of over US$100million from less than 20 retail outlets. 2 Italy 70.8 71.2 73.0 71.4 75.0 76.7 ► In addition, the interest rates in these countries fall within the range of 0.01% and 6.5%, (excluding Brazil, with interest rate of 14.2%) providing cheap financing to entrepreneurs. France 50.0 51.5 51.5 50.7 49.6 48.8 Spain 38.6 39.4 40.3 41.1 41.2 41.7 ► In Western Europe, cheap financing is driven by the quantitative easing program of the European Central Bank, which is aimed at reducing interest rate through the purchase of 1,243 1,259 1,317 1,378 1,449 1,524 Eurozone government bonds. This has aided the development of the European fashion Estimated Global fashion spend 1,829 1,818 1,936 2,064 2,173 2,290 industry, as fashion designers and retailers have been encouraged to access debt facilities, to aid business expansion and export of their merchandise and retail goods. 3 Top 10 countries contribution 68% 69% 68% 67% 67% 67%

► Increasing life expectancy rates in Japan continue to slow historical fashion industry Source: Business Monitor International growth due to the static tastes of the older demography, who are unreceptive to emerging fashion trends. Table 2.2: Global Macroeconomic Indicators – 2017E ► Pending international economic policies stemming from the Brexit vote and the political transition in the United States have resulted in a growth decline in fashion spend. In Brazil USA China India Japan France Germ. Italy Spain UK addition, it is projected that the Paris Climate Agreement may result in a shift in fashion spending, with focus tilting to the use of environmental friendly fashion inputs. Real GDP growth (%) 1.1 2.3 6.9 6.2 1.8 1.9 2.5 1.6 3.1 1.8 GDP per capita, real 10.8 52.9 7.2 1.9 48.4 42.6 46.7 34.8 32.6 42.5 (U$’000)

Population, (millions) 211 327 1,388 1,344 126 67 83 61 46 66

Disposable Income 9.1 39.1 8.7 5.4 33.3 33.1 34.2 25.4 19.6 35.5 (U$’000) Inflation (%) 2.8 2.2 1.5 3.3 0.3 1.1 1.7 1.2 1.4 2.7 Interest rate (%) 10.2 2.8 2.8 6.1 0.0 0.0 0.0 0.0 0.0 0.3

Source: Oxford Economics

1 Fashion United; 2 Mckinsey Quarterly Survey; 3 European Central Bank Project Costa: Final report – Fashion Segment | Page 7 of 83 15 May 2018 | Version 1.0 (Final)

Chart 2.1: Country fashion spend in 2017E Chart 2.2: Regional fashion spend in 2017E

United States 3% Africa 22% China 24% Asia & Oceania 33% India Carribeans United Kingdom Europe Brazil 32% South America Germany 4% Middle East Japan North America 14% Italy 7% 2% France 3% 1% 4% 6% Spain 4% 5% 4% 5% Other 29%

Chart 2.4: Key fashion drivers in top 10 countries - 2017E Chart 2.3: Global fashion spend by product in 2017E

12% 45 1,600 39.1 Womens wear 40 35.5 1,400 33.3 34.2 32% 33.1 Mens wear 35 1,200

0 30 25.4 1,000 0 Childrens wear n o 18% 0 25 i ‘

19.6 l

800 l i Sports footwear $ 20 S 600 M U 15 Bridal wear 9.1 8.7 400 10 5.4 Luxury goods 5 200 3% Other 0 0

10% 21% Disposable Income (U$’000) Population (million)

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International Industry Trends Table 2.3: Leading Companies in the International Fashion Industry The global fashion industry has been driven by following key trends: 2017 Market Company Name Country Business Operations 1. Global economic uncertainty including geopolitical instability, terrorism and stalled trade Value (US$'b) international deals. LVMH France 130.43 Globally 2. Technological evolution driven by online trading platforms, such as Amazon and Alibaba that shape the development and expansion of the global fashion industry. In addition, digitization Inditex Spain 114.58 Globally and technological advancement is vital to supply chain efficiency, resource allocation and exposure to new frontiers. It is projected that e-commerce related fashion sales will increase Nike USA 88.93 Globally 4 from 3% in 2010 to 12% in 2020. Dior France 55.47 Europe, Americas, Asia and Oceania 3. Consumer Discount Culture with the increased utilization of “sales” and seasonal discounts Hermes France 55.16 Europe, Americas, Asia and Oceania by Fashion Companies to drive global fashion sales. In 2016, off-price shoppers accounted for over 75% of apparel purchases in the US. In the European fashion industry, there are six mark- TJX USA 47.82 USA, Canada, Europe and Australia down periods where goods are sold at a discount, with significant sales volumes reported. Kering France 47.16 Globally 4. Evolution in Design Cycles with the change from the traditional bi-annual fashion seasons to a cycle of 6 fashion seasons, has led to the transformation of the global fashion industry, as Adidas Germany 46.79 Globally consumers are constantly trying to keep abreast with the latest fashion trends. Richemont Switzerland 46.46 Globally These global trends have positively impacted the Nigerian fashion industry, as the rise in the spending power of the Nigerian middle class has directly resulted in the increased demand of H&M Sweden 35.93 Globally fashion retail goods, which in turn has led to an increase in the number of fashion designers and retailers in the country. Business Opportunities for Global Fashion Companies Figure 2.1 : Risks faced by global companies

1. Change in taste of fashion consumers: The constant evolution in the taste of fashion consumers, will lead to increase in market share for designers and retailers that can keep pace ECONOMIC RISK SECURITY RISK and continuously push the fashion envelope.

2. Impact of the Millennial Consumer Group: It is projected that by 2025, the Millennial Consumer ► Brexit and the revision of the ► Terrorist attacks and kidnappings Group will have a spending power of approximately US$7.5trillion – the ability of designers to NAFTA deal by the USA is have curtailed the entry of foreign quickly respond to the needs of this demographic group is critical to growing future fashion expected to lead to an increase in fashion players in the middle segment market share. the unit cost of retail goods, due to eastern and African markets. 3. Rise of the Wellness and Fitness Culture: The increased awareness on the importance of increase in tax rates. healthy living has resulted in increased demand of health and wellness products. The global wellness industry is estimated at US$3.72trillion, and fashion companies are taking BUSINESS RISK INFLATION & PRICE RISK advantages of the inherent opportunities by releasing active wear lines, competitive and casual athletic wear. ► The risk presented by the pace of ► The low inflation rate and deflation in 4. Technological Collaborations: The rise of technology companies offers increasing change in consumer taste is faced Europe and USA is a risk to retailers, collaboration opportunities for the fashion industry. In 2015, Google Inc. and Levi Strauss by all market players, as the cost as consumers are controlling their announced the Jacquard Trucker Jacket Project to be launched in Q12018 at a retail price of of relevance is high and spending because they expect the c.$350. The success of the project is expected to drive partnerships between technology and unaffordable for some players. price of retail goods to drop. fashion.

4 Global Wellness Institute Project Costa: Final report – Fashion Segment | Page 9 of 83 15 May 2018 | Version 1.0 (Final) 3 Nigerian Overview

In this section Page

Nigerian Overview 11

Nigerian Fashion Segment 12

Distribution of the Nigerian Fashion Industry 13

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3 Nigerian Overview 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Nigerian Overview 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Country profile Population as at 2017 Chart 3.1: GDP (2017e US$ billions) Nigeria is principally an oil based economy, income from the sale of crude oil constitutes about 75% of budgetary revenues and close to 90% of exports. The Nigeria 376 country is the second largest crude oil exporter in Africa, with the largest natural 192m gas reserves of 5,173 bcm on the African continent. 5 Oxford Economics, 2017 South Africa 347 Nigeria witnessed robust economic growth with an annual average rate of 7% between 2005-2014 owing to favourable oil price and economic reforms embarked on by successive governments since the return to democratic rule in Angola 132 GDP per capita – 2017 1999. However, the growth witnessed in the past decade has been negatively impacted Kenya 77 by the decline in government revenues arising from dwindling crude oil prices $1,912 since the second half of 2014, pipeline vandalism and security threats posed by Ethiopia 75 terrorism. This has put pressure on the country’s external reserves, Oxford Economics, 2017 consequently resulting in the depreciation of the Naira and the hike in inflation Ghana 47 rate. The Nigerian economy plunged into its first recession in 30 years after recording Nominal GDP – 2017 Cameroon 34 negative growth in each of the four quarters of 2016. However, NBS figures show that the economy rebounded in 2017 with growth rates of (0.91%), 0.7% and 1.4% in Q1, Q2 and Q3 2016 respectively. 6 $376b Source: Oxford Economics, 2017 Nigeria's inflation rate averaged 10.0% over the last 10 years to 2016. However, Oxford Economics, 2017 since 2016 inflation has consistently increased, peaking at 18.7% in January 2017. As at January 2018, the inflation rate had declined moderately to 15.13%. Table 3.1: Macroeconomic indicators Macroeconomic Outlook Table 3.2: Macroeconomic outlook Indicator 2015A 2016A 2017E The Nigerian economy is expected to rebound moderately over the next 3 years Indicator 2018F 2019F 2020F Nominal GDP, US$b 495 406 366 to 2020 as the Federal Government implements its Economic Recovery and Growth Plan (ERGP) in supporting agricultural independence, energy sufficiency Nominal GDP, US$b 387 416 436 Real GDP growth, % yoy 2.8% -1.5% 0.8% and infrastructural development. The primary objective of the ERGP is the Real GDP growth, % yoy 2.6% 3.2% 4.3% diversification of the economy, with less reliance on crude oil trade. Nominal GDP per capita, US$ 2,714 2,144 1,912 Nominal GDP per capita, US$ 1,966 2,058 2,116 In addition, stability in crude oil prices, expected from the continuous Inflation, CPI % yoy 9 16 16 implementation of production cut agreements reached by OPEC members is Inflation, CPI % yoy 13 12 11 Interest rate (MPR) % 11 14 14 expected to boost government revenue and alleviate public investment cuts. Interest rate (MPR) % 13.5 13.3 12 Foreign reserves (US’b) 28.3 27 35 Also, the ability of the Federal Government to sustain the relative peace in the Foreign reserves (US’b) 32..1 35 48 oil rich Niger Delta region is expected to increase oil production thereby boosting Average exchange rate: 192 256 314 government revenues over the near to medium term. Average exchange rate: NGN/US$ 390 430 425 NGN/US$ Source: Oxford Economics, 2017; CBN; World Bank, NBS Source: Oxford Economics, 2017; CBN; World Bank

5 Business Monitor International; 6 NBS Project Costa: Final report – Fashion Segment | Page 11 of 83 15 May 2018 | Version 1.0 (Final)

3 Nigerian Overview 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Nigerian Fashion Segment 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Overview of the Nigerian Fashion Segment Opportunities in the Nigerian Fashion Industry

Indicators 2013 2014 2015 2016 2017 Improving macroeconomic factors and consumer preference evolution has created notable opportunities for players in the fashion industry. GDP (USD’bn) 514.96 568.49 494.58 404.64 376.7 1. Technology advancement: E-commerce and online platforms have driven growth in Fashion contribution to GDP the Nigerian fashion industry, with the increase in the number of middle-income 8.28 11.45 9.73 6.65 7.69 (USD’bn) earners, discount culture and convenience shopping trends. High street fashion goods are offered at wholesale prices, and with the projected economic recovery, Fashion as % of GDP 1.61% 2.01% 1.96% 1.97% 2.04% e-commerce is expected to drive growth further in the Nigerian fashion industry.

► The decline in fashion contribution to GDP in 2015/16 is attributed to the decrease in the 2. Relative stability of the Naira: The recent naira devaluation has driven a shift in spending power of the population, driven by inflationary price pressures. 5 consumption patterns from international to Nigerian brands – translating to ► In the first quarter of 2016 there was a decline of over 80% in jobs created when increased patronage of local brands like Mai Atafo, Tiffany Amber, Deola Sagoe and compared with the same period in 2015. The decline is attributed to the Naira Lisa Folawiyo, among others. On the mid-market front, many new entrants now fill depreciation against the Dollar and macroeconomic uncertainty during the period. 6 local demand using low price entry points to capture the market.

► Local fashion companies employ an average of <10 staff, which indicates a relatively low 3. Fashion Events: The annual Lagos Fashion Week has provided a platform for fashion job creation impact, as less than 2% of our sample firms have over 50 employees. 7 designers to showcase their brands to a wider international audience and has contributed to higher local brand recognition and international partnerships, with Global trends driving the Local Fashion Industry many foreigners now patronizing ready to wear local brands. Some of the global trends driving the Nigerian Fashion Industry include: 4. The Made in Nigeria Initiative: The initiative supported by the Nigerian Government 1. Emergence of themed fashion events: There are currently 6 annual fashion weeks is also set to drive further development of the Nigerian fashion industry, with the organized in Nigeria and these events have shows featured by Nigerian fashion houses. government particularly focusing on boosting the leather industry. These fashion weeks are sponsored by reputable organizations such as GT Bank, MTN, Heineken and the British Council. Figure 3.1: Risks faced by Nigeria fashion companies In addition to the domestic fashion weeks, Nigerian fashion houses have featured at the fashion weeks in New York, Paris and Milan. In 2017, the New York Times ranked Maki ECONOMIC RISK SECURITY RISK Oh, Nigerian based fashion designer, as the Designer with the 7th best moment during the New Fashion week due to the fashion brand’s diversity during its featured presentation. ► The risk of inferior fashion goods ► The risk of terrorism and insecurity from China and India being dumped preventing foreign companies from 2. Emergence of fashion training institutes: This is playing a role in the development of in the country and the attendant entering the domestic market, the fashion industry and is due to the demand for local professional tailors, negative impact on the local therefore limiting potential growth seamstresses, and designers. The Fashion Designers Association of Nigeria (FADAN) is industry. opportunities. currently playing a major role in the evolution and development of fashion curricula in these local fashion institutes. BUSINESS RISK MACROECONOMIC RISK 3. One Stop Online Fashion Stores: The recent introduction of one-stop online fashion stores has played a role in the expansion of the domestic market. These stores are vertically integrated, as they design, manufacture and distribute own fashion items via ► The risk of high interest rates and cost ► The risk of the high domestic online platforms. In addition, these stores have taken advantage of the Nigerian of borrowing impeding the growth of inflation rates and flat disposable discount culture in offering quality products at affordable prices. An example of a the fashion industry. Respondents income negatively impacting the domestic one-stop store is Fashpa, which has recreated the early operating models of have indicated the difficulty of purchasing power of the population international fashion stores such as ASOS, Zalando and Selfridges in the United accessing finance as a major deterrent and domestic acquisition of fashion Kingdom and Germany. to business growth and expansion. goods. 7 Decision Support Consulting, 2017; EY Research Project Costa: Final report – Fashion Segment | Page 12 of 83 15 May 2018 | Version 1.0 (Final)

3 Nigerian Overview 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Distribution of the Nigerian Fashion Industry 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Fashion industry Nigerian fashion industry location distribution Fashion industry Regional GDP contribution to Ranking analysis contribution to GDP Region employment • Historical Nigerian fashion industry data by location is not readily available from secondary sources, N’m N’m Jobs therefore we have relied on a number of estimates st from third party sources such as the NBS and our South West 34,237,863 867,312 41,913 1 primary research information to derive a supported South East 13,810,594 343,371 27,094 4th analysis in this regard. • Our analysis is based on the following broad South South 29,648,925 693,042 32,237 3rd assumptions and estimates: North West 16,755,510 385,402 50,352 2nd 1. Fashion industry contribution to GDP stood at 2.04% in 2017. This is taken as an average, with North East 6,349,054 95,236 9,270 6th increased estimates for Lagos, Abuja, Port North Central 14,104,719 287,468 19,226 5th Harcourt, Anambra, Abia and Kano, based on the increased commercial activity of these Total 114,906,664 2,671,831 180,092 locations and decreased estimates for Ekiti, Osun, Ebonyi, Zamfara, Jigawa, Benue, Kogi, Source: Decision Support Consulting, 2017; EY Research, NBS Kwara, Niger and States in the North-East based on the decreased commercial activity of Fashion industry location analysis these locations arising from security and socio- economic issues. South South South North North North West East South West East Central 2. An average employment rate of 86.7% (skilled, semi-skilled and un-skilled) has been reported N’b N’b N’b N’b N’b N’b for 2017, and forms the basis of our employed Regional GDP (a) 34,238 13,811 29,649 16,756 6,349 14,105 pool estimate on a state by state basis 3. Fashion industry contribution to national Average Fashion industry contribution to GDP (b) 2.53% 2.49% 2.34% 2.30% 1.50% 2.04% employment in 2017 was reported at 0.0983% - this forms the basis of our fashion industry Estimated size of regional fashion industry c=(a*b) 867 343 693 385 95 287 employment contribution estimate per state, except Lagos, Abuja, Port Harcourt, Anambra, Aba and Kano, where we estimate an increase in Total Population [‘000] (d) 37,986 21,800 28,625 48,595 26,078 29,045 fashion related employment and Ekiti, Osun, Ebonyi, Zamfara, Jigawa, Benue, Kogi, Kwara, Estimated employment rate per region* (e) 86.7% 86.7% 86.7% 86.7% 86.7% 86.7% Niger and States in the North-East, where we estimate a decrease in fashion related employment Fashion contribution to employment [%] (f) 0.15% 0.17% 0.15% 0.14% 0.05% 0.09%

Please refer to appendix A for a detailed analysis of Fashion contribution to employment g=(d*e*f) – 41,913 27,094 32,237 50,352 9,270 19,226 fashion industry contribution to GDP and employment (Number of Jobs) for each of the 36 states of Nigeria and the Federal Source: Decision Support Consulting, 2017; EY Research, NBS Capital Territory. Project Costa: Final report – Fashion Segment | Page 13 of 83 15 May 2018 | Version 1.0 (Final) 4 Market sizing

In this section Page

Historical Demand of the Nigerian Fashion Segment 15

Historical Supply of the Nigerian Fashion Segment 16

Factors driving market distribution in the Nigeria Fashion Industry 17

Forecast Demand of the Nigerian Fashion Segment 18

Forecast Supply of the Nigerian Fashion Segment 19

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4 Market sizing 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Historical Demand of the Nigerian Fashion Segment 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Nigerian fashion industry historical demand Table 4.1: Historical demand in the Nigerian fashion industry by segment analysis 2013 2014 2015 2016 2017 • Our analysis is based on the following broad assumptions and estimates: Value Volume Value Volume Value Volume Value Volume Value Volume (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) 1. An average annual household income of N638,234. Textile 758,226 974,083 805,994 1,000,343 827,756 1,026,970 814,512 1,053,969 821,680 1,081,306 2. An average household size of 5 people. Leather 224,660 288,617 238,813 296,398 245,261 304,287 241,337 312,287 243,461 320,387 3. An average annual household fashion spend of 4.8%. This is taken as an Accessories 140,412 180,386 149,258 185,249 153,288 190,180 150,836 195,179 152,163 200,242 average, with increased estimates for Lagos, Abuja, Port Harcourt, Total 1,123,298 1,443,085 1,194,066 1,481,990 1,226,306 1,521,437 1,206,685 1,561,435 1,217,303 1,601,934 Anambra, Abia and Kano, based on the slightly higher disposable income levels Source: EY Analysis and economic hub status of these locations; and decreased estimates for Ekiti, Osun, Ebonyi, Zamfara, Jigawa, Table 4.2: Historical demand in the Nigerian fashion industry by geopolitical region Benue, Kogi, Kwara, Niger and States in the North-East, based on the 2013 2014 2015 2016 2017 depressive impact the local economy has had on spending power of the state Value Volume Value Volume Value Volume Value Volume Value Volume populace. (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) (N’m) (‘000)

4. Estimated proportion of fashion related South-West 273,527 342,198 290,759 351,423 298,609 360,777 293,831 370,262 296,417 379,865 household spend based on the results of our primary research: South-South 181,206 219,462 192,622 225,378 197,822 231,377 194,657 237,460 196,370 243,619 − Textile per household: 67.5% − Leather goods per household: 20% South-East 156,603 191,594 166,469 196,759 170,963 201,996 168,228 207,306 169,708 212,683 − Accessories per household: 12.5% North-West 267,626 336,747 284,486 345,826 292,167 355,031 287,493 364,365 290,023 373,815

North-East 104,718 159,268 111,316 163,562 114,321 167,916 112,492 172,330 113,482 176,800 Please refer to appendix B for a detailed analysis of historical demand of the fashion industry North-Central 139,619 193,817 148,415 199,042 152,422 204,340 149,983 209,712 151,303 215,151 (value and volume) for each of the 36 states of Nigeria and the Federal Capital Territory. Total 1,123,298 1,443,085 1,194,066 1,481,990 1,226,306 1,521,437 1,206,685 1,561,435 1,217,303 1,601,934

Source: EY Analysis

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4 Market sizing 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Historical Supply of the Nigerian Fashion Segment 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Nigerian fashion industry historical supply Table 4.3: Historical supply in the Nigerian fashion industry by segment analysis 2013 2014 2015 2016 2017 • Our analysis is based on the outcome of our demand model, and the following additional Value Volume Value Volume Value Volume Value Volume Value Volume assumptions and estimates: (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) 1. An excess supply factor of 0.5% on the Textile 762,017 978,953 810,024 1,005,345 831,895 1,032,105 818,585 1,059,239 825,788 1,086,712 dependent variables (value and volume) derived in the demand model. Leather 225,783 290,060 240,007 297,880 246,487 305,809 242,544 313,848 244,678 321,989 The excess supply factor represents Accessories 141,114 181,288 150,005 186,175 154,055 191,131 151,590 196,155 152,924 201,243 average closing stock of fashion items per year. According to most Total 1,128,915 1,450,301 1,200,036 1,489,400 1,232,437 1,529,044 1,212,718 1,569,242 1,223,390 1,609,944 respondents interviewed, an average of 0.5%-1.0 is reported as retailers’ closing stock based on the discount Source: EY Analysis culture in the country, as consumers are more willing to buy 2 shirts at Table 4.4: Historical supply in the Nigerian fashion industry by geopolitical region N9,000 than 1 shirt at N5,000. 2013 2014 2015 2016 2017

Value Volume Value Volume Value Volume Value Volume Value Volume (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) (N’m) (‘000)

South-West 274,894 343,909 292,212 353,180 300,102 362,581 295,301 372,113 297,899 381,765

South-South 182,112 220,559 193,585 226,505 198,811 232,534 195,630 238,648 197,352 244,837

South-East 157,386 192,551 167,301 197,743 171,818 203,006 169,069 208,343 170,557 213,747

North-West 268,964 338,431 285,909 347,555 293,628 356,806 288,930 366,186 291,473 375,684

North-East 105,242 160,065 111,872 164,380 114,893 168,755 113,054 173,192 114,049 177,684 Please refer to appendix C for a detailed analysis of historical demand of the fashion industry North-Central 140,317 194,786 149,157 200,037 153,184 205,361 150,733 210,760 152,060 216,227 (Value and Volume) for each of the 36 states of Nigeria and the Federal Capital Territory. Total 1,128,915 1,450,301 1,200,036 1,489,400 1,232,437 1,529,044 1,212,718 1,569,242 1,223,390 1,609,944

Source: EY Analysis

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4 Market sizing 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Factors driving market distribution in the Nigeria Fashion Industry 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

01 02 Demographic Factors Economic Factors

− Population dispersion has been a major factor in the location of the − Existence of significant economic activity, access to land and sea fashion market in the country. Lagos, Kano and Kaduna have the borders and the proportion of middle-class income earners are biggest fashion markets and this is primarily as a result of the factors that have driven fashion industry distribution in the country. population size in these states. − Lagos, Kano, Port-Harcourt and Ibadan, being major economic hubs − Other demographic factors such as religion and culture have also in the country have the largest city-level spend in Nigeria. impacted the location of fashion production and consumption hubs in the country.

