TRALAC - Trade Law Centre

Kenya: Crunch time for textile sector as shortage bites

Tuesday, 11 January 2011

Source: Daily Nation (Kenya)

Kenya's textile industry's continued benefit from a major trade agreement with the American Government is under serious threat with processors raising the red flag over a possible crippling shortage of cotton.

While the industry regulator, Cotton Development Authority (CODA), says the country's production has improved over the last few years, cotton ginneries are talking of a serious dearth of the crop.

And this is raising serious concerns over the country's ability to reap from phase four of the African Growth and Opportunities Act (Agoa), which demands that developed countries source raw materials locally by September 2012.

Textile accounts for up to 50 per cent of the products exported to the US under the Agoa initiative. The deal provides Kenya with a window to export about 6,000 different products under favourable tax incentives. But still the country is currently not doing more than 20 products.

According to players in the sector, employment in the 12 ginneries currently operating in the country hangs in the balance for lack of the raw material.

In total, there are 22 ginneries with a combined capacity of processing 140,000 bales, but most is un-utilised since they are rarely processing 25,000 bales.

"We are faced with a serious situation which could lead to laying off of 600 employees in our factory due to shortage of cotton for spinning. The other ginneries are also suffering," said Mr Jaswinder Bedi managing director of Nakuru-based Bedi Investments.

Mr Bedi, who is also the chairman of the Kenya Association of Manufacturers (KAM), said stakeholders met government officials in November last year over the biting shortage of cotton and a taskforce formed over the matter, but no improvement have been noted.

When contacted last week, CODA managing director, Michael Powon, could not confirm or deny the projections only sayings they are compiling the country's cotton production figures for 2010. "It is possible we will announce them (figures) next week (this week)" he said.

The figures that indicate Kenya produced 49,000 bales in 2010 compared to 23,000 bales in 2009, are provided by United States Department of Agriculture (USDA) though they have been disputed by industry players who have described them as a "distortion of the reality."

Textile production received a major boost in the 1990s after former American President, Bill Clinton initiated the Agoa initiative with the objective of promoting trade between developing countries and America.

A list of selected products enjoy tax free access to the expansive market in America. Textile industries, mostly set up in the Export Processing Zones (EPZs), have been major beneficiaries of the initiative.

According to Agoa phase IV (Agoa IV), eligible sub-Saharan Africa countries should use locally manufactured materials or sourced from other developing countries by September next year.

Textile industry is considered under the Vision 2030 among the anchor industries in the country that will accelerate development in arid- and semi-arid lands (ASAL). Height of production.

The areas lie in the Eastern, Western, Nyanza, Coast and Central provinces. At the height of production, the sector produced over 60,000 bales, before the government divested from the industry. But even the government is aware of the risks.

"Kenya should grow its cotton cheaply and create employment opportunities for her people instead of continuing to import cotton from neighbours mainly Uganda and Tanzania," said the government's policy think tank, Kenya Institute of Policy Research and Analysis (KIPPRA) in a report it released last year.

It warned that if cotton production is not stepped up, the country could miss out on the benefits of Agoa IV hence putting the nascent textile industry on shaky grounds.

The country has an estimated potential of 350,000 hectares suitable for rain-fed cotton production and 35,000 hectares under irrigation. This, according to experts, has a combined potential that can produce about 300,000 metric tonnes of seed cotton.

However, only 35,927 hectares are under production, yielding an average of 24,975 metric tonnes of cotton every year. The government projects production to grow at a rate of about 10 per cent per year translating to 60,000 metric tonnes by 2012.

The national demand for lint is about 111,000 metric tonnes seed cotton while the average production has been about 11,000 metric tonnes seed cotton every year over the last 5 years.

According to report of the task force on implementation of Kenya Textile Industry position given to the Prime Minister's office in April 2010, cotton production had doubled from 2008 to reach 24,975 metric tonnes of seed cotton. However, recent grouses by ginneries have raised doubts about these figures.

The country is estimated to have 30,000 small-scale cotton farmers while apparel making at EPZ is hiring about 10,000 people.