The apparel export industry in Ethiopia began modestly in the 2000s, but increased significantly by the mid-2010s and will continue to do so in the coming years, positioning Ethiopia to be an important supplier country in the globalized apparel industry. Apparel exports emerged in Ethiopia as a result of a combination of factors, including comparatively low labor costs and preferential trade agreements with the US and EU, but more importantly pro-active government industrial policies and the decisions of some US and EU buyers to convince their core suppliers to invest in or source from Ethiopia. Industrial policy targeting the sector initially focused on incentivizing local investment in apparel production for export, but when local firms were not very successful, the government switched its focus to attracting foreign direct investment within specialized industrial parks. This paper explains the challenges that local firms faced, the limitations of the government’s industrial policy in addressing those challenges, and why foreign direct investment may be essential as a complement to industrial policy in a context where manufacturing experience is very low.