Kenya tipped to be the next hub for apparel sourcing

Employees of the New Wide Garments factories situated at the Export Processing Zone in Athi River goes about their work after reporting back to their working station following a two days strike. Normal Situation returned yesterday as other workers continue nursing woulds inflected by the police during the strike. [PHOTO/PETERSON GITHAIGA/STANDARD]

Kenya is tipped to become the next hub for apparel sourcing in East Africa, an American management consulting firm says.

McKinsey & Company says the renewal of the African Growth and Opportunity Act (Agoa) -- US Trade Act which significantly enhances market access to America for qualifying Sub-Saharan African (SSA) countries - as well as ‘certain steps’ taken by the Government has contributed to the rising interest in the country as a potential sourcing destination for apparel.

The authors reached this conclusion after visiting garment factories; interviewing players, including manufacturers and buyers; and analysing market data. They also conducted a third survey of 40 apparel chief purchasing officers (CPOs) throwing them a series of questions focused on East Africa.

Ethiopia emerged as the darling among the CPOs. The East African country came out as the most attractive country in Africa for international buyers of apparels. While 13 of the 40 CPOs said they would start sourcing apparels from Kenya and another 5 said they would increase the value of apparels they sourced from Kenya, 28 respondents said they would start sourcing from Ethiopia and another eight said they would increase the value of apparel sourced from the country.

The survey, East Africa: The Next Hub for Apparel Sourcing?, noted that Ethiopia had cost advantages while Kenya boasted higher production efficiency. Mauritius came third with 13 respondents saying they would start sourcing for apparels from the country while another three said they would increase their value of the apparels. Lesotho, Madagascar, Uganda, Tanzania, Botswana, Egypt, South Africa and Swaziland were the other African countries that featured.

According to the report, Kenya’s apparel industry which currently specialises in supplying high volume bulk basics such as trousers, benefited greatly from Agoa. In 2013, 92 per cent of Kenya’s apparel exports went to the United States. Currently, over Sh40 billion-worth ($400 million) of apparels including jeans and towels consumed in the US are manufactured in Kenya’s Export Processing Zone (EPZ). This is projected to hit Sh100 billion by 2018, according to the Industrialisation Cabinet Secretary Adan Mohamed.

Moreover, the capacity of Kenya’s garment factories has grown markedly in recent years thanks to foreign direct investments from Asia and Middle East as well as support from the EPZ developed by the Kenyan government. “We found that East Africa could indeed become a more important centre for apparel sourcing, but only if stakeholders—buyers, governments, and manufacturers—work together to improve business conditions in the region,” read the report in part. “For the first time in our survey, African nations appear on the list of countries expected to play more important roles in apparel manufacturing. Ethiopia, notably, is seventh on the list,” it went on.

In his Budget speech, National Treasury Cabinet Secretary Henry Rotich cited the revival of textile and leather industries as one of Jubilee Government’s industrialisation strategy. “We will also target labour-intensive low technology industries such as textiles and leather in the first phase of this industrialisation agenda to take advantage of Agoa and global markets. To sustain these industries, we intend to invest in industrial and enterprise skills. We are also initiating a targeted approach to identifying potential international investors for our priority industries,” said the CS.

Some of Kenya’s challenges according to the report include a lack of local upstream industry which forces manufacturers to import fabrics. This leads to considerably longer lead times. According to the report, fabrics from overseas can take up to 40 days to make their way through the customs and to a garment industry in Kenya.

The other challenge includes comparatively high labour costs, with monthly wages for garment workers in the $120 (about Sh12,000) and $110 (about Sh11,000) range. This is almost twice Ethiopia’s wage range which the report estimated to be around $60 (about Sh6,000). Ethiopia’s wages are among the lowest in the globe. Work permit costs for foreign workers in Ethiopia are less than one-tenth those in Kenya. That Kenya’s labour cost are high will come as a surprise since one of the labour unrests among the EPZ workers have been on what the labourers have termed as low wages.

Energy costs both Kenya and Ethiopia are also high. In Kenya, because the power supply has been ‘spotty’ factories have been forced to rely on generators which in Africa the report notes is four times higher than power from the grid. The textile industry in Kenya was once a booming industry in the early 80’s.

According to a 2005 report by Exports Processing Zones Authority, the textile industry was the leading manufacturing activity in Kenya, both in terms of size and employment employing over 200,000 farming households and about 30 percent of the labour force in the national manufacturing sector.

However, the sub-sector started declining in the mid-1980s until the 1990s. The authority blamed the slump on the dumping of used clothes locally known as ‘mitumba’ which originally was meant for the troubled Great Lakes region but somehow ended up in the local market retailing at very low prices.

International buyers

It adds that the liberalisation of the economy in 1990 which led to the influx of textile goods into country also reduced the average capacity utilisation in the textile mills to about 50 per cent. As a result, the textile sector which was once the fifth largest foreign exchange earner in Kenya dropped to a very small contribution of the Gross Domestic Product (GDP) from mid and late 90s. But Government support and the prospects offered by the Agoa Act have offered a much needed shot in the arm to this sector, stated authority.

McKinsey’s report said Kenya and Ethiopia need to address compliance and risk issues if they are to attract international buyers. Kenya in particular, according to the CPOs surveyed, needs to address corruption, high crime rates and social compliance.