Kenya's apparel exports suffered a serious setback at the beginning of this year when ethnic violence erupted across the country. Orders are now returning, and garment makers are pinning their hopes on a new interim trade pact with the EU to kick-start their sales into Europe. Jozef De Coster reports from Nairobi.

Even though Kenya grows cotton, has a number of large textile mills and exports significant quantities of garments to the US, the East African country has yet to make an impression on European clothing buyers.

The success of Kenya's apparel exports to the US is solely due to the African Growth and Opportunity Act (AGOA).

The US launched AGOA in 2000, giving Sub-Saharan African countries the right to export, under certain conditions, clothing items duty- and quota-free to the US.

Under this scheme, Kenyan clothing exports to the US soared from 6m pieces in 2000 to 63.3m pieces in 2007. The corresponding value increased from US$30m in 2000 to US$241.6m in 2007.

Customers include, among others, Target, JC Penney, Wal-Mart, and Levi Strauss.

Employment within the industry has risen from 10,000 people in ten apparel export factories in 2000 to a peak of 37,000 people in 40 factories in 2003.

However, mainly due to strong Chinese competition in the US market, Kenya's export growth to the US started petering out in 2004, even before the end of quotas between World Trade Organization (WTO) members at the end of 2004.

The latest list of members of KAMEA, the Kenyan Apparel Manufacturers and Exporters Association, shows only 24 companies.

Recent employment statistics for the garment export sector are not available, but it's estimated that the current number of employees doesn't exceed 25,000.

Violent challenge
Ethnic violence in some parts of Kenya, which arose from political tensions in January 2008 following the presidential elections, has presented a challenge to the apparel sector.

Jonathan Chifallu, public relations manager at EPZA, the Export Processing Zones Authority, explains: "Apparel manufacturing is a fast moving business. When Madagascar experienced political upheavals in 2002, large apparel buyers diverted their orders to Kenya.

"Similarly, our challenge at the beginning of this year caused some orders to be diverted to other competing countries."

Every morning, dozens of would-be employees gather at the entrance of the Athi River Export Processing Zone, near Nairobi, hoping to be called in for a work.

Not so long ago, it offered close to 13,000 jobs. This figure currently stands at about 7,000. But total employment in the EPZ nationally stands at 35,000 (apparel and other exports combined).   

However, following the signing of a peace accord brokered by former UN secretary general Dr Kofi Annan, and the formation of a grand coalition government, things have now started moving again.

Clothing buyers like Jones Apparel have expressed their commitment to sourcing from Kenya and recently conducted a seminar on social compliance there.

New EU rules of origin
Margaret Waithaka, new investments manager of the EPZA, expects that employment in the Kenyan apparel export firms will soon rise again.

She points to the new interim Economic Partnership Agreement (EPA) between the EU and Kenya, which has been in effect since 1 January 2008.

Under this agreement, apparel made in Kenya can be exported to the vast EU market duty free even if it uses Asian or other third countries' fabrics - as long as 35% of the total value has been added in Kenya.

Margaret Waithaka says: "We now actively encourage manufacturers who are qualified to export to the American market under AGOA, to diversify towards the European market."   

Fred Kong'ong'o, program manager at the African Cotton and Textile Industries Federation, stresses that a new era is beginning for Kenyan apparel exports to the EU.

He says: "The EU Rules of Origin for textile and apparel have been simplified from double transformation to single transformation.

"Garment manufacturers located in Kenya can now buy fabric from a qualified sourcing origin, cut and sew it and ship the finished product to the EU duty free.

"Under the former Cotonou arrangements, when double transformation was the rule, this was not possible. For example, under Cotonou, for a T-shirt to enter the EU duty free, one had to buy or make yarn, knit the fabric, cut and stitch.

"Thanks to the current interim agreement the Kenyan garment manufacturers can now simply buy third country fabric or, in order to meet the criteria to gain duty free access, cumulate with fabrics originating from the region."

EU export growth?
Will the new rules of origin suffice to kick-start an export growth dynamic in Kenya similar to that of AGOA? 

Peter Hsu, general manager of the Taiwanese company Protex Kenya, doesn't think so.

Protex employs 1,200 people in the Athi River Export Processing Zone, producing polo shirts, pants and wind suits for American customers like Russell, JC Penney and Holloway.

Peter Hsu says: "In 2007 we sent a lot of samples to the UK and Germany, but in vain. European buyers still seem to prefer ordering from our competitors in Bangladesh, where production prices are cheaper and delivery logistics better."

For European buyers, the zero duty advantage is of less importance than for American buyers, as current EU clothing import duties are lower than those in the US.

Thanks to AGOA, Protex Kenya avoids US-duties as high as 34%, while Most Favoured Nation (MFN) tariffs on EU clothing imports from Kenya don't exceed 12.1% for woven clothing and 12.03% for knitted clothing.     

Western brands in Kenya
In addition to its pool of experienced apparel exporting companies, built up under AGOA with Indian, Chinese and other Asian capital, Kenya also has a few other things to offer the European textile and apparel sector.

Significant amounts of polished sisal fibres and raw wool are exported to Europe, especially to the UK.

And following several years of fast economic growth, Kenya - with 34m inhabitants and also the commercial hub of the East African Community (EAC), a customs union with 90m people - is gradually developing as a market for mid- and high-end brands.

Though many well-heeled Kenyans shop abroad, mainly in Europe and Dubai, specialised clothing centres in Nairobi offer brands like Pierre Cardin, Ted Lapidus, Giorgio Armani and Hugo Boss.

Fashion Brands Ltd, part of the AMS Group of Companies, recently played a decisive role in developing brand awareness in Kenya by launching Mango, Benetton, Adidas and Levi's in the country.

Other brands to be found in the centre of Nairobi include Pepe Jeans, Diesel, Nike, Arrow and Van Heusen. Some shops also try to lure customers with fake brand names like Desel Jeans or Georges Arman.  

In terms of volume, the so-called 'mitumba' or second-hand clothing market is by far the largest.

It's estimated that 80% of the Kenyan population wears 'mitumba' or at least imported clothing (including new, out of season articles from the developed countries and factory rejects from large Asian manufacturers).

Due to the success of the very cheap 'mitumba' imports, the Kenyan clothing industry had no choice other than to specialise in items like school uniforms and corporate clothing.

David Agwaro, director at the Ministry of Trade and Industry, warns that rising food prices will inevitably increase the market share of 'mitumba' at the expense of other clothing.