Shrinking Asian textile industry opens doors for Kenyan garments, fashion

For several decades the economic growth success story has been about the East Asia tigers; China, Vietnam, Taiwan, South Korea, Singapore, Bangladesh and Thailand, among others.

Interestingly the garment industry—a labour intensive, low-skill manufacturing process-- has been one of the catalysts for growth in these Asian countries.

There is however a twist. The garment manufacturing sector is gradually slowing down among the Asia tigers—promising opportunities for other markets such as Kenya where aspects of production cost such as labour inflation remain slightly lower.

China which has for a long time been the world’s leading apparel manufacturer is adopting a service economy, leaving countries like Kenya to fill the void.

Analysts predict that China will shed about 85 million jobs at the bottom end of the manufacturing sector between now and 2030.

“Today, as production costs rise in Asia, Sub-Saharan Africa offers the last frontier in the search for new apparel sourcing markets. With a strong apparel tradition, a large and entrepreneurial workforce, and an attractive business environment, Kenya is a compelling new sourcing,” a new study report on the Kenyan textile and fashion industry says.

This opportunity coupled with the apparel exports under the African Growth and Opportunity Act (AGOA) — a United States preferential market access deal for qualifying sub-Saharan countries, improved infrastructure and cheaper power bodes well for Kenya garments sector.

Fortunately for Kenya, its textile industry is just picking up after decades of a slump due to mismanagement and stiff competition from cheaper imports and second-hand clothes.

Data from the Kenya National Bureau of Statistics (KNBS) showed that Export Processing Zones (EPZ) recorded a 12.1 per cent growth in sales in 2015, underlining a resurgence of the sub-sector that is expected to be a key pillar of Kenya’s development.

The growth was mostly driven by apparel exports under AGOA.

“In 2015, enterprises operating under the Export Processing Zone (EPZ) programme recorded increase in employment, exports, imports, and expenditure on local goods and services,” The Economic Survey 2016 states.

“Total EPZ sales went up by 12.1 per cent from Sh57.2 billion in 2014 to Sh64.1 billion in 2015. The number of local employees increased by 8.7 per cent to 50,523 persons in 2015. The bulk of employment was in the garment/apparel enterprises with a total of 41,548 persons mainly due to expansion of existing apparel, and agro-processing firms.”

The opportunities in Asia give Kenya a chance to grow its textile export volumes and designs in the global scene.

READ: Duty on EPZ clothes scrapped to reduce mitumba use

“Kenya also has a deep well-spring of talent among fashion designers and small tailors, who can serve both the global, domestic, and regional markets,” says the study report by international development firm, Hivos Limited and Equity Bank.

Fashion enthusiasts on June 21 converged on a Nairobi hotel to review the status of the Kenya textile industry and brainstorm on how they would work to tap on the unfolding opportunities not just internationally but also locally.

“I think the demand definitely exists just from our own experience with Vivo, people are willing to buy local products. What they want is a decent product for a decent price that they like.” said Wandia Gichuru, CEO of Vivo Activewear , a local apparel manufacturer.

There is however plenty of work lying ahead if Kenya is fully to exploit opportunities both domestically and abroad.

Despite hosting numerous shows, boasting an avalanche of bloggers and the rich talent exhibited by local fashion designers, the study by Hivos and Equity Bank revealed that the textile industry in Kenya is quite fragmented, which has prevented it from blooming.

According to the report, most of the local players operate in isolation with no linkages to the retail platform.

Data shows that there are about 75,000 micro and small companies, including fashion designers and tailoring units. An estimated 80 per cent of them operate in the informal sector and use rudimentary equipment.

More than three quarters are owned by women while 91 per cent sell solely to the local market while most of the upcoming designers have a growing desire to be famous first rather than being rich first, the study further said.

“This potential remains largely untapped due to systemic and structural weaknesses of the T&C (Textile and Clothing) industry, which, despite its rich history of over 100 years, remains fragmented, unco-ordinated and misaligned. The sector is skewed towards cottage industries and low value-addition garment making, with an attendant steady decline in the textile sector,” the study further says.

“Local designers and small tailors are not integrated in the T&C value chain. They are also not connected to the structured clothing retail trade platform, mainly due to their lack of in-depth knowledge of the market requirements in terms of trends and fashion, buying seasons, pricing, preparation”

Mr Dev Chamroo, a senior consultant at CITC- Investment and Trade Consultants Mauritius, says Kenya’s textile industry must conduct urgent reforms to match competition for the unfolding global opportunities.

“Wake up! You are not the only beautiful girl in the room” he told participants during the launch of the Hivo-Equity Bank report in Nairobi.

The government’s medium-term economic growth strategy, Kenya Vision 2030, has identified the textile and clothing sector as a potential key driver of the country’s industrialisation.

The sector currently comprises 22 large foreign owned companies operating in the Export Processing Zones (EPZs), 170 medium and large companies, eight ginneries, eight spinners, 15 weaving and knitting companies, nine accessories manufacturers and over 75,000 micro and small companies, including fashion designers and tailoring units.

It spans the Fibre to Fashion (F2F) value-chain (cotton cultivation, ginning, spinning, weaving, knitting, dyeing and finishing, garment and accessories manufacturing).

The Industrialisation ministry is seeking to adopt a new model of Special Economic Zones (SEZs) to replace the EPZs whose performance has been termed disappointing.

Kenya is currently setting up several SEZs in Mombasa, Lamu and Kisumu. The Kisumu facility is aimed at growing export trade within the East Africa Community (EAC) and the Great Lakes region.

Another SEZ will also be set up close to the geothermal plants in Olkaria. Manufacturers in the special economic zones will be offered discounts on power bills because of lower transmission costs from the geothermal plants in Olkaria to the industrial hubs.

SEZs shall be subject to a reduced corporation tax of 10 per cent for the first 10 years and 15 per cent for the next 10 years.

Unlike EPZs which are limited to manufacturing, commercial and service activities, the SEZ Act provides a long non-exhaustive list of activities.

They include business processing outsourcing, manufacturing and processing; livestock marshalling and inspection, refrigeration, deboning, value addition; and services and activities to facilitate tourism and recreation sector.

The World Bank however says that the success of the SEZs will depend on provision of proper infrastructure— both within the zone and connecting it to the outside world.

“Although the infrastructure of a zone is important, it equally important to develop the connective infrastructure between SEZs, cities and ports,” the bank said.

Among the factors that have previously held back the success of the EPZs was a poor transport infrastructure and high electricity costs.

Currently, the government is working to reduce the cost of power with the Standard Gauge Railway (SGR) and the improvements at the Mombasa Port expected to further ease the export-oriented business.