Kenya missed the target on earnings from exports for companies operating in low-tax setups because of weak demand from global clothing firms, the State Department for Investment Promotions has said.
The firms in Export Promotion Zones (EPZs) sold goods worth Sh115.71 billion to foreign countries, largely the US, in the year ended June 2024, falling short of the Sh118 billion target for the review year.
The earnings missed the target despite growing 3.50 percent from Sh111.80 billion the year before, according to the EPZ Authority data.
“The target was not achieved due to scaling down on orders by the garment enterprises for global reasons,” the department wrote in the sector report submitted to the Treasury for budget purposes.
The global textile industry has since 2022 been battling low demand for products amid overcapacity in their factories.
The outbreak of the Covid-19 pandemic compelled firms, particularly in medical textiles, to double orders in anticipation of brisk demand as the world battled to contain the spread of the deadly disease.
The decline in single-use medical textiles as the world contained the pandemic left firms with excess inventory.
A majority of firms operating in the EPZ are in the textiles and apparel industry and largely export to the US under the quota- and duty-free Growth and Opportunity Act (Agoa), which expires September 2025.
There were 177 companies in the EPZs at the end of June 2024, the Investments Promotion department’s numbers show, under-performing the goal of 184 firms. This was after 12 more firms opened businesses in the low-tax zones.
“There was a shortage of industrial sheds, especially within Athi River Zone, which slowed investors’ entry into the programme,” the report states.
The EPZA has in the past said most investors prefer ready buildings “as a way of reducing cost of operations and turnaround time”, spaces, which are in short supply.
The new firms helped inject Sh15.82 billion investments in Kenya’s more than 100 EPZs in the year ended June from Sh11.56 billion in the prior year, exceeding the government goal of Sh12 billion.
“The target was not achieved due to unexpected disruption in the EPZ apparel industry,” the report says.
The firms created 4,142 new jobs in the review year, missing the 10,000 target by 58.6 percent. The firms have struggled to replicate the high number of employment, which hit 18,544 in the year ended June 2021 when global demand peaked.
Firms in the EPZs get attractive fiscal, physical, and procedural incentives, including a 10-year corporate and withholding tax holiday as well as a 100 percent investment deduction on new investments.
The firms are also granted perpetual exemption from payment of stamp duty on legal instruments and payment of value-added tax and customs import duty on inputs.
The authority also offers incentives to small and medium enterprises (SME) exporters, with the majority of local Kenyan shareholding desiring to be set up under the EPZA programme.
SME from sectors such as horticulture, textile and apparel are offered purpose-built infrastructure with smaller warehouses and excused from paying rent for four months.
The Agoa pact allows access of more than 6,000 products like food and beverages, wood, plastics and rubber to the US from sub-Saharan Africa.
But Kenya has largely tapped the apparel and macadamia nut lines. The Agoa treaty was initially intended to last for 15 years from the year 2000 before being extended for a further 10 years in June 2015.
An analysis on the Agoa programme by the US International Trade Commission revealed last year that Kenya ranked fifth in utilisation rates behind Zambia, Lesotho, the Democratic Republic of Congo and Benin in 2021.
The deal allows sub-Saharan African countries to export thousands of products to the expansive US market without tariffs.
