Since the government announced that it would reopen Panpaper Mills at Webuye there has been much talk about reviving the textile industry, which many believe has been killed by ‘mitumba’ – second hand clothes – imports . But what exactly made the textile mills in Kenya close down? Here is what a recent Kenya government study found out.
Kenyan textile-apparel manufacturers face a number of competitive disadvantages compared to firms in competitor countries, many of which relate to the cost of doing business. For textile firms, chief among these is the cost of power which, at over 20 cents per kWh , puts them on a fundamentally unequal footing with 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.
However, this percentage is not attributable to the high cost of power alone. A review of textile firms undertaken as part of this strategy process revealed that some are operating on equipment that in some cases is up to 38 years old and which draws on considerably more power for its output than more modern equipment. 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-apparel sector thus creating a vicious cycle.
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 in Ethiopia.
Comparatively higher wages do not necessarily inhibit apparel firms from competing globally so long as productivity rises to match higher wage levels. This has not occurred in Kenya, where the value-added to minimum wage ratio is lower than most competitor textile-apparel countries. Skills concerns, both at the managerial and technical levels, are to blame.
Case in point: In Kenya, the time required to change the design of a piece of apparel and successfully manufacture it 80 percent free of flaws, is as high as two to four days, compared to a matter of hours in Bangladesh. This hinders time-to-market. In a world of fast fashion with regularly changing designs, this is a substantial issue.
Speed to market also requires fast and effective trade logistics. In Kenya a container takes longer to get to the US than it does from countries such as China, India, South Africa, or Vietnam. Costing over US$2,000, it is more expensive than almost all apparel exporting countries, except Ethiopia.
How the Kenya Government Plans to Revive the Industry
Some of the challenges relating to the cost competitiveness of Kenyan firms are being addressed. The increased rate at which geothermal power is being generated is bringing down the cost of power. However, despite very impressive gains made, this cost nonetheless remains high. Investments in Mombasa port, the rail link to it, and other initiatives will address trade logistics concerns. Some of these are yielding immediate benefits, but others will take many years before their advantages are felt at the firm-level. Issues of skills and productivity are yet to be tackled, and they remain a major challenge for the sector. Going forward, the Ministry of Industry Enterprise Development is eager to discover opportunities for growth in the near term to renew enthusiasm for the textile-apparel sector, while simultaneously addressing issues more structural in nature.
Therefore, the focus of this strategy is less on the markets that Kenyan firms are already serving, chief among which are exports to the US under the cover of tariff advantages that AGOA offers. The majority of what is sold into the US is commodity segment apparel, where the main competitive differentiator is cost.
The effort is to change Kenya’s business costs are brought in line with competitors, boosting prospects for apparel firms.
This strategy focuses on opportunities for Kenya’s apparel firms that are not primarily cost-based . Two particular niches have surfaced through the strategy process: ‘green’ markets, and small batch production.
The first opportunity focuses on consumers who are environmentally (and socially) conscious and willing to pay a premium for products that cater to their concerns. This segment accounts for almost 20 percent of US adults, and more in European markets.
The second opportunity focuses on increasing economies of scale. The focus is on buyers that require small order runs—often of premium products—that many large scale producers are not configured to supply.
Smaller batch opportunities cover a range of products, from new niches such as crowd sourced designs to the small, quick turnaround runs required by the pinnacle of fast fashion buyers.
Focus on smaller run opportunities is based on the understanding that that larger, mass-producers have little interest in such orders.