TRALAC - Trade Law Centre

Nigeria's President Obasanjo Advises Country's Exporters

Monday, 16 February 2004

Source: The East African (Nairobi)

East Africa may be forced to look beyond the garment sector and develop new product lines to survive Asian competition for the US market once the African Growth and Opportunity Act (Agoa) quota restrictions on textile and apparel imports are lifted next year.

It is expected that the low-cost and high-volume textile and apparel producers of Asia, notably China, India and Pakistan, will crowd out the fledgling textile producers from East Africa and other developing countries from US markets, making it difficult for them to continue reaping the benefits they have enjoyed since the advent of the preferential Agoa initiative four years ago.

According to Cynthia Griffin Greene, regional senior commercial officer at the US Embassy in Nairobi, Kenya would have to go for niche marketing and concentrate on products in which it enjoys comparative advantage. "It will be a big challenge for Kenya," she said of the elimination of quotas on apparel and textile imports under WTO rules. "Kenya must find a niche market and produce those items in which it enjoys comparative advantage. It may, for example, produce original authentic sisal bags (kiondo). There will always be retailers in the US willing to buy this kind of item."

The Agoa initiative, which came into being in March 2000, offers preferential access to the US market for some 4,500 products under the US generalised system of preferences. Although the arrangement covers a broad range of products - from leather, footwear and handmade fibremats, coffee and tea - it is said to be most favourable to the garment sector and, as such, Kenya, like the other 34 Agoa-eligible countries from sub Saharan Africa, has concentrated on textiles and apparel, giving little attention to the other products.

However, Kenya is already working towards developing leather and other sub-sectors critical to the exploitation of Agoa. "It is prudent to develop other sectors as well," said Jonathan Chifallu, spokesman for Kenya's Export Processing Zones Authority (EPZA).

"Identifying and exploiting a niche would be ideal, but that would be up to the investors themselves," he said.

He said there were a number of firms in food processing, horticulture, floriculture, tea and gemstones as well as pharmaceuticals - both veterinary and human - computer assembly, dry cells, light bulbs and plastic products.

But more importantly, he said, the Authority has launched a "Business Incubator Project," where it has incorporated small and medium size enterprises in other sectors, among them food processing leather and value-addition in horticulture.

He, however, said that the real challenge that the firms at the EPZ would have to contend with would be how to motivate workers to become more productive and so make the firms more competitive.

"We're not reaching a dead end," he said, referring to the elimination of the quotas. "These events were bound to happen in the long run. There could be opportunities in the new economic dispensation. In any case, the 3.5 per cent ceiling set by the US on eligible Agoa members for all textile products is far from being met. The 34 countries have so far together met less than one per cent."

Said Mr Chifallu: "The government needs to work out an incentive package such as increasing corporate tax holidays beyond the current 10 years. But the firms operating at the EPZ need to come up with ways to improve the conditions of the workers by providing amenities such as housing and medical cover. The Kenyan labour force is quite adaptable."

His sentiments echo what is generally a vexed issue at Kenya's EPZ. In January last year, the sector was rocked by industrial unrest over working conditions.

For three weeks, operations at the zones were crippled, with orders worth millions of shillings being cancelled and prospective investors getting cold feet.

Up to 74 per cent of the enterprises currently operating at the EPZ are foreign-owned, while 11 per cent are owned by Kenyans. The remaining 15 per cent are joint ventures.

The apparels sector is the largest in the EPZ, with a workforce of 25,000, representing 93 per cent of the working population in the EPZs.

As at December 2002, there were 26 gazetted zones in Nairobi, Voi, Athi River, Mombasa and Kilifi.