TRALAC - Trade Law Centre

Kenya offers textile firms tax incentives to create jobs

Saturday, 22 April 2017

Source: Nasdaq

Kenya has started offering tax incentives to clothing companies, a key part of its under-performing manufacturing sector, to create jobs and provide affordable new clothes for shoppers.

Executives in the textiles industry said the changes included allowing them to sell 20 percent of their annual production locally without sales taxes and without paying import duties on the materials and equipment used to produce the garments.

The advent of cheap, second-hand clothes imports from the U.S. and Europe, locally known as mitumba, in the 1980s, put local apparel firms out of business and killed production of raw materials like cotton.

"The manufacturing sector is still facing some challenges in regards to cheap imports and the counterfeit goods," said Mwangi Kiunjuri, the planning minister. He said they were dealing with the difficulties by implementing new policies to encourage firms to boost production and hire more people.

The government has been paying more attention to the sector in recent years, offering cheaper electricity to textile firms in export processing zones. The removal of sales taxes at a recent local sale resulted in thousands of consumers standing patiently in long lines for a chance to buy garments, which are normally exclusively exported to European and American retail chains. Kenya has the highest rate of youth joblessness in East Africa, the World Bank said, with 17 percent of all young people eligible for work lacking jobs.

Neighbouring Tanzania and Uganda have comparable rates of 5.5 and 6.8 percent respectively. Formal manufacturing accounted for 9 percent of Kenya's$70 billion economic output last year, but it employed just 0.3 million people out of 45 million, official data showed this week. Apart from the job creation potential of boosting textile firms through the initiative, officials said it could help dislodge mitumbas from their dominant position. They estimated that 70 percent of Kenyans cannot afford new clothes.

"The core essence of what the government is trying to do is trying to create a situation where you have affordable new clothes available to Kenyans," said Jaswinder Bedi, head of Bedi Investments, a Kenyan firm which exports clothes to high fashion retailers in the West. Beatrice Obwocha, a Nairobi mother who bought jeans, blouses and children's clothes at knockdown prices during last month's sale, said there was huge demand for new, locally-made clothes.

"People were just getting in and buying a lot of stuff. Some even with sacks," she said of the sale that lasted a few days. A new pair of jeans, which would normally cost about $35, about 3,500 shillings, went for $6 at the sale.

 

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