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Why President Uhuru’s love-hate affair with mitumba will not end soon

By Dominic Omondi | Published Sun, August 12th 2018 at 00:00, Updated August 11th 2018 at 22:51 GMT +3
Kisumu residents buy second hand clothes commonly known as mitumba at Kibuye market. The mitumba business is booming in the market due to their high demand as traders sell them at a relative low price compared to the shops. [Collins Oduor]

In summary

  • Diplomatic and trade interests have tied President's hands in enforcing higher charges on imports from the US

Mitumba business will thrive even after National Treasury Cabinet Secretary Henry Rotich told MPs he intended to slap the items with higher duties in a bid to revive the textile industry.

Kenya has broken ranks with its East African Community (EAC) peers to reduce tariffs on imported second-hand clothes in a strategic decision by President Uhuru Kenyatta's administration to maintain cordial relations with the United States.

Under President Donald Trump, the US has not hesitated to pick up trade wars, indiscriminately tussling with both economic giants China and minions Rwanda.

An EAC Gazette of June 30 shows that Kenya's importers would bring into the country second-hand clothes, popularly known as mitumba, at a reduced tariff of $0.20 (Sh20) per kilogramme for the next 12 months.

This is after a reduction of 50 per cent from an applied tariff of $0.40 (Sh40) per kilogramme.

The decision brings into question Uhuru's plan to protect local textile manufacturers and revamp the sub-sector to unleash tens of thousands of jobs.

But this will certainly assuage Mr Trump. The real estate mogul, who has vowed to ‘make America great again,’ has already sanctioned Rwanda for increasing import duty on second-hand clothes.

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"The President has been invited to the US, and so you do not want to create an awkward moment diplomatically,” says University of Nairobi Economics lecturer Gerishon Ikiara.

Trump has invited Uhuru to Washington for an official visit set for August 26, with discussions including regional peace and stability set to feature prominently during the meeting.

"The two leaders will discuss good bilateral relationships between the two countries and plans to boost, among other sectors, security, trade and investment,” said State House Spokesperson Kanze Dena.

Mr Rotich said the cost of bringing mitumba into the country would go up after he increased import duty on imported garments to protect local textile manufacturers.

In his Budget Speech in June, the CS proposed to introduce an import duty of $5 (Sh500) per unit or 35 per cent, whichever was higher, on both cheap imported textiles "as well as well as second-hand clothing and footwear."

"Our textile and footwear sector is closing down due to increased unfair competition from cheap imported textiles and footwear as well as second-hand clothing and footwear,” he said.

“In order to encourage local production and create jobs for our youth in the sector, I have introduced a specific rate of import duty of $5 per unit or 35 per cent whichever is higher.”

Different story

But the EAC notice tells a different story. “Kenya to stay application of the EAC CET rate and apply a duty rate of 35 per cent or $ 0.20/Kg whichever is higher instead of 35 per cent or $ 0.40/Kg whichever is higher for one year,” read the notice signed by EAC’s Council of Ministers Chairperson Al Haji Ali Kirunda Kivejinja.

Instead, the $5 that Rotich talked about will only apply to new fabrics, apparels and garments. Indeed, if the mitumba would have been subjected to this tariff line, they would have been even cheaper.

Dr Samuel Nyandemo, another Economics lecturer at the University of Nairobi, questions the actions by Rotich. “Many consumers are complaining that there are certain taxes which have been sneaked into the budget,” he says.

Rwanda, a tiny nation that is reawakening from the damage of a bloody civil war, made good its intention to phase outworn clothes from its market by 2019, hitting second-hand clothes with higher tariffs.

A kilogramme of mitumba entering the country will attract an import duty of $2.5 (Sh250), a departure from the current rate of 35 per cent or $0.40 per kilogramme.

This has angered the United States, with Trump retaliating by suspending duty-free access to US markets for Rwandan clothing under the African Growth and Opportunity Act (Agoa).

"Of all the EAC countries, it is only Rwanda which a bit cautious with the issue of mitumba,” says Dr Nyandemo, adding that the other countries have no clear-cut policy on what to do with worn clothes.