03 04 Policy Factors Technological Factors

− Government participation in the fashion industry has also driven the − Technological factors affecting the fashion industry include the location of fashion production hubs. incorporation of technology into the manufacturing process and the utilization of e-commerce. − States such as Abia, Cross River, Lagos and Kaduna, where the State Government has implemented policies and programs that will − States with the highest number of active internet users such as engender the growth of the fashion industry have a high proportion of Lagos, Rivers, FCT and Oyo have reported above par fashion segment fashion spend and fashion industry generated employment. activity.

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4 Market sizing 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Forecast Demand of the Nigerian Fashion Segment 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Table 4.5: Forecast demand in the Nigerian fashion industry by segment Nigerian fashion industry forecast demand analysis 2018 2019 2020 2021 2022 • Our forecast demand analysis is based on the following projections/estimates: Value Volume Value Volume Value Volume Value Volume Value Volume (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) 1. The domestic fashion industry will mirror economic growth (real GDP forecast), Textile 875,092 1,151,595 953,399 1,254,644 1,077,126 1,417,465 1,234,558 1,624,641 1,406,015 1,850,273 however from 2020, we expect marginally Leather 259,287 341,213 282,489 371,746 319,148 419,990 365,795 481,375 416,597 548,229 higher growth rates, based on the delivery of some ongoing infrastructure projects Accessories 162,054 213,258 176,555 232,341 199,468 262,494 228,622 300,860 260,373 342,643 including rail and power upgrades. 2. Strong population growth projections at an Total 1,296,433 1,706,066 1,412,443 1,858,732 1,595,742 2,099,948 1,828,975 2,406,876 2,082,985 2,741,144 average annual rate of 2.52% between 2017 Source: EY Analysis and 2022. This is a primary driver of the domestic fashion industry. Table 4.6: Forecast demand in the Nigerian fashion industry by geopolitical region 3. Other growth factors considered include: 2018 2019 2020 2021 2022 − Specific impact of fashion related government interventions in the industry Value Volume Value Volume Value Volume Value Volume Value Volume e.g. development of large scale garment (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) production factories South-West 315,685 404,558 343,934 440,759 388,568 497,959 445,361 570,740 507,213 650,005 − Increase in urban migration South-South 209,135 259,456 227,849 282,673 257,418 319,356 295,042 366,034 336,018 416,868 − Increase in internet penetration South-East 180,740 226,509 196,913 246,777 222,468 278,803 254,984 319,553 290,396 363,932 − Increase in disposable income levels North-West 308,875 398,115 336,514 433,739 380,185 490,028 435,753 561,650 496,271 639,652

North-East 120,859 188,293 131,674 205,142 148,761 231,764 170,504 265,639 194,184 302,531

North-Central 161,139 229,137 175,558 249,641 198,341 282,038 227,330 323,261 258,902 368,155

Total 1,296,433 1,706,066 1,412,443 1,858,732 1,595,742 2,099,948 1,828,975 2,406,876 2,082,985 2,741,144 Please refer to appendix D for a detailed analysis of forecast demand and supply of the fashion Source: EY Analysis industry (Value and Volume) for each of the 36 states of Nigeria and the Federal Capital We note that the delivery of the forecast demand estimates will be driven by certain macroeconomic factors and policy levers that the government may Territory. or may not deliver on over the next five years.

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4 Market sizing 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Forecast Supply of the Nigerian Fashion Segment 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Table 4.7: Forecast supply in the Nigerian fashion industry by segment Nigerian fashion industry forecast supply analysis 2018 2019 2020 2021 2022 • Our forecast supply analysis is based on the Value Volume Value Volume Value Volume Value Volume Value Volume following key parameter: (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) 1. An excess supply factor of 0.5% on the Textile 879,468 1,157,353 958,166 1,260,917 1,082,511 1,424,552 1,240,731 1,632,765 1,413,045 1,859,524 dependent variables (value and volume) derived in the demand model. The excess Leather 260,583 342,919 283,901 373,605 320,744 422,090 367,624 483,782 418,680 550,970 supply factor represents average closing stock of fashion items per year. Accessories 162,864 214,325 177,438 233,503 200,465 263,806 229,765 302,364 261,675 344,356

Total 1,302,915 1,714,596 1,419,505 1,868,025 1,603,721 2,110,448 1,838,120 2,418,911 2,093,399 2,754,850

Source: EY Analysis Economic Factors that will accelerate a positive outlook for the fashion industry Table 4.8: Forecast supply in the Nigerian fashion industry by geopolitical region

− Progressive industry policies, such as 2018 2019 2020 2021 2022 anti-dumping regulations and patent Value Volume Value Volume Value Volume Value Volume Value Volume protection laws. (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) (N’m) (‘000) − Increased government intervention in South-West 317,264 406,581 345,654 442,963 390,511 500,449 447,588 573,594 509,749 653,255 the industry to drive economic/fashion industry growth. South-South 210,181 260,753 228,988 284,086 258,705 320,953 296,518 367,864 337,698 418,953 − Increased private and public infrastructural investment South-East 181,644 227,641 197,898 248,011 223,580 280,197 256,259 321,151 291,848 365,752

North-West 310,419 400,105 338,197 435,908 382,086 492,478 437,932 564,458 498,752 642,851

Economic Factors that will hinder the North-East 121,463 189,234 132,332 206,168 149,505 232,923 171,357 266,967 195,155 304,043 outlook of the fashion industry North-Central 161,944 230,282 176,436 250,889 199,333 283,448 228,467 324,877 260,197 369,996

− Decline in the country security Total 1,302,915 1,714,596 1,419,505 1,868,025 1,603,721 2,110,448 1,838,120 2,418,911 2,093,399 2,754,850 infrastructure. − Poor border control resulting in easy entry of supposedly banned, Source: EY Analysis competitive fashion goods. We note that the delivery of the forecast demand estimates will be driven by certain macroeconomic factors and policy levers that the government may or may not deliver on over the next five years. − Rise in cost-push inflation.

Project Costa: Final report – Fashion Segment | Page 19 of 83 15 May 2018 | Version 1.0 (Final) 5 Value chain

In this section Page

Textile Value Chain 21

Textile Value Chain (Cont’d) 22

Leather Value Chain 23

The Leather Upstream Segment 24

The Leather Downstream Segment 25

Accessories Value Chain 26

Margin (Cost-Revenue) Analysis in the Nigerian Fashion Industry 28

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5 Value chain 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Textile Value Chain 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Major distribution channels: Major stages of value addition: Chart 5.1: Structure of Apparel value chain ► There are 250,000 small hold farmers and Distribution channels 750,000 laborers engaged in cotton production in s u Exports Cotton farmers U b

Nigeria. In 2016, cotton farming contributed 4% to p - s s

Brick & mortar E-commerce t 6 e the Country’s GDP and r

supports approximately e g a 25 (c.96%) (c.4%) m m

five million people. The global cotton production e n and export size is estimated at 117 million bales Weaving companies Imports t and 100,000 bales, respectively. Nigeria produced Formal Comprises branded and 0.24 million bales and exported 40,000 bales in channels (c.6%) unbranded retail stores 2017. 23 Informal Textile companies s M ► Despite the increased volume of cotton production Comprises open market Exports u

channels b i

Imports d

and small trading stalls - s in the Northern & South-Western parts of the (c.90%) s e t r g e

country by 15% in 2017 with 235 (1000 480 lb. m a m ► Fashion products traded in informal retail channels e Bales) production, Nigeria imported $295.3 million Garment n worth of cotton in 2017. 23 are sold at prices that can be bargained, while goods manufacturers/ t sold in the formal retail channels are retailed at Exports ► The cotton seed is processed and separated from distributors posted prices. waste in a Cotton Gin. The average cotton ginning company require about 10,000 tonnes of cotton to ► E-commerce trading platforms are utilized to tap into D Nigeria’s fast growing tech-savvy middle class, who Retailers/ s

function optimally. However, the total estimated u o b w

have an annual purchasing power of over $100 billion, Fashion designers -

cotton production in Nigeria for the 17 ginning s n e 10 s according to a report by the FMITI. In 2017, E- g t companies in operations is 51,000 tonnes per Imports r m e

Exports a e

annum, resulting in the upstream textile industry commerce trading platforms were valued at m n recording a 30% capacity utilization in 2017. 26 $13billion, with a repeat customer base of over t 200,000 people..11 Consumers ► Despite the Government intervention through the N100bn CTG Fund which provided funds to the ► Garment makers and fashion designers also use the textile industry at an interest rate of 6%, the platform provided by annual fashion week shows to Source: EY Research, interviews with industry experts cotton ginning industry has been on a decline. sell their products. The Lagos Fashion and Design ► The processed cotton seeds are sent to weaving Week (LFDW) had over 50 designers showcasing their Chart 5.2: Global import distribution of textiles - 2017 companies that yarn, spin and weave the apparel to an audience that included foreign fashion processed seed into fabric and transfer to textile enthusiasts. 3% 3% 1% 4% companies. About 35.2 million woven cubic Regional trade relationships: East Asia & Pacific meters of fabric is produced annually by Nigerian 9% ► Between July and September 2017, Nigeria exported weaving companies. Europe & Central Asia cotton lint worth N351 million. 6 ► The textile companies cut, dye and print the Middle East & North Africa ► In 2017, Nigeria exported about $959.2 million worth fabrics received from weaving companies and of textiles to the global market which was estimated Sub-Saharan Africa send the finished products to the domestic and at $816 billion in the same period. Textile exports in North America export markets. 9 Nigeria are projected at $1.05 billion for 2018. Other ► According to the NEPC, the global market for textile is currently worth $816 billion and Nigerian ► Textiles valued at $676 million were imported into 80% 9 textile companies produce about $4 billion worth Nigeria in 2017, 57% of which was from China. of textiles annually, implying a c.1% market share.

6NBS;8Nigeria Customs Services; 9World Bank;10FMITI; 11OEC; 23United States Department of Agriculture; 26Cotton Ginning Ltd Project Costa: Final report – Fashion Segment | Page 21 of 83 15 May 2018 | Version 1.0 (Final)

5 Value chain 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Textile Value Chain (Cont’d) 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Chart 5.2: Structure of second hand clothing value chain Major stages of value addition: ► While the affordability of the second hand clothing ► According to a publication by Oxfam, the global increases it’s competitiveness, a secondary market for second hand clothing (SHC) is “clothing adjustment market” is driven by the Second Hand Clothing Wholesaler Imports estimated at over $1bn. 24 demand for tailors to slim fit/amend the second ► Second hand clothing items are imported into hand apparel sold. Nigeria from the UK, Hungary, China, Korea, and ► The imported second hand clothing reduces the Clothing bales are the USA and are routed through West African carbon footprint of originating countries. A research shipped into Nigeria via neighboring countries such as Benin Republic, as direct paper by the Bureau of International Recycling Household imports into Nigeria are banned. estimates that salvaging 1kg of used clothing from Retailer country ports; and Buyer then trucked to the ► These clothing items are donated to charity landfill can save up to 3.6kg of CO2 emissions. various wholesale shops in the countries noted above and traders Major distribution channels: Source: EY Research, interviews with industry experts markets. smuggle them into Nigeria to re-sell at a profit. ► The second hand clothing wholesaler benefits from ► The key second hand clothing markets in Nigeria the importation of the used fashion items as the are located in Katangora, Yaba, Balogun, and clothes are obtained at a low cost excluding the Oshodi markets in Lagos state; Karimu and Wuse import charges and clearance fee. markets in Abuja; Kasuwan Barchi in Kaduna ► Retailers obtain the second hand clothing from the state; School road mini market, New market, and wholesalers in bales and resell at a profit. Ariaria market in Abia state and Gate in Oyo Afterwards, the apparel retailers showcase their state. wares in smaller shops closer to the final consumer. ► Despite the ban on second hand clothing, importers are able to bribe their way to smuggle Retailer Household in the contrabands. The ban on second hand margin: buyer clothing among other prohibited items has been 30-70% Chart 5.3: Global import distribution of second hand clothing- 2017 opposed by member countries of the WTO as it Wholesaler impacts regional trade relationships. margin: 4% ► About 80% of Nigerians who are low and middle 20-30% 15% income earners patronize the second hand clothing market as a result of their weak Landing cost to major market 29% North America purchasing power. 25 They are able to purchase Europe & Central Asia these goods for c.10%-20% of the price of new Source: Interviews with market participants clothes. East Asia & Pacific ► Nigerian apparel manufacturers such as Omas Regional trade relationships: Other Creations Limited, The Garment Factory, Sam & Sara Limited are unable to meet the clothing ► In 2017, Nigeria imported second hand clothing 52% demand of the 192 million Nigerians; this deficit valued at $55.9m with 52% from East Asia and is augmented by the second hand clothing Pacific and 29% from Europe and Central Asia. 11 market.

11OEC; 24Oxfam; 25Aljazeera; Project Costa: Final report – Fashion Segment | Page 22 of 83 15 May 2018 | Version 1.0 (Final)

5 Value chain 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Leather Value Chain 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Major stages of value addition: Major distribution channels: Chart 5.4: Structure of leather value chain ► The key raw material inputs for leather production ► The FLG market has an identical distribution are animal hides and skin, primarily obtained from Hides and Skin

channel as the textile market, with goods sold s u the Red Sokoto goat/ sheep in Northern Nigeria. U b p

primarily through the informal brick & mortar - s s t e ► r e Due to the bias for edible hide, Nigeria is currently channels. Formal g a m m not exploiting its full potential in the global leather tanneries e ► In addition, Trade Fairs and Exhibitions also Foreign n market, as only a fraction of the 7 million goats Domestic t Leather stock slaughtered annually are sent to the local tanneries represent a major channel for sale of FLGs. In tanneries 2017, the Made in Aba Trade Fair had over 50 Traditional suppliers for leather production purposes. tanneries designers showcasing new leather designs to local ► Processed hides and skins are chemically and international consumers. preserved and converted to a stable leather material at tanneries. Regional trade relationships: s M u

Semi Finished goods b i d ► In 2017, Nigeria imported semi-finished hides and - s ► The domestic tanneries located in Kano provide (Leather Stock) s e 14 t r g

skins worth $36million , with the Chinese market e

about 10% of the total leather stock supplied in m a m representing c.80% of total imports. e

Nigeria. In 2017, local tanneries exported about n 40 million tanned hides worth over $108 million to t international re-tanners. Locally produced FLGs Imported FLGs

► Local leather producers are primarily categorized into the industrial leather producer group which D s u Wholesaler o b

accounts for c.60% of the players in the Finished w - s n e Leather Goods (FLGs) market and the artisanal s g t r m producer group. Retailer e a e m n

Export Market t ► Nigeria’s leather industry generates c.$700million Consumer annually, from the sale of FLGs such as footwear, upholstery, bags, belts and shoes. 14 The Government has banned the importation of FLG’s, however FLG’s are still ► Retail stores import FLGs directly from foreign illegally brought into the country. Major tanneries producers. Nigeria currently imports about 200 Source: EY Research, interviews with industry experts million shoes annually, with imported Chinese Major FLGs producers products constituting c.90% of FLG’s in the Chart 5.5: Global import distribution of raw hides and skins market. 15 6% 2% 2% ► Annual consumption of leather shoes in Nigeria is East Asia & Pacific estimated to be 396 million as every individual is 10% estimated to purchase at least 2 pairs of shoes Europe & Central Asia yearly. 15 Middle East & North Africa

► About 52 million pairs of shoes are reported to be Sub-Saharan Africa 15 exported from the Aba leather cluster annually. 80% Other

13NEPC; 9The World Bank Group; 14 Ministry of Trade and Investment;15The Abia State Government; 11 OEC Project Costa: Final report – Fashion Segment | Page 23 of 83 15 May 2018 | Version 1.0 (Final)

5 Value chain 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... The Leather Upstream Segment 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

The Leather Upstream Segment Industrial Cluster

► Nigeria has the third largest livestock population in Africa, which provides an abundant ► An Industrial Cluster is defined as a geographical concentration of inter-related industries source of raw material supply to the Nigerian leather industry. that are engaged in the manufacturing of similar goods & products.

► The raw material leather goes through tanning, whereby the raw leather is processed and ► The industrial cluster for the leather upstream segment in Nigeria is situated in Kano. made more durable to stop decomposition. Tanning consists of two major processes: The Kano Leather Cluster – Wet blue transformation: This process involves removing impurities and unwanted substances by soaking the rawhide in a formulated solution of lime and sodium sulfide ► The Kano Industrial Cluster is located in Tiga town in Kano state. to dissolve hair and flesh, which is then trimmed and treated to the desired grain and ► The Industrial Cluster was created to assist the players in the leather upstream to have stretch. access to raw materials such as goat skin to promote export of leather and FLGs. The – Finishing – Finishing involves splitting, shaving, re-tanning, and dying the wet blue. formal leather cluster in Kano has created over 15,000 jobs while the traditional tanneries have created c.50,000 jobs for the traditional tanners. ► In Q2 2017, Nigeria imported semi-finished hides and skins worth $36million and exported tanned hides and skin worth $1.9 million, mostly to Italy. ► In April 2016, the Federal Government pledged to support the Kano state government with a N10.9 billion Fund targeted at the Kano cluster. The Fund is targeted at providing ► The tanneries in the leather upstream segment are primarily categorized into the formal training for the players in the industrial cluster. The project is expected to be completed in leather tanning group and the traditional leather tanning group. three phases and 60% funded by the Federal Government while the Kano state Government funds 40% of the project. ► The formal leather tanning group make use of top quality hides and skin and account for 85% of Nigeria’s tanned skins and 70% of tanned hides. The formal leather tanning group ► The Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) stated plans transfer defective tanned leather to the traditional tanneries and are characterized by the to collaborate with the Kano state government and other individual stakeholders in a following; Public Private Partnership. – Importation of c.75% of chemicals utilized in the tanning process. The quality of these imported chemicals is expected to improve the quality of finished leather to increase exports. – Complete and fully-integrated automated production systems, with less manual processes. – Joint partnership with foreign FLGs manufacturing companies to secure export of tanned hides and skins.

► The traditional tanning group cater to the domestic need for tanned leather by making use of traditional methods to convert raw hides and skin into finished leather. The traditional tanning group source their raw materials through the following; – Purchase of raw hides and skin from abattoirs and local markets. – Defective hides from the formal tanneries.

► The traditional tanning group which account for 15% of Nigeria’s tanned skin and 30% of its tanned hides is unable to compete with the formal tanneries who make use of industrial tanning processes and record quality finished leather that match the leather export criteria.

► The tanning hubs in Nigeria are Kano, Katsina and Sokoto. Project Costa: Final report – Fashion Segment | Page 24 of 83 15 May 2018 | Version 1.0 (Final)

5 Value chain 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... The Leather Downstream Segment 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

The Leather Downstream Segment Industrial Cluster

► Local leather producers are primarily categorized into the industrial leather producer ► An Industrial Cluster is defined as a geographical concentration of inter-related industries group and the artisanal producer group. that are engaged in the manufacturing of similar goods & products.

► The industrial leather producer group has two main production groups – large and small. ► The adoption of industrial clusters was initiated by the Federal Government as part of the Industrial producers which accounts for over 60% of the players in the downstream vision 20/20 and was implemented to revive the industrialization in Nigeria. Industrial segment and characterized as follows: clusters are expected to stimulate growth and development of SMEs and consequently, improve the global competitiveness of the participants. − The large industrial production group is characterized by complete and fully-integrated automated production systems, with less manual processes. ► The Industrial clusters in the leather industry are the Kano ad Aba cluster. However, the Aba cluster is the most viable cluster where over 250,000 individuals are engaged in − Players in the small industrial production group import and locally assemble component production of FLGS. parts of various FLGs. The Aba Leather Cluster ► The main inputs utilized for the production of FLGs are leather stock, components and accessories. ► The Aba Industrial Complex and Cluster is located at Umukalika in Obingwa LGA within the Aba Metropolis and is divided into six zones. ► Leather stock utilized by producers are categorized by texture and grade; as follows ► The Industrial Cluster is a full-service Public Private Partnership Initiative wherein the Leather stock Abia State Government provides the land and infrastructure, while Private developers provide the buildings and manages the operations of the cluster.

► In April 2017, the Abia state government secured a US$1.5billion deal with Huajian Shoe Natural Synthetic Industry based in Dongguan, Guangzhou, China to establish a factory in Aba. leather leather ► In 2017, an average of 20,000 pair of shoes were produced daily in the Aba leather • • Top Grain Leather PU Faux Leather cluster. 15 • • Full Grain Leather PVC Faux Leather • Genuine Leather ► Based on a Memorandum of Understanding (MoU) signed between BOI – Investment and • Bonded Leather Trust Company (BOI – ITC) a subsidiary of the BOI, and the Leather Products Manufacturers Association of Abia State (LEPMASS), the umbrella body of shoe, belt, bag More durable Less durable and trunk box manufacturers in Aba, BOI has commenced funding for the cluster - Artisans in the FLG segment can access to N500,000 working capital loans and N10 million loans ► Synthetic leather is used mostly for fashion accessories, handbags, purse, shoes and for capital equipment purchase. The first phase is targeted to benefit a minimum of 5,000 slippers, as well as upholstery. Natural leather is primarily used in footwear production due artisans. to its more durable texture.

