Operators within the Export Processing Zones (EPZ) are facing financial hardships, thanks to reduced orders from American textile dealers.

Since January, the apparel manufacturers have been counting every order from the US as a blessing because of the surge in Chinese exports that is threatening companies in developing countries, after export quotas were lifted at the beginning of this year.

Eight EPZ firms have folded since and four others are set to call it a day, according to industry sources.

Mr Bandu Udalagoma, the managing director of Upan Wasana EPZ Ltd, says his options are limited, as he is struggling to stay afloat to save 2,600 jobs.

The firm steered the entry into Kenya of MRC EPZ in Athi River, Rising Sun and California, which, too, are struggling to remain nimble in the increasingly competitive textile market that has been invaded by cheap producers from China, India and Singapore.

Udalagoma said Upan has so far lost business worth $800,000 (Sh60.8 million) due to poor cargo clearance and import delays at the port of Mombasa and is operating only two of its 15 production lines. "We will fold up and relocate to Sri Lanka the moment it get the duty-free access to the US," he said. "Doing business in Kenya is expensive."

Mr K. Kumar, Upan's general manager, says the government appears helpless. "There is not a single person from the government coming to help us," said Kumar. Investors and other stakeholders are particularly alarmed by massive job losses if companies close shop.

Upan has retained only 275 workers while the rest, though still earning a salary, have been sent on leave. "There isn't much production," he said, "but we are paying them because we have employed them on a permanent basis."

The situation is grimmer at Indigo EPZ, where the slump is having severe effects. United Aryan EPZ in Ruaraka is also grappling with the same challenges, and output had dipped due to shrinking orders.

Mr Amit Bedi, United Aryan's general manager, says the industry needs a stable currency to save players from further losses. "We need the government to fix the dollar," he said. "We need stability and possibly a dollar payment system because there are no payments made in shillings."

United Aryan, whose investment is valued at $5 million (Sh380 million), is also being hit by apathy by skittish financial institutions when it comes to credit.

Work at Upan Wasana EPZ and United Aryan factories is slow and the employees' morale is at the lowest ebb despite the continued payment of their wages, the managers said. "The wage bill is Sh15 million. The employees are wondering for how long they will continue to earn the money for which they have not worked," said Kumar.

In a bid to tackle these challenges, a regional cotton and textiles summit, which opened in Nairobi on Wednesday, sought to explore new options available to investors.

Dealers under the Kenya Association of Manufacturers (KAM) Textile Sector and the Kenya Apparel Manufacturers and Exporters Association (Kamea) said the local industry needs incentives to survive the influx of cheap exports from China.

Kamea chairman Jaswinder Bedi told journalists during the three-day conference that the textile sector might not live to see 2006 unless urgent action is taken. "If we don't organise ourselves, we will have no industry left. We will become a dumping ground for China. The priority should be to create a competitive manufacturing sector," Jaswinder said.

Trade and Industry Permanent Secretary Dr Nehemiah Ng'eno said the government could not do anything to reverse the situation. Informal talks have begun between African envoys representing their governments in Geneva, Switzerland and the European Union with a view to reaching a common textiles market goal, Ng'eno said.

A cotton and textiles deal with Europe, he said, would help producing countries to diversify into Europe to beat the ravages of unrestricted textile trade. Export quotas were lifted following the expiry of the 30-year-old curb on exports by the 148 World Trade Organisation members.

Even the US-backed African Growth and Opportunity Act (Agoa) isn't helping much. Agoa allows some African countries to export 6,000 products duty-free, which had led to a flourishing textile sector on the continent whose export value hit US$34 billion (Sh2.6 trillion) last year.

Kenyan EPZ firms doubled their export earnings from US$70 million (5.3 billion) in 2001 to US$258 million (Sh19.6 billion) in 2004, according to Bedi, who is the executive director of Bedi Investments Ltd.

Most EPZ firms relocated to Kenya to take advantage of the duty-free access to the US market, but they are now threatening to move back to their countries if the situation persists. Officials in developing countries are pushing to have China restrict its textiles exports to safeguard the weaker players. "We are looking for a self-restraining agreement from China," Ng'eno said. "We are also looking for a regional value chain to help us increase Africa's market opportunities."

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