Business & Economy

Agoa renewal could revive Kenya’s ailing textile sector

Kenya is looking to revive its struggling textile sector, following the extension of the Agoa trade agreement with the US. Agoa, the cornerstone of trade legislation between the US and Africa, allows tariff-free imports of African-made goods. After oil, textiles have represented the lion’s share of Agoa exports to the US, with Kenya’s apparel exports, worth $385 million, making up a third of total flows worth nearly $1bn in 2013.
The 10-year renewal of the trade treaty (compared with previous renewals of four years) has buoyed interest in Kenya’s textile sector, as the longer period will enable investors to amortise their capital investments in factories and the textile value chain. Moreover, the Agoa renewal coincides with a structural shift in the global apparel industry, which is looking to move factories from China and South-East Asia in response to rising labour costs.
This makes Kenya especially attractive, as monthly wages for textile workers are $120-150, less than a third of China’s average of $500. Given the sector’s potential for job creation, it has captured the interest of the Kenyan government which, in a bid to attract textile investors, has cut the cost of electricity in half to KSh9/kwH.
The subsidy will help lower overheads, as power accounts for around 35 percent of production costs. China’s Jiangsu Lianfa is planning a vertically integrated textile factory in Naivasha, worth KSh40bn, which will produce textiles worth $1.5bn. The factory plans to source power from the Olkaria geothermal plant, helping lower costs.
Despite its advantages, Kenya is facing stiff competition from Ethiopia, which has succeeded in attracting more investors, owing to its cheap power and labour. Kenya is also hobbled by its weak cotton sector, which produces only 25,000 181-kg cotton bales per year, requiring imports to meet demand of 200,000 bales. In a bid to boost yields, the government plans to provide 750 tonnes of certified cotton seeds to farmers this year, but this is inadequate to turn the sector around. Consequently, Kenyan textile manufacturers will need to import cotton fibre from South Asia, pushing up production costs. For these reasons, Kenya is unlikely to meet its target of $1bn in earnings from textile exports by the end of 2017.

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