Wednesday, January 20, 2010

Report: Kenya may miss out on Agoa IV

As the deadline for start of the fourth phase of the African Growth and Opportunities Act (Agoa) draws near, experts say Kenya is unlikely to benefit if the revival of cotton farming is not stepped up.
It could even put the local nascent textile sector that relies mainly on imported materials for manufacturing, at the risk of collapse if local raw materials are not available.
According to a report released by the government policy think tank, the Institute of Policy Analysis and Research, the country faces the challenge of increasing cotton production to tap into new opportunities offered by Agoa.
“With the implementation of Agoa phase IV, it is imperative that Kenya takes some remedial action, otherwise the country will no longer be eligible for Agoa-type preferences by September 2012,”

According to Agoa Phase IV (Agoa IV), eligible sub-Saharan African countries should use locally manufactured materials or source from other developing countries by September 2012.
The matter was adopted on September 2007, with states given five years to build capacity for producing local textile manufacturing materials.
“Kenya should grow its cotton cheaply and create employment opportunities for her people instead of continuing to import cotton from her neighbours — mainly Uganda and Tanzania,” the report says.
Textile firms at Kenya’s Export Promotion Zones also rely on raw materials from their competitors in China, India, Bangladesh and Malaysia.
The report, a comparative analysis of the Mauritius and Kenya EPZ textile firms, notes that while the country has improved its trade performance in clothing and textiles, it does not have a stronghold in the global market.
Kenya, according to the study, will find the years leading to the Agoa IV start more challenging and, unlike Mauritius, which has diversified and entrenched its place in the international market.

The fourth largest

The textile sub-sector is the fourth largest, accounting for 11 per cent of the manufacturing sector. Textile firms account for over 80 per cent of the EPZ employment.
The report says Kenya should follow the Mauritius model, and create special economic zones, which will spread out the incentives to textile firms in the country wherever they are located.
The Kenya government has already announced that the special zones will be launched in June, starting with the northern corridor.
Kenya’s EPZ, according to the report, are hampered by frequent policy changes and operational procedures, high production and operational costs, cut-throat competition, slow pace of labour and employment reform laws.
They recommend that the Government maintain incentives and remove obstacles to trade for the country to reap more from Agoa.
The government should help to rehabilitate ginneries and introduce modern technology, the report says, adding that farmers should be encouraged to increase acreage under cotton by accessing unutilised land.
High-yielding cotton seeds, affordable inputs, a reliable market and extension services should be provided.
The Government has removed 16 per cent Value Added Tax levied on locally produced and ginned cotton. It is also levying taxes on imported textiles, including second-hand clothes.
However, the experts say that further incentives will enable the textile sector to catch up with that of Mauritius.
They recommend that the private sector play a greater role in cotton production. They praise a USAID initiative which, in partnership with US firm Dunavant entreprises, wants to produce cotton on 100,000 acres in southern Nyanza, while working with the local farmers.
The experts also call on the Government to encourage greater local ownership of EPZ firms by increasing accessibility to credit, to stop the repatriation of profits and reduce moving to other countries. Foreign firms constitute 83 per cent of EPZ, which enables them to easily move to other countries.
In their recommendations, that is likely to draw the ire of trade unionists, they urge the Government to abolish annual wage increases and instead peg the pay to productivity, inflation and the nature of the sector.

Remain competitive

“To ensure that the garment firms remain competitive, the Government should abolish annual wage increases that are not pegged to productivity."
A national textile training centre should also be established or set up by upgrading the existing centres to offer training in new technologies and production methods.
The report notes that EPZ exports have been increasing over the years, but the transfer of technical, marketing and managerial expertise is not moving so fast because Kenya lacks a skilled labour force, especially in the textiles sector, and relies heavily upon foreign labour from expatriates.
The labour productivity is estimated to be 30 per cent lower than the industry optimum, caused mainly by low training levels.


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