Textile firms resume investments after Agoa rule extension

Kenyan textile firms shed 1,258 jobs and Sh647 million in capital investment as delay in extending the rule that allows them to produce US-bound exports from imported raw materials sent shockwaves across the industry last year.

The Economic Survey 2013 released last week shows that the number of workers at garment and apparel segments of the Export Processing Zones (EPZ) dropped by 5.4 per cent to 23,811 in 2012 compared to 25,169 the previous year.

Similarly, the level of capital investment shrunk by 9.4 per cent from Sh6.9 billion in 2011 to Sh6.2 billion last year as risk-averse investors worried over the future of African Growth and Opportunity Act (Agoa). They subsequently avoided long-term financial commitments.

“As a result of delay in the extension of third country fabric requirement in September last year, the direct employment in this sub-sector contracted while capital investment decreased for the second consecutive year,” the survey notes.

The third country fabric rule of Agoa which shields textile made of imported inputs from quota and tariff restriction was set to expire on September 30th, 2012.

For an Agoa-eligible country like Kenya which imports most of its raw materials such as cotton to produce export, the lapse of this provision would translate to collapse of a segment that generated exports worth Sh23.3 billion last year.

It was only after the US Congress extended the Third-Country Fabric provision of Agoa on August 2, 2012, that most firms started making long-term investment plans.

The amended legislation extended the third-country fabric rule to September 2015, giving African countries that do not produce enough cotton for their textile industry a temporary lifeline.

Before this was done, the Kenya Apparel Manufacturers and Exporters Association summarised the anxiety ahead.

“Failure by Kenya to lobby the American government to extend the provision would lead to loss of 40,000 jobs, closure of 15 textile firms and loss of Sh22.5 billion in foreign exchange,” the association chairman Thomas Puthoor said.

Away from the troubles of the textile and apparel segment, the EPZ firms generally recorded positive growth in almost all other indicators, pumping a total of Sh7.2 billion into the economy through purchase of goods and services.

The total employment under EPZ rose from 32,043 in 2011 to 32,516 in 2012 while sales from the enterprises rose by 12 per cent in 2012 to stand at Sh47.5 billion from 42.4 billion in 2011.

The figures released last week by Devolution and Planning Cabinet Secretary Anne Waiguru show that two more firms joined the zones last year, bringing the total number of operating enterprises at the end of 2012 to 81.

The zones’ regulator— Export Processing Zones Authority— says it is waiting for the enactment of the Special Economic Zones law to start a programme of diversification that will also reduce dependence on few markets such as US.

The firms which are also pushing for a bigger chunk of East African Community market—where their export is currently restricted to 20 per cent—have set their sights beyond textile, investing in pharmaceuticals and processing of fruit, honey, food and leather.