Garment makers protest market offer for EPZ firms

The recent move by the State to allow companies in the low-tax Export Processing Zones (EPZs) to sell all their production locally is fuelling fresh rivalry in textile industry with firms outside the enclaves claiming unfair competition.

Treasury secretary Ukur Yatani late March temporarily lifted the restriction that compelled EPZs to sell only a fifth of their annual production in the domestic market following coronavirus-induced lock-downs in major export markets.

The lock-downs, which are gradually easing, have resulted in costs of importing raw materials in textiles and apparel sector rising by as much as 10 percent with delays of up to two months compared with pre-Covid period, according to industry players.

"Our products are impacted by extremely low sales. We have not been able to absorb the increased costs," said Mehul Shah, director at Omega Apparels.

"Another problem we face is EPZ companies supplying into the country. This is not fair as they procure their goods duty-free and we cannot match their costs."

Among other incentives, firms operating in EPZs enjoy a 10-year holiday on corporate income tax and withholding tax on dividends as well as exemption from value added tax (VAT) and import duty.

Industrialisation and Trade secretary Betty Maina, however, insisted the restrictions were only relaxed for EPZ firms whose products do not pose competition to those outside the low-tax zone.

"The analysis we have done has shown us that the goods that are produced in the EPZs are different from the goods that are produced by other manufacturers. They don't actually compete in the same market segment," Ms Maina said.

Majority of firms in the EPZ are in textiles and apparels and largely exports to the US under quota- and duty-free Growth and Opportunity Act (Agoa) which expires in September 2025, with Nairobi and Washington in talks for a preferential trade deal upon expiry.