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Kenya: Firms Reeling From Loss of Textile Quota System

Published date:
Tuesday, 03 May 2005

Kenyan textile firms are feeling the effects of the quota system which was scrapped by the World Trade Organisation in January, according to a new government report.

For the last three months 2,000 people have lost jobs while at least six textile companies have closed their doors in the country.

The removal of the quota restrictions under the World Trade Organisation's (WTO) 30-year-old Multi-Fibre Agreement (MFA) mean that poor African producers are no longer protected from stiff competition that the Asian mass producers pose.

The Export Processing Zone in Athi River. The removal of the quota restrictions under the World Trade Organisation's Multi-Fibre Agreement means that poor African countries are no longer protected from stiff competition offered by Asian mass producers.

Asian countries now enjoy unlimited access to the duty-free American market after the quotas were lifted on January 1.

After the expiry of the WTO quotas, most Asian companies which had invested in Africa to take advantage of the African Growth and Opportunities Act (Agoa), have pulled out.

Agoa provides duty-free access of African goods into the United States market.

Trade and Industry minister Dr Mukhisa Kituyi has said the local textile industry is in a crisis and risks being swallowed up by China.

Though Kenya enjoyed flourishing textile and clothing industry in the 1970s and 1980s that was supported by supply of cotton and the ready market, the industry collapsed in 1990s.

Until the Agoa initiative in 2000, the industry was almost dormant. But with the Agoa, the Export Processing Zone (EPZ) programme has seen substantial growth.

The impressive growth can be viewed in terms of increase in number of garment firms and their contribution towards job creation, investment and exports.

According to the Export Processing Zones Authority, the number of companies increased from six in 2000 to 35 in 2003.

Employment increased from 6,000 in 2002 to 36,348 in 2003, while investment rose from Sh1.2 billion to Sh9.7 billion during the same period.

There are also small scale garment producers all over the country, but their role in export of textile is of little significance.

Apart from the global perspective, Dr Kituyi attributes the problems in the textile industry to the high cost of doing business in Kenya.

The minister singled out high cost of electricity, the strengthening of the shilling and the inefficient Mombasa port.

The minister is of the view that the current salaries paid to workers by textile companies are very high. He said Kenyan firms are paying workers as high as three times what other Agoa member countries are paying.

Responding to the uncertainty in the industry the Government has formed a committee to draw up an export strategy report on how to improve exports covering five sectors including textile.

The report, which is co-funded by the German Development Agency (GTZ) and the World Bank, proposes that the Government establish one or more competitive textile mills to supply the garments export sector with adequate quality fabric.

Mr Andrew Singer, one of the authors of the report, told BusinessWeek that immediate action is needed to reduce costs where possible.

At the regional level, two American institutions are setting up a textile training centre to support existing and new garment manufacturing factories in East and Southern Africa.

United States Agency for International Development in partnership with the US-Africa Trade and Aid Link will set up the centre in Nairobi to serve eight Agoa eligible countries Ð Ethiopia, Kenya, Uganda, Rwanda, Malawi, Zambia, Madagascar and Tanzania.

The Government has given 25 acres, in Nairobi, for setting up the centre to be known as Regional Model Manufacturing and Training Centre.

The centre will provide training and career development for thousands of African workers in the best manufacturing practices to produce quality, competitive African products.

The project anticipates to establish 50 start-up companies with an average of 2,000 trained employees each and creation of 100,000 new direct jobs and 500,000 indirect jobs.

It is also expected to create approximately Sh152 billion in total revenue in five years.

Currently, the provision for sourcing fabric from "lesser developed countries" exists, but it will be imperative to develop the textile infrastructure prior to September 2007.

By September 2007 the nations must have a regional self-sufficient textile industry in place to supply fabric for textile-related products to be exported to the US market in order to receive Agoa tariff preferential advantages.

Exporters in Kenya will no longer be able to use fabrics from non-African sources. Lack of adequate supply of fabric in Kenya and Africa could lender this sector uncompetitive.

Concerned that the WTO decision could hurt poor African producers benefiting from Agoa, the US government has since October 2004 instituted safeguard measures to contain specific Chinese textiles and apparels.

According to the US Government Committee for the Implementation of Textile Agreements (Cita), the measures aim at limiting disruptions that Chinese exports may cause to the US market, if such distortions can be identified.

Under these measures, cotton knit shirts and blouses, cotton trousers, socks, and man-made fibre underwear would be reviewed and put under quotas if it is considered that they are causing market distortions.

The United States is permitted, under the provisions of China's WTO Accession Agreement, to apply safeguards on textile products from China in instances where those criteria are met.

China's threat to the eight Agoa countries is real. Unlike these countries, China has 'clusters' within a small geographic range that can provide the raw materials, design and development expertise, plus the production capabilities.

These clusters can deliver "full-package" for basic, fashion goods for the US marketplace in a timely manner.

Kenya, like other Africa countries, is under threat of substitutes. Currently a sizable market share of products from the eight countries is cotton fibre based. The threat of substitutes for cotton blends and 100 per cent synthetic (predominantly polyster) remains a threat for the countries.



“AGOA Latest AGOA Trade Data currently available on AGOA.info


Click here to view a sector profile of Kenya’s bilateral trade with the United States, disaggregated by total exports and imports, AGOA exports and GSP exports.


Other regularly updated trade statistics on AGOA.info include: (click each link to view)

  • AGOA-Beneficiary Countries’ AGOA and GSP Trade Aggregates

  • AGOA Trade by Industry Sector

  • Apparel Trade under AGOA’s Wearing Apparel Provisions

  • Latest Apparel Quotas under AGOA

  • Bilateral Trade Data for all AGOA-eligible countries individually.

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