UNCLAS NAIROBI 003582

SIPDIS

DEPT FOR AF/EPS Hastings

SIPDIS

E.O. 12958: N/A
TAGS: EINV ETRD KTEX AGOA ECON KE
SUBJECT: AGOA: REQUEST FOR INFORMATION ON TEXTILE AND APPAREL
PRODUCTION CAPABILITIES AND THIRD-COUNTRY FABRIC PROVISIONS

REF: STATE 131825


1. Summary: Kenya's AGOA garment exports to the U.S. fell 8.7% in
the first six months of 2006 to $121.4 million, but still
represented 73% of Kenya's total exports to the U.S. Non-garment
AGOA products pineapple, roses and nuts represent only 2.1% of AGOA
imports. Kenya's cotton and textile industry collapsed in the
1990s. Kenyan textile mills cannot produce the quality or quantity
of fabric required by the AGOA garment factories, nor can other
potential African suppliers. GOK and private sector sources agree
that Kenya needs more time to attract the investment and develop
domestic fabric production and that Kenya's garment production and
exports will completely collapse without an extension of the waiver
of AGOA third-country fabric provisions. End summary.

Textile production facilities
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2. All fabric and most accessories for Kenya's AGOA export garments
are currently imported, primarily from Asia. In the 1970s and '80s,
the country had 24 ginneries, 52 textile firms and 110 large-scale
garment manufacturers and spinners. Kenya's cotton growing and
textile industry collapsed in the 1990s due to production
inefficiency, problems in GOK support programs, and trade
liberalization. Kenyan textile mills cannot produce the quality or
quantity of fabric required by the AGOA garment factories, nor do
other African countries. Kenya has the capacity to produce over
380,000 bales of cotton per year. Annual Kenyan cotton production
has declined to 20,000 bales or 3,700 tons, while demand from the
textile industry ranges between 22,200 to 25,950 tons.

Apparel production facilities
--------------


3. AGOA garment exports are produced in factories located in Export
Processing Zones (EPZ) mostly around Nairobi and Mombasa. As of
December 2004, the garment sector employed 34,614 workers in 30
factories with an investment of US$144 million (Ksh8.6 billion).
The number of sewing machines is not yet available. The garment
producers rely entirely on imported Asian fabric and accessories for
AGOA products. 70% of Kenya's AGOA garment exports fall under HTS
categories 6203 and 6204. Leading products are five-pocket jeans,
men's cotton shirts, polyester nightwear, women's knit tops, chino
pants, knit bottoms, fleece jackets, children's clothes, lingerie
and sportswear.

GOK and Private Sector Views
--------------

GOK and private sector sources agree that Kenya's garment production
and exports will completely collapse without an extension of the
waiver of AGOA third-country fabric provisions. Absent full AGOA
duty free access, the high cost of doing business and producing
would make Kenya uncompetitive for garment production and export.
There is renewed Kenyan interest in cotton and fabric production due
to the opportunity presented by AGOA. AGOA apparel exports to the
U.S. increased from US$44 million in 2000 to US$272 million in 2005,
making Kenya the second-largest exporter of clothing to the U.S.
from Sub-Saharan Africa after Swaziland. However, officials from
the Kenya Association of Manufacturers and the Export Processing
Zone Authority explained that competition from Asia, problems in
Kenya's investment climate, and the uncertainty of extensions of the
waiver of AGOA third-country fabric provisions had made it more
difficult than expected to attract the necessary investment capital.


Comment
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The GOK recognizes the need to improve infrastructure, security and
governance, and to cut the cost of electricity, corruption and red
tape to make Kenya more competitive and attractive to investment,
but progress is frustratingly slow. Trade Minister Kituyi has
publicly called for extension of the waiver. The extension would
have to be sufficiently long to effectively support efforts to
attract investment in cotton and textile production.

Ranneberger