An investment ecosystem: Piecing together the interventions needed for a dynamic textile and apparel cluster in Kenya
May 19, 2015 Editor 0For businesses and policymakers involved in Africa’s textile and apparel sector, 2001 is often seen as a watershed year, when new export opportunities opened up for African firms after the United States’ enactment of the Africa Growth and Opportunity Act (AGOA). That new law gave African firms duty-free, quota-free access to the U.S. market.
An initial boom for Kenya – which experienced 44% growth per year up to 2005 – was followed by stagnation, exposing dangerous weaknesses in the sector’s pattern of growth. Too much of it was based on the largesse of U.S. policymakers, as opposed to the competitiveness of Kenya’s economy and the firms within it.
Where do some of the ruptures in Kenya’s textile and apparel competitive framework occur? Our survey of the sector revealed some interesting data on the challenges faced in both the investment climate and at the firm level: the two dimensions – the public/macro and private/micro – that together form the building blocks of sector competitiveness.
Power is clearly an issue across Sub-Saharan Africa – where investors quip that investing in Africa is a “bring your own infrastructure” invitation. Kenya is no exception to that pattern. The government is actively addressing this issue, and the cost of power is coming down from levels of about 22 cents per kilowatt hour. However, it will take a while to come down to the level that China new enjoys, of between 5 and 7 cents per kwh. This is a problem for both textile and apparel firms, but textile firms feel the impact most acutely: Power accounts for about 25 percent of their operating costs. Part of the issue is that some firms in the sector are running on machines that are as much as 38 years old, so they consume a great deal of electricity by comparison to more up-to-date equipment.
Wages are higher in Kenya than in many competing countries. The ratio of the minimum wage to value added per worker is .92 in Kenya, compared to .53 in Lesotho and .36 in Bangladesh. “A race to the bottom” on wages is not a competition that Kenya wants to enter, yet the issue of productivity remains a major issue In a world where “fast fashion” buyers like Inditex of Spain, which has an army of more than 300 designers in its headquarters, are capable of delivering a new design to its thousands of stores in under two weeks, supplier productivity is all-important. Kenyan firms sometimes grapple with changeover times of just two weeks.
This all boils down to product-level cost competitiveness issues. Consider a pair of women’s jeans, comparing Kenya to Cambodia. The two countries have about the same cost for fabric – but, beyond that factor, Cambodia begins notching up cost advantages along each step of the production process: Its costs are 16 cents less on trim, 5 cents on cut and make, 15 cents on local transport, and so on. So by the time the two countries’ products arrive in the United States, the Kenyan pair of jeans is almost 50 cents more expensive than the Cambodian pair. It is only able to compete in the marketplace because of the $1.21 tariff on the Cambodian good.
Source: Kenya’s National AGOA Strategy blog: http://agoastrategy.blogspot.com/
- Researching tomorrow’s innovative textiles
- Seven things you need to know to turn a start-up into a scale-up
- SMEs are good business for Kenya’s growing banking sector
- The secret life of a World Bank actuary
- The East Africa Climate Innovation Network: accelerating climate technology innovation in East Africa
- Africa’s informal economy can boost innovation
Categories: World Bank PSD
Subscribe to our stories
- How Open Innovation Can Be Used in the Financial Sector July 23, 2017
- Nigeria: Nigeria Wins Global Government Innovation Award July 23, 2017
- L’entrepreneuriat demande de l’endurance: Comment un incubateur mauritanien appuie les entrepreneurs en herbe avec son concours « Marathon de l’Entrepreneur » July 23, 2017
- Ethiopia learning alliance to support sustainable agricultural intensification July 23, 2017
- Livestock key to ending poverty and hunger in developing countries July 23, 2017