Raw material sourcing issues threaten Kenyan textile sector
It is being apprehended that, if Kenya falls short in producing sufficient raw materials to cater its textile industry, the industry may lose the benefit under the lucrative Africa Growth and Opportunity Act (AGOA), which earns fabrics from the export processing zones in Kenya, a free access in the US market.
Under AGOA, 38 African nations have been granted free access to the US market for several items, but then the agreement requires that, these nations should gain self reliance in terms of sourcing of raw materials required for production of export items, by September 2012.
However, the legislators and the industry players are of the view that, it would be a difficult task for them to attain such self reliance within the stipulated time-limit, owing to the struggle that the cotton sector of the country is currently undergoing.
The US government, in 2009 extended the benefit of the AGOA concessions till 2015, but then it declined to reconsider its Rule of Origin (RoO) clause.
Presently, Kenyan textile producers take around 150 days to deliver the orders to the US markets, from the date of placing the orders. This time can be reduced to less than half to around 60 days if the raw materials are secured from the domestic market. Also, it would boost the sales and even prove beneficial to the domestic cotton growers.
Kenya has officially urged the US government to exempt it from the clause, but if the US government does not give consent to the same, it would mean that, the textiles manufactured while using imported raw materials would not gain duty free access in the US markets. This may badly hit Kenya's emerging textile industry which is already tackling issues like that of high operational costs and relocation of the production units to low cost areas.
Also, implementation of the clause is likely to cause the Kenyan textile exports to lose their competitiveness in relation with the textile exports from China, and may even lead to suspension of workers to a great extent.
Further, to note that, though AGOA has benefited the country since its very implementation in 2001, but then it has not aided much on the front of boosting cotton production, and has corroded the confidence of the cultivators with poor market connections, pricey raw materials including seeds and absence of reasonably priced credit facilities.
Owing to all these factors, the textile firms under the Export Promotion Zone (EPZ) in Kenya need to import most of their input requirements from competing nations like India, China, Malaysia and Bangladesh. Kenya has been utilizing only 50 percent of its overall potential.
Kenya has been granted duty free access to the US under AGOA, for 6,000 products but the country avails the benefit only for 20 products including textile items.
The textile sector stands as the Kenya's fourth biggest manufacturing industry, contributing 11 percent of its overall exports, and even accounts for 50 percent of the country's overall exports to the US under AGOA.
At one point of time, the vigorous Kenyan apparel export sector incorporated 44 textile exporting firms under the AGOA, while directly and indirectly employing over 32,000 people, but today this number has reduced to 10 firms with hardly 9,000 workers.
This is largely attributable to factors like high operational and production costs, severe competition and the time-consuming labour and employment reforms.
Fibre2fashion News Desk - India