Squaters Leave Businesses Walking Tightrope

Although the clothing market of Addis is expanding with a growth in population and urbanisation, the local licensed traders who are engaged in the clothing business are not benefiting much from it due to a surge in unlicensed traders. This has become more than a trend, becoming a business in its own right which legal measures alone have not been able to control, as ELLENI DEREJE and Samson Berhane, FORTUNE STAFF WRITERS, report.

Reem Legesse owns a boutique near Awararis Hotel. Her shop is located on Djibouti Street, along with no less than a hundred of the same retail shops that do not look like any locally owned retail businesses.

Starting business two years ago, she sells various types of clothes and footwear, bringing the products in from countries such as China and Thailand. She does not pay a tariff to import the items as she tells the customs officers that the intention of her purchase is for personal use only.

But, travelling once a month abroad, Reem is rarely asked to pay tariffs if she brings clothes beyond the limit set by the airline she travels with.

She began to import the products after she was inspired by her sister, who used to have the same experience as her. From her experience, Reem, over 2,000 dollars to import clothes in a single business trip.

“In the case of Ethiopian Airlines, unless it is not beyond 56kg, I can bring the clothes without being asked to pay import taxes,” she said.

Before she started to purchase the items abroad, Reem used to buy clothes from local suppliers like many other businesses in the city.

“I can buy famous fashion brand clothes abroad at a lower price than from the locals,” she said. “In a single travel, I earn around an aggregate of 10,000 Br, selling clothes at a price ranging from 500 Br to 800 Br.”

The clothing market has been heating up in Addis Abeba, attracting consumers from various parts of the city because of rapid urbanisation and population growth.

These days many start-ups have begun directing capital towards one of the underserved segments of the industry.

While the number of people seeking to buy has increased due to population growth, licenced suppliers are becoming less and less attractive to the growing number of retailers.

Those people who illegally import items and unlicensed businesses seem to be driving the market, creating unfair competition in the clothing market.

Although the number of retailers who buy clothes from legal suppliers has declined, Haya Hulet area, one of the city’s clothes markets, is always a hive of activity. As usual, a crowd of people are going in and out of the numerous shops.

Reem is not the only retailer in Haya Hulet who uses such kind of techniques to make better profit. Many others, including cabin crews, bring in clothing as well as electronic items without paying the proper taxation to the government. There are two types of distributors – those who import and transfer it to vendors and those who sell what they have brought in.

Nevertheless, this has brought disappointment and annoyance to retailers who spend considerable amounts of money to pay a tariff for each product they bring in.

“This hurts our profit margin,” said Yishak Abraham, who runs a family business inside Merkato in a place commonly known as Satin Tera. ”This is unfair for retailers like us who finally bear the cost of tariffs as we get the items from legal importers.”

His number of potential customers has gradually declined in the past two years due to the rise in unlicensed suppliers, who bring in products with a better quality, according to Yishak, who has seen a dip in potential customers by half.

Unlike Yishak, the new trend has brought a new competitive edge for retailers like Meseret Endale, who buys women’s clothes from unlicensed suppliers such as cabin crews. While two products with different qualities can be sold at such boutiques like the one owned by Yisahak, some prefer to stick with branded products.

“My clients usually prefer branded goods, so, this is the best way to serve their interest,” Meseret said. “Unlike licensed suppliers, the price offered by the cabin crews is low.”

The cost for a single unit of clothing, such as a t-shirt, pants or trousers, varies between 450 Br and 600 Br.

With its popularity on the rise, bringing in clothes and other products, such as electronics, and selling to businesses and loved ones has become one of the hot topics in town. People of all ages, from young children to elderly men and women, get their favourite clothes and other items from those who go abroad.

For some customers, the popularity of the unlicensed suppliers over conventional shops seems fancy.

Liya Meshesha, 26, usually buys clothes from Haya Hulet area. She always buys from her friends who have a clothing store in the area and get the products from cabin crews.

“It is very cheap here,” said Liya.” Sometimes, I get clothes at two times lower the price than from other retailers.”

While for others, the new trend seems to have become a livelihood.

Banchi Zelalem and Semira Abdulqadir are close friends who have been importing and selling items for more than a year without a proper license. For them, importing items in the name of personal use and selling it to a third person is work that keeps their families going.

“We do not see it as illegal. Rather, it is how we sustain our lives,” said Banchi, who travels twice or three times a year to Dubai.

But for the Ethiopian Revenues & Customs Authority (ERCA), this is unacceptable. The rule set forth for travellers is not to bring anything more than the level they can consume, and if they fail to do this, they have to pay a tax that is three times that of the original price.

“If I am asked such an amount of money, I prefer the Authority to confiscate the items,” said Reem.

On the other hand, a tax law expert thinks the problem has no significant impact on the country’s economy and as tax revenue is at an infantry stage, it is rather the consumers who bear the final brunt.

“Whoever gets hurt at the end of the day is neither the distributors nor importers. The buyers feel the last shock,” said the expert. “However, the effect on everyday business interactions in the city will have to be looked at in the long term.”

Aside from the lack of tangible actions on the causes of the issue, the experience of legal retailers is beginning to sour with the rise in unlicensed businesses.



By ELLENI DEREJE and Samson Berhane

Published on Jun 25,2017 [ Vol 18 ,No 896]



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