99480 REPUBLIC OF KENYA MINISTRY OF INDUSTRIALIZATION AND ENTERPRISE DEVELOPMENT KENYA APPAREL AND TEXTILE INDUSTRY Diagnosis, Strategy and Action Plan KENYA APPAREL AND TEXTILE INDUSTRY Diagnosis, Strategy and Action Plan This paper was jointly prepared by the World Bank Group and Global Development Solutions for the Ministry of Industrialization and Enterprise Development. It was sponsored by the Kenya Investment Climate Program II, which is generously funded by DFID and the Netherlands. Standard Disclaimer: This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, Telephone 978-750-8400, fax 978-750-4470, http://www.copyright.com/ All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org Acknowledgements T his report, funded through the generous sponsorship of DFID and the Netherlands, was prepared by a team from Global Development Solutions, led by Yasuo Konishi. The team worked under the overall guidance of Maria Paulina Mogollon (Finance and Private Sector Development Specialist, Trade & Competitiveness Global Practice, World Bank) and benefited from the support and feedback of World Bank team colleagues, notably Ganesh Rasagam, Aref Adamali, Karuna Ramakrishnan, Mustansir Barma, and Kennedy Mukuna Opala. The team would like to thank those who supported them with the data collection and review of report drafts, especially Adan Mohamed (Cabinet Secretary), Wilson Songa (Principal Secretary), Julius K. Korir, and Hezekiah Bunde Okeyo of the Ministry of Industrialization, as well as the many industry stakeholders interviewed. TABLE OF CONTENTS Abbreviations ...................................................................................................................................................... i Executive Summary ............................................................................................................................................. ii 1. Report Objectives, Methodology and Structure ............................................................................................. 1 1.1 Objectives ................................................................................................................................................ 1 1.2 Methodology and Structure .................................................................................................................... 1 2. Context: Global and Regional Market Trends in Textile and Apparel .............................................................. 3 2.1 Global Market Trends .............................................................................................................................. 3 2.2 Regional Market Trends ........................................................................................................................... 6 2.3 Chapter Summary .................................................................................................................................... 6 3. The Kenyan Context ........................................................................................................................................ 9 3.1 Structure of the Textile Sector ................................................................................................................. 9 3.2 Structure of the Apparel Sector ............................................................................................................... 9 3.3 Evolution, Growth, and Performance of Apparel Exports in Kenya ......................................................... 10 3.4 Sector Stakeholders and Value Chain ...................................................................................................... 12 3.5 Chapter Summary .................................................................................................................................... 14 4. Constraints to Competitiveness ...................................................................................................................... 15 4.1 Business Environment ............................................................................................................................. 15 4.2 Human Capital ......................................................................................................................................... 17 4.3 Equipment and Technology ..................................................................................................................... 21 4.4 Raw Materials for Processing .................................................................................................................. 23 4.5 Access to Domestic and International Markets ....................................................................................... 24 4.6 Chapter Summary .................................................................................................................................... 25 5. Strategy and Recommendations ..................................................................................................................... 27 5.1 Target Market Segments ......................................................................................................................... 27 5.2 Recommendations .................................................................................................................................. 27 5.3 Risks and Benefits .................................................................................................................................... 33 Annex Annex 1: Performance of Kenya’s apparel sector as compared to competitors ............................................... 40 Annex 2: Training courses, certificates, and diplomas offered by selected training institutions in Kenya ........ 