TRALAC - Trade Law Centre

Kenya: Production at EPZs on a decline

Monday, 25 January 2010

Source: Daily Nation (Kenya)

The Government’s plan to establish Special Economic Zones (SER) may suffer a setback, due to declining productivity at the Athi River-based industrial enclave.

A new report by the Institute of Policy Analysis and Research (IPAR) says Kenya’s labour productivity at the Export Promotion Zones (EPZs) has been declining by four per cent every year.

This means that unless investment in skilled labour is shored up in the next few years, production at the EPZs could dip, making the country lose competitiveness in its exports through the Africa Growth and Opportunity Act (AGOA).

While the few textile training centres in the country are decaying due to reliance on old technology, says the report, the government is yet to establish a national training centre.

“Given that most workers in the EPZs are low skilled and mostly primary school graduates, the literacy levels tend to limit their capacity for learning and raising productivity,” says the report.

While the industrial zones reportedly contribute below three per cent to GDP, each worker is said to produce an average of US$ 8,000 (Sh600,000) per year.

Output

This is way below the annual output of other countries competing with Kenya through AGOA, such as Mauritius, where every worker makes some US$ 13,000 (about Sh975,000) every year.

While this is the case, the report paints a bleak future in this sector of growth because majority of investments at the EPZs are foreign owned.

It says firms that are wholly or largely owned by foreigners are likely to repatriate most of their profits outside the country, hence their output cannot be used for re-investment, especially when domestic conditions become increasingly unfavourable.

According to the report, 16.9 per cent of investments in the EPZs are locally owned, compared to 53.5 per cent belonging to foreigners, while joint ventures claim 29.6 of the investments.

“The low participation of locals in the EPZs may have serious repercussions on the sector in terms of future growth, employment creation, income distribution and poverty reduction, because firms that are foreign owned are vulnerable to relocation or closure,” says the report.

Invest

“Therefore, the government should encourage locals to invest in the EPZs through such means as increasing accessibility to credit.”

Although the government plans to streamline business start-ups by eliminating or simplifying 900 of the country’s 1,335 licenses to fast track the establishment of SER, there are claims that the process has already been infiltrated by corruption.

This, says the report, has raised the cost of doing business and made EPZs and non-EPZ firms less competitive.

“To speed up issuance of permits and approvals, some low level government officials ask for bribes,” says the report. “It is worse when high level government officials solicit for bribes to fund their political parties.”

It, however, recommends the government to exploit the partnership with the private sector to institute a bailout plan through insurance to assist ailing enterprises as a result of capital flight.

The 2009 World Bank report on doing business indicated that Kenya could do better to cushion its investment against negative market forces if the government became more committed to fighting corruption.



“ 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.