Why Kenya’s Proposed Textile City Could Remain a Mirage

rivatex-ea-ltdIn a move that is seen as being aimed at strengthening the country’s manufacturing base and creating jobs for the youth in the country, Kenya is collaborating with China in creating a ‘Textile City’ worth US$773.8 million in Athi River on the outskirts of the capital, Nairobi.

Though touted as the only project of its kind in sub-Saharan Africa, the proposed industry could remain a pipe dream unless appropriate measures are taken to provide an enabling environment for its operation.

Unreliable supply of electricity is one of the factors that are likely to adversely affect this ambitious project. Kenya would have to import extra power to add to its current 546.19 million KWh as at December 2012.

Cotton-farming-kenyaIf calls for extra power by investors through editorial supplements and OLX Kenya classifieds and advertisements are any indication, the country has little choice other than importing electricity from its traditional trading partner, Uganda.

The Textile and Apparel sub-sector of Kenya Association of Manufacturers has pointed out that unreliable supply of power, coupled with high cost where it is available, would account for about 35% of the cost of fabric production. This, in turn, would lead to higher prices of the finished product. The cost of production in a country like India is cheaper as the cost of production there is just 16%.

Finding an adequately skilled labour-force to drive the project would also be a challenge as, according to the Journal of Emerging Trends in Economics and Management Sciences, the average textile worker in Kenya requires about 5 years of training to attain the skill and productivity level of a worker in China in the same industry. That competitors like China have put in place policies and structures such as the Textile University of Shanghai which help equip the labour-force with the necessary skills gives them an edge over Kenya.

mitumba-second-hand-clothes-awaiting unpackingSetting up production plants that rely on imported raw material would also prove a challenge as it would make it more expensive to operate in the country.

It would be worthwhile for government to revive cotton farming that nose-dived due to unregulated price competitions and importation of cheap second-hand clothes in 1992 after the collapse of the Cotton Board of Kenya which used to oversee the pricing and marketing of cotton.

By offering free or subsidised farmer trainings on quality control through facilities such as the US$595,238 million laboratory in Kabete in Nairobi, the production of cotton would shoot up thus providing the required raw material for ginneries and mills. In turn, jobs would be created and farmers would get a large market for the cash crop whose price stood at US$0.78 in May 2014.

sampling-used-clothes-stall-nairobi-kenyaAfter independence from Britain in 1963, Kenya inherited 74 well-established textile and clothing firms which even thrived more with the Import Substitution Scheme (ISS).  This scheme saw heavy taxation of imported clothing and fabrics resulting in the flourishing of the local textile industry which is on its knees today. Firms such as Kisumu Cotton Mills (KICOMI), Rift Valley Textiles (RIVATEX), Kenya Textile Mills (KTM) in Thika and Mountex in Nanyuki  provided employment to thousands of people.

Freeing of the Kenyan Economy in 1993 meant great competition from imported second-hand ‘mitumba’ clothing and uncontrolled market prices of cotton leading to the collapse of local mills.

kenya-Processing-Zones-Authority-logoThe Kenyan government should consider taxing second-hand ‘mitumba’ clothes based on their value rather than weight. This would create room for consumption of local textile products.

Policies such as the establishment of Export Processing Zones (EPZ) should be reviewed in order for the government to gain even as these firms strive to grab the enormous market prospects presented by the tariff and quota advantages under the US-led African Growth Opportunity Act (AGOA). Currently, the EPZ incentive regime allows a 10-year tax holiday, unrestricted foreign ownership and employment, and freedom to repatriate unlimited amounts of earnings. There should be a clause that obliges the investors, for example, to repatriate only a small portion of earnings and not all of it.