Challenges abound as Africa seeks to penetrate global markets

The expiry of the trade protection that has ushered in stiff competition from low-cost producers in Asia and US-originated trade barriers are the two major reasons Kenyan textile exports to the world’s largest economy are low.

The end of the multi-fibre agreement (MFA) trade quotas for textiles opened the US market to exporters of cheaper products from India, Bangladesh and Vietnam – who have now taken a bigger chunk of the US market.

The final nail in the coffin of textile manufacturers in Kenya’s Export Processing Zones (EPZ) was the removal in 2008 of safeguards against China textiles in the US.

Despite the US-pioneered African Growth and Opportunity Act (Agoa), Kenya’s main export to the United States remains textiles whose total value has fallen in time in absolute dollar terms.

At the end of 2008, total exports to the US were valued at about $246 million, a nine per cent fall from $270 million in 2005, the year in which the MFA came to an end, ushering in new competition.

The composition of Kenya’s exports world-wide, the US included, has changed little since 1976 except for increased clothing exports to the US.

The EPZ model itself was not adapted to the liberalisation of trade that occurred around the world since the conclusion of the General Agreements on Tariffs and Trade (GATT) in 1995.

Further many countries formed regional integration schemes that removed barriers to trade, drastically reducing the relevance of the EPZ model in Kenya.

The inability to compete with strategic competitors in Asia has wreaked havoc on local textile industry and led to the collapse of many textile firms.

After conducting a study titled Kenya Export Prospects and Problems, two economists from the World Bank, Francis Ng and Alexander Yeats, concluded that “aggregate United States import statistics suggest Agoa has not yet had a major expansionary influence on most African countries’ exports.”

It would appear that Agoa may have been targeted at increasing African oil exports to the US which has shown great thirst for the commodity as it is the world’s largest energy consumer.

According to data gathered by the World Bank researchers, over 80 per cent of the exports under Agoa were petroleum and oils with apparel and clothing come a distant second at just six per cent.

BMW plant

Significantly, another beneficiary of Agoa is the German car manufacturer, BMW. About five per cent of the exports under Agoa to the US were from South Africa’s BMW assembling plant.

The researchers said “Eighty per cent of the recent Agoa eligible exports consisted of petroleum products whose exports are highly concentrated in a relatively few African countries.