► Accessories and components consist of sole, glue, thread, metal accessories and foam. The most popular FLGs are footwear, representing over 85% of all FLGs. Slippers and Sandals represents over 80% of footwear.

► The primary FLG production hubs in the country are Aba, Kano, Onitsha and Lagos. Covered shoes production are dominant in Aba, Lagos and Onitsha; and are significant in Kano and Kaduna. Slippers and sandals are dominant in Kano and Kaduna; and are significant in Aba, Lagos and Onitsha.

15The Abia State Government Project Costa: Final report – Fashion Segment | Page 25 of 83 15 May 2018 | Version 1.0 (Final)

5 Value chain 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Accessories Value Chain 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Fashion accessories items Major distribution channels: ► Fashion accessories are decorative items used ► The fashion accessory market has an identical Chart 5.6: Structure of accessories value chain to supplement clothing. For the purpose of this distribution channel as the textile and leather s u report, we consider mainly jewellery (including market, with goods sold primarily through Foreign Accessory U b p - s informal and formal retail channels and e- Importer s

wrist-watches), but also cover ancillary items t e r e Foreign Markets g a such as buttons, non-prescription eyewear and commerce platforms. (Finished & Intermediate m m e

cuff-links. Product) n ► Trade fairs and exhibitions also provide t platforms for accessory retailers to showcase Major stages of value addition: s M u b their finished goods. The Lagos Fashion i d Fashion Accessory - s s

► e

In 2017, Nigeria imported precious stones t

Exhibition, an annual event, provides a platform r g Producer e m worth $8.1million from China and India. These a

for accessory producers to display their m (Finished & Intermediate e n

precious stones, which include gold, silver and t finished goods. Product) lead glass or crystals, are used to produce fashion accessories, particularly jewelry.11 ► In addition, accessory retailers utilize the co- marketing strategy for sales, whereby retailers ► D Despite the mining of metal and other solid display their goods in the shops of other s u Fashion Accessory o b minerals in Nigeria with the sector contributing w

producers for a nominal fee. This provides - s n

Retailer e 8.30% to the country’s GDP in Q4 2017 and s customers with a one-stop shop experience. g t r m e

recording a 7.9% y-o-y growth, fashion a e m n accessory producers in the midstream sub- Regional trade relationships: t segment still import all of their raw materials. ► Chart 5.7. shows the global imports of finished Consumer ► The Nigeria plastic and rubber industry which jewelry into Nigeria. grew by 3.41% in Q4 2017 from 0.67% in Q3 ► In 2017, jewelry worth $25.3 million was 2017 can be further harnessed to manufacture imported from Europe, South America, North Source: EY Research, interviews with industry experts raw materials for accessories such as buttons, America and Asia, while finished jewelry worth necklaces and earrings for the Nigerian fashion $244,852 was exported to Europe and Asia.11 industry. Chart 5.7: Global import distribution of finished accessories

► According to our research, Mass produced 5% 10% jewelry which are usually acquired by customers with low purchasing power accounts for 70% of the accessory downstream sub segment. The bespoke jewelry manufacturers account for 30% Asia of the accessory downstream subsector. Europe

South America

85%

11 OEC Project Costa: Final report – Fashion Segment | Page 26 of 83 15 May 2018 | Version 1.0 (Final)

5 Value chain 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Value Chain – Customer segments, major suppliers and outlook 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Major customers of the market segment and their ► The local producers of FLGs in Nigeria are made up of E-commerce location: industrial players who use mechanical processes for ► The emergence of online retailers such as Jumia, ► The demand for fashion items cut across all income production and artisanal producers. The small industrial Yudala and Konga and a rising internet penetration in classes of the Nigerian market. E-commerce platforms players in the Aba leather cluster produce about 20,000 Nigeria, which currently stands at 53%, is transforming create an online apparel market in Africa which is expected pairs of shoes daily. the (mid-market focused) fashion industry by shifting 17 to grow from $104m in 2014 to $1.1bn in 2019. ► The major suppliers of bespoke finished accessories the focus from traditional physical stores to online ► The primary customer base of textile distributors are include Jewel By Lisa, Azarai and Deinte Fine jewelry and retail platforms. fashion companies who process and resell the finished are located in Lagos. However, a huge informal market ► In 2016, Jumia, Nigeria’s leading online retail platform, apparel. These customers are further classified into mass caters to the mass market via major markets located in reported 9,776,000 monthly visitors and earned $104 producers and bespoke fashion designers. The leaders in Balogun, Lagos and Bridgehead – Onitsha, Anambra. million in global revenue. 19 the bespoke market include Deola Sagoe, Mudi Africa, ► Local manufacturers utilizing online retailing could Tiffany Amber and Lanre Da Silva and they are primarily Future market conditions and how they affect the generate more turnover as a result of the wider located in Lagos, but offer nationwide delivery. margin of players in the industry: customer base. The number of internet users in Nigeria ► Fashion accessories demand is driven by the high female by 2019 is forecast to be 93 million. population and rapidly changing customer taste. African Growth and opportunity Act (AGOA) ► In addition, there has been an rise in the use of Omni- ► The Act which was enacted in 2000 is a legislation that ► The primary consumers of FLGs are upwardly mobile channel Marketing. Stores such as Yudala provide enables manufacturers from Sub-Saharan Africa to export professionals who consider leather bags and wallets a customers with a integrated customer experience, 7,000 product lines of goods to the United States without fashion statement; and a component of official dress offering Nigerians the convenient of virtual shopping, duty charges. 18 attire. The customers are located in large urban areas with the option of a physical store experience. such as Abuja, Lagos, Akwa-Ibom, Kano and Delta state. ► In 2015, Nigeria reported a 40.3% decline in its export value, which resulted in the country being the lowest Resurgence of defunct textile companies exporting nation among African countries under the AGOA ► In 2014, Nigeria imported textiles and clothing worth Major suppliers of the market segment and their umbrella.18 This decline was a result of poor infrastructure $663 million as a result of the decline in the number of location: and the deteriorating quality of exports. functioning textile mills. ► The major textile suppliers are concentrated in Northern ► The implementation of government polices such as patent ► The CBN introduced a N100 billion intervention Fund Nigeria; and include United Nigeria Textiles Limited, and protection rights will enable the players in fashion for the Cotton, Textile & Garment (CTG) sector in 2010 Kaduna Textiles Limited, Nichemtex Plc, Afprint Nigeria industry take advantage of AGOA, which is expected to to revive moribund textile firms by providing long term PLC and Arewa Textile Plc. drive Nigerian participation and industry player margins. loans and working capital to companies in the sector. ► These textile mills primarily located in Kano and Lagos Global demand for premium quality finished leather ► The Bank of Industry disbursed 60% of the CTG produce an estimated 1.4 billion diverse pieces of textile goods intervention Fund in 2014 to revamp 38 textile firms materials for consumers who either process the textile as such as SunFlag, Adhama Textiles and Sam and Sara. ► Many players in the Nigerian leather industry operate in ready to wear clothing or resell to the final consumer. The cotton industry has received N60 billion in loans the lower end of the global value chain as a result of the ► Textile retailers are located in major markets across the from the CTG intervention Fund to finance 70 Projects. poor quality of their finished leather products18, thereby 20 country, with a major concentration in Balogun and limiting the export potential of a large part of the local ► The continued intervention of the government will drive Tejuosho markets in Lagos; Bridgehead market in leather production market. Anambra, Ariaria market in Abia State; Gbagi market in local textile production and enable industry players to Oyo State and Kurmi market in Kano state. ► An improvement in the quality of local FLGs would drive an make a viable entry into the global $842.7 billion increase in local players’ competitive advantage and apparel market. 21 ► Nigerian apparel retailers such as Twice As Nice and improve earnings from the higher value-added, export- Bobo’s Clothing import finished apparel for resell. They oriented market segment. A few local FLG producers are mostly based in Lagos and Abuja; and have a large including Femihandbags© currently operate in this online presence. segment.

17Euromonitor; 18AGOA; 19Jumia; 20MAN; 21Statista Project Costa: Final report – Fashion Segment | Page 27 of 83 15 May 2018 | Version 1.0 (Final)

5 Value chain 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Margin (Cost-Revenue) Analysis in the Nigerian Fashion Industry 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Table 5.1: Margin Analysis in the Nigerian Fashion Industry TEXTILE LEATHER ACCESSORIES

Upstream & Midstream Upstream & Midstream Midstream & Downstream Downstream Segment Downstream Segment Segment Segment Segment

Raw materials/production inputs 31.5% - 23.9% - 22.1%

Equipment leasing 1.9% 0.5% 1.2% 0.6% 0.4%

Direct Labor 3.7% 10.8% 9.2% 10.0% 4.5%

Transportation/distribution 1.0% 19.2% 1.2% 21.3% 21.1%

TOTAL DIRECT COST 38.1% 30.5% 35.5% 31.9% 48.1%

Cost of capital 17.6% 9.8% 17.2% 15.1% 8.7%

Electricity (including power generation) 16.1% 17.2% 13.1% 6.6% 14.0%

Rent 4.8% 14.0% 3.1% 12.1% 4.0%

Security 3.2% 1.3% 2.7% 2.0% 1.3%

Taxes 3.0% 4.1% 5.1% 7.2% 4.3%

Equipment maintenance 0.9% - 5.2% - -

TOTAL INDIRECT COST 45.6% 46.4% 46.4% 43% 32.2%

Gross margin 16.3% 23.1% 18.1% 25.1% 19.6%

TOTAL 100.0 100.0 100.0 100.0 100.0

Source: EY Research, interviews with industry experts

RAW MATERIALS DIRECT LABOUR ► According to respondents interviewed in the textile upstream and midstream segments, ► Due to the dearth of qualified tailors and equipment handlers, players in the Nigerian textile producers and garment manufacturers spend over 30% of their revenues on the Textile downstream segment spend about 11% of their revenues on staff training and acquisition of raw materials and production inputs. These raw materials include cotton retention. seeds and woven fabrics, while production inputs include raw dye, bleach and yarns. ► Furthermore, respondents in the upstream and midstream leather segment have stated that players spend about 24% of their revenues on the acquisition of raw materials TRANSPORTATION required for production. In addition, the importers of leather stock source foreign ► Due to logistics challenges, players across the entire value chain indicate currency from the parallel market, which has negatively impacted gross margins. transportation and logistics cost of raw materials to production locations as a major cost element. EQUIPMENT LEASING ► Small-scale players in the upstream textile industry lease equipment required for cotton ginning from larger companies. Project Costa: Final report – Fashion Segment | Page 28 of 83 15 May 2018 | Version 1.0 (Final)

Table 5.1: Margin Analysis in the Nigerian Fashion Industry

TEXTILE LEATHER ACCESSORIES

Upstream & Midstream Upstream & Midstream Midstream & Downstream Downstream Segment Downstream Segment Segment Segment Segment

Raw materials/production inputs 31.5% - 23.9% - 22.1%

Equipment leasing 1.9% 0.5% 1.2% 0.6% 0.4%

Direct Labor 3.7% 10.8% 9.2% 10.0% 4.5%

Transportation/distribution 1.0% 19.2% 1.2% 21.3% 21.1%

TOTAL DIRECT COST 38.1% 30.5% 35.5% 31.9% 48.1%

Cost of capital 17.6% 9.8% 17.2% 15.1% 8.7%

Electricity (including power generation) 16.1% 17.2% 13.1% 6.6% 14.0%

Rent 4.8% 14.0% 3.1% 12.1% 4.0%

Security 3.2% 1.3% 2.7% 2.0% 1.3%

Taxes 3.0% 4.1% 5.1% 7.2% 4.3%

Equipment maintenance 0.9% - 5.2% - -

TOTAL INDIRECT COST 45.6% 46.4% 46.4% 43% 32.2%

Gross margin 16.3% 23.1% 18.1% 25.1% 19.6%

TOTAL 100.0 100.0 100.0 100.0 100.0 Source: EY Research, interviews with industry experts

COST OF CAPITAL RENT ► The cost of capital represents interest payments on loans/external debt obtained ► Furthermore, respondents in the textile downstream segment stated that on from financial institutions and dividends due to equity providers. average they spend about 14% of their revenues on store rent and staff related ► The average interest rate charged to fashion industry players is in line with general expenses respectively. However, this varies across regions, as retailers in Lagos facility rates – and is largely subject to the prevailing market rates, credit worthiness/ State typically spend over 20% of their revenues on store rent. negotiating power of the borrower.

SECURITY ELECTRICITY ► In addition, as textile factories are primarily located in Northern Nigeria, companies ► According to players in the fashion industry, the cost of electricity represents a major in the textile upstream and midstream segment have had to incur additional cost element. This cost represents the cost of purchasing petrol, diesel or gas utilized overhead expenses to support higher security levels. These expenses include the in running alternative power generation sources. In addition, players in the industry recruitment of formal security agencies, the acquisition of close-circuit television have commenced utilization of environmental-friendly sources of power, such as and scanning equipment. Inverters. Project Costa: Final report – Fashion Segment | Page 29 of 83 15 May 2018 | Version 1.0 (Final) 6 Competitive landscape

In this section Page

Leading players in the Fashion Industry 31

Porter’s five forces – Upstream & midstream segments of the Nigerian fashion industry 32

Porter’s five forces – Downstream of the Nigerian fashion industry 33

Future market conditions that may impact the competitive landscape 34

Competitive landscape 35

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6 Competitive landscape 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Leading players in the Fashion Industry 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Table 6.1: Top 10 textile companies Table 6.2: Top 10 garment manufacturers Table 6.3: Top 10 bespoke fashion designers

Est. Annual **Est. Annual Market Market Est. Annual Market # Company # Company Turnover # Company Turnover (Nm) Share Share Turnover (Nm) Share (Nm) 1 House of Deola Sagoe 318 0.04% 1 Sunflag Nigeria Ltd. 1,002 0.12% 1 Sam & Sara 2,021 0.24% 2 Tiffany Amber 289 0.03% 2 Nichemtex Industries Ltd. 987 0.12% 2 The Garment Factory 1,932 0.23% 3 Jewel by Lisa 277 0.03% 3 Angel Spinning & Dyeing Ltd. 905 0.11% 3 International Uniforms Limited 1,884 0.22% 4 Lanre da Silva Ajayi 264 0.03% 4 Nigerian Spinners & Dyers Ltd. 867 0.10% 4 One Stop Celebration (OSC) 1,812 0.22% 5 Mai Atafo Inspired Clothing 206 0.02% 5 African Textile Mfrs. Ltd. 713 0.08% 5 Omoluabi Mod. Garment Factory 1,798 0.21% 6 Okunoren 195 0.02% 6 Woollen & Synthetic Industries Ltd. 698 0.08% 6 Crown Natures Nigeria Plc. 1,712 0.20%

7 ITI (Nigeria) Ltd. 654 0.08% 7 Adhama Textile & Garment 1,336 0.16% 7 Odio Mimonet 191 0.02%

8 Supertex Limited 632 0.08% 8 Eljahab Mubarak 987 0.12% 8 House of Bunor – Frank Oshodi 183 0.02%

9 United Nigeria Textiles Ltd 606 0.07% 9 PJK Nigeria Limited 902 0.11% 9 Mudi Africa 177 0.02%

10 Crown Natures Nig. Ltd. 598 0.07% 10 Bidat Sportswear Company Ltd 887 0.11% 10 Duro Olowu 171 0.02%

** This estimate excludes revenues made from fashion shows Table 6.4: Top 10 fashion training institutions Table 6.5: Top 10 leather producers Est. Annual Market Est. Annual Market # Company Rankings, turnover and market share have been estimated # Company Turnover (Nm) Share Turnover (Nm) Share based on the following: 1 Fata Tanning Ltd (Kano) 5,892 2.50% 1 Tiffany Amber Fashion School 127 0.015% − Discussion with fashion trade associations (NTMA and 2 Lanre Da Silva Fashion House 119 0.014% 2 Z-Tannery Ltd (Kano) 5,310 2.25% FADAN) and management of the respective companies; Unique Leather Finishing Co − Strength of active customer base; 3 OSC College of Fashion, Lagos 112 0.013% 3 5,064 2.15% Ltd (Kano) 4 Deola Sogoe Fashion School 79 0.009% − Average retail price; 4 Arewa Tanneries (Kano) 4,812 2.04% − Average quantity of retail goods sold periodically; 5 Valisimo Fashion School 56 0.007% 5 God’s Little Tannery (Kano) 4,764 2.02% − Presence on International Fashion Shows; 6 Celebrity Fashion Academy 41 0.005% Sunrise Mega International 6 4,584 1.94% − Number of fashion retail outlets in Nigeria and Overseas 7 LegsApparel Academy 27 0.003% (Kano) (particularly in Europe, North America and Asia); Zaria Fashion And Style 7 Kaftan Tannery (Kano) 4,332 1.84% 8 21 0.003% Academy − Export generating potential of the value chain in which 8 Kano Tan Limited (Kano) 4,104 1.74% the player operates; 9 Ginani Fashion Design School 16 0.002% 9 Multi-Tan Ltd. (Kano) 3,804 1.61% − Number of active years of production. 10 Lagos State Vocational training 9 0.001% 10 First Tannery Ltd. (Kano) 2,533 1.07% Source: Decision Support Limited Project Costa: Final report – Fashion Segment | Page 31 of 83 15 May 2018 | Version 1.0 (Final)

6 Competitive landscape 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Porter’s five forces – Upstream & midstream segments of the Nigerian 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment fashion industry 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

ELEMENTS TEXTILE LEATHER ACCESSORIES COMMENTS

Threat of new Low Medium Low § High capital outlay and significant operating costs make it relatively difficult to enter the textile manufacturing entrants industry. Cotton farmers will also require significant arable land assets and research & development support for suitable seedling species and mechanized farming tools to operate a large scale cotton farming operation. § Local availability of livestock skin, the critical upstream leather input and the predominance of locally fabricated tanning and crusting barrels, ease entry restrictions in the tanning segment. However, the high cost of power and process intensive operations serve to moderate new entrants. Wholesale leather importation is also very capital intensive, with historical FX access issues. § The semi-finished materials used in the accessories upstream industry are all imported, thus the high cost of bulk importation moderates the threat of new entrants in this segment.

Bargaining Medium Low High § Buyers in the upstream textile segment are either: power of o Bulk buyers of locally produced textiles have more flexibility to negotiate order terms which gives them high buyers bargaining power. Our research suggests that most of the locally produced textiles are made to order for large buyers like schools, trade associations, etc. o Bulk buyers of imported textiles, which are generally standardized/undifferentiated and cheaper than locally produced textiles. These buyers may have lower bargaining power, unless they are single large scale purchasers. § The bargaining power of buyers in the upstream leather industry is low, given that the crucial animal skin/hide raw material input has an active alternative market for physical consumption. However, midstream buyers of leather stock can easily switch between locally produced or imported leather, which provides the leverage to bargain on price. § The bargaining power of purchasers of semi-finished accessory inputs is high as there are numerous suppliers of beads and precious stones across Asia (primarily China and India).

Bargaining Low High Medium § The bargaining power of suppliers in the textile upstream and mid-stream sector is low as there are numerous suppliers power of of cotton seeds, who represent the topmost upstream layer and typically compete based on price. There are also Suppliers numerous weaving companies within the segment. § Given the market for physical consumption of animal skin/hides, the bargaining power of suppliers are very high, as the multiple end market options (i.e. food, leather, etc.) available to suppliers. § There are numerous international suppliers of semi-finished input materials used by domestic accessory producers therefore weakening the bargaining power of suppliers. However that some of these input materials are giffen goods, some suppliers are able to maintain high bargaining power.

Threat of Low Medium Low § Locally produced/imported textiles cannot be substituted, thus there is a low threat of substitutes for the textile substitutes upstream players. § Due to increased innovation, Pinatex has been developed as a substitute to leather, however it is not widely used outside of Asia (principally used in the Philippines). § The threat of substitutes in the accessories upstream industry is low as there are no alternatives to the raw materials used by accessory producers.

Competitive High High High § Competitive tension is high in the upstream and midstream segment of the fashion industry and this is primarily based rivalry on the use of social media, price differentiation, backward integration and predatory pricing by players in the industry. § Some players utilize backward integration mechanisms partnering with other players along the value chain; in the process limiting certain players from access to raw material. There are silent partnerships between weaving companies and cotton farmers, where the weaving companies get priority claim to the cotton produce of the farmers. § In addition, textile producers utilize predatory pricing mechanisms where certain producers cut their prices intermittently to reduce the profitability of other players in the segment.

Source: EY Research, interviews with industry experts Project Costa: Final report – Fashion Segment | Page 32 of 83 15 May 2018 | Version 1.0 (Final)

6 Competitive landscape 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Porter’s five forces – Downstream of the Nigerian fashion industry 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

ELEMENTS TEXTILE LEATHER ACCESSORIES COMMENTS

Threat of High High High § Minimal need for specialized equipment that is capital intensive results in low barriers to entry into the downstream new Nigerian fashion industry. entrants § Increasingly low entry barriers, further supported by a rising shift to omni-channel and online platforms makes downstream industry participation relatively easy as players are predominantly fashion item traders that may or may not carry inventory risk.

Bargaining High High High § The low switching cost in the downstream fashion segment as a result of high influx of suppliers of undifferentiated power of fashion items has significantly increased the bargaining power in the local fashion industry. buyers § Combination of low switching costs, numerous suppliers and strong price competition support high bargaining power levels of textile, leather and accessory buyers.

Bargaining Low Low Low § The combination of high number of (moderately-priced) suppliers in the downstream fashion segment and poor power of implementation of local restrictions on imported fashion goods support a low bargaining power of suppliers in the suppliers downstream fashion segment.

§ Retailers have direct access to domestic and foreign markets for the supply of fashion goods; this has also significantly weakened the bargaining power of suppliers.

Threat of Low Medium Low § The threat of substitutes in the textile and accessories downstream industry is low because there are no substitutes substitutes to ready made clothes or accessories.

§ However, the innovation of Pinatex poses a threat to the long term profitability of leather retailers and the industry as a whole, especially from an environment/sustainability standpoint.

Competitive High Medium Low § The competitive rivalry in the downstream fashion industry is high, as players aggressively utilize social media and rivalry brand differentiation to effectively compete.

§ In addition, the pricing techniques used by segment players serves to further drive competitive rivalry. Players in the mass-producing sub-segment of the fashion industry utilize the cost-leadership pricing technique, while bespoke players utilize the product differentiation strategy.

