Kenya accounts for just 0.4% of the US$80.3bn American apparel import market

Kenya accounts for just 0.4% of the US$80.3bn American apparel import market

Kenya's government has unveiled a raft of export development and promotion initiatives that it hopes will almost double the country's apparel shipments to the United States over the next five years.

Apparel and textiles already account for the lion's share of Kenya's exports to the US, making up 86% of the total in 2016.

And the second Kenya National AGOA Strategy and Action Plan still envisages it will be the main export category over the five years from 2018-2023 – setting out plans to grow shipments to the US from US$340.7m in 2016 to US$651.4m in 2023: an average annual growth rate of 9.70%.

Key to this expansion potential is the 10-year extension of the African Growth Opportunity Act (AGOA) to 2025, which provides duty-free access to the US market for 6,421 product tariff lines – most significantly textiles and apparel – from eligible sub-Saharan African countries including Kenya. Indeed, according to re:source, the new strategic sourcing tool from the team behind just-style, in 2017 US apparel imports from the AGOA region totalled US$1,024m, of which around US$1,001m (or 97%) claimed AGOA benefits.

In its assessment of future growth opportunities, the Ministry of Industry, Trade and Cooperatives also sees a greater export role for other sectors, including home décor and personal accessories, processed and specialty foods including nuts, flowers, coffee, tea and fresh fruits and vegetables.

But it also identifies products with short-term potential such as knitted shirts and sweaters in manmade fibres; and T-shirts, woven pants and shorts, woven shirts, and dresses in cotton and manmade fibres. Looking further ahead, fashion garment and high-end brands are seen as products with most promise.

"There is a recurring trend of growing market share for countries with trade preferences to the US such as those under AGOA," the report notes, adding: "Sourcing and importing apparel to the US from East Africa has been steadily growing since AGOA was extended for ten years in 2015."

However, almost 80% of US apparel imports originated from the ten top countries which account for 78% of the total: China (30%), Vietnam, Bangladesh, Indonesia, Honduras, India, Cambodia, Mexico, El Salvador and Nicaragua.

Apparel exports from Kenya to the US grew from US$254m in 2012 to US$338m in 2017. Yet Kenya accounts for only 0.4% of the US$80.3bn American apparel import market. In contrast, Bangladesh, a low-cost favourite, is approximately 9% more expensive than Kenya, but commands 6% of the US import market.

For Kenya to grow its AGOA exports, the focus must shift to products that are most in demand by US importers, and already being produced in Kenya. This includes apparel with synthetic fibre content, which has a better duty advantage under AGOA than those with 100% cotton fibre content.

Target apparel export categories for Kenya

HTS codeDuty savingsDescription
Knitted shirts in synthetics for all genders and ages:
6105.2032%Men & boys, shirts, knitted, of synthetic
6106.2032%Women’s & girls, shirts, knitted, of synthetic
T-shirts in cotton & synthetic for all genders and ages:
6109.1016.5%T-shirts, knitted, of cotton
6109.9032%T-shirts, knitted, of synthetic
Sweaters in Synthetic for all genders and ages:
6110.3032%Sweaters (pullovers & cardigans), of synthetic
Woven pants & shorts in cotton & synthetic for all genders and ages:
6203.4216.6%Men & boys, trousers/shorts, woven, of cotton
6203.4327.9%Men & boys, trousers/shorts, woven, of synthetic
6204.6216.6%Women & girls, shorts & trousers, woven, of cotton
6204.630.286Women/girls, shorts & trousers, woven, of synthetic
Woven shirts in cotton & synthetic for all genders and ages:
6205.20.197Men & boys, shirts, woven, of cotton
6205.325.9% + 29.1cents/kgMen & boys, shirts, woven, of synthetic
6206.30.154Women & girls, shirts, woven, of cotton
6206.4026.9%Women & girls, shirts, woven, of synthetic
Dresses for women & girls in cotton & cynthetic as part of SME products:
6104.420.115Women & girls, dresses, knitted, of cotton
6104.430.149Women & girls, dresses, knitted, of synthetic
6204.420.084Women & girls, dresses, woven, of cotton
6204.430.16Women & girls, dresses, woven, of synthetic

Kenya's current focus on assembly and cut-make-trim (CMT) also requires improved process efficiency, workforce development and adequate policies.

And due to the rise of low-cost centres of production such as Ethiopia and Myanmar, Kenya must shift from contract manufacturing to start providing fully integrated services including input sourcing, product development and design.

