Kenyan firms seek new markets as US orders shrink
Kenya’s Export Processing Zone (EPZs) based firms are looking elsewhere as demand from the American market gets subdued by an economic slowdown linked to the mortgage sector.
Latest industry reports indicate that these industrialists are using opportunities offered by the new interim Economic Partnership Agreement (EPA) that East African Community member states signed with Europe last November to access the European market.
“Some of our members are now diversifying into the European Union market to make up for loss in the US,” Mr Jeswinder Bedi, the chairman of the Kenya Apparel Manufacturers and Exporters Association (Kamea).
The interim EPA allows locally-manufactured apparel to enter Europe broadening the export market that has been mainly restricted to the United States under the African Growth and Opportunity Act (Agoa).
Under the interim pact with the EU, Kenya and other EAC States will continue enjoying duty-free, quota-free market access for all products except sugar and rice after January 2008.
Analysts said despite the criticism that followed the signing of the interim pact, its provisions not only offer real opportunity to revive the textile industry but also opens up the region to Foreign Direct Investment (FDI) from Europe in the subsector.
European investment is expected to come in the form of new technology that is needed to move the sub-sector beyond cotton growing into value addition.
Efforts by Kenyan textile makers to export to the EU have been hampered by strenuous rules of origin (ROO) that left everyone scrambling for opportunities in the American market (Read a related article on preferential Rules of Origin here. )
Kenya’s garment exports to the US increased from $44 million in 2000 to $226 million in 2004 — positioning the country as Sub-Saharan Africa’s second largest garment exporter to US after Swaziland.
Kenya’s textile sector has been in a shambles following the collapse in the mid 1980s of the country’s major factories, including Rift Valley Textile Mills (Rivatex) and Kisumu Cotton Mills (Kicomi).
Rivatex has since been revived after it was taken over by Moi University. Industry insiders say local textile companies should use the 12-month window provided by the interim trade pact to pursue a new Economic Partnership Agreement (EPA) with the EU alongside other EAC member states.
Mr Bedi says that apart from the decline of orders from the US, high cotton prices, lack of a domestic cotton supply chain and high production costs have compounded the sector’s problems.
“We have no capacity to supply good quality materials because raw materials are not readily available in Africa and takes time to procure,” he said.
Orders from the US have been slow in coming since last year as Asian and Chinese exports surged helped by the removal of export quotas.
Four EPZ firms have wound up operations since January following a steep decline in orders, according to John Akara, the chief executive of EPZ Authority.
They are Athi River-based Rising Sun, MRC EPZ, Global Apparels and Ruaraka-based Apex. But despite its economy troubles, America remains the world’s most lucrative market for apparel and footwear.
“Americans continue to be loyal consumers of apparel and footwear despite growing housing- and energy-related economic pressures,” explained Kevin M. Burke, President and CEO, AAFA.
“For example, the Annual 2006 Trends report found that the average American female bought more than 28 shirts or blouses in 2006, nearly a 10 percent increase from 2006.”
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)