Source: EY Research, interviews with industry experts Project Costa: Final report – Fashion Segment | Page 33 of 83 15 May 2018 | Version 1.0 (Final)

6 Competitive landscape 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Future market conditions that may impact the competitive landscape 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Future Market Conditions That May Impact The Competitive Landscape

— Increased regulation in the Upstream Leather industry, particularly around disposal of effluents — Increased infrastructure investments will and waste, may result in the exit of companies improve the competitive environment in from the value chain. This is due to the high cost the fashion industry by providing access to of providing alternative disposal mechanisms. previously unexplored markets in the country. — In addition, the execution of the Paris Environment Accord may further drive companies to exits. The — Rail and Road projects will resolve Accord requires companies to utilize logistical issues that have posed a environmental friendly production process, which significant barrier to entry in the industry. are usually capital intensive. REGULATORY INVESTMENT IN ENVIRONMENT INFRASTRUCTURE

— The Public Procurement Policy Act will — Investment in Nigeria’s security increase the competition in the market, infrastructure will drive investment in as public goods that were previously FACTORS the Nigerian fashion industry. — Improved security of lives, property and procured from international suppliers will THAT MAY have to be routed through Nigerian INCREASE IN IMPROVED merchandise will reaffirm investors IMPACT THE companies. LOCAL SECURITY confidence in the market and lead to the — Therefore, the increased demand of CONTENT COMPETITIVE minimization of barriers to entry into Made-In-Nigeria goods will lead to ENVIRONMENT the fashion industry. increased local market entry and drive industry competition.

INVESTMENT IMPROVED POLICY — Improved implementation of government — Increased utilization of investment INCENTIVES IMPLEMENTATION policies, particularly around border control incentives by the Nigerian Government will lead to increased competition in the and Development Financial Institutions fashion industry. will improve the competitive landscape — According to respondents interviewed, import in the fashion industry and reduce restricted goods such as Finished Leather barriers. Goods and Second hand apparel, are being smuggled into the country. The effective implementation of the restriction or ban placed on these goods will attract entry into the textile and leather segments of the fashion industry

Source: EY Research, interviews with industry experts Project Costa: Final report – Fashion Segment | Page 34 of 83 15 May 2018 | Version 1.0 (Final)

6 Competitive landscape 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Competitive landscape 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Price Point Market Segmentation Degree of Unionization There are primarily three major market segments for the Fashion Industry and they include: The Nigerian Labour Congress (NLC) is the umbrella organization for trade unions in Nigeria. Under the NLC, To assist the employees in the fashion industry, other unions in affiliation I. Luxury Fashion Goods or High-End Fashion Goods: These are goods for which demand with the NLC have been established such as the following: increases as the price increases. In the Nigerian fashion industry, these goods primarily comprise of goods produced by niche fashion designers and high-end branded goods ► Fashion Designers Association of Nigeria (FADAN) imported from Italy and France. ► Leather and Allied Products Manufacturers Association (LAPAN) Retailers of imported fashion goods in the country include Polo Luxury and Alara Concept Store. According to a research by Polo Luxury, the average fashion spend by customers is ► Leather Product Manufacturers Association of Abia State (LEPMAAS) within a range of $1,000 and $2,000. It is estimated that the annual luxury fashion items ► National Textile Manufacturers Association of Nigeria (NTMAN) market in the focal states is worth N30.7b, N8.5b and N4.03 in Lagos State, Rivers State and the Federal Capital Territory respectively. ► National union of Chemical, footwear, rubber, leather and non-metallic employees (NUCFRLANMPE) ► National union of Textile, Garment and Tailoring Workers of Nigeria (NUTGTWAN) II.Moderately Priced Fashion Goods: These are fashion goods patronized by the middle ► Nigerian Union of Tailors (NUT) class. In the Nigerian fashion industry these also include fashion items retailed at malls, e- commerce platforms and by up-and-coming fashion designers. These unions advocate for policies that would favor the textile, leather and accessories It is estimated that the average leather footwear item retailed at the price point is within segments of the fashion industry. the range of N9,000 and N15,000, while the average textile fashion item is priced within Effectiveness of the unions the range of N3,000 and N6,000. Furthermore, it is estimated that the moderately priced fashion items market in the focal states is worth N6.57b, N6.29b and N3.65b in Lagos The unions defend their members via policy dialogue, organization of rallies and campaigns, State, the Federal Capital Territory and Rivers State respectively. conducting seminars on fashion trends, protecting local tailors from importation of garments and organization of new workspaces for members. The Lagos fashion shows and skill sessions are examples of programs organized by some of the unions. III.Low Priced Fashion Goods: These are fashion goods patronized by the lower middle class and the lower class of the society. Fashion goods retailed at this price point are primarily Industry Relationship second hand fashion goods. TEXTILE LEATHER The customers in this market segment purchase affordable clothing which are usually − The textile industry is fragmented − The Kano tanneries which are the mass produced. According to independent research, goods retailed at this price point are and competitive and this is evident major players in the upstream imported from China, UK and USA. by the duplicity of functions by segment are monopolistic in nature In addition, it is estimated that the average price of a cotton shirt retailed at the price various associations in the industry. as just a few cartels have the largest point is within the range of N700 and N800, while a pair of Jeans trousers is priced within Consequently, no player has a market share of the tanning market. the range of N1,000 and N1,200. Furthermore, it is estimated that the market in the focal significant monopoly in the industry. − The monopoly is primarily due to the states is worth N156.5b, N23.5b and N18.7b in Lagos State, the Federal Capital Territory high barriers to entry such as and Rivers State respectively. capital intensive nature of business operations and unethical business activities, such as collusion, of the cartels to dissuade or create obstacles for would-be entrants.

Project Costa: Final report – Fashion Segment | Page 35 of 83 15 May 2018 | Version 1.0 (Final) 7 Policy, legislation & case studies

In this section Page

Tax incentives in the Nigerian Fashion Industry 37

Comparison with leading global fashion countries 38

Investment Incentives 39

Policy and Legislation 40

Case Study – Policy Environment 41

Case Study – Regulatory Environment 42

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7 Policy, legislation & case studies 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Tax incentives in the Nigerian Fashion Industry 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Tax Incentives in the Nigerian Fashion Industry

− “Pioneer status” is a fiscal incentive granted to companies − Section 3 of the VAT Act of 2007, allows agricultural in designated pioneer industries especially those involved companies exemptions from paying 5% VAT on machinery in local raw material development and labor-intensive imported for agricultural purposes. processing. − Players in the Fashion Upstream Segment, such as Pioneer Value Added Tax − The status grants between 3-5 years tax holiday to operators of Cotton Gins and Leather Tanneries, are Status Exemptions companies that incur capital expenditure and it was permitted to claim the VAT input incurred on their raw established by the Pioneer Status Incentive Regulations of materials as a deduction from their VAT output. 2014. − These exemptions have reduced instances of double − In 2015, producers of leather and FLGs were added to the taxation for industry players. list of industries eligible for the grant of pioneer status.

− Section 11 of the Companies Income Tax Act of 2004, states − Section 35 of the Companies Income Tax Act of 2004, that interest bearing loans granted to cotton farmers and other grants special allowances to companies that incur qualifying agro-allied businesses by financial institutions are exempt from capital expenditure on machinery purchased for business withholding tax (WHT) if the loan has a moratorium of more use. Withholding Tax than 18 months and rate of interest less than the base lending. Exemption on Capital − The Act permits companies in the agricultural sector, such Interest on − The implication of the incentive is that financial institutions are allowance as cotton and silk farmers eligibility to 100% claims of Loans not required to remit the 10% WHT on interest charged on the capital allowance in any year of assessment. facility to the Federal Inland Revenue Service. − The incentives of the Act will also benefit operators of − This has increased the proportion of loans given to cotton leather tanneries due to the high proportion of their farmers because of the tax-free income earned by the financial equipment that is imported. institutions.

− Section 31 of the Companies Income Tax Act of 2004, − Section 38 of the Company Income Tax Act of 2004, permits cotton farmers and other agricultural businesses to permits companies that purchase locally manufactured roll forward losses indefinitely against future profits. machinery and equipment for business use a tax allowance of 15% investment tax credit. Loss − The Act permits future profits generated by the cotton Investment Tax Relief farmers and other agro-allied businesses to remain untaxed Credit − The incentives of this Act currently benefit operators of until all historical losses are absolved completely. cotton gins and leather tanneries, who utilize locally manufactured equipment for their business activities.

Source: EY Research, interviews with industry experts Project Costa: Final report – Fashion Segment | Page 37 of 83 15 May 2018 | Version 1.0 (Final)

7 Policy, legislation & case studies 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Comparison with leading global fashion countries 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Table 7.1: Comparison of domestic tax incentives with leading fashion countries

Tax incentives USA China India UK Japan Brazil Germany Italy France Spain

Pioneer Status X √ √ X X X X X X X

Withholding Tax X X X √ X X X X X X

Loss Relief X X √ √ X X X X X X

Value Added Tax X √ X X X X √ X √ X

Capital Allowance X X X √ X X X X X X

Investment Tax Credit X X √ √ √ √ X √ √ √

− In FY15, a new incremental R&D tax credit scheme was introduced for periods up to FY19. The scheme offers a tax credit − Unused tax deductions may not be carried forward or carried back. Italy Brazil between 25% and 50% of the annual increase of average R&D expenses incurred between FY12 and FY14.

− Companies involved in R&D are eligible to refunds on VAT paid on − In 2017, The French Government implemented new authorization the purchase of Chinese domestic equipment. VAT refunds are also requirement regarding the reverse-charge procedure of the VAT upon importation. available where materials have been purchased domestically for the France China export of goods. − In 2015, the tax credit rate for the innovation tax credit (ITC) − High technology enterprises are granted a two-year tax holiday increased to 40% for companies operating in French Overseas followed by three years at a 12.5% rate. Departments while all other qualifying companies apply a 20% rate.

− R&D and Manufacturing Companies incorporated after April 2016 − Companies are allowed to monetize R&D credits (at a 20% discount are eligible for a tax holiday of three to seven years. India Spain and subject to certain requirements) in form of a tax cash refund − In addition, unused tax benefit may be carried forward if the which can be barred after ten years. company is in a loss position.

− The UK increased the R&D tax credit to 14.5% for lossmaking SMEs. − In March 2014, the 12% tax credit for SMEs was limited to 25% − In addition, SMEs are granted 230% deduction for qualifying (formerly 30%) of the company’s national corporation tax liability. UK expenditure incurred on or after April 2015. Japan − In 2017, the Japanese government commenced tax reforms which − For periods after April 2017, carried forward losses can be claimed ensures that tax credits increase in line with increases in against profits from other streams of income. investment cost and attract more generous rates.

Source: EY Project Costa: Final report – Fashion Segment | Page 38 of 83 15 May 2018 | Version 1.0 (Final)

7 Policy, legislation & case studies 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Investment Incentives 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Investment Incentives in the Nigerian Fashion Industry 1 2 3 4 N1billion Fashion Commercial Agriculture Agricultural Credit Anchor’s Borrowers Industry Fund Credit Scheme Guarantee Scheme Programme Fund

► The Fund was introduced in ► The Scheme was introduced in ► The Fund was established with a 2015, to enable players in the ► The Programme was launched in 2009 and is disbursed by the CBN capital base of N3 billion to fashion industry invest in 2015 to create a linkage in partnership with the Federal mitigate the risks faced by infrastructure. between anchor companies Ministry of Agriculture and Rural financial institutions in lending involved in processing and ► The Fund is managed by the Bank Development (FMARD). to the cotton industry and the farming of key commodities. of Industry, who disburses loans ► Established as an intervention agricultural sector. at a single digit interest rate of 9% ► The Fund is provided from the fund to provide finance for the ► The Fund is managed and with a tenor of 3-5 years. N220 billion Micro, Small and country’s agricultural value chain disbursed by the Central Bank Medium Enterprises ► The Fund has increased the at an interest rate of 9%. of Nigeria and it guarantees 75% Development Fund at an production volume of ► The scheme is operated in of all outstanding loans in the interest rate of 9%. beneficiaries and enhanced the tranches. The current tranche of event of default. competition of the local players in ► The Programme currently N100 billion was initiated in 2012 ► Cotton farmers have access to the international fashion market. benefits cotton farmers and the and was targeted towards the Fund, which is given at disbursements are only repaid ► Examples of some projects that enhancing the planting and market determined rates, to with the sales generated from the Bank of Industry has invested harvesting activities of cotton finance their planting and harvested produce. in are Sam and Sara Limited and farmers in the country. harvesting activities. United Textile Ltd.

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NATIONAL LEGISLATION SHAPING BUSINESS ACTIVITIES IN NIGERIA FASHION STRATEGIES FOR GOVERNMENT PROTECTION AND GROWTH OF THE INDUSTRY INDUSTRY National Cotton, Textile and Garment (CTG) Policy ► The Standard Organization of Nigeria (SON) represents the primary functioning ► The National Cotton, Textile and Garment Policy was established in 2003 with the primary regulatory body in the fashion value chain. The body regulates the quality of raw material objective of increasing Nigeria’s raw cotton production from 200,000 tonnes in 2003 to utilized in the production of fashion goods. 500,000 tonnes by 2015. The Policy has a secondary objective of increasing the ► SON also regulates the quality of cotton seeds and leather utilized in the production segment’s revenue generating capacity to $3billion annually. process. In addition, the body regulates the quality of yarn/dye used in textile processing. Ease of Doing Business Initiative ► The Ease of Doing Business Initiative set up by the government in July 2016 was ► There are currently some restrictions placed on the importation of the following items by the Nigerian Customs Services: positioned to review business processes in the country, with the objective of eliminating inefficiencies in government processes and critical bottlenecks or constraints to doing − Piece goods and all other textiles including apparel business. − Second hand clothing ► The Initiative is being driven by the private sector which forms a part of the Presidential − Cowries Enabling Business Environment Council (PEBEBC), chaired by the Vice President, Professor Yemi Osinbajo. − All types of foot wear, bags and suitcases, excluding safety shoes used in oil and gas industries, sports shoes and canvass shoes ► The Initiative is expected to impact the fashion industry, as the Council has developed ► However, regulatory bodies in the country have been inefficient in the implementation of strategies that will expedite trade processes, particularly minimizing the time required for the government’s restriction policies. We were informed by respondents, that illegal physical examination of cargos and the reduction of processing time required for export importers of banned goods bypass the regulatory authorities by changing the name of documentation. the consignment on their shipments. IMPACT OF CHANGES IN POLICY OR LEGISLATION ON THE NIGERIAN FASHION COMPARISON OF THE NIGERIAN REGULATORY ENVIRONMENT AND THE INDUSTRY COUNTRIES IN THE INTERNATIONAL OVERVIEW Public Procurement Policy Act ► Germany, France, Italy and other EU countries offer intellectual property protection for ► The Public Procurement Act reviewed in 2017 is projected to positively impact the fashion fashion design products. These countries provide protection for registered and industry, particularly the mass production sub-segment of the textile and fashion industry. unregistered designs. Unregistered designs are protected for three years, while registered designs are protected for five years and it can be renewed for a maximum of ► The Act makes it mandatory for 55% of all MDA procurements to be sourced locally, which 25 years, for five years at a time. 22 will directly impact the fashion industry as all regulated outfits and uniforms of these MDAs must be made in Nigeria. ► In the United States, the Design Piracy Prohibition Bill provides unique and special protection to fashion designers for a period of three years. In addition, the Innovative The National Environmental Standards Regulations and Enforcement Agency Act Design Protection Act also provides fashion designers intellectual property protection for registered designs. There are currently no design protection laws in the Nigerian fashion ► The National Environmental Standards Regulations and Enforcement Agency Act of 2007 industry. is expected to be amended as a result of Nigeria signing up to the Paris Environmental Accord of 2016. ► The Chinese government has implemented several regulations and strategies to restructure and reposition the Chinese fashion market. These policies include the ► The Paris Accord states that all signatory countries are to review their manufacturing reduction of export tariff and custom duties from an average of 25% to 14%. In addition, processes, in order to minimize the release of carbon emissions and toxic waste into the the government has provided funding for mass-production factories in the country atmosphere. This is expected to directly impact the margins of players in the textile equipped with world-class tools. This has aided the positioning of China as the world’s segment, as they may be required to change the dyestuff and detergent liquids used in largest exporter of textiles and apparel. production.

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POLICY ENVIRONMENT ON THE VALUE CHAIN OF NIGERIA FASHION INDUSTRY IMPACT OF THE POLICY ENVIRONMENT ON INTERNATIONAL TEXTILE INDUSTRIES NIGERIA LIMITED AND OTHER TEXTILE COMPANIES IN NIGERIA ► Despite the ban on the importation of textiles and piece goods by the Nigerian Customs Services, these goods are still illegally imported. This is as a result of lax A. Increased Unemployment policy enforcement and the weak regulatory infrastructure at Nigerian Ports and Borders. ► Nigerian private schools primarily source their school uniforms from foreign suppliers located in the United Kingdom, China, Thailand and India. According to a respondent ► These goods when imported or in most cases dumped, offer direct competition to interviewed, the primary reason given by these institutions are that foreign suppliers have Nigerian Companies who manufacture finished textile products. the equipment, infrastructure and training that enables them to deliver the goods at short notice. ► The case study below highlights the adverse effect dumping has had on the textile value chain. ► Zeco Limited, a textile company resident in the United Kingdom is reported as the highest supplier of Nigerian school uniforms with a client base of about 700 private schools in Nigeria. CASE STUDY: INTERNATIONAL TEXTILE INDUSTRIES NIGERIA LIMITED B. Dearth of manufacturing hubs

► According to a representative, ITINL currently employs about 20% of its potential manpower ► International Textile Industries Nigeria Limited (ITINL) was established in the 1970’s as a result of the decline in production. The consistent patronage of foreign manufactured and is located in Ikorodu Industrial Estate. The company is primarily engaged in the goods has resulted in a decline in the production capability of Nigerian textile companies business of manufacturing school uniforms for public and private schools in Nigeria. and has created unemployment. ► The Company has a 500 man capacity factory in its production complex and has the ► According to the National Union of Textile, Garment and Tailoring Workers of Nigeria, the ability to produce quality and affordable school uniforms. patronage of foreign textile companies has led to the closure of about 60 textile companies ► Due to the decline in the acquisition of Made in Nigeria products by schools in the in Lagos and these textile companies include Atlantic Textile Nigeria and Specomill textiles country, the Company had to cut its staff strength to 100 staff, which has resulted in with 1000 and 3000 workers respectively. 2 its weaving machine operating at a 40% utilization rate. Key drivers of foreign patronage by the schools are quick turnaround/delivery time and better apparel quality C. Smuggling and illegal imports due to stable power supply and better infrastructural support. ► The policy environment is established to ensure border controls which prevents importation of banned fashion items. However, as a result of lack of enforcement of the ban, fashion ► In addition, the Company has historically experienced difficulty in accessing foreign items such as apparel, textile and footwear are still being smuggled illegally into Nigeria. exchange required in the importation of raw materials for production. This has resulted in the infiltration of cheap goods that are dumped in the Nigerian fashion ► The Company has ceased producing goods in commercial quantity and only produces market. based on orders. According to the respondent interviewed, management is running its operations skeletally, as it hopes that policy change will foster growth in the industry ► These dumped foreign goods have reduced the competitiveness of domestic players and consequently reduced the profitability of the players in the midstream and downstream of and result in increased profitability. the fashion value chain. D. Lack of sustainable economic growth

► Patronage of foreign textile companies has resulted in a loss of revenue for the players in the midstream Nigerian fashion industry. This has reduced the contribution of the segment to the national GDP.

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REGULATORY ENVIRONMENT ON VALUE CHAIN OF NIGERIA FASHION IMPACT OF THE REGULATORY ENVIRONMENT ON THE LEATHER VALUE CHAIN IN INDUSTRY NIGERIA Background on the National Environmental Standards Regulations and A. Cost of compliance with environmental regulation Enforcement Agency Act (NESREA) ► Respondents interviewed that work in Kano tanneries stated that the frequent inspection of ► The NESREA is a key governing body for the Textile, Apparel, Leather and Footwear NESREA has resulted in their tanneries incurring additional cost, as they have to install Industry. antipollution equipment.

► The NESREA regulations cover the following: ► Tanneries operating in Nigeria and other players in the leather upstream segment have commenced the employment of compliance officers. This has been done to enhance internal − installation of antipollution equipment, polluter pays principles, best practices, quality procedures and minimize the occurrence of environmental regulation violations. minimization of waste and chemical usage; − banned and restricted chemicals; B. Limiting production and revenue − emission standards, effluent limitation standards for textiles, wearing apparel, ► Given the small-scale operation of most local tanneries operating in the country, compliance tanning and leather finishing sectors; with the NESREA regulation has proven to be difficult, due to the high cost of − sludge disposal permissible limit; implementation. This has consequently resulted in most tanneries scaling down business operations. − waste generation in textile manufacturing facilities; − air emission guidelines and soil quality standards for textile, wearing apparel, leather ► According to respondents interviewed, full compliance with the NESREA Act will result in and footwear industry, etc. the collapse of the upstream leather value chain. The respondents explained that the disposal techniques recommended by the Agency represents a significant capital outlay that only few tanneries can afford to incur and still remain profitable. He further explained, CASE STUDY: KANO TANNERIES that as a result of this situation most tanneries have decided to minimize their operating activities and production to enable the proper disposal of the effluents and waste. ► The Kano tanneries have historically discharged effluents and waste containing organic and inorganic compounds into water bodies in the environment. ► The resultant effect of limited production and activities is reduction in revenue for the tanneries as they are unable to maximize the production capacity of their tanneries due to ► The tanneries make use of harmful and toxic chemicals such as ammonia, sodium the caps on disposable effluents. chlorite, sulphuric acid, sulphides and hydrosulphides and these tanneries flush their waste directly into public drainages without observing proper disposal protocol for ► The installation of anti-pollution equipment in tanneries requested by NESREA implies that environmental protection purposes. tanneries would overhaul their production process, with direct margin impact on profitability. ► The National Environmental Standards Regulation Enforcement Agency held meetings with the Kano tanneries in 2017 regarding the fatal impact of the toxic waste on the D. Transferred cost of production environment and the Agency recommended environmental-friendly means of disposal such as treating the effluents to primary levels before discharge into the drains. ► Tanneries high cost of production is transferred to the middle and downstream players in the leather industry, translating to high cost of FLG, which may be uncompetitive in ► The Agency carries out regular inspections, identifying erring tanneries and has comparison to imported products in the local market. proposed sanctions to tanneries that have constantly violated the Agency’s regulations around disposal of waste and effluents.

