The local textile industry is under siege, the players have said.
They have listed some of the conditions that hinder the campaign to improve efficiency in the sector: Dropping cotton reserves, new value added tax on the imports and relaxed rules of entry for second hand clothes.
They say an erratic supply of raw materials and unfair competition in the domestic market are pushing many companies out of the country.
A few years ago, the government moved to set up the Cotton Development Authority (CDA) to regulate and revamp the whole cotton value chain in the hope of changing the industry’s fortune.
“Cotton production outlook for the near future is still bleak and the remaining companies that are relying on erratic imports from Uganda and Tanzania are barely surviving on the limited raw materials available,” said Mr Jas Bedi, the managing director of the Nakuru –based Bedi Investments.
Mr Bedi is also the chairman of both the Kenya Textile Manufacturers Association and the African Cotton and Textile International Federation (Actif) — the body that promotes the production and use of natural cotton fibre in the textile industry.
With a keen eye on both the domestic market and the export outlets such as the one expected to come with the conclusion of the ongoing Economic Partnership Agreements, local industry players say only government intervention that cleans up the whole chain can prepare the sector for the challenge ahead.
At the moment, the government refunds the cost of manufacturing to textile industry but they have to pay VAT.
While the essence of the government economic liberalisation policy is to encourage all sector players, including the second hand clothe dealers to compete fairly in the local market, textile companies want the State to rethink strategy and craft rules that could tilt the investment environment in favour of local industries.
“The government must revamp local ginners and either ban completely or charge steep taxes on the importation of used clothes to protect local investments,” Mr Mahindra Shah, a proprietor of another Nakuru-based textile firm told Business Daily in an earlier interview.
But the push to ban second-hand clothing is unlikely to go down well with a high number of Kenyans whose incomes can barely support new textile products by the local industries.
When he slashed import duty on second hand clothing from $0.3 per kg (or 45 per cent whichever is higher) to $0.20 per kg (or 35 per cent whichever is higher), finance minister Uhuru Kenyatta said the move was necessary to allow low income earners to afford clothes under the current economic depression.
In the campaigns to make the locally produced fabrics affordable, industry players are turning attention to the role that each segment of the value chain is playing in increasing prices.
“Although the proportion of raw material cost in the final textile product reduces as one moves up the value chain, cotton prices still need to be addressed urgently, especially at the ginners’ level where it constitutes up to 60 per cent of production cost,” says Mr Bedi.
Mr Michael Kowon, the CDA managing director says the country expects to harvest 40,000 bales of cotton this season — a projection that players say will remain a distant mirage under the prevailing drought condition.
Statistics indicate that from a production level of 20,000 bales of cotton in 2007, the country’s production fell to only 8,000 bales last year due to drought and the post-election disturbances.
At the moment, the country requires 80,000 bales to meet the domestic requirement.
Local factories are importing close to 80 per cent of their raw materials.
Price volatility and erratic supply in the international market has forced most manufacturers to turn to synthetics.
Mr Kowon says this season will be the pay-off time for the many campaigns, including low cost credit, free seeds and revival of old cotton schemes.
Cotton harvesting is already going on at the Coast, in Eastern, Rift Valley, Nyanza and Western provinces.
“We are collaborating with the Kenya Agricultural Research Institute (Kari) to develop a seed variety for the long staple cotton that the country has never produced before,” said Mr Kowon.
The long staple cotton, known for its long lint that is used in the manufacturing quality fabrics is imported from Egypt.
The authority says it has finalised details of the legal framework for contract farming of cotton.
Under the new arrangement, farmers will only be allowed to start growing the dry crop after agreeing with the ginners on the quota and payment.
At the country’s export processing zones, the regulator denies that tightening investment condition is driving away investors.
“Investors that came into the country with feasibility studies anticipated the lapse of the Multi-Fibre Agreement (MFA) are still going strong. Only the speculators who came with the short term aim of maximising profits... have flown out,” says Mr Joseph Kosure, the EPZ authority’s acting managing director.