Trump’s decision against Rwanda has been perceived by some as being discriminatory. An article by the Washington Post quoted former assistant US trade representative for Africa Florie Liser, who singled out countries such as India and Brazil which, though major exporters to the US through a preferential agreement, had significant barriers to US goods.

Kenya is reluctant to take Rwanda’s route because it stands to lose more compared to its EAC partner in case of a trade war with the United States.

Its leading export products to the US are apparel and clothing accessories. Last year, exports to the world’s largest economy increased in what was attributed to Agoa, with the Act having been extended to 2025.

The value of exports of apparel to the US through Agoa rose by 42 per cent from Sh24.2 billion in 2013 to Sh34,410 billion in 2016, before dipping slightly to Sh32.7 billion last year.

About 44,000 Kenyans have jobs courtesy of Agoa.

During the Trade Week that ended a few days ago, Uhuru unveiled a new strategy to increase exports to the US through Agoa, pointing to the significance of the agreement to Kenya’s ambition to become a middle-income economy by 2030.

He talked of the need for the country to re-examine the partnerships it has with European Union and the US to deal with the narrowness of its export offering.

"That is precisely the aim of the Agoa strategy and action plan we launch today. We look to it to guide our effort to raise the volume of our exports to the US, and to widen their range,” said the President.  

Kenya would not risk such a lucrative market as Agoa by stemming the inflow of mitumba, thus rattling the hawkish Trump.  

But this leaves the country’s ambition to increase jobs in the manufacturing sector on some sort of straw.

In addition, the deadline for phasing out second-hand clothes as agreed by the heads of state for the five East African Community member countries is fast looming.

In 2016, the Heads of State of Uganda, Kenya, Tanzania, Rwanda and South Sudan resolved to ban the importation of mitumba by 2019 as part of the EAC Vision 2050. 

Part of the blueprint is to grow the region’s manufacturing sector from 8.7 per cent of gross domestic product (GDP) to 25 per cent by 2032.

Kenya has already set its own target, aiming for 15 per cent of GDP from the current 10 per cent by 2022.

Unlike Rwanda whose export of textile to the US is valued at a paltry Sh119 million, 60 per cent of Kenya’s exports to the US in 2016 consisted of textiles.

Textiles exported to the US were valued at around Sh36 billion, a tidy sum in terms of foreign exchange currency ($352 million) that Kenya cannot risk losing.    

The Government intends to increase revenue from the textile industry six-fold to $2 billion (Sh200 billion) by reviving cotton growing. It plans to put over 200,000 hectares of land under the pest-resistant BT Cotton, which is then expected to create 500,000 jobs.

Hard sell

Economists think the Government’s ban on second-hand clothes so as to build the textile industry is a hard sell.

“It is difficult to balance between building the local textile industry and millions of people who depend on the second-hand clothing,” says Dr Ikiara, noting that beneficiaries range from traders in such markets as Gikomba to millions of consumers, some of whom earn as little as Sh200 a day.

“Banning mitumba would have such a huge impact on employment and basic needs of people, such as clothing,” he added.

Last year, Kenya imported about 135,868 tonnes of second-hand clothes valued at Sh13.1 billion, according to official figures.

China is the main source of Kenya’s used clothing, having shipped clothes valued at Sh3 billion - 22 per cent of the total import bill - in 2016.

The United Kingdom comes second with 18 per cent of the clothes that came into the country in 2016 emanating from there, valued at Sh2.3 billion.

With a market share of 13 per cent, Canada is the third largest source of Kenya’s worn clothing, pocketing Sh1.7 billion from Kenyan importers.

The US ties at fourth place with Poland, with a market share of 7.5 per cent. Kenya paid about Sh1 billion for imports of second-hand clothes from the US.  

But economists agree that for most developing countries without sufficient resources, the textile industry is a low-hanging fruit in terms of take-off as it does not need a lot of sophisticated resources to develop.    

Kenya has tried a number of measures to discourage consumers from mitumba, ranging from the mundane - such as a State official describing second-hand clothes as attires for dead people - to strong policies such as exempting garments and footwear bought from export processing zones from 16 per cent value added tax so as to encourage Kenyans to buy new clothes.

Nothing seems to be working.  

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