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In this section Page

Business mechanisms in the Fashion Industry 44

Fashion Export Market in Nigeria 46

Impact of implementing the underlying mechanisms in the Nigerian Fashion Industry 47

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S/N Business Mechanism Impact on the industry Description

► Skilled labour has been identified as one of the most important factors in the local fashion industry. The Nigerian fashion industry has been negatively impacted by the lack of skilled labour across the full fashion value chain. ► According to FADAN, the fashion and design curriculum used in polytechnics and technical colleges in the country Availability of Skilled was last reviewed about 60 years ago. The direct implication is that Nigerian graduates enter the labour market 1. H Labour without the required skill set needed to match the quality delivered by comparable countries. ► The apprenticeship training method is the most effective education technique in the fashion industry. However, this method has its shortcomings, bordering around interpersonal issues, such as ill-treatment from the trainer and the apprentice’s potential to leave before fully attaining the full set of skills required in the industry.

► Accessibility to finance is the second most important factor in the industry. In 2012, the Institute for the Funding of Cinema and Cultural Industries (IFCIC), France’s lending institution for culture, launched the Youth Fashion Designers Initiative, providing loans of up to 100,000 Euros to emerging brands. The Initiative was launched to provide support to these emerging brands, as the finance required was not forthcoming from financial institutions.

► Fashion industry players believe that the difficulty in accessing finance has resulted in the exit of numerous skilled Accessibility to artisans from the industry. 2. H Finance ► The lending conditions and bureaucratic processes necessary to access finance for fashion related capital expenditure projects are extensive and financial institutions are primarily disposed to granting loans to typical corporate entities that are considered more credit-worthy.

► An established fashion player indicated that the key procedural bottleneck to accessing a BOI loan was the requirement to provide a detailed business plan – with potential additional cost implications. Therefore, the respondent simply looked to alternative capital sources, which were also unsuccessful.

► Nigeria’s infrastructure deficit has limited the development of the fashion industry, as the lack of access roads and inefficient transportation systems serve as a major limitation for route to market.

► The erratic electricity supply has negatively impacted the fashion industry. Based on our field study, over 15% of Access to total revenue is spent on Power supply. 3. Infrastructure H ► According to the Africa Finance Corporation, Nigeria has an infrastructure deficit that will peak at N7.6 trillion in 2019. This projection is expected to keep increasing, without proper investment by the government at different levels.

► Lack of power was indicated as a key constraint by most of the fashion industry respondents interviewed.

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S/N Business Mechanism Impact on the industry Description

► Foreign exchange accessibility has been identified as a major constraining factor in the fashion industry. According to various respondents, the difficulty in accessing foreign exchange at the official interbank exchange rate for the importation of textiles, fabrics and leather into the country has limited the development of the domestic industry. H Accessibility to Foreign ► In addition, the fluctuations in the parallel market exchange rate between FY15/16 deeply impacted the business 4. Exchange activities of the players in the industry. ► According to a retailer of fashion accessories, the wide disparity between the parallel market rate and the official interbank rate in December 2015, wiped out her margins, resulting in loss of patronage. She explained that customers were unwilling to pay quoted prices, as they believed she was hiking her prices, failing to understand that her cost of goods had increased due to the depreciation of the Naira.

► Technological advancement is another key industry driver. In the 90’s, the Chinese and Indian governments encouraged the automation of their respective fashion industries by providing specialized fashion equipment that led to their respective countries becoming the leaders of mass production fashion goods. These equipment include Fusing Machines, Auto Zipper Machines, Big Feed Bag Sewing Machines, Auto Cutting Machines and Auto M Technological Punch Machines. 5. advancement ► According to an established industry player, the need for specialized machines cannot be overstated. The respondent explained that a standard buttoned short sleeve shirt takes a Nigerian tailor about 6 – 8 hours to produce. However, with specialized machines a short sleeve shirt can be produced in c.20 minutes. The respondent further added that these machines in a 1000 man factory will aid the development of the Nigerian fashion industry and the economy as a whole due to the fashion sales volume possibilities.

► Government regulation can significantly impact the fashion industry within a short period. The Chinese cultural revolution of the 1960’s led to the rapid development of the fashion industry, as the Chinese government implemented and enforced policies and regulation that enabled the country’s self-reliance.

H ► According to a finished leather goods producer, effective regulation and targeted policy legislation would drive astronomical growth in the Nigerian fashion industry. She explained that local production levels in the leather 6. Government regulations segment of the fashion industry have suffered significantly as a result of the poor implementation of the government’s ban on the importation of all types of leather foot wears, bags and suitcases.

► Furthermore, the respondent stated that these imported shoes are being dumped in the country at very cheap unit costs. As a result, local traders of finished leather material and producers of finished shoes have had to close shop due to lack of patronage.

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Export Revenues of the Fashion Industry

► It is estimated that in 2017, Nigeria made exports amounting to $959.2m for textile and Chart 7.1: Global export distribution of textile and fashion clothing goods.9 1% 69% ► Textile and clothing export revenue of $8.8m was estimated for ECOWAS nations. The 3% 19% East Asia & Pacific largest export contributors in ECOWAS were Mali, Ghana and Burkina Faso, with export 1% revenues of $4.9m, $1.7m and $0.8m respectively. Europe & Central Asia Middle East & North Africa ► Amongst Non-ECOWAS countries in Africa, estimated exports amount to $64.8m. 69% Nigeria’s largest export partners in the African continent (Non-ECOWAS) were Swaziland, North America Tanzania and Egypt, with export revenues of $58.9m, $2.5m and $1.4m respectively. South Asia ► Nigeria’s largest textile and clothing export partners globally were Spain, Italy, Malaysia and Portugal, with export revenues of $325m, $186m, $179m and $127m respectively. Sub-Saharan Africa

► It is estimated that Nigeria generated export revenues of $68.8m from the trade of finished leather goods in 2017. Nigeria’s major global export partners were Togo, Chad Chart 7.2: Global export distribution of footwear and Ghana, with export revenues of $33m, $24m and $8m respectively. 2% ► In addition, it is estimated that the country generated export revenues of $108m globally from the trade of tanned goat hides and skin in 2017, with the European region 98% representing Nigeria’s largest trade partners, driving export earnings worth $92.2 million. Sub-Saharan Africa Export Potential of the Fashion Industry Other Sub-Continental Regions ► The global fashion industry is projected to have an annual revenue generating capacity of $5.5 trillion by 2027 and the Sub-Saharan African Fashion industry, currently valued at $31b, will play a vital role in the realization of the projections. 23

► The Sokoto Red Goat Skin Leather is considered to be one of the best globally due to the soft texture of the Goat Hide and Skin. It is also environmental friendly, due to minimal use of chemicals required for curing, soaking, liming and degreasing of the Goat Hide during Chart 7.3: Global export distribution of hides and skin the conversion process. 16% ► In 2015, the Nigerian Government signed the Paris Climate Agreement, in conjunction with 12% East Asia & Pacific 195 countries. The Agreement mandates all member nations to tackle greenhouse gas emissions by adjusting their industrial processes from 2020. This is projected to trigger 3% Europe & Central Asia the increase in the exportation of hides and skin in Nigeria particularly from the European 1% 68% Fashion and Automotive Industry. Latin America & Caribbean

► In addition, the Vlisco Group has opened talks with the Federal Government on a multi- Middle East & North Africa billion Naira investment in the Nigerian Textile Industry. The Company plans on opening a weaving mill that will produce 12 to 15 million metres of cotton fabric annually, that will South Asia cater to local and global demand of cotton fabrics.

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Impact of implementing the underlying mechanisms in the Nigerian Fashion Industry Having identified the prevalent issues hindering the development of the fashion industry and the economy as a whole, the Nigerian government (Federal and State) has commenced the implementation of various projects and strategies, which include the following:

The Calabar Garment Factory Project The Nigerian Railway Projects

► In 2017, the Cross River State Government launched the Calabar Garment Factory to ► The Federal Government has commenced various railway projects in the country as it tap into the revenue generation, skill acquisition and job creation potential in the seeks to tackle the country’s infrastructure deficit. The first of these projects is the fashion industry. The Factory is a 1000 person factory and is fitted with 2000 locked Abuja-Kaduna Light Rail Project that was launched in July 2016 and has the capacity straight sewing machines. to carry 800 tons of goods.

► The state government plans further investment in the project, with the factory ► Furthermore, there are 10 railway projects being planned and these projects will capacity size increasing from 1000 person to 3000 person, including investments in connect Lagos, Oyo, Osun, Ogun, Edo, FCT, Kogi, Anambra and Sokoto.24 In addition, capital equipment. the Lagos State Government commenced the Lagos Rail Mass Transit Project in 2010 which is expected to be delivered in 2019. ► The medium term plan is to backward integrate with the State’s cotton farm project, which will provide raw materials for the garment factory.

Skill Enhancement Projects for the Informal Sector Bank of Industry Fashion Industry Fund

► The Cross River State Government in partnership with the British Council have ► The N1billion Fund was set-up in 2015 by the Federal Government to provide commenced trainings for artisans and capital equipment handlers in the garment sub- affordable financing to participants in the value chain. The Fund disburses single digit sector in the state. The partnership is aimed at training skilled personnel that will interest rate credit facilities to players across the fashion value chain. The Fund enhance the quality of fashion goods in the country. supports skill acquisition programs aimed at promoting and developing domestic brands for the niche and mass production fashion market. ► In addition, the Nigerian Export Promotion Council established the Human Capital Development Centre (HCDC) a fashion training institute located in Apapa, Lagos. The ► Access to the fund has elevated the activities of mass production players, as it has institute has over 150 sewing machines and cutting tables. The primary objective of helped in brand positioning and production effectiveness. the project is to promote garment making skills and job empowerment.

The 2018 Budget of Consolidation Made in Nigeria Project

► In November 2017, the President presented the budget of the 2018 fiscal year named ► The Nigerian senate passed the Public Procurement Amendment Act in 2017, that the ‘Budget of Consolidation’. The proposed budget has an estimate of N8.6 trillion makes it mandatory for Made-In-Nigeria Products to be given preference in and the sum of N2.5 trillion have been appropriated for capital projects. procurement of Government Ministries, Departments and Agencies in the country.

► The capital spending in the 2018 budget is allocated to the vital sectors in the ► The Act is expected to spur growth of business activities in the fashion industry, economy that can spur economic growth, with the Power, Works and Housing Ministry particularly as regulated uniforms, apparels and shoes of all Ministries, Departments allocated N555.9b. This amount has been appropriated to the ministry, to support the and Government Agencies are required to be made in-country. resolution of Nigeria’s epileptic electricity issues and infrastructure deficit in order to drive industrialization.

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In this section Page

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Policy Factors Impacting Fashion Development POLICY AREAS THAT CAN BE FURTHER EXPLORED TO IMPROVE FORTUNES OF VALUE CHAIN PLAYERS Positive policy factors that promote:

− Improved access to finance BACKWARD PPP TRADE − Creation of manufacturing hubs INTEGRATION POLICIES EASING POLICIES * POLICIES ** − Improvement of electricity supply Increasing + Easing trade − Job creation Encouraging entry in partnerships with cotton farming by private sector restrictions on the − Foreign exchange generation 01 02 03 guaranteeing participants to importation of − International trade balance government promote the inputs required by acquisition of cotton development of the downstream produce e.g. Cross the industry. fashion segment, Negative policy factors that promote: River state where value is − Smuggling and illegal imports government hub. concentrated.

− Dumping of cheap foreign brands which - negatively impact demand for local products.

− Increased production cost. RESEARCH & EDUCATION & EASE OF DOING DEVELOPMENT TRAINING BUSINESS POLICIES Table 8.1: Ease of doing business ranking POLICIES POLICIES *** Promoting Encouraging the Developing policies TOPICS 2018 RANK research and establishment of that will create an 04 development that 05 training institutes, 06 enabling environment, th Overall 145 will enable players that will provide particularly relating to deal effectively artisans with the business set up, cross Starting a Business 130th with the evolving requisite skill set to border trading and local tax Dealing with a construction permit 147th trends in the global meet global industry and local fashion standards. administration. Getting Electricity 172nd industry.

Registering Property 179th ILLUSTRATION OF POLICIES Getting Credit 6th Implementation of PPP Models tailored for the fashion industry, such as the BOT Model. In this model private sector party builds a mass production factory, operates the factory for 10 years and transfers the factory to the public rd * Protecting Minority Investor 33 sector. During the construction and operation stages the private party is provided with tax breaks as incentives. st Paying Taxes 171 Easing of restrictions on the importation of lace fabrics, piece goods and textiles, as this will enhance the revenue generating potential of the downstream fashion segment, encompassing garment workers, fashion designers and Trading across Borders 183rd ** retailers. th Enforcing Contracts 96 Implementation of policies that reduce the process time of 131 hours and 135 hours required for export Resolving Insolvency 145th documentation and border compliance respectively. The compliance process time is relatively high when compared *** with Kenya, where documentary and border compliance takes 19 hours and 21 hours respectively. Source: The World Bank Group Project Costa: Final report – Fashion Segment | Page 49 of 83 15 May 2018 | Version 1.0 (Final) 10 Risk assessment

In this section Page

Macroeconomic Risk Impacting the Nigerian Fashion Industry 51

Political Risk Impacting the Nigerian Fashion Industry 52

Sector-Specific Risk Impacting the Nigerian Fashion Industry 53

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Table 10.1: Macroeconomic Risk Impacting the Nigerian Fashion Industry

Risk Description Impact Risk Countermeasures § The risk that there will be a sustained increase in the § Cost of production in the Nigerian fashion industry is primarily driven by input costs Inflation Risk general price levels, which will directly impact cost of (material or textile cost) and cost of power. Most respondents interviewed indicated production. that the high cost of fuel for energy generation is a key driver of cost inflation. § The risk that producers and retailers will be unable to § Countermeasures to the energy issue faced by the industry include: transfer this increase in the cost of production to the H − the partial deregulation of the Petroleum Downstream Sector, as it will enhance respective end users. competition and in the long term lead to the decline in prices of petroleum products. − encouraging the use and providing support in the acquisition of more affordable energy sources such as Inverters. − Improved supply of power from the national grid. § In addition, respondents represented that they pay multiple taxes in the form of VAT, WHT and CIT, and that these multiple taxes increase the unit prices of products retailed. The countermeasure to this issue is the creation of additional tax incentives for players in the fashion industry. § The risk emanating from the restriction on the § The development of trade protection laws that prevent the dumping of foreign Trade Risk importation of inputs required in the fashion fashion goods in the country at below normal trade prices. downstream industry. § Increase of import duties on imported finished goods, particularly goods that gravely H § The risk of foreign fashion goods being dumped in the impact the local fashion industry. Nigerian market at prices below the normal trade price. § Enhanced custom control at the borders, ports and other points of entry. § The risk that players across the entire fashion value § The development of additional investment incentives tailored specifically for the High Cost of chain would be unable to access financing as a result of fashion industry, particularly intervention funds accessible to players across the Borrowing the high interest rates charged by financial institutions. entire value chain. H § The intervention funds will be disbursed by the Central Bank of Nigeria or the Bank of Industry and will have single digit interest rates, payable over a long term. § The risk that the price of the Naira will keep § The creation of a special foreign exchange window for fashion industry players to Foreign Exchange depreciating when compared with the currencies of provide them with access to foreign currency at a rate close to the official interbank Risk foreign trade partners. rate. § The risk originating from industry players sourcing H § The education and awareness of market players on the benefits of utilizing hedging foreign exchange on the parallel market as a result of tools in mitigating risks emanating from FX risk. These tools include Forwards, not meeting the requirements of the official interbank whereby a party (domestic player) agrees an underlying amount that is going to be market. paid to the counterparty (foreign partner) at a future date, and bears the benefits if there is an upward change in the price of the goods.

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Table 10.2: Political Risk Impacting the Nigerian Fashion Industry

Risk Description Impact Risk Countermeasures § The risk that unfavorable government policies would § The development of a stakeholder management policy that is equipped with methods Unfavorable adversely impact the fashion industry. and approaches that aid dialogue between government and stakeholders in the fashion government § The risk that industry players would be unable to plan industry. policies and structure their business as a result of inconsistency § Organizing stakeholders’ workshops where proposed policies are discussed and in government policies. H deliberated by all parties, with a uniform resolution agreed. This will include: – a phased approach in the implementation of the policy; and – a communication channel where feedback is received on performance of the implemented phase(s). § The risk that the supply chain of local manufacturers § The streamlining of the duty and tariff structure that enables industry players to Trade Barriers involved in import or export are impacted as a result of export their finished goods. stringent border processes. § The implementation of favorable tariff systems such as Common External Tariff (CET) H would strengthen trade relations between Nigeria and fashion export trading partner countries.

§ The risk that players across the fashion value chain § The reduction of bureaucratic bottlenecks in value chain processes such as: Bureaucracy risk would be unable to access funds and other government – The time spent on export documentary and border compliance; incentives as a result of administrative bottlenecks or – Access to investment incentives such as the NGN1 billion fashion industry fund and delays. M Agricultural Credit Guarantee Scheme Fund disbursed by the Central Bank of Nigeria. § The risk that exporters in the upstream and downstream § The implementation of the current Single Window Scheme to reduce the duplication of fashion value chain would be delayed as a result of the information provided by importers to various government agencies. export bureaucratic processes. § The risk that the prevalent domestic terrorism and § The education and sensitization of market players on the benefit of buying a political Security risk social agitation issues will disrupt production of the and security risk insurance policy, which will have specific coverage protecting fashion fashion upstream industry. inventory and goods in transit. H § Development of socio-economic/political programs to address the grievances of restive communities. § General improvement in security, safety and prosecuting of violations and crimes.

Environmental laws § The risk that emanates from closure of certain § The education and sensitization of market players on the benefit of using segments of the fashion industry such as leather environmental friendly processes in their supply chain such as the elimination of tanneries, due to new environmental laws that may arise hazardous chemicals used in the tanning of leather. from Nigeria being a signatory to the Paris Environment § Intervention fund to assist industry players absorb the initial financial shock of L Agreement (2016). transitioning from less environmental to sustainable and environmentally friendly practices.

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10 Risk assessment 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Sector-Specific Risk Impacting the Nigerian Fashion Industry 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendation ... 6 Competitive landscape

Table 10.3: Sector-Specific Risk Impacting the Nigerian Fashion Industry

Risk Description Impact Risk Countermeasures § The risk originating from change in consumer § The establishment of modern fashion institutes and the revision of the fashion and Obsolescence Risk behavior and preference as a result of constant design curriculum in Nigerian educational institutions. This would introduce players change in celebrity fashion. to trend analysis and apparel inventory management. § The risk that industry players will be unable to § Investment in Fashion Research Institutes (FRI) for conducting consumer research generate high margin as a result of the and educating the market on the dynamics of seasonality and in anticipating the risk unpredictability of consumer taste preferences. of obsolescence. In addition, the research produced by the FRIs would assist the H government in making policies related to the fashion industry. § The establishment and publicizing of regional ‘outlet’ stores, where ‘out of season’ fashion goods are sold at marked-down prices. § The risk emanating from lack or inadequacy of § The utilization of leasing agreements, whereby the government, as the Lessor, will requisite equipment for production of finished provide access to high-cost equipment used in the textile mills and tannery factories Technological Risk goods. at nominal rental cost. Other concessions can also be provision of free government land to subsidize the overall cost of production, so that players can invest in § The risk that the technology utilized in the requisite machinery. fashion industry is out of date, and not at par with the global standards. § Encouraging private sector players to resource mass production factories with equipment by providing investment incentives such as tax holidays or through a PPP agreement whereby the factory is transferred back to the government after a pre- agreed period for a fee. H § The provision of financial incentives to financial institutions to encourage issuing of loans to the fashion industry players seeking to import automated fashion equipment. § The education and awareness of market players on the benefit of developing information technology infrastructure such as off the shelf Management Information Systems (MIS) to aid storage of consumer information and preferences and the use of royalty-free fashion apps, to support customer analytics.

§ The risk that apparel makers will be unable to § The enforcement of the standards issued by the Standards Organization of Nigeria Product quality Risk export their finished goods as a result of poor (SON) to ensure the output produced by local players in the textile, accessories and quality. leather industry meet global fashion standards. M § The sponsoring of local players to international fashion weeks and exhibitions to have a first hand experience of global best practice in the fashion industry. § Engagement with foreign trade partners to understand and agree minimum quality standards expectation, before consignments are shipped out.

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In this section Page

Strategies for improving the competitiveness of the Nigerian Fashion Industry 55

International Experience - China 56

International Experience - India 57

Recommendation 58

Roadmap 70

Abbreviations 71

Appendix A – Distribution of the Nigerian Fashion Industry 72

Appendix B – Historical Fashion Demand and Supply Analysis 73

Appendix B – Historical Demand of the Nigerian Fashion Industry 74

Appendix C – Historical Supply of the Nigerian Fashion Industry 76

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11 Strategic recommendations & roadmap 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Strategies for improving the competitiveness of the Nigerian Fashion 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment Industry 5 Value chain 11 Strategic recommendati ... 6 Competitive landscape

REVIEW OF BORDER IMPLEMENTATION OF CREATION OF SPECIAL FX 03 PATENT AND PROTECTION 01 CONTROL LAWS 02 INTERNATIONAL WINDOWS FOR PLAYERS IN 04 RIGHTS STANDARDIZATION LAWS THE INDUSTRY

− Effective implementation of the regulatory − The implementation of standardization laws − The creation of the special window for − Development of patents and trade ban on the importation of FLGs and second- developed by the International Organization fashion industry players who import the raw protection laws by the legislative arm of hand clothing by the Nigerian Custom for Standardization (ISO), particularly material used for their production will the government will increase the Services. This can be executed as an initial around production processes and the improve the competitiveness of the fashion competitiveness of the industry. high import duty, and eventual ban. This will delivery of finished goods. industry. result in the development of the − Patent laws protecting fashion designers, downstream segment of the industry. − According to a respondent interviewed, − A stable foreign exchange rate will enable textile manufacturers and FLG producers there have been instances where goods importers of leather stock and accessories from copyright infringements would − Temporary suspension on the ban of textile exported have been confiscated because the to finalize transactions with their foreign enhance the competitiveness of the and garment importation. This will reduce goods failed border standardization tests. suppliers without incurring foreign exchange domestic market on the global fashion the demand pressure created by the lack of losses. sufficient raw material required by the scene. midstream segment of the textile industry.

