Kenya in plan to dou­ble Agoa cash

TRADE Within the next five years, the gov­ern­ment in­tends to stim­u­late food pro­cess­ing, tea and cof­fee sec­tors to boost earn­ings un­der the pref­er­en­tial trade agree­ment with the United States

Business Daily (Kenya) - - FRONT PAGE - Keziah Kin­uthia Kk­in­uthia@ke.na­tion­media.com

The coun­try is bet­ting on big­ger ship­ments of pro­cessed food, tea and co ee to help dou­ble its ex­port earn­ings from the US free­trade deal in ive years’ time — mark­ing a shift from its long de­pen­dence on ap­parel ....

Kenya is bet­ting on big­ger ship­ments of pro­cessed food, tea and cof­fee to help dou­ble its ex­port earn­ings from the US free-trade deal in five years’ time — mark­ing a shift from its long de­pen­dence on ap­par­els.

Sev­eral Kenyan prod­ucts, no­tably ap­parel and agri­cul­tural pro­duce, are big ben­e­fi­cia­ries of the pref­er­en­tial African Growth and Op­por­tu­nity Act (Agoa) ar­range­ment, which has lifted im­port duty on all el­i­gi­ble prod­ucts and granted pref­er­en­tial mar­ket ac­cess upon com­pli­ance with Rules of Ori­gin.

Ap­par­els have long dom­i­nated as Kenya’s big­gest ex­port earner in the US with most other prod­uct lines un­ex­ploited.

“While the ap­parel sec­tor is con­sid­ered the leader, it will be nec­es­sary to equally im­prove the per­for­mance of the other iden­ti­fied sec­tors to avoid the over reliance on the ap­parel sec­tor in the US mar­ket,” In­dus­try, Trade and Co-op­er­a­tives sec­re­tary Pe­ter Munya says in Kenya’s 2018-2023 strate­gic plan on Agoa.

The coun­try’s ex­port earn­ings un­der the Agoa are ex­pected to hit Sh110.5 bil­lion by 2023, rep­re­sent­ing an 82 per cent leap from the es­ti­mated Sh60.2bil­lion re­alised in 2016.

Earn­ings from pro­cessed food ex­ports to the US are ex­pected to grow fastest at an av­er­age 28 per cent per an­num to fetch the coun­try about Sh3­bil­lion by 2023. Cof­fee ex­ports are ex­pected to post the se­cond fastest growth over five years and re­alise Sh11.4 bil­lion. Tea earn­ings are fore­cast at Sh6.7 bil­lion by the same year.

Kenya’s top ex­ports to the US com­prise wo­ven ap­parel, knit ap­parel, cof­fee, tea and macadamia nuts. The ap­parel sec­tor is ex­pected to re­main the dom­i­nated forex earner in the US mar­ket, ac­count­ing for about 59 per cent of to­tal ex­port earn­ings by 2023 or Sh65.1 bil­lion.

De­spite trade op­por­tu­ni­ties aris­ing from tar­iff pref­er­ences pro­vided un­der the Agoa and the Gen­eral Sys­tem of Pref­er­ences (GSP), Kenya is yet to fully ex­ploit the US mar­ket. For in­stance, in 2016, the US im­ported ap­parel worth $83 bil­lion while Kenya only ex­ported $340 mil­lion worth of ap­parel to the US dur­ing the same pe­riod.

The ex­ten­sion of the Agoa ini­tia­tive to Septem­ber 2025 has par­tic­u­larly en­thused growth in the tex­tile in­dus­try amid a steady flow of in­vest­ment. Though the Act orig­i­nally cov­ered the eight-year pe­riod from Oc­to­ber 2000 to Septem­ber 2008, amend­ments by then US Pres­i­dent Ge­orge Bush in July 2004 ex­tended it to 2015. The US Congress then ex­tended it fur­ther to 2025.

The to­tal cap­i­tal in­vest­ment of en­ter­prises in the gar­ment and ap­parel sec­tor of the coun­try’s ex­port pro­cess­ing zones (EPZS) grew from Sh48.1 bil­lion in 2015 to Sh51.2 bil­lion in 2016, ac­cord­ing to the Eco­nomic Sur­vey, 2018.

The num­ber of lo­cal em­ploy­ees en­gaged by EPZ en­ter­prises also rose by 3.4 per cent to 52,019 while value of ex­ports in­creased by 3.7 per cent to Sh63.1 bil­lion in 2016. The num­ber of op­er­a­tional en­ter­prises within the EPZ in­creased from 89 in 2015 to 91 in 2016 while the to­tal cap­i­tal in­vest­ment of EPZ en­ter­prises in­creased from Sh 48.1 bil­lion in 2015 to Sh51.2 bil­lion in 2016.

But for Kenya to ex­ploit the US mar­ket, it would have to ad­dress draw­backs such as high cost of power, work per­mits, labour and rent that limit its com­pet­i­tive­ness against ri­val Agoa ex­porters in the re­gion.

The work per­mit fee for ex­pa­tri­ates in Kenya is for ex­am­ple high com­pared to other coun­tries which may re­strict the in­ter­est of for­eign in­vestors in new lines of prod­ucts, where spe­cialised pro­duc­tion and ex­port mar­ket­ing skills, are not avail­able in the coun­try. It may also limit the in­ter­est of for­eign in­vestors who may need ex­pa­tri­ate ser­vice.

Labour costs in Kenya are also not as com­pet­i­tive as ap­parel pro­duc­ing Ethiopia, Mada­gas­car, Sri Lanka and Bangladesh which at­tract more FDI in man­u­fac­tur­ing, and some sec­tors have higher pro­duc­tiv­ity than Kenya.

— DEN­NIS ONSONGO

MAN­U­FAC­TUR­ING Work­ers at an Ex­port Pro­cess­ing Zone (EPZ) in Athi River.

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