AGOA: REQUEST FOR INFORMATION ON TEXTILE AND APPAREL

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 -------------- ¶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 -------------- 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