43 Annex 3: Summary of constraints faced by the Kenyan textile-apparel sector ................................................ 44 Annex 4: Examples of sector-specific support programs .................................................................................. 45 1. Technology Up-gradation Fund Scheme (TUFS): Example of incentives and benefits (India) ....... 45 2. Textiles Industry Development Institute (TIDI – Ethiopia) ............................................................. 46 Annex 5: Key characteristics for developing a hub for innovation and green production ................................ 49 Annex 6: Detailed action plan for the recommendations ................................................................................. 50 References ........................................................................................................................................................... 55 List of Figures Figure 1: Sample of global textile and apparel value chain and networks ........................................................ 3 Figure 2: Changing trends in the relationship between consumers and manufacturers .................................. 4 Figure 3: Kenya’s performance compared to competitors in cotton apparel exports ....................................... 5 Figure 4: US global apparel imports (US$ m) .................................................................................................... 5 Figure 5: US apparel imports market share (2013) ........................................................................................... 6 Figure 6: Production trends in the apparel sector ............................................................................................ 6 Figure 7: Composition of a cotton fabric in Kenya ............................................................................................ 9 Figure 8: Composition of a standard t-shirt in Kenya ........................................................................................ 9 Figure 9: Kenya’s global apparel exports .......................................................................................................... 10 Figure 10: Selected performance indicators for EPZ apparel under AGOA, 2010-2014 ...................................... 10 Figure 11: Kenyan apparel exports to top 5 partners (2006-2013) ..................................................................... 11 Figure 12: Kenyan apparel exports to the US (in US$ ‘000, 2013) ...................................................................... 11 Figure 13: The textile and apparel value chain in Kenya ..................................................................................... 13 Figure 14: Comparison of import/export costs among competitors (US$/container) ........................................ 16 Figure 15: Comparison of the number of documents required for import and export among competitors ...... 16 Figure 16: Comparison of import and export times among competitors ........................................................... 16 Figure 17: Logistics performance index .............................................................................................................. 16 Figure 18: Extent to which trade logistics limit the expansion of market opportunities .................................... 16 Figure 19: Perceived availability of labor ............................................................................................................ 18 Figure 20: Perceived labor training needs .......................................................................................................... 18 Figure 21: Perceived quality of local training institutions ................................................................................... 18 Figure 22: Average number of days between order and delivery of spare parts (Apparel) ................................ 21 Figure 23: Perceived importance of various factors in the decision to upgrade equipment .............................. 22 Figure 24: Relative importance of various factors related to access and supply of quality raw materials ......... 23 Figure 25: Average time elapsed between order and delivery of imported fabric ............................................. 23 Figure 26: Relative importance of various factors in increasing domestic and foreign market opportunities ... 24 Figure 27: Appraisal of government policies on the expansion of market opportunities ................................... 24 Figure 28: Perceptions of market opportunities among Kenyan textile and apparel producers ........................ 25 Figure 29: Marketing sources for textile and apparel companies in Kenya ........................................................ 25 Figure 30: Party responsible for managing sales of textile and apparel products in Kenya ................................ 25 Figure 31: Institutionalizing support to the textile/apparel sector ..................................................................... 29 Figure 32: US imports of women’s and girls’ man-made fiber knit shirts ........................................................... 37 Figure 33: US imports of men’s and boys’ man-made fiber knit shirts ............................................................... 37 Figure 34: US imports of men’s and boys’ cotton knit shirts .............................................................................. 38 Figure 35: US imports of babies’ cotton apparel and accessories ...................................................................... 