US – Kenya Opportunities through Strategic Alliances

In 2019, Kenya had an estimated GDP (gross domestic product) of $99 billion, with a 5.8% annual increase from 2018 – 2020, making it the 62nd largest economy in the world.  

Previously we published the article “The Growth, Opportunities, and Risks in Ethiopia Production.”  We continue to explore apparel production in Africa. 

Kenya has 52 textile mills, of which only 15 are currently operational, but only at less than 45 percent of capacity.  The existing mills operate with out-dated technology; they suffer from low levels of skilled labor and poor productivity. 

A worker at the Thika Cloth Mills Ltd.

Thousands of apparel companies operate in Kenya. Approximately 170 are medium to large; while upwards of 74,000 are micro-companies. Twenty-one companies operate in the EPZA (Export Processing Zones Authority), employing an average of 1,800 people per company. 

Kenya was ranked as the fourth-largest economy in Sub-Saharan Africa, after Nigeria, South Africa, and Angola.  Because of relationships with powerful nations (USA, England, EU), Kenya can boost its economy faster than others.

United States President Donald Trump has announced that the US will look closely at making a bilateral trade deal with Kenya.

If this initiative comes to fruition, Kenya will become the first country in the Sub-Saharan region to forge a bilateral trade deal with the United States.

For Kenya, this will allow it to significantly improve its share of the global textile industry.

Strengths

Investment by textile firms in new technology will significantly reduce their operating costs, even in a high power cost environment.  However, firms are reluctant to undertake such investments when they are unsure about the survival or competitive prospects of Kenya’s textile and apparel sector.

In regards to power, there have been very impressive gains made, with prices falling since 2014 from 20 to 14 cents per kWh (kilowatt per hour).  This cost nonetheless remains high.

There have been investments in Mombasa port: the rail link, the e-single window, and other initiatives addressing trade logistics.

The MOIED (The Ministry of Industrialization and Enterprise Development) is eager to discover opportunities for growth in the near term.  The aim is to revive enthusiasm for the textile and apparel sector, while simultaneously improving nationwide infrastructure. 

Weaknesses

Knit and woven apparel exports rank 27th and 33rd globally, which amounts to under one percent of
worldwide trade.

Kenyan textile and apparel manufacturers face a number of competitive disadvantages.  Many of which relate to the cost of doing business.

For apparel firms, labor productivity and time-to-market are central to their ability to compete. In terms of labor productivity, many Kenyan firms are at a competitive disadvantage on a cost basis.  Sewing operators’ wages in Kenya average US$180 per month compared to US$60 or lower in Ethiopia.

The cost of power, at 14 cents today, puts Kenya on a fundamentally unequal footing to textile firms in other countries that pay considerably less, such as Chinese firms that pay seven cents per kWh, or Ethiopian firms that pay six cents per kWh. This results in power costs accounting for up to 25 percent of Kenyan textile firms’ operating costs.

Structure Challenges

In addition, some firms are operating with equipment that is over 30 years old.  This requires considerably more power than more modern equipment.

A review of apparel firms in Kenya found the following changes: — the time required to achieve QA/QC with revisions (design, style, fit) can take up four days, compared to a matter of hours in Bangladesh.  In a world of fast fashion, this seriously hinders the time to market.  

Acceptable shipping times require fast and effective trade logistics. In Kenya, it takes longer for a container to get to the US than it does from countries such as China, India, South Africa, and Vietnam. Costing on average of US$2,000, it is more expensive than all apparel exporting countries, except Ethiopia.

As key competitors in Asia move towards farm-to fashion models (keeping all value-added activities from cotton production to supply chain within given geography), countries such as Ethiopia and Uganda are trying to follow suit.  Similar efforts at integration in Kenya have thus far not yielded positive results. 

Conclusion

Despite this global shift toward new markets, the US is still the largest apparel market, valued at US$83 billion in 2013.  Of this market, Kenya captured 0.38 percent in 2013, while China captured 100 times more at 38 percent. 

Kenya has a chance of improving in the apparel sector by increasing its GDP; well at the same time improving infrastructure, social capital, and creating more high paying jobs for citizens.

Kenya has an opportunity to achieve many benefits from improved trading with the US, particularly in the textile and fashion industry.

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