Kenya has often been hailed as a leading exporter of textiles and apparel to the United States through the Africa Growth Opportunities Act (Agoa).
This notion was underlined in last week’s annual conference of the International Textile Manufacturers Federation held in Nairobi, where Government officials pointed out Kenya’s strategic share of the global textile market.
“We should emphasize on the Buy Kenya, Build Kenya because we have high-quality products that can compete in the global space,” tweeted Cris Diaz, a board director at Brand Kenya.
“Last year, Kenya exported apparels worth Sh35 billion becoming the largest exporter in apparels under the African Growth and Opportunity Act (Agoa),” stated Brand Kenya in another tweet. Data on the country’s textile industry, however, paints a picture of mixed fortunes for Kenya.
Kenya does hold the lion’s share of textile imports to the US through Agoa with the country’s textile imports accounting for Sh34 billion out of Sh1 trillion imported last year according to the latest data from Agoa.
However, the majority of these exports are channelled through the Export Processing Zones (EPZ) which accounted for Sh32 billion in Agoa textile exports in 2017.
This is important to note because of the total EPZs currently in operation in the country, only 33.7 per cent are Kenyan-owned while the rest are joint ventures of foreign-owned. This means the majority of the profits from the Sh34 billion export haul sent through Agoa accrues to foreign-owned firms.
In addition, Kenya’s tax holidays provided to EPZ firms eat into revenue from the lucrative trade. PZ firms enjoy a 10-year corporate tax holiday a 25 per cent corporate tax waiver for the next decade and a 10-year withholding tax holiday for payments like dividends and consultancy charges paid to nonresidents.
Other exemptions include import duty, excise duties and value-added tax on machinery, building materials, raw materials, inputs, contracts, supplies, and services. This not only gives the majority foreign-owned EPZs an upper hand over local manufacturers but also denies Kenyans billions in foregone tax revenue.
Moreover, Kenya qualifies for Agoa’s third country fabric rule which means Chinese firms are allowed to import textile raw materials from cheaper markets, process them in Kenya and export into the US through Agoa.