LIFT POTENTIAL : HIGH LIFT POTENTIAL : MEDIUM LIFT POTENTIAL : HIGH LIFT POTENTIAL : HIGH

CAPITAL EXPENDITURE CREATION OF ADDITIONAL INVESTMENT IN FASHION MARKET ENTRY 05 06 INVESTMENT 07 INTERVENTION FUNDS 08 HUMAN CAPITAL ENCOURAGEMENT − The N1billion BOI Fashion Industry Fund has been − The investment in capital expenditure − The regular revision of the fashion and ascribed a success by market participants who − The barrier to entry into the domestic projects, particularly mass production design curriculum in educational institutions have access to the facility. However, many fashion industry is currently very low. factories equipped with modern equipment, will enhance global competitiveness of the players also complain about stringent pre- However, barriers to entry in the upstream will enhance the growth of the industry and industry. qualification requirements of some and midstream segments still exist and they the economy, as these factories will create intervention funds. revolve around the unavailability of − Investment in Fashion Research Institutes jobs and generate foreign exchange. specialized equipment that will enable global (FRI) will enable competitiveness of − Due to the maximum obligor limit, the BOI − This strategy was utilized by the Chinese competitiveness. domestic players, as the FRI’s will assist in facility cannot cater to capital-intensive and Indian governments during the 1990’s the comprehension of international trends, projects that will spur massive growth in the − The utilization of leasing agreements, and has resulted in global garment market apparel inventory management and evolving industry. whereby the government, as the Lessor, will leadership positions for China and India fashion design cycles. provide access to high-cost equipment used respectively. − Therefore, the establishment of additional in the textile mills and tannery factories at − The Better Work program in China was intervention funds aimed at supporting the nominal rental cost, will encourage entry launched by the World Bank group and the upstream and downstream segments will spur into the industry. International Labour Organization in 2013. industry growth. Alternatively, current This program resulted in the training of intervention funds can be re-positioned to 350,000 textile workers. address a larger recipient pool in the industry.

LIFT POTENTIAL : MEDIUM LIFT POTENTIAL : HIGH LIFT POTENTIAL : HIGH LIFT POTENTIAL : HIGH

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ESQUEL SHANDON PEOPLES REPUBLIC OF CHINA MAJOR GUJIN ALIBABA GROUP G DEMIAN President: Xi Jiping PLAYERS IN THE Capital City: Beijing CHINESE LUTHAI SOE BELLE JINGDONG Fashion Hubs: Shanghai, Hong Kong and Guangzhou MARKET SINOMACH

THE CHINESE ECONOMY − EXPANSION OF THE E-COMMERCE MARKET: In 2015, the Chinese e-commerce − The transformation of the Chinese economy from an emerging third world economy to market grew by 36.2% and was valued at €513 billion. The online retail sector has grown the second largest economy in the world commenced in 1979 during the cultural since the introduction of online payment platforms such as Alibaba and Jindong. revolution driven by the Communist Party of China. − ESTABLISHMENT OF PILOT FREE TRADE ZONES: The free trade zones in Shanghai, − Economic policies and legislations were designed to foster self-sufficiency and Tianjin, Guangdong and Fujian opened up China to global economic development as the economic independence. The economic reform included ownership or land incentives incentives provided to foreign investors encouraged them to have a permanent presence for food crops farmers and price incentives for cash crop farmers, such as cotton in the Chinese market. farmers. − TAX INCENTIVES: The Government raised export tax rebate for textile and apparel industry players from 11% to 14% and this increased production earmarked for exports, − In addition, policies aimed at enhancing trade liberalization resulted in the elimination as manufacturers were able to maximize sales. of state price control, freedom to start a business and decentralization of the powers held by the Central Government. These policy factors encouraged internal competition − BETTER WORK PROGRAM: In 2013, the World Bank group and the International Labour and attracted foreign investment. Organization launched the Better Work program. The Program’s primary objective is the training of 350,000 textile workers. The training involves educating textile workers with − According to the IMF, between 1979 and 2016, China recorded an average annual real modern and efficient textile production processes. GDP growth rate of 9.6% . The economic growth recorded by the country can be largely attributed to large scale capital investment and productivity growth. − GLOBAL PARTICIPATION: China became a member of the World Trade Organization (WTO) in 2001 and in the process eliminated the quota placed on the country’s export of − In 2017, Foreign investment enterprises accounted for 43.2% and 46.8% of Chinese clothing and textiles to members of the WTO. exports and imports respectively and China’s FDI inflow was estimated at $123 billion. − MADE IN CHINA 2025 INITIATIVE: The initiative plans to increase local content FASHION IN CHINA composition of fashion goods consumed in the country to 40% and 70% by 2020 and 2025 respectively. In addition, the initiative targets on increasing innovation centres to − China is the largest textile producing and exporting country in the world. The country 15 and 40 by 2020 and 2025 respectively. The aim of the initiative is to reduce reliance currently has a 36.4% market share of the global market and it is projected that by on foreign goods while innovating industrial technology to be used in mass production. 2019 that annual sales would rise to $333 billion. Indigenous productions are made by complying with global quality standards and − The following factors have played a vital role in position of China as the Global Market creating innovative designs. Leader: SIMILARITIES TO THE NIGERIAN STORY − STATE INVESTMENT IN SHANGHAI TEXTILE INDUSTRY: Following the Second World − China is the most populated country in the world and has exploited the size of its War that ended in 1945, the Chinese government took over 40 textile mills and population in establishing its position as the leading fashion country. Nigeria is the incorporated them into the Chinese Textile Industries Corporation, with the primary eight most populous country in the world and if the population size is harnessed intention of reducing the government deficits. The Government is focused on expanding properly, this would translate in increased fashion output. the industry in the Municipalities and has consistently provided mass-production factories. In addition, the Shanghai Textile Holding Corporation established a textile − The investment incentives such as the Bank of Industry N1 billion fashion Fund and research institute which introduced new functional fibers and brand textiles. the Made in Nigeria project when efficiently implemented will also improve the performance of the Nigerian fashion industry.

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11 Strategic recommendations & roadmap 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... International Experience - India 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendati ... 6 Competitive landscape

TRIDENT MANDHANA REPUBLIC OF INDIA MAJOR ADITYA ARVIND BIRLA LIMITED GROUP INDUSTRIES Prime Minister: Narendra Modi PLAYERS IN THE Capital City: New Delhi CHINESE VARDHMAN RAYMOND VISAKA KAPOTEX Fashion Hubs: Mumbai, Kolkata and Bangalore MARKET GROUP LIMITED INDUSTRIES INDUSTRIES

THE INDIAN ECONOMY − INTEGRATED SKILL DEVELOPMENT SCHEME: The Scheme was established to provide textile weavers and workers with formal training required in operating heavy- − Post independence, the Indian textile industry grew rapidly, driven by various load equipment. The primary objectives of the program are to standardize courses, government policies and domestic factors. With 115 million direct and 60 million increase industry involvement and to set robust monitoring systems in vocational indirect employees, the Indian textile industry is the second-largest employer of training of the textile sector. labour after agriculture. − MARKET DEVELOPMENT ASSISTANCE: The initiative was established to provide − According to the Indian Ministry of Textiles, the industry contributed 2% and 10% to local exporters with a springboard to promote their products. The objective of the industrial production and GDP respectively in 2015. In addition, the industry program is to develop already established markets overseas for textile. recorded an annual historical average growth rate of 5.4% and is currently valued at USD 108 billion. − TECHNOLOGY MISSION FOR TECHNICAL TEXTILES: The Initiative has launched with two primary objectives. The first objective is the standardization and − Fashion related production levels are projected to peak at $350 billion by 2025. development of common testing facilities and several resource centers with IT − According to India International Textile Machinery Exhibitions Society, India is the infrastructure. Secondly, support will be provided in the creation of viable domestic second most fashion equipped country in the world, currently boasting of 24% of the and export markets for technical textiles. world’s spindles and 8% of world’s rotors. − ALLEVIATION PROGRAM: The government of India has developed programs FASHION IN INDIA targeted at minimizing the country’s poverty gap and it intends to achieve this objective by generating 10 million jobs in the textile industry within a three year − With an 11.4% market share of the global textile and apparel market, India is the period. The program will provide incentives to boost exports and implement labour- second largest textile producing and exporting country in the world. friendly policies. The government projects that by the implementation of the program, exports and FDI will increase by $30 billion and $11 billion respectively. − The following factors have played a vital role in India’s position as a global market leader: − SCHEME FOR INTEGRATED TEXTILE PARKS: The scheme was created by the government to provide funding for infrastructure, warehouses, factories and plant & machinery. The government approved a project budget of $692 million which is SIMILARITIES TO THE NIGERIAN STORY expected to create 66,000 jobs. In addition, a total of 74 textile parks have been − India is the second most populous country in the world and it is projected that by approved and are at various stages of implementation with 18 parks operational and 2050, it will usurp China as the world’s most populous country. The government, 32 still under development. having identified the infrastructure pressure the rising population would create, commenced developing investing incentives that will create jobs and reduce poverty − INTEGRATED PROCESSING DEVELOPMENT SCHEME: The Scheme was levels in the country. implemented to make Indian textiles more competitive and environmental-friendly. The process parks created for the purpose deal with waste water management and − The Indian solution to the potential issues created by an ever increasing population promote the use of cleaner technology in production processing. and crippling poverty, provides a remediation template that can be tailored to specification to solving the issues in the Nigerian economy.

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AREA POLICY ISSUE STAKEHOLDERS POLICY RECOMMENDATION & RATIONALE ADVANTAGES DISADVANTAGES

TEXTILE Access to textile • Fashion midstream IMPLEMENTATION OF BORDER CONTROL MECHANISMS − Job creation, driven by − Potential sanctions from the inputs for & downstream increased fashion and World Trade Organization production of players This will involve: leather midstream/ (WTO) for placing fashion goods downstream activity. restrictions on imports. • Nigerian Customs i. the easing of restrictions on some imported fabrics; and Service (NCS) ii. the introduction of high import tarrifs on FLG. − Increased tax revenues, − Potential retaliatory driven by growth in local measures from other • Government A number of respondents interviewed in the textile production segment enterprise. countries, who may place indicated that the unavailability of certain fabrics/material have limited similar restrictions on segment growth, as local production of the related fashion goods is − Currency appreciation, Nigerian exports. uncompetitive given the comparatively low unit price of similar finished driven by reduction in trade imports from China and India. deficits arising from continuous importation. The 3 year temporary suspension of the ban on fabric/textile importation should provide a lift in the competitiveness of locally produced garments - − Increased local value while necessary infrastructure/capacity development in the upstream creation, driven by the fashion segment is driven to support long term growth and development of substitution of imported the downstream textile segment (where the greatest value addition is cheap second hand goods for concentrated). competitively priced, locally produced fashion + leather After the initial 3 year period, the NCS can re-commence entry restrictions goods. in order to support the upstream fashion segment, and stimulate internal sourcing of requisite input. n o i

LEATHER Free entry of cheap • Local FLG Based on our research, several respondents agreed that the influx of cheap t h a g t FLGs into the manufacturers FLGs is a major deterrent to the growth of the local leather industry. i n H

country e • Nigerian Customs The effective implementation of the restrictions by the NCS on the m e

Service (NCS) importation of Finished Leather Goods will result in the expansion of l downstream leather segment, where the largest proportion of growth in p m • Government the leather industry is concentrated. The implementation of restrictions i f o

will also result in the creation of more jobs and also increased revenue for w d o

the government, due to the increased size of the tax net for the Federal o L

Inland Revenue Service resulting from the increased participation in the o h i industry. l e k i L Low High Impact

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AREA POLICY ISSUE STAKEHOLDERS POLICY RECOMMENDATION & RATIONALE ADVANTAGES DISADVANTAGES

TEXTILE & Lack of globally • Fashion & Leather STANDARDIZATION OF FINISHED FASHION GOODS − GDP growth, driven by − Temporary margin LEATHER competitive, locally downstream increased national output. constriction, as local produced goods. players This will involve the development of standards that will: export focused producers − Trade balance i. regulate Made-In-Nigeria goods will have to bear • Standards improvements, driven by additional costs to meet Organization of ii. increase the competitiveness of Made-In-Nigeria products in the rise in export revenues. global standards, driven Nigerian (SON) international market − Increased job creation, by increased production costs. • Government The respondents interviewed in both the textile and leather segments of driven by expansion of the industry represented that some goods that have been exported to the export market. Western Europe and North America were rejected as they did not meet global international standards. The International Standard Organization (ISO) has 162 member nations; and goods imported into member countries have minimum standard requirements established by the organization. In addition, the European Committee for Standardization (CEN) has 34 member nations and has developed European Standards that are more stringent than the ISO standards. Consequently, goods exported to these 34 European countries must meet the CEN minimum standards. The Standard Organization of Nigeria (SON), the regulatory body in charge of standardizing goods manufactured, imported and exported out of Nigeria has been unable to fully implement all the standards developed by the ISO and CEN. Failure to implement these standards has resulted in the rejection of Made-In-Nigerian goods from several markets, resulting in the goods’ diversion to secondary markets at discounted prices thereby reducing the competitiveness of Made-In-Nigeria products. n o i t h a t

A focused export market capacity development program should include: g i n H i. Education of the downstream textile and leather segment players on e m e

export requirements including modern and global packaging methods l

to promote the marketability of finished goods. p m i

ii. SON development of global export market export standards, with f o

implementation support for local companies. The European d w o Standards are globally accepted; and local adherence of Nigerian o L o h

export companies will have promote Nigeria’s image and boost local i l

export earnings in the short to medium term. e k i L Low High Impact

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AREA POLICY ISSUE STAKEHOLDERS POLICY RECOMMENDATION & RATIONALE ADVANTAGES DISADVANTAGES

TEXTILE Proliferation of • Fashion midstream ESTABLISHMENT OF MASS PRODUCTION FACTORIES − Immediate job creation − Potential of excess supply numerous & downstream and promotion of local of fashion goods, leading independent sole players This will involve the development of mass-production factories fully enterprise. to margin constriction trader fashion equipped with industrial equipment to support large scale production of and strong industry producers • Fashion Designers fashion goods. − GDP growth, driven by competition. Association of increased national output. Nigeria Nigeria shares several similaries with the Indian and Chinese economies, which serve as global fashion leaders. Both governments developed • Government targeted legislation to promote region mass-production hubs (textile factories) in a bid to support their growing populations. The textile factories are fitted with various industrial equipment, with large scale production capacity for local and export needs. Closer to Nigeria, Ghana and Kenya have a 2,000 man and 5,000 man textile factory, respectively. Nigeria currently has only one mass-production garmenting factory located in Calabar, Cross-River - a 1,000 man factory, equipped with 2,000 locked straight sewing machines. The structuring of Private-Public Partnership (PPP) agreements between the Federal Government, State Governments and the private sector will facilitate the establishment of these factories which will serve as production hubs for mass market and bespoke fashion players. The agreement should consider the following general terms: − Private partners to develop and equip the mass-production factories; and transfer the factories to the Federal and Domiciled State n

government after a period of 10-15 years (depending on agreed o i t h payback period and strength of negotiation) a t g i n H − Federal Government to provide tax breaks to the private partner – the e

tax break will be inclusive of duties on exports m e l − The Federal and State Government to provide off offtake guarantee to p m i

the private partners, with commitment to c.5-10% of goods f

manufactured for Federal and State MDA’s (uniforms and ancillary o d w o apparel socks & gloves) o L o h i

− Respective state governments to provide freehold property where the l

factories will be located e k i L Low High Impact Project Costa: Final report – Fashion Segment | Page 60 of 83 15 May 2018 | Version 1.0 (Final)

AREA POLICY ISSUE STAKEHOLDERS POLICY RECOMMENDATION & RATIONALE ADVANTAGES DISADVANTAGES

LEATHER Proliferation of • Leather DEVELOPMENT OF THE ABA LEATHER CLUSTER − Job creation within the − Potential for Dutch cheap imported downstream cluster, environs and Disease, whereby other FLG alternatives players – FLG The development of the Aba Leather Cluster is regarded a major catalyst state; and the promotion industries are ignored due producers for the growth and expansion of the Nigerian Fashion Industry. of local enterprise. to the untapped benefits The Aba Leather Cluster is the largest manufacturing cluster in West or potentials existent in • Abia State − Development of the Abia the Leather industry. Government Africa, estimated to produce c.20,000 pairs of shoes on a daily basis. State Economy, which will trickle down to • Nigerian The Abia State Government has commenced different initiatives that will facilitate the development of the cluster. These initiatives include: neighboring states in the Government South East and North − Provision of freehold land at Umukalika, Obingwa LGA for the Aba Central regions. Industrial Village, currently under construction. The Industrial Village will host 30,000 artisans in the leather and garment segment. − Signing of Memorandum of Understanding (MOUs) with global leather companies regarding the development of the cluster. However, despite significant efforts of the state government, large gaps still exist in the Aba Cluster. Players in the cluster do not have access to power and infrastructure, face difficulty with excess supply of their final products and do not have access to research and development. Access to infrastructure such as a Water Reservoir and most importantly an Industrial Power Plant that will serve the entire cluster will facilitate the development of the industrial hub. The structuring of offtake agreements between the Federal Government and the Leather Products Manufacturers Association of Aba (LEPMASS), whereby the FG will guarantee purchase of c.10% of all leather products n

manufactured in the cluster will significantly drive growth and eliminate o i t h oversupply issues. a t g i n H The cluster should also be designated a free trade zone. e m e l p m i f o d w o o L o h i l e k i L Low High Impact Project Costa: Final report – Fashion Segment | Page 61 of 83 15 May 2018 | Version 1.0 (Final)

AREA POLICY ISSUE STAKEHOLDERS POLICY RECOMMENDATION & RATIONALE ADVANTAGES DISADVANTAGES

TEXTILE Lack of standard • Fashion upstream, SKILL (CAPACITY) DEVELOPMENT SCHEME − Weaving companies and − Labor flight may occur technical know- midstream & other beneficiaries are when players have how across critical downstream The skill development scheme will entail establishment of modern fashion able to undertake mass been trained and areas of the players institutes, revision of the fashion and design curriculum in Nigerian educational production using updated with the fashion industry institutions and sponsoring local fashion players to international fashion shows. modern production latest knowledge and • Fashion Designers value chain Low productivity in the Nigerian textile segment can be attributed to the techniques thereby skills, thus the Association of increasing productivity medium term risk of Nigeria relatively low degree of process automation and skill gap of many garment producers. and competitiveness brain drain. • Fashion Research & (subject to funding). development Across the value chain, there is a strong need to up-skill and re-tool, with focus on the following: − Value added to each Institutes player results in • Government − Development of best practice cotton farming (including seedling species). improved individual and The set-up of demonstration farms to educate farmers on best practice collective production. would be useful. − Automation of garment weaving processes; and deployment of newer version industrial machines for mass production (subject to funding). − Trend analysis and apparel inventory management/ course standardization in vocational training institutes for fashion designers/entrepreneurs. − Introduction of machine and pattern cutting skills which will enable Nigerian fashion designers to manufacture textiles and garments that meet international quality standards and position them to compete globally. n o i t h a g t i n H e m

LEATHER Lack of capacity • Local FLG The largest concentration of FLGs producers in Nigeria is located in Aba. where e l

development in the manufacturers 20,000 shoes are made daily. However, this level of output could be increased p m

downstream by training the players in the leather industry in the use of heavy duty machines i

leather industry • Abia State capable of mass production. The skill development scheme in this sub-sector f o w d • Federal would be introduced by; o o L

Government o

− Promoting research and development into evolving trends in the global h i leather industry by sponsoring players in the downstream segment of the l e k

fashion industry to international leather fairs. i L Low High − Introducing enterprise support skills via short courses on inventory & Impact personnel management and business development to local FLG producers.