38 List of Tables Table 1: Strategy matrix: Textile and apparel recommendations .................................................................... vi Table 2: Comparison of wage statistics for selected countries ........................................................................ 17 Table 3: Background information on training institutions in the textile/apparel sector in Kenya ................... 19 Table 4: Key challenges facing training institutions in the textile and apparel sector ..................................... 19 Table 5: Training equipment used by textile/apparel training institutions ...................................................... 20 Table 6: Topics and skills training categories (Number of trainers) ................................................................. 21 Table 7: Capacity improvements associated with textile equipment upgrading ............................................. 23 Table 8: Textile and apparel recommendations .............................................................................................. 29 Table 9: Examples and benefits of various types of training levy schemes ..................................................... 30 Table 10: Details of relevant training courses offered by institutions in Kenya ................................................. 39 Table 11: Constraints faced by the Kenyan textile and apparel sector .............................................................. 40 Table 12: Examples of policy-based, incentive programs to support the textile and apparel sectors ............... 41 Table 13: Incentive and benefits package under TUFS ...................................................................................... 42 Table 14: Other examples of incentives offered by competing countries ......................................................... 43 Table 15: Key characteristics for developing a hub for innovation and green production ................................ 45 Abbreviations AGOA African Growth and Opportunity Act CAGR Compound Annual Growth Rate CM Cut-and-make EPZ Export Processing Zone EU European Union ITAD The Institute for Textile and Apparel Development KAM Kenya Association of Manufacturers KNBS Kenya National Bureau of Statistics kWh Kilowatt-hour MMF Man-made Fiber MOIED Ministry of Industrialization and Enterprise Development SSA Sub-Saharan Africa i Kenya Apparel and Textile Industry Executive Summary K enya’s textile and apparel sector has the potential to play a key role in anchoring the country’s deeper movement into middle US$8.5 million1 in 20002 to US$332 million in 2014. 3 Almost thirty-eight thousand (37,750) workers were employed in the Export Processing Zones (EPZ) income status and in serving as a source of to produce this export figure.4 Nevertheless, the gainful employment for its fast growing, young sector in Kenya pales in comparison to that of other population. As a manufactured good, it offers developing economies that have made headway opportunities for increased value capture and in apparel. For example, Kenya’s 2014 apparel streamlined trade logistics, and for the building exports amounted to between 0.7 and 1.4 percent of skills and experience from the factory floor to of Bangladesh’s exports (for non- and knit apparel, management level. Based on these foundations, respectively). However, size is not everything, as it therefore serves as a potential gateway to other countries that may be small can grow fast and in manufactured goods, offering opportunities for time become dominant market players. In this Kenya to capture an increasing share of global regard, Kenya’s exports have grown quite well: trade and to advance economic diversification. 42 percent and 18 percent year over year for knit apparel for the past ten and five years, respectively. Such thinking—in terms of the opportunities But even this growth needs to be put in the context that textile-apparel presents in and of itself as an of the ten year growth rate seen in Bangladesh and economic sector and as a potential spring board to Vietnam, both 20 percent per year, starting from a further advancement into manufacturing—played much larger base.5 a substantial role in underpinning the African Growth and Opportunity Act (AGOA). AGOA gives Therefore, while Kenya has made some headway in most Sub-Saharan Africa (SSA) firms duty free, the global apparel market, it is lagging behind many quota free access to the United States, offering competitor countries. For this reason, the Ministry a substantial competitive advantage over other of Industrialization and Enterprise development textile-apparel exporting countries. Therefore, the (MOIED) of the Government of Kenya is directing its trade agreement has played a pivotal role in the focus towards addressing the primary bottlenecks growth of the continent’s textile-apparel sectors. to competitiveness in the country’s textile-apparel sector. This strategy is part of this effort. However, almost 15 years after the launch of AGOA and shortly after its renewal, Sub-Saharan Africa’s However, the MOIED is also very focused on moving trade with the US remains dominated by natural fast, to deliver value to the private sector and make resources. While some manufactured goods feature up for lost time. Therefore, this strategy effort has in the top ten exports from AGOA countries, these also been undertaken in a time bound manner, are almost wholly from South Africa. Knit and non- focused on developing sufficient analysis to inform knit apparel exports rank 27th and 33rd, respectively, action that can be embarked upon quickly. The in the value of AGOA countries’ exports, with AGOA focus for strategic priorities is also bound by areas countries amounting to under 1 percent of total where the MOIED is most able to affect change, as global apparel trade. well as areas where results can be generated in the near to medium term. Kenya falls within this generalized picture of Sub- 1 All dollar amounts are U.S. dollars unless otherwise indicated. Saharan Africa’s apparel trade progress. With AGOA, 2 UN Comtrade. Kenya’s apparel exports to the US increased from 3 4 KNBS, (2015), Impact of AGOA, Kenya Economic Survey. KNBS, (2015), Impact of AGOA, Kenya Economic Survey. 