TRALAC - Trade Law Centre

Kenya: End of AGOA could destroy textile sector

Monday, 23 May 2011

Source: Daily Nation (Kenya)

Export Processing Zones Authority is considering other market alternatives should the Agoa window close.

According to the African Growth and Opportunities Act (Agoa IV) provisions, eligible sub-Saharan African countries are required to start using local materials or source from developing countries from September 2012 to qualify for the preferential treatment of its textile products.

Currently, there are no restrictions of where countries get raw materials, with many relying on China and India.

Kenya is expected to request for an extension next month at the Agoa summit in Lusaka, Zambia.

Most textile products from the EPZA are exported to America through Agoa, an affirmative policy introduced by former US president Bill Clinton to lift earnings for developing countries.

The firms, however, import most of the raw materials and have failed to stimulate local production. "We are discussing with Europe and China. We are sending a delegation to Korea to see how much they can offload from us should the Agoa retreat or slow down. We have back-up plans," said newly appointed EPZA chief executive officer Richard Kilonzo.

The government policy think-tank, Institute of Policy Analysis and Research, has warns that the country could lose new opportunities offered by Agoa in textile industry if cotton production is not boosted.

"Implementation of Agoa phase IV means it is imperative that Kenya takes some remedial action; otherwise the country will no longer be eligible for Agoa-type preferences by September 2012," it says in a report released last year.

Failure to extend compliance period could put the local textile sector on shaky ground. According to the 2011 Economic Survey released last week, cotton production declined by 54 per cent for the second year from 2,200 tonnes to 1,000 tonnes.

"Cotton production has shown little response to various government initiatives to boost the crop with its value remaining stagnant at Sh2 million for the last five years," says the survey.

Provisions of Agoa IV were adopted in September 2007 and the States provided a five -year window to build capacity for producing local textile manufacturing materials.

Kenya has been relying on imports from mainly Uganda and Tanzania, after cotton production declined in 1990s following the collapse of ginneries unable to withstand competition after market liberalisation.

Banking on competitors

In recent years the government has initiated several measures, including the establishment of Cotton Development Authority to encourage production.

Farmers have been provided with seeds and producer cotton prices increased to encourage more growers to go back to the farms.

Textile firms at Kenya's Export Processing Zones rely heavily on raw materials from their competitors in China, India, Banglandesh and Malaysia.

While Kenya EPZ textile firms have improved trade performance in clothing and textiles, it lacks a stronghold in the global market.

The textile sub-sector is the fourth largest, accounting for 11 per cent of the manufacturing sector.

At the EPZA textile firms account for over 50 per cent of employment. Players recommend that Kenya should borrow the Mauritius model and create special economic zones.

A busy calendar in Parliament has slowed the creation of such zones that would offer more incentives to textile firms.

Current zones are hampered by frequent policy changes and operational procedures, high production and operational costs, cut-throat competition, slow pace of labour and employment reform laws.

Stakeholders say the government should help to rehabilitate ginneries and introduce modern technology, farmers should be encouraged to increase acreage under cotton by accessing idle land.

High-yielding cotton seeds, affordable inputs, a reliable market and extension services should be provided.

The government has removed 16 per cent Value Added Tax levied on locally produced and ginned cotton.

It is also levying taxes on imported textiles including second-hand clothes to try and protect the local industry.

Since about 80 per cent of firms are owned by foreign investors, experts want the government to encourage greater local ownership.

Mr Kilonzo said they are working on a financial package with several financial institutions to provide small and medium enterprises with credit.



“ 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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