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AREA POLICY ISSUE STAKEHOLDERS POLICY RECOMMENDATION & RATIONALE ADVANTAGES DISADVANTAGES

ACCESSORIES Proliferation of • Accessories value PROMOTION OF THE PLASTIC AND RUBBER INDUSTRY − Diversification into other − The lengthy imported chain players sources of raw material decomposition of plastics accessories, with The promotion of the plastic and rubber industry is expected to provide will enable finished causes sustainability very limited local • Nigerian alternative sources of raw material for the accessories industry and accessory producers issues due to its non bio- value add Government reduce Nigeria’s reliance on imported raw material for fashion source for affordable degradability, and this accessories. inputs thus improving may result in low demand In 2017, the accessories industry imported precious stones (key raw their gross margins. for fashion items. materials for accessories) worth $8.1million from China and India. As − Plastic requires less − Non renewable resources reported by our respondents, raw material for accessories is not locally energy and heavy such as oil and coal are available in Nigeria. However, plastic and rubber (viable substitutes) chemical requirement to used in manufacturing of which are both produced in Nigeria are utilized in producing accessories be produced and are thus plastics. in other countries. environmental friendly. Rubber is grown in Edo, Delta, Ondo, Ogun, Abia, Anambra, Akwa Ibom, − Increase in the sectors Cross River, Imo, Rivers, Ebonyi and Bayelsa states. Plastic and rubber contribution to GDP will can be further harnessed to the manufacture of raw materials for attract foreign direct accessories such as buttons, necklaces and earrings for the local investment. market. Earring backs which are either made from flexible silicone rubber or plastic can be produced in Nigeria. The capacity of rubber, formerly the fourth largest foreign exchange earner in Nigeria after crude oil has dropped from 130,000 metric tonnes to c.60,000 metric tonnes due to sustainability challenges in the upstream rubber industry. The decline in rubber production can be attributed to the lack of modern production processes to support value added finished goods. As a long term investment, the growth in the rubber industry requires long term n o

capital which can be supported by the government in collaboration with i t h development financial institutions ready to provide long term financing a t g i with a significant moratorium period at low interest rates. n H e m

The rubber industry can be supported to provide raw materials for e l

accessories sub-sector by providing grants for research for species of p m

rubber with shorter maturity time. Utilizing alternative sources of raw i materials for accessories would result in cost savings for producers f o d accessories. w o o L o h i l e k i L Low High Impact Project Costa: Final report – Fashion Segment | Page 63 of 83 15 May 2018 | Version 1.0 (Final)

RECOMMENDATION ADVANTAGES DISADVANTAGES

BACKWARD INTEGRATION − Guarantee of input and controlled − Lack of raw material supplier cost of production leading to competition might lead to low Backward integration involves sourcing for raw materials locally as a substitute to import. The policy will economies of scale for Nigerian efficiency resulting in potentially ensure conservation of foreign exchange, boosting of local capacity, creation of jobs, and less emphasis on weaving companies as the value chain higher costs. imported raw materials by ensuring that the output of the upstream textile and leather sub-sectors are is now controlled. guaranteed as inputs to producers in the midstream and downstream. − In response to the backward integration, weaving companies and tanneries will increase their installed TARGET AREAS capacity, thus creating more jobs. A. TEXTILE − An upgrade of technology and machinery of textile mills will be Although the Nigerian weaving companies flourished in the 1980’s with c.500,000 direct jobs, export of required to meet the demand of the cotton has increased over the years. About 93% of all cotton produced in 2017 worth $8m was exported to growing industry. This will result in a Asia. This has led to the collapse of some weaving companies as inputs for production are reduced. This reduction of lead time of production. implies that Nigerian weaving companies are dependent on imported cotton which increases the cost of production as a result of the foreign exchange involved. − Nigeria will move from an importer of raw cotton to an exporter of cotton The backward integration policy for Nigerian weaving companies will involve construction of industrial parks and quality textile fabric thus with factories where cotton are ginned and transferred to weaving mills where they are woven into fabric. lessening the strain on foreign exchange. This is already implemented in Cross River state where the government rolled out plans to harvest 30,000 tonnes of cotton by allocating lands to the community farmers and training them to ensure the Calabar Garment Factory operates at optimum capacity. B. LEATHER In 2017, Nigeria imported $36 million worth raw hides and skin for production of finished leather goods. This

has contributed to the depreciation of the Naira against the dollar as the country’s foreign reserves are h g n depleted to sponsor these imports. In the same year, local tanneries exported tanned hides and skins worth i o H i

over $108 million to international re-tanners further reducing the raw hides and skin available to finished t a leather goods producers in Nigeria. t n e

The backward integration policy will be ensure tanned raw hides and skins are fed into the machines of m e finished leather goods producers. l p m i f w o o d L o o h i l e k i L Low High Impact Project Costa: Final report – Fashion Segment | Page 64 of 83 15 May 2018 | Version 1.0 (Final)

RECOMMENDATION ADVANTAGES DISADVANTAGES

PROMOTION OF MADE-IN-NIGERIA INITIATIVE − Reduce reliance of consumers − Trade war retaliation from on foreign goods. other countries may surface The liberalisation policy opened up the Nigeria’s borders to cheap and substandard fabrics from China, Indonesia, India, − Introduction of innovative thus impacting other sectors Malaysia, Japan and other countries. The influx of cheap fabrics has hampered the growth of the Nigeria weaving of the economy. companies thereby reducing employment in the upstream textile industry. designs into Nigeria. − Indigenous productions will be − Increased demand may similar to global quality increase the turnaround time as current infrastructure are TARGET AREAS standards. unable to meet up with − Prevent the dumping of A. TEXTILE & LEATHER increased demand. foreign fashion goods in the − The Nigerian textile industry The made-in-Nigeria initiative will revive the weaving companies that have become defunct as a result of unbarred country. is still in the infancy stage and competition from foreign textile mills. The initiative will lead to an increase in the range of textile fabrics and finished − Decrease in cost of poor output as a result of the garments produced by Nigerian fashion players. production from reduced gap in industrialization level importation of raw materials The enforcement of the Public Procurement Act (2017) in all MDAs and private organization to increase local content might discourage exports. will increase the profit consumption to c.50% by 2022 and reduction of reliance on foreign goods. margin. − Patent rights are not applicable outside the country To enshrine the made-in-Nigeria initiative, patent rights could be given to weaving companies, fashion designers, FLGs of registration. producers, and finished accessories producers. The policies can be implemented by; − Establishment of innovation centres where reverse engineering processes are performed on imported goods. − Raising domestic content of core components and materials to C.50% by incentivizing corporations that utilize local raw materials. − Provision of patent right to textile fabric manufacturers and finished leather goods producers. h g n i o H i t a t n e m e l p m i f w o o d L o o h i l e k i L Low High Impact

Project Costa: Final report – Fashion Segment | Page 65 of 83 15 May 2018 | Version 1.0 (Final)

RECOMMENDATION ADVANTAGES DISADVANTAGES

DIVERSIFICATION INTO OTHER SOURCES OF RAW MATERIAL FOR ACCESSORIES − Reduction of dependency on − The development of the imported raw materials adds mining industry to provide This will involve development of the solid minerals deposited in Nigeria to aid diversification of the sources of raw value to the accessory alternative source of raw materials for the accessories sub-segment. producers and increases material for the accessories employment in the sub sub-sector may become a segment. white elephant project. TARGET AREA − Promotion of local content of A. ACCESSORIES raw materials in the accessory subsector. According to respondents in the fashion accessories industry, Nigeria imports all raw materials for producing fashion − Reduction in lead time and accessories finished goods as they cannot be sourced in the country. In 2017, precious stones which are raw materials price ranges of finished for accessories worth $8.1m were imported from China and India. accessory as input is readily The Nigerian mining sector which has the potential of mining gold, copper and precious stones such as sapphire, emerald, available. topaz has not performed well since the 1970’s as the industry’s output has been limited due to poor policy choices and deterioration in infrastructure. Despite the country’s relatively robust iron ore reserves, only 18 of the paltry 30 steel rolling mills are operational. When fully harnessed, the steel sector could create a solid backbone for the industrial fashion accessories subsector. Gold which can be found in Osun, Zamfara, Kaduna, Niger and Kebbi states with minor deposits in Abia, Abuja, Bauchi, Edo, Cross River, Sokoto, Oyo and Kogi states is a main component of jewelry and if mined and refined on an industrial scale would provide raw materials to the fashion accessories producers. Platinum and nickel which are both present in Nigeria can also be used in production of accessories by Nigerian fashion accessories players. Thomson Reuters predicts that Platinum which commands a 30% premium on gold will be limited in global supply in 2018 due to lack of investment in prior years while demand will rise by 2% compared to 2017. h g n Development of Nigeria’s solid mineral industry can be initiated by; i o H i t a

− Granting tax holiday to investors in the solid mineral mining industry; and t n − Reorganizing the Ministry and expanding access to finance to drive sector transformation through monitoring the e m e

$150m Solid Minerals Investment Fund. l p m i f w o o d L o o h i l e k i L Low High Impact

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RECOMMENDATION ADVANTAGES DISADVANTAGES

EASE OF MARKET ENTRY − Increase in output from the − Increased availability of modern technology enabled machine enabled processes This will addresses the major barriers to entry faced by weaving companies, fashion designers, finished leather goods machines would require a might reduce the need for producers and accessory producers by government’s acquisition of modern technology enabled machines. large workforce, thus manual labour thus reducing increasing employment in the employment in the long term. sector. − When a project is publicly TARGET AREAS financed, contractors are A. TEXTILE & LEATHER managed by the government directly. This is not always When barriers to market entry are alleviated, cotton farmers, moribund weaving companies, garment manufacturers and effectively done by the public finished leather goods producers will be empowered to engage in large scale production. sector and can lead to cost and time overruns. Increasing partnerships with private sector participants through the following initiative would promote the development of the textile and leather industry: − Agreement to finance infrastructure through public − Creation of additional investment incentives such as subsidies to support cotton farmers in accessing arable land finance can take a long time and provision of quality cotton seeds and granting of pioneer status to companies as a result of the lengthy − Signing of PPP agreements with private investors to build, own, operate and transfer to the government equipped budget process in Nigeria. factory to textile manufacturers, FLGs producers and accessory producers after 10 years. − Guarantee of transfer of project risks from private investors to the government by promising private investors of infrastructure project of repayment even if the project company which owns the asset is unable to make repayments. − Establishment of mass-production garmenting facilities equipped with specialized machinery and equipment. h g n i o H i t a t n e m e l p m i f w o o d L o o h i l e k i L Low High Impact

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RECOMMENDATION ADVANTAGES DISADVANTAGES

PROVIDING OF ON-LENDING FACILITIES TO COMMERCIAL BANK’S BY THE DEVELOPMENT BANK OF NIGERIA − Increased participation in the − Overcrowding in the industry industry, as more people will that may arise in the long as a The Development Bank of Nigeria (DBN) was established by the Federal Government in 2015. The primary objective of enter the industry due to the result of increased the DBN is supporting Micro, Small and Medium Enterprises (MSMEs) operating in various sectors of the economy. increased access to capital. participation. − Increase in the profitability earned by players in the TARGET AREAS industry due to the lower cost A. TEXTILE & LEATHER of capital margin. According to respondents interviewed, poor fund disbursement structures, bureaucratic bottlenecks and issues pertaining to red-tapism has led to fashion players seeking alternative means of financing their business needs. Consequently, players have had to incur high cost of capital, as they are financing their business operations at a cost above the lending rate and this has directly impacted the margins of the business. The development of fashion focused by the Development Bank of Nigeria will tackle the problems posed by the high cost of borrowing. The DBN currently has funds aimed at developing the real sector, with a core focus on the manufacturing segment and a bias for capital intensive businesses. The creation of these funds by the DBN will open the industry and have a cascading impact on the Nigerian economy. The terms of the fund will include the following: − Provision of single digit interest rates; − Tenure of 10 to 15 years; − Shelf disbursement clause as against bullet disbursement;

Moratorium period of 2 to 3 years depending on the Loan Tenure; h − g n i o H i − Option of assisting in negotiation with foreign suppliers during the obligor’s procurement process t a t n e m e l p m i f w o o d L o o h i l e k i L Low High Impact

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Segment Sub-segment Attractiveness Recommendation Most lift

− Adoption of backward integration techniques and technological mechanisms. Upstream − Creation of additional investment incentives to support arable land and raw material acquisition. ü − Implementation of the provisions of the National Cotton, Textile and Garment Policy. ü

− Temporary suspension on the ban of textile and garment importation to bridge the supply and Midstream demand gap, as domestic production is currently not sufficient. − Development of patent and protection rights for Nigerian textile designs. Textile − Establishment of mass-production garmenting clusters equipped with specialized machinery and equipment. These production clusters can be financed under a public private partnership scheme. − Revision of fashion and design curriculum in tertiary educational institutions and establishment of Fashion Research Institutes to raise awareness on the global evolution of fashion consumer’s Downstream taste. ü − Creating awareness and sponsorships of annual fashion weeks to showcase domestic fashion ü designs. − Encouraging public-private partnership arrangements between the government and the private sector, in regard to development of regional garment production and manufacturing hubs.

− Development of the capacity of input suppliers to tanneries and this will include improving leather processing techniques to reduce skin damage and improve skin preservation. Upstream − Creation of regional production and manufacturing hubs. ü − Provision of additional investment incentives, focused on the development of tanneries. ü Leather − Establishment of free trade zones that will foster inclusive participation of foreign investors.

− Interventions through Business Development Services (BDS) to improve individual marketing skills. Midstream & − Enforcement of the ban on the importation of finished leather goods. downstream − Development of patent and protection rights for leather producers in the country.

Upstream, − Development of the local solid mineral industry to reduce the importation of raw materials into the Accessories midstream & local accessories market. downstream − Provision of tax incentives aimed at encouraging entry into the industry.

Project Costa: Final report – Fashion Segment | Page 69 of 83 15 May 2018 | Version 1.0 (Final)

11 Strategic recommendations & roadmap 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Roadmap 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendati ... 6 Competitive landscape

BIG Platform Segments Recommended Intervention Most critical intervention with potential for market ‘lift’ TA Grant Technical assistance will improve the competitiveness of upstream textile players by opening them up to global markets through the initiative AGOA and in addition increase their output capacity through the following: • Creation of cotton cultivation clusters where cotton farmers are introduced to genetically modified cotton seeds • Identification of sources and procurement of good quality cotton seeds • Setup of demonstration farms to teach best practices in cotton farming • Technical assistance (TA) to build capacities on strategies for backward Textile üü• Modalities for Farmer Business Schools (FBS) integration for cotton farmers Government grants may be provided to the textile segment players to fund the following: • Procurement of good quality cotton seeds • Resuscitation of moribund weaving companies by acquisition of new technology enabled weaving machines • Creation of industrial manufacturing and assembly hubs

Training and capacity-building of leather industry players to improve quality of output by educating them in the following: • Best practices in animal skinning • Best practices in skin processing so as to reduce skin damage, improve skin preservation and sorting and thus increase skin value üüGrants may be provided to leather segment players to fund the • Technical assistance (TA) to build local suppliers’ capacities in the tanning Leather following: process • Procurement of necessary modern tools and equipment to implement environmental friendly practices in the tanning process • Acquisition of infrastructure by local tanners • Seed capital to finance other needed activities through suppliers’ groups

Training and capacity-building of accessory manufacturers through business development services that addresses the following: • Improving individual marketing and advertising skill • Enable recipients implement improved and modern production techniques Government grants may be provided to accessory segment players to fund the following: • Technical assistance (TA) to provide business development service to Accessories üü • Mining of solid minerals such as precious stones to encourage local accessory manufacturers processers of accessory raw materials • Promoting linkages with the supply chain in the accessory industry • Sustainable infrastructure and distribution networks

Project Costa: Final report – Fashion Segment | Page 70 of 83 15 May 2018 | Version 1.0 (Final)

11 Strategic recommendations & roadmap 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Abbreviations 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendati ... 6 Competitive landscape

AFDB Africa Development Bank AGOA Africa Growth and Opportunity Act BMI Business Monitor International CTG Cotton Textiles & Garments DSC Decision Support Consulting ECB European central Bank EEG Export Promotion Grant EIU Economist Intelligence Unit EU European Union FLG Finished Leather Goods FMARD Federal Ministry of Agriculture & Rural Development FMITI Federal Ministry of Industry, Trade & Investment GDP Gross Domestic Product GWI Global Wellness Institute

ICAC International Cotton Advisory Committee

IFCIC Institute for the Funding of Cinema & Cultural Industries ITC Innovation Tax Credit MAN Manufacturers Association of Nigeria NBS National Bureau of Statistics NEPC Nigerian Export Promotion Council NESREA National Environmental Standards Regulations & Enforcement Agency NRC Nigerian Railway Corporation OEC Observatory of Economic Complexity R&D Research & Development SME Small & Medium Enterprises SON Standards Organisation of Nigeria VAT Value Added Tax WHT Withholding Tax

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11 Strategic recommendations & roadmap 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Appendix A – Distribution of the Nigerian Fashion Industry 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendati ... 6 Competitive landscape

States in the Fashion States in the Fashion GDP Fashion GDP (N’m) Population Fashion GDP (N’m) GDP (N’m) Population South West Employment North West (N’m) Employment

Ogun 3,614,457 5,049,815 71,928 4,304 Kaduna 3,567,507 7,986,812 70,993 6,807

Ekiti 983,187 3,165,547 19,565 2,698 Kebbi 1,135,775 4,297,173 22,602 3,662

Ondo 2,904,684 4,521,364 57,803 3,853 Zamfara 1,423,344 4,370,125 28,325 3,724

Osun 2,513,204 4,554,168 50,013 3,881 Sokoto 1,663,272 4,837,256 33,099 4,123

Oyo 5,565,297 7,588,552 110,749 6,467 Kano 4,278,316 12,656,089 128,349 54,864

Lagos 11,626,675 12,146,732 348,800 52,656 Jigawa 1,031,518 5,640,618 20,527 4,807

Total 27,207,504 37,026,177 658,859 73,860 Katsina 2,078,917 7,579,314 41,370 6,460

Total 15,178,648 47,367,387 345,266 84,447 States in the Fashion GDP Fashion GDP (N’m) Population South South (N’m) Employment States in the Fashion GDP Fashion GDP (N’m) Population Akwa Ibom 3,859,219 5,305,766 76,798 4,522 North East (N’m) Employment Bayelsa 1,497,221 2,204,658 29,795 1,879 Taraba 1,172,714 2,968,146 23,337 2,530 Edo 4,103,980 4,099,297 81,669 3,494 Borno 1,788,242 5,671,607 35,586 4,834 Cross River 3,207,787 3,741,856 63,835 3,189 Bauchi 1,627,024 6,326,949 32,378 5,392 Rivers 7,274,828 7,068,890 218,245 30,644 Adamawa 1,581,800 4,111,725 31,478 3,504

Delta 5,782,095 5,481,120 115,064 4,671 Gombe 863,396 3,152,156 17,182 2,686

Total 25,725,130 27,901,586 585,406 48,399 Yobe 694,238 3,188,134 13,815 2,717

States in the Fashion GDP Fashion Total 7,727,413 25,418,718 153,776 21,663 GDP (N’m) Population North-Central (N’m) Employment States in Fashion GDP Fashion Benue 2,369,592 5,557,048 47,155 4,736 GDP (N’m) Population South East (N’m) Employment Kogi 1,602,512 4,329,537 31,890 3,690 Ebonyi 943,141 2,832,072 18,769 2,376 Kwara 1,325,991 3,090,148 26,387 2,634 Enugu 1,517,588 4,244,259 30,200 3,638 Niger 2,072,012 5,377,452 41,233 4,583 Imo 4,906,272 5,127,173 97,635 4,461 Nassarawa 1,043,255 2,442,194 20,761 2,081 Abia 2,998,928 3,692,701 89,968 15,638 Plateau 1,779,265 4,065,275 35,407 3,465 Anambra 2,335,070 5,449,188 70,052 23,192 FCT 3,952,083 3,449,435 118,562 14,953 Total 12,701,000 21,345,393 306,623 49,306 Total 14,144,711 28,363,239 341,326 36,142 Project Costa: Final report – Fashion Segment | Page 72 of 83 15 May 2018 | Version 1.0 (Final)

11 Strategic recommendations & roadmap 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Appendix B – Historical Fashion Demand and Supply Analysis 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendati ... 6 Competitive landscape

Historical fashion demand and supply analysis (for base year 2016)

South West South East South South North West North East North Central

Average yearly income (a) - (N) 658,324 658,324 658,324 658,324 658,324 658,324

Regional Population (b) 37,026,177 21,248,908 27,901,586 47,367,387 25,418,718 28,311,091

Household Divisor (c ) 4.0 4.1 4.7 5.2 5.9 5.4

Number of Household (d = b/c) 9,256,544 5,182,661 5,936,508 9,109,113 4,308,257 5,242,795

Annual Income Per Region (e = a*d) 6,093,805 3,411,870 3,908,146 5,996,748 2,836,229 3,451,458

Average Fashion Multiplier per region (f ) 4.86% 4.96% 4.86% 4.85% 4.80% 4.85%

Fashion Spend (g = e*f) - (N’m) 300,294 169,424 191,406 294,033 135,997 167,505

Demand Divisor (h) 0.20 0.15 0.11 0.25 0.14 0.15

Regional Demand (i = g*h) - (Value: N’m) 248,851 142,813 187,525 318,354 170,838 190,278

Excess Supply factor ( j ) 1.005 1.005 1.005 1.005 1.005 1.005

Regional Supply (k = i*j ) 250,095.50 143,527.01 188,462.91 319,945.82 171,692.23 191,228.94

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11 Strategic recommendations & roadmap 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Appendix B – Historical Demand of the Nigerian Fashion Industry 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendati ... Value: N’m 6 Competitive landscape

South Western States 2013 2014 2015 2016 2017 North Western States 2013 2014 2015 2016 2017

Ogun 24,260 26,213 28,575 33,061 41,426 Kaduna 54,908 59,329 64,674 74,828 71,763

Ekiti 6,599 7,130 7,773 8,993 11,269 Kebbi 17,481 18,888 20,590 23,823 22,847

Ondo 19,496 21,066 22,964 26,569 33,291 Zamfara 21,907 23,671 25,803 29,854 28,632

Osun 16,868 18,226 19,869 22,988 28,805 Sokoto 25,600 27,661 30,153 34,887 33,458

Oyo 37,354 40,361 43,997 50,905 63,785 Kano 65,849 71,150 77,560 89,737 86,062

Lagos 78,038 84,320 91,917 106,348 133,257 Jigawa 15,876 17,154 18,700 21,636 20,750

Total 182,606 197,306 215,083 248,851 311,833 Katsina 31,997 34,573 37,688 43,605 41,819 Total 233,607 252,412 275,155 318,354 305,331 South Southern States 2013 2014 2015 2016 2017 North Eastern States 2013 2014 2015 2016 2017 Akwa Ibom 20,644 22,306 24,316 28,133 29,818 19,026 20,557 22,409 25,928 21,432 Bayelsa 8,009 8,654 9,434 10,915 11,568 Taraba Borno 29,012 31,347 34,172 39,536 32,681 Edo 21,954 23,721 25,858 29,918 31,709 Bauchi 26,396 28,521 31,091 35,972 29,735 Cross River 17,160 18,541 20,211 23,385 24,784 Adamawa 25,663 27,728 30,227 34,972 28,908 Rivers 38,915 42,048 45,837 53,033 56,208 Gombe 14,007 15,135 16,499 19,089 15,779 Delta 30,930 33,420 36,431 42,151 44,674 Yobe 11,263 12,170 13,266 15,349 12,688 Total 137,605 148,683 162,079 187,525 198,760 Total 125,360 135,452 147,656 170,838 141,223

South Eastern States 2013 2014 2015 2016 2017 North Central States 2013 2014 2015 2016 2017

Ebonyi 7,782 8,409 9,166 10,605 13,064 Benue 23,392 25,275 27,552 31,878 36,711

Enugu 12,522 13,530 14,749 17,065 21,022 Kogi 15,819 17,093 18,633 21,558 24,827 Kwara 13,090 14,143 15,418 17,838 20,543 Imo 40,484 43,742 47,684 55,170 67,962 Niger 20,454 22,101 24,092 27,875 32,101 Abia 24,745 26,737 29,146 33,722 41,541 Nassarawa 10,299 11,128 12,130 14,035 16,163 Anambra 19,268 20,819 22,694 26,257 32,345 Plateau 17,564 18,978 20,688 23,936 27,566 Total 104,796 113,232 123,434 142,813 175,934 FCT 39,014 42,154 45,952 53,167 61,229

Total 139,625 150,865 164,458 190,278 219,140

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South Western States 2013 2014 2015 2016 2017 North Western States 2013 2014 2015 2016 2017

Ogun 41,082 42,202 43,002 41,650 52,191 Kaduna 92,983 95,518 97,328 94,268 90,411

Ekiti 11,175 11,480 11,697 11,329 14,197 Kebbi 29,603 30,410 30,986 30,012 28,784

Ondo 33,015 33,915 34,558 33,471 41,942 Zamfara 37,098 38,109 38,831 37,610 36,072

Osun 28,565 29,344 29,900 28,960 36,290 Sokoto 43,351 44,533 45,377 43,950 42,152

Oyo 63,256 64,980 66,212 64,130 80,360 Kano 111,510 114,549 116,720 113,050 108,426

Lagos 132,150 135,753 138,325 133,976 167,884 Jigawa 26,885 27,618 28,142 27,257 26,142

Total 309,244 317,675 323,694 313,516 392,864 Katsina 54,185 55,662 56,716 54,933 52,686 Total 395,615 406,399 414,099 401,080 384,673 South Southern States 2013 2014 2015 2016 2017 North Eastern States 2013 2014 2015 2016 2017 Akwa Ibom 34,959 35,912 36,593 35,442 37,566 32,218 33,097 33,724 32,664 27,001 Bayelsa 13,563 13,933 14,197 13,750 14,574 Taraba 49,129 50,468 51,425 49,808 41,173 Edo 37,177 38,190 38,914 37,690 39,948 Borno Bauchi 44,700 45,918 46,788 45,317 37,461 Cross River 29,058 29,850 30,416 29,460 31,225 Adamawa 43,457 44,642 45,488 44,058 36,420 Rivers 65,900 67,697 68,979 66,811 70,813 Gombe 23,720 24,367 24,829 24,048 19,879 Delta 52,378 53,806 54,825 53,102 56,283 Yobe 19,073 19,593 19,964 19,337 15,985 Total 233,035 239,388 243,924 236,255 250,409 Total 212,298 218,086 222,218 215,231 177,920

South Eastern States 2013 2014 2015 2016 2017 North Central States 2013 2014 2015 2016 2017

Ebonyi 13,179 13,538 13,794 13,361 16,459 Benue 39,612 40,692 41,463 40,159 36,711

Enugu 21,205 21,783 22,196 21,498 26,484 Kogi 26,789 27,519 28,041 27,159 24,827 Kwara 22,166 22,771 23,202 22,473 20,543 Imo 68,556 70,425 71,759 69,503 85,622 Niger 34,638 35,582 36,256 35,116 32,101 Abia 41,904 43,047 43,862 42,483 52,336 Nassarawa 17,440 17,915 18,255 17,681 16,163 Anambra 32,628 33,518 34,153 33,079 40,750 Plateau 29,744 30,555 31,134 30,155 27,566 Total 177,472 182,310 185,764 179,923 221,651 FCT 66,067 67,868 69,153 66,979 61,229

Total 236,456 242,902 247,504 239,722 219,140

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11 Strategic recommendations & roadmap 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Appendix C – Historical Supply of the Nigerian Fashion Industry 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendati ... Value: N’m 6 Competitive landscape

South Western States 2013 2014 2015 2016 2017 North Western States 2013 2014 2015 2016 2017

Ogun 24,380 26,343 28,716 33,225 34,501 Kaduna 55,180 59,622 64,994 75,198 78,088

Ekiti 6,632 7,166 7,811 9,038 9,385 Kebbi 17,568 18,982 20,692 23,941 24,861

Ondo 19,593 21,170 23,077 26,700 27,726 Zamfara 22,016 23,788 25,931 30,002 31,155

Osun 16,952 18,317 19,967 23,102 23,989 Sokoto 25,727 27,798 30,302 35,060 36,407

Oyo 37,539 40,561 44,215 51,157 53,123 Kano 66,175 71,502 77,944 90,181 93,646

Lagos 78,424 84,737 92,372 106,874 110,981 Jigawa 15,955 17,239 18,793 21,743 22,579

Total 183,519 198,292 216,159 250,095 259,705 Katsina 32,156 34,744 37,875 43,821 45,505 Total 234,775 253,674 276,531 319,946 332,240 South Southern States 2013 2014 2015 2016 2017 North Eastern States 2013 2014 2015 2016 2017 20,746 22,417 24,436 28,273 Akwa Ibom 29,359 Taraba 19,120 20,659 22,520 26,056 27,057 Bayelsa 8,049 8,697 9,480 10,969 11,390 Borno 29,155 31,502 34,341 39,732 41,259 22,062 23,838 25,986 30,066 Edo 31,221 Bauchi 26,527 28,662 31,245 36,150 37,539 17,244 18,633 20,311 23,500 Adamawa 25,790 27,866 30,376 35,145 36,496 Cross River 24,403 39,108 42,256 46,064 53,296 Gombe 14,077 15,210 16,580 19,183 19,921 Rivers 55,343 Yobe 11,319 12,230 13,332 15,425 16,018 31,083 33,586 36,612 42,360 Delta 43,987 Total 125,987 136,129 148,394 171,692 178,289 138,293 149,426 162,889 188,463 Total 195,705 South Eastern States 2013 2014 2015 2016 2017 North Central States 2013 2014 2015 2016 2017

7,821 8,450 9,212 10,658 Benue 23,508 25,400 27,689 32,036 33,267 Ebonyi 11,067 Kogi 15,898 17,178 18,725 21,665 22,498 12,584 13,597 14,822 17,149 Enugu 17,808 Kwara 13,155 14,213 15,494 17,927 18,616 Imo 40,684 43,959 47,920 55,443 57,573 Niger 20,555 22,210 24,211 28,012 29,089 24,868 26,870 29,291 33,889 Abia 35,191 Nassarawa 10,350 11,183 12,190 14,104 14,646 19,363 20,922 22,807 26,387 Plateau 17,651 19,072 20,791 24,055 24,979 Anambra 27,401 FCT 39,207 42,363 46,180 53,430 55,483 105,320 113,798 124,051 143,527 Total 149,042 Total 140,323 151,619 165,280 191,229 198,577

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South Western States 2013 2014 2015 2016 2017 North Western States 2013 2014 2015 2016 2017

Ogun 41,288 42,413 43,217 41,858 43,467 Kaduna 93,448 95,995 97,814 94,739 98,379

Ekiti 11,231 11,537 11,756 11,386 11,824 Kebbi 29,751 30,562 31,141 30,162 31,321

Ondo 33,180 34,085 34,730 33,638 34,931 Zamfara 37,283 38,300 39,025 37,798 39,251

Osun 28,708 29,491 30,050 29,105 30,223 Sokoto 43,568 44,756 45,604 44,170 45,867

Oyo 63,572 65,305 66,543 64,450 66,927 Kano 112,067 115,122 117,303 113,615 117,981

Lagos 132,811 136,432 139,017 134,646 139,820 Jigawa 27,020 27,756 28,282 27,393 28,446

Total 310,791 319,263 325,312 315,084 327,191 Katsina 54,456 55,940 57,000 55,208 57,329 Total 397,593 408,431 416,170 403,085 418,574 South Southern States 2013 2014 2015 2016 2017 North Eastern States 2013 2014 2015 2016 2017 Akwa Ibom 35,134 36,092 36,776 35,620 36,988 Taraba 32,380 33,262 33,892 32,827 34,088 Bayelsa 13,631 14,002 14,268 13,819 14,350 Borno 49,375 50,721 51,682 50,057 51,980 Edo 37,362 38,381 39,108 37,879 39,334 Bauchi 44,923 46,148 47,022 45,544 47,294 Cross River 29,204 30,000 30,568 29,607 30,745 Adamawa 43,675 44,865 45,715 44,278 45,979 Rivers 66,230 68,035 69,324 67,145 69,725 Gombe 23,839 24,489 24,953 24,168 25,097 Delta 52,640 54,075 55,100 53,367 55,418 Yobe 19,168 19,691 20,064 19,433 20,180 Total 234,201 240,585 237,436 246,559 245,143 Total 213,360 219,176 223,329 216,307 224,619

South Eastern States 2013 2014 2015 2016 2017 North Central States 2013 2014 2015 2016 2017

Ebonyi 13,244 13,606 13,863 13,427 13,943 Benue 39,810 40,896 41,670 40,360 41,911

Enugu 21,311 21,892 22,307 21,606 22,436 Kogi 26,923 27,657 28,181 27,295 28,344 Kwara 22,277 22,885 23,318 22,585 23,453 Imo 68,898 70,777 72,118 69,850 72,534 Niger 34,811 35,760 36,437 35,292 36,648 Abia 42,114 43,262 44,081 42,696 44,336 Nassarawa 17,527 18,005 18,346 17,769 18,452 Anambra 32,791 33,685 34,323 33,244 34,522 Plateau 29,893 30,707 31,289 30,305 31,470 Total 178,359 183,221 186,693 180,823 187,771 FCT 66,397 68,207 69,499 67,314 69,901

Total 237,638 244,116 248,741 240,921 250,178

Project Costa: Final report – Fashion Segment | Page 77 of 83 15 May 2018 | Version 1.0 (Final)

11 Strategic recommendations & roadmap 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Appendix D – Forecast Fashion Demand and Supply Analysis 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendati ... 6 Competitive landscape

Growth Factor

2017 2018 2019 2020 2021 2022 Economic Growth Rate (a) 0.9% 2.6% 3.2% 4.3% 4.4% 4.4%

Industry Growth Rate (b) 2.9% 3.3% 3.5% 3.9% 4.3% 4.7

Demand Growth Factor (c = a+b) 3.8% 5.9% 6.7% 8.2% 8.7% 9.1%

Forecast fashion demand and supply analysis (for base year 2016)

South West South East South South North West North East North Central

Historical Fashion Demand (2016) (d) 248,851 142,813 187,525 318,354 170,838 190,278

Growth rate (e ) 3.8% 3.8% 3.8% 3.8% 3.8% 3.8%

Regional Fashion Demand – 2017 (f = d *(1+e)) 258,413 194,731 148,301 330,587 177,402 197,589

Excess supply factor (g) 1.005 1.005 1.005 1.005 1.005 1.005

Regional fashion Supply – 2017 (h = f*g) 259,705 195,705 149,042 332,240 178,289 198,577

Project Costa: Final report – Fashion Segment | Page 78 of 83 15 May 2018 | Version 1.0 (Final)

11 Strategic recommendations & roadmap 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Appendix D – Forecast Demand of the Nigerian Fashion Industry 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendati ... Value: N’m 6 Competitive landscape

South Western States 2018 2019 2020 2021 2022 North Western States 2018 2019 2020 2021 2022

Ogun 36,341 38,789 41,978 45,633 49,773 Kaduna 82,251 87,793 95,010 103,283 112,653

Ekiti 9,885 10,551 11,419 12,413 13,539 Kebbi 26,186 27,950 30,248 32,882 35,865

Ondo 29,204 31,172 33,735 36,672 39,999 Zamfara 32,816 35,027 37,906 41,207 44,945

Osun 25,268 26,971 29,188 31,730 34,608 Sokoto 38,348 40,932 44,296 48,154 52,522

Oyo 55,955 59,725 64,635 70,263 76,637 Kano 98,639 105,286 113,940 123,862 135,098

Lagos 116,897 124,775 135,030 146,789 160,105 Jigawa 23,782 25,385 27,471 29,864 32,573

Total 273,551 291,984 315,984 343,501 374,661 Katsina 47,931 51,160 55,366 60,187 65,647 Total 349,952 373,534 404,236 439,438 479,302 South Southern States 2018 2019 2020 2021 2022 North Eastern States 2018 2019 2020 2021 2022 Akwa Ibom 30,924 33,008 35,721 38,832 42,355 35,905 38,325 41,475 45,087 49,177 Bayelsa 11,997 12,806 13,858 15,065 16,432 Taraba 54,751 58,441 63,244 68,752 74,989 Edo 32,886 35,102 37,987 41,295 45,041 Borno Bauchi 49,815 53,172 57,543 62,554 68,228 Cross River 25,704 27,436 29,692 32,277 35,205 Adamawa 48,431 51,694 55,943 60,815 66,332 Rivers 58,294 62,222 67,336 73,200 79,841 Gombe 26,435 28,216 30,536 33,195 36,206 Delta 46,332 49,455 53,520 58,180 63,458 Yobe 21,256 22,688 24,553 26,691 29,112 Total 206,138 220,029 238,114 258,850 282,331 Total 236,593 252,537 273,294 297,093 324,044

South Eastern States 2018 2019 2020 2021 2022 North Central States 2018 2019 2020 2021 2022

Ebonyi 11,657 12,443 13,466 14,638 15,966 Benue 44,145 47,120 50,993 55,434 60,463

Enugu 18,758 20,022 21,667 23,554 25,691 Kogi 29,855 31,867 34,486 37,489 40,890 Kwara 24,703 26,368 28,535 31,020 33,834 Imo 60,643 64,729 70,050 76,150 83,058 Niger 38,601 41,203 44,589 48,472 52,869 Abia 37,068 39,565 42,817 46,546 50,769 Nassarawa 19,436 20,746 22,451 24,406 26,620 Anambra 28,862 30,807 33,339 36,242 39,530 Plateau 33,148 35,381 38,289 41,624 45,400 Total 156,988 167,566 181,340 197,131 215,014 FCT 73,627 78,589 85,048 92,454 100,841

Total 263,515 281,273 304,392 330,899 360,916

Project Costa: Final report – Fashion Segment | Page 79 of 83 15 May 2018 | Version 1.0 (Final)

South Western States 2018 2019 2020 2021 2022 North Western States 2018 2019 2020 2021 2022

Ogun 45,784 48,869 52,886 57,491 62,707 Kaduna 103,624 110,607 119,698 130,122 141,926

Ekiti 12,454 13,293 14,386 15,639 17,057 Kebbi 32,990 35,214 38,108 41,426 45,184

Ondo 36,793 39,273 42,501 46,202 50,393 Zamfara 41,343 44,129 47,756 51,915 56,625

Osun 31,834 33,980 36,773 39,975 43,601 Sokoto 48,312 51,568 55,807 60,666 66,170

Oyo 70,495 75,245 81,430 88,521 96,551 Kano 124,271 132,645 143,547 156,048 170,204

Lagos 147,274 157,198 170,119 184,933 201,709 Jigawa 29,962 31,981 34,610 37,624 41,037

Total 344,634 367,858 398,093 432,761 472,018 Katsina 60,385 64,455 69,752 75,827 82,705 Total 440,888 470,598 509,279 553,628 603,851 South Southern States 2018 2019 2020 2021 2022 North Eastern States 2018 2019 2020 2021 2022 Akwa Ibom 38,960 41,585 45,004 48,923 53,361

Bayelsa 15,115 16,133 17,460 18,980 20,702 Taraba 36,085 38,517 41,683 45,312 49,423

Edo 41,431 44,223 47,858 52,025 56,745 Borno 55,025 58,733 63,561 69,096 75,364 Bauchi 50,064 53,438 57,830 62,866 68,569 Cross River 32,384 34,566 37,407 40,665 44,353 Adamawa 48,673 51,953 56,223 61,119 66,663 Rivers 73,442 78,391 84,834 92,222 100,588 Gombe 26,567 28,357 30,688 33,361 36,387 Delta 58,372 62,306 67,427 73,299 79,948 Yobe 21,362 22,802 24,676 26,825 29,258 Total 259,704 277,204 299,989 326,113 355,696 Total 237,776 253,799 274,660 298,579 325,664

South Eastern States 2018 2019 2020 2021 2022 North Central States 2018 2019 2020 2021 2022

Ebonyi 14,687 15,676 16,965 18,442 20,115 Benue 44,366 47,356 51,248 55,711 60,765

Enugu 23,632 25,225 27,298 29,675 32,367 Kogi 30,004 32,026 34,658 37,676 41,094 Kwara Imo 76,401 81,549 88,252 95,938 104,641 24,827 26,500 28,678 31,175 34,003

Abia 46,700 49,847 53,944 58,641 63,961 Niger 38,794 41,409 44,812 48,715 53,134 Anambra 36,362 38,812 42,002 45,660 49,802 Nassarawa 19,533 20,849 22,563 24,528 26,753

Total 197,781 211,109 228,461 248,357 270,886 Plateau 33,313 35,558 38,481 41,832 45,627

FCT 73,995 78,982 85,473 92,917 101,346

Total 264,833 282,679 305,914 332,554 362,721 Project Costa: Final report – Fashion Segment | Page 80 of 83 15 May 2018 | Version 1.0 (Final)

11 Strategic recommendations & roadmap 1 Introduction 7 Policy, legislation & case ... 2 International Overview 8 Business factors impacting ... Appendix E – Forecast Supply of the Nigerian Fashion Industry 3 Nigerian Overview 9 Policy factors impacting ma ... 4 Market sizing 10 Risk assessment 5 Value chain 11 Strategic recommendati ... Value: N’m 6 Competitive landscape

South Western States 2018 2019 2020 2021 2022 North Western States 2018 2019 2020 2021 2022

Ogun 36,522 38,983 42,188 45,861 50,022 Kaduna 82,662 88,232 95,485 103,800 113,216

Ekiti 9,935 10,604 11,476 12,475 13,607 Kebbi 26,317 28,090 30,399 33,046 36,044

Ondo 29,350 31,328 33,903 36,856 40,199 Zamfara 32,980 35,202 38,096 41,413 45,170

Osun 25,395 27,106 29,334 31,888 34,781 Sokoto 38,539 41,136 44,518 48,394 52,784

Oyo 56,235 60,024 64,958 70,614 77,020 Kano 99,132 105,812 114,509 124,481 135,773 Lagos 117,482 125,398 135,706 147,523 160,906 Jigawa 23,901 25,512 27,609 30,013 32,735

Total 274,918 293,444 317,564 345,218 376,534 Katsina 48,170 51,416 55,642 60,488 65,975

Total 351,701 375,402 406,257 441,636 481,698

South Southern States 2018 2019 2020 2021 2022 North Eastern States 2018 2019 2020 2021 2022 Akwa Ibom 31,079 33,173 35,900 39,026 42,566 Taraba 28,642 30,572 33,085 35,966 39,229 Bayelsa 12,057 12,870 13,928 15,141 16,514 Borno 43,676 46,619 50,451 54,844 59,819 Edo 33,050 35,277 38,177 41,501 45,266 Bauchi 39,738 42,416 45,902 49,900 54,426 Cross River 25,833 27,574 29,840 32,439 35,381 Adamawa 38,634 41,237 44,627 48,513 52,914 Rivers 58,585 2,533 67,673 73,566 80,240 Gombe 21,087 22,508 24,359 26,480 28,882 Delta 46,564 49,702 53,787 58,471 63,775 Yobe 16,956 18,099 19,586 21,292 23,223 Total 207,168 221,129 239,304 260,144 283,743 Total 188,733 201,451 218,010 236,995 258,493

South Eastern States 2018 2019 2020 2021 2022 North Central States 2018 2019 2020 2021 2022

Ebonyi 11,716 12,505 13,533 14,712 16,046 Benue 35,215 37,588 40,678 44,220 48,232

Enugu 18,852 20,122 21,776 23,672 25,820 Kogi 23,815 25,420 27,510 29,905 32,618 Kwara 19,706 21,034 22,763 24,745 26,990 Imo 60,946 65,053 70,400 76,531 83,473 Niger 30,793 32,868 35,569 38,667 42,175 Abia 37,253 39,763 43,032 46,779 51,022 Nassarawa 15,504 16,549 17,909 19,469 21,235 Anambra 29,006 30,961 33,506 36,424 39,728 Plateau 26,442 28,224 30,544 33,204 36,216 Total 157,773 168,404 182,246 198,117 216,089 FCT 58,733 62,691 67,844 73,752 80,442

Total 210,209 224,374 242,817 263,962 287,907

Project Costa: Final report – Fashion Segment | Page 81 of 83 15 May 2018 | Version 1.0 (Final)

South Western States 2018 2019 2020 2021 2022 North Western States 2018 2019 2020 2021 2022

Ogun 46,013 49,113 53,150 57,779 63,020 Kaduna 104,142 111,160 120,297 130,772 142,635

Ekiti 12,516 13,360 14,458 15,717 17,142 Kebbi 33,155 35,390 38,298 41,634 45,410

Ondo 36,977 39,469 42,713 46,433 50,645 Zamfara 41,550 44,350 47,995 52,175 56,908

Osun 31,994 34,150 36,956 40,175 43,819 Sokoto 48,554 51,826 56,086 60,970 66,501

Oyo 70,847 75,622 81,837 88,964 97,034 Kano 124,892 133,308 144,265 156,828 171,055

Lagos 148,010 157,984 170,969 185,858 202,718 Jigawa 30,112 32,141 34,783 37,812 41,242

Total 346,357 369,697 400,084 434,924 474,378 Katsina 60,687 64,777 70,101 76,206 83,119

Total 443,093 472,951 511,825 556,397 606,870 South Southern States 2018 2019 2020 2021 2022 North Eastern States 2018 2019 2020 2021 2022 Akwa Ibom 39,155 41,793 45,229 49,167 53,627

Bayelsa 15,191 16,214 17,547 19,075 20,805 Taraba 36,085 38,517 41,683 45,312 49,423 Borno 55,025 58,733 63,561 69,096 75,364 Edo 41,638 44,444 48,097 52,286 57,029 Bauchi 50,064 53,438 57,830 62,866 68,569 Cross River 32,546 34,739 37,594 40,868 44,575 Adamawa 48,673 51,953 56,223 61,119 66,663 Rivers 73,809 78,783 85,258 92,683 101,090 Gombe 26,567 28,357 30,688 33,361 36,387 Delta 58,664 62,617 67,764 73,665 80,348 Yobe 21,362 22,802 24,676 26,825 29,258 Total 261,002 278,590 301,489 327,743 357,474 Total 237,776 253,799 274,660 298,579 325,664

South Eastern States 2018 2019 2020 2021 2022 North Central States 2018 2019 2020 2021 2022

Ebonyi Benue 14,760 15,755 17,050 18,534 20,216 44,366 47,356 51,248 55,711 60,765 Enugu Kogi 23,750 25,351 27,434 29,823 32,529 30,004 32,026 34,658 37,676 41,094 Imo Kwara 76,783 81,957 88,694 96,417 105,164 24,827 26,500 28,678 31,175 34,003 Abia Niger 46,933 50,096 54,213 58,935 64,281 38,794 41,409 44,812 48,715 53,134 Anambra Nassarawa 36,544 39,006 42,212 45,888 50,051 19,533 20,849 22,563 24,528 26,753 Total 198,770 212,165 229,604 249,598 272,240 Plateau 33,313 35,558 38,481 41,832 45,627

FCT 73,995 78,982 85,473 92,917 101,346

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