These scenarios require workforce development, skills acquisition, foreign direct investment (FDI), a strong business association and an enhanced policy and business environment.

Other constraints identified as limiting Kenya's export growth include low capacity of export companies and inadequately resourced support institutions. For many companies there is also a lack of AGOA awareness, limited knowledge of the US market and commercial practices, limited export supply and capacities within small and medium enterprises (SMEs), high cargo freight costs and extended delivery time to the US.

Textile and apparel sector overview

The textile and apparel sector is one of the drivers of industrialisation in Kenya. In 2017, it comprised a total of 22 large and foreign-owned companies, 170 medium and large companies, eight ginneries, eight spinners, 15 weaving and knitting companies, nine accessories manufacturers and over 74,000 micro and small companies, including fashion designers and tailoring units.

Investments in the Export Processing Zones (EPZs) have driven growth in the sector. The value chain from fibre to fashion involves cotton cultivation, ginning, spinning, weaving, knitting, dyeing and finishing, garment and accessories manufacturing.

However, the fashion sub-sector is nascent and cotton production has decreased in the last decade with deficits covered by imports from nearby countries such as Tanzania, Uganda and others.

In 2017, only 15 of Kenya's 52 textile mills were operational, and running at only 45% capacity with mainly old machines and obsolete technology. Production costs – especially energy and overheads – are high.

Limited investments downstream have led to capacity imbalances, weak productivity and poor quality in the spinning, weaving and fabric finishing segments. While apparel is a more advanced subsector,  due to limited local capacity, about 93% of inputs are imported.

The apparel industry mainly uses imported fabric from South Korea, China, Indonesia, Singapore and others and the country relies more on cut, make and trim (CMT) activities. This is in contrast with other countries, which are moving up the value chain, integrating and providing a wider range of services to buyers.

Despite the challenges, Kenya is helped by internal factors such as competitive wages, supply of skilled workers in garment-making, high worker retention, available water supplies, port efficiency, proximity to Europe, investments in the EPZs and growing concerns about CSR that have led many multinational apparel firms to seek new suppliers outside low-cost Asia.

While the report notes that an improved multi-modal (sea-rail-road) transport infrastructure has boosted the sector's competitiveness, it also notes Kenya has to improve labour productivity through more training, investment in managerial and technical skills, better technology and more incentives for workers.

Benchmarked against five African and Asian competitors, Kenya has the highest cost of power at 16-18 cents per kilowatt-hour. Power/electricity is an important input in the production processes along the cotton and textile value chain.

The industry in Kenya also experiences the highest frequency in power outages, which interfere with production and export schedules – and leads to a loss of sales of 5.6% compared to China with 0.1% and Vietnam at 1.1%.

In terms of labour costs, Kenya is within the middle range at between US$110 to US$150 compared to Ethiopia in the lower range of US$50 to US$60 and the highest range in China at US$550.

Comparisons between Kenya and major textile and clothing competitors

KenyaEthiopiaTanzaniaIndiaChinaVietnam
2013 export values (US$ 000)308.69424840,192273,95921,534
Cotton production (‘000/480 Lb. bales)3217537530,00030,00017
Cost of electricity (US cents/KWh)16-182-5127-129-158
% sales loss in power outages/year5.62.65.52.00.11.1
Cost of construction (US$/ft2)21403418-2015-2020-25
Bank lending rates (Est. annual % rates)14-188.5197-1376-7
Time taken to clear customs (imports, exports) in days313744121715

Source: Economic Survey 2017, Kenya Textile and Clothing Value Chain Roadmap 2016 - 2020.

Note that some of Kenya's indicators have improved since 2013 – reduced time to clear customs, and improved bank interest rates (below 14%).

Key recommendations

  • Increase AGOA awareness and knowledge in the private and public sectors;
  • Deepen the understanding of the US market and key competitors in targeted sectors;
  • Improve supply capacity and productivity of SMEs in the target sectors;
  • Support exporters' compliance with US market requirements and standards;
  • Achieve competitive ocean and air freight costs and delivery time to the US;
  • Provide timely and competitive trade and investment financing to exporters, particularly the SMEs;
  • Remove non-tariff barriers to trade and improving the climate for investment;
  • Enhance institutional capacity to help exporters utilise AGOA;
  • Improve exporting sectors' competitiveness, productivity and resilience against negative impacts of climate change.