5 Source: Trade Map, International Trade Commission: http://www. trademap.org. Diagnosis, Strategy and Action Plan ii Executive Summary Time and cost challenges the time required to change the design of a piece Kenyan textile-apparel manufacturers face a of apparel and successfully manufacture it 80 number of competitive disadvantages compared to percent free of flaws—to be as high as two to four firms in competitor countries, many of which relate days, compared to a matter of hours in Bangladesh. to the cost of doing business. For textile firms, This hinders time-to-market. In a world of fast chief among these is the cost of power which, at fashion with regularly changing designs, this is a over 20 cents per kWh in 2014, puts them on a substantial issue. fundamentally unequal footing to textile firms in other countries that pay considerably less, such Speed to market also requires fast and effective as Chinese firms that pay seven cents per kWh, or trade logistics. Here, Kenya also fares unfavorably, Ethiopian firms that pay six cents per kWh. This with a container taking longer to get to the US than results in power costs accounting for up to 25 it does from countries such as, China, India, South percent of Kenyan textile firms’ operating costs. Africa, and Vietnam. Costing over US$2,000, it is However, this percentage is not attributable to more expensive than almost all apparel exporting the high cost of power alone. A review of textile countries, bar Ethiopia. firms undertaken as part of this strategy process revealed that some are operating on equipment Reviving investment momentum that in some cases is up to 38 years old and which Some of the challenges relating to the cost draws on considerably more power for its output competitiveness of Kenyan firms are being than more modern equipment. Investment by addressed. The increased rate at which geothermal textile firms in new technology will significantly power is being generated is bringing down the cost reduce their operating costs even in a high power of power. However, despite very impressive gains cost environment. However, firms are reluctant to made, with power prices falling since 2014 from 20 undertake such investments when they are unsure to 14 cents per kWh, this cost nonetheless remains about the survival or competitive prospects of high. Investments in Mombasa port, the rail link to Kenya’s textile-apparel sector. Thus, some vicious- it, the e-single window, and other initiatives will cycle dynamics are at play. This strategy process address trade logistics concerns. Some of these are and, importantly, the MOIED’s commitment to yielding immediate benefits, but others will take ‘getting behind’ the sector is an effort to break many years before their advantages are felt at the such dynamics. firm-level. Issues of skills and productivity are yet to be tackled, and they remain a major challenge For apparel firms, labor productivity and time-to- for the sector. Going forward, the MOIED is eager to market are central to their ability to compete. In discover opportunities for growth in the near term terms of labor productivity, many Kenyan firms to renew enthusiasm for the textile-apparel sector, are at a competitive disadvantage on a cost basis. while simultaneously addressing issues more Sewing operators’ wages in Kenya average US$180 structural in nature. per month compared to US$60 in Ethiopia. Comparatively higher wages do not necessarily Therefore, the focus of this strategy is less on the inhibit apparel firms from competing globally so markets that Kenyan firms are already serving, chief long as productivity rises to match higher wage among which are exports to the US under the cover levels. This has not occurred in Kenya, where the of tariff advantages that AGOA offers. The majority value-added to minimum wage ratio is lower than of what is sold into the US is commodity segment most competitor textile-apparel countries. Skills apparel, where the main competitive differentiator concerns, both at the managerial and technical is cost. As mentioned above, Kenya’s exports into levels, are to blame. Case in point, a review of this segment have grown quite well, but not as well apparel firms in Kenya found change over time— as the growth of some Kenya’s apparel competitors. iii Kenya Apparel and Textile Industry Executive Summary This should change as Kenya’s business costs savings for firms, therefore presenting a dual are brought in line with competitors, boosting advantage of opening new market opportunities prospects for apparel firms. This is important given with improving the competitive profile of firms these apparel firms dominate Kenya’s exports and that focus on traditional, cost-based markets. are an important source of employment. However, This provides firms with a migration path from their competitive advantage will be driven in part by commodity products—but making these more the skills and technology upgrades at the firm-level, cost-effectively—into new niches, but all from and in part by the larger investments being made the same facility and at the pace at which they at a national level that will bring down their costs are comfortable. This greatly reduces the risk of of doing business. The latter process is underway, movement towards producing for a new market but many of the drivers of change that will benefit segment. these firms are not ones in the control of the MOIED (though it can, and has been encouraging Finally, such investments can attract capital on these changes). concessional terms as donor countries are eager to encourage the movement of manufacturing This strategy focuses on opportunities for Kenya’s in developing economies towards more apparel firms that are not primarily cost-based environmentally sustainable foundations.7 This market plays, while recognizing that continued further reduces business costs. efforts to build share in such segments is still nonetheless important. Two particular niches have Opportunities in smaller runs surfaced through the strategy process: ‘green’ The second opportunity focuses on a market markets, and small batch production. segment that is almost a fall out of the reduction in the global costs of production that have been driven Getting more efficient and going green by increasing economies of scale. These are buyers The first opportunity focuses on consumers who that require small order runs—often of premium are environmentally (and socially) conscious and products—that many large scale producers are not willing to pay a premium for products that cater to configured to supply. their concerns. For a wider set of products, which also includes apparel, this Lifestyles of Health and Smaller batch opportunities cover a range of Sustainability (LOHAS) segment accounts for almost products, from new niches such as crowd sourced 20 percent of US adults, and more in European designs to the small, quick turnaround runs markets. Meeting these consumers’ demands will required by the pinnacle of fast fashion buyers. require reconfiguring legacy production processes, Some of these, particularly the latter, are not a costly prospect and a disadvantage for large options for Kenyan producers who face challenges textile-apparel sectors that have catered to less with change-over and logistics time. However, other environmentally conscious consumers. For Kenya’s smaller run opportunities can be pursued, with the sector, which has not made substantial investments main advantage that larger, mass-producers have for many years and in which new investment is little interest in such orders. However, the price due, this provides an opportunity to invest with the premium that such smaller batch buyers pay also needs of this growing segment in mind. requires quality to be of a higher standard than commodity products. This will require addressing A key advantage of focusing on this segment is that skills issues from management to the factory floor many ‘green-focused’ investments have energy so as to ensure high quality is delivered consistently. efficiency at their core.6 This translates into cost While this report was being developed, the MOIED was also in the 7 process of piloting an electricity subsidy scheme for the textile-apparel Green production is defined as a production environment where energy 6 sector. Encouraging firms to embark on energy-saving investments was efficiency and conservation measures are practiced at each stage of therefore of great importance to the Government of Kenya in order production and emission levels are well withinthe recommended levels to reduce both the burden of power costs to firms and the cost of the of the Intergovernmental Panel on Climate Change (IPCC). subsidy to Treasury. Diagnosis, Strategy and Action Plan iv Executive Summary Implementation priorities It will also require that Kenya focuses on (3) Investments being undertaken in the power and building skills to address productivity issues at the transportation sectors will have a fundamental managerial, technical, and factory floor level—to bearing on the competitiveness of Kenya’s textile- compensate for its relatively higher wages—, as apparel sector. However, these are larger business well as to cater to higher quality requirements of environment changes and not specific to the non-commodity market niches. Finally, developing textile-apparel sector. The pace and scale of these and supporting such interventions will require an investments and related reform efforts are also institution to play a leadership and convening role broadly beyond the scope of the MOIED to affect on issues specific to the textile-apparel sector, (though the MOIED has an important advocacy ensuring public and private sector collaboration, role to play). Therefore, they are not a main focus and coordination among different private actors. of this strategy. Such an institution does not exist today. An (4) institution can be created such that it provides a Implementation priorities instead focus on (1) voice for the sector internally, plays a leadership developing access to new market opportunities role in developing strategic initiatives to build the where competition is based on factors other than textile-apparel sector, and ensures that Kenya’s cost alone, allowing Kenyan firms to compete sector dynamically changes in line with the ever despite their higher cost of doing business. This shifting textile-apparel global market. will require (2) new investment in equipment and technology to increase efficiency and reduce costs, These four areas of support are summarized in but also cater to growing consumer demands for Table 1 below: environmentally sustainable production processes. Table 1: Strategy matrix: textile and apparel recommendations Institutional Skills to address Investment in equipment Access to Support productivity and technology new markets Shift to on-site skills Encourage firms to conduