TRALAC - Trade Law Centre

Kenya: Quota Erosion Threatens Kenyan EPZs

Monday, 16 May 2005

Source: The East African (Nairobi)

A further erosion of the 39,000 textile manufacturing jobs created in Kenya during the four years that the African Growth and Opportunity Act (Agoa) has been in effect is likely to happen following the expiry last January of the Multi-Fibre Agreement (MFA) that placed quotas on exports from individual countries to the US market.

The extent of the losses was to be known last month since most EPZ textile firms confirm orders for the year in April, but the Chinese threat appears to have been overstated, according to Export Processing Zones Authority officials.

Kenya's Export Processing Zones (EPZs) have already shed 6,000 jobs since October last year and only a temporary respite will be forthcoming from new caps on textile imports from China, which the US is expected to impose in the coming weeks. But according to EPZA officials, the Chinese threat appears to have been overstated.

"The US safeguards will definitely help a little in the short run," predicted Paul Ryberg, director of the Washington-based Africa Coalition for Trade, stating that jobs already lost in Kenya and other African countries due to a surge in Chinese clothing exports to the US "will not be coming back."

Kenya's Trade and Industry Minister Dr Mukhisa Kituyi estimates that half of the jobs in the EPZ textile sector - totalling 18,000 - are at risk as companies producing for export under the incentive regime take reduced or no orders at all due to competition from more Chinese firms.

Although six investors pulled out of the EPZs late last year, EPZA officials say they did so due to internal problems. "It had nothing to do with the quotas," states EPZA public relations officer Jonathan Chifallu, "Not a single investor has moved out since January."

Premium Machineries, Indigo, Lihua Garment Kenya and Kenap EPZ are among the textile companies that pulled out as internal problems hampered their ability to service orders. Mercer, a South African computer manufacturer, also closed shop after failing to secure favourable duty concessions from the government.

Although the threat from China is real, Mr Chifalu says Kenya can stifle the onslaught by addressing logistical issues that amplify production costs. Delays in port clearance, poor transport and communication systems and high power costs all contribute towards making Kenyan exports less competitive.

Kenya's EPZ apparels sector has a productivity index (PI) of $3,457 per annum, compared with India's $3,400 and China's $4,400. "If the bottlenecks are addressed then Kenya can be at par with China," said Mr Chifalu. Kenya's current power charges of 0.15 US cents per kilowatt hour (KwH), for instance, compares poorly with China's charge of 0.10 US cents per KwH.

EPZ operators also accuse the Kenya Revenue Authority (KRA) of causing delays at entry points through the introduction of a compulsory physical verification of imported raw materials and capital goods to check against abuse of the duty-free import incentive allowed for EPZ firms.

Through a memorandum presented to the government, the operators say the delays have increased operation costs and led to loss of orders from time-conscious American importers. The rule also requires operators to pay $75 for a 20-foot container and $150 for a 40-foot container for the Customs verification.

Besides logistical issues, Kenya's EPZs need to diversify their products through ventures into growth areas such as information and communications technology, according to Naushad Merali, the chairman of the Sameer Investments which runs the Sameer Industrial Park.

Textile dependent perks, Mr Merali says, are under constant threat, not just from the lifting of quotas, but even as the World Trade Organisation (WTO) moves towards freer global trade. AGOA, itself, will be revised from 2008 and the use of imported Asian fabrics by textile companies in Africa will make their exports ineligible for duty-free entry to the US.

"We are moving towards technology-driven concerns like call centres, which have already created 300 jobs," Mr Merali said. Up to 4,000 jobs could be created through a proposed Sameer Business Park that will also house a media city along Mombasa road.

Moved by thousands of job losses in America's manufacturing sector, as US clothing makers relocated operations to low-wage developing countries, the US is expected to place new volume restrictions on textile and apparel imports from China. The US is able to impose these quotas in accordance with the terms of China's accession to the WTO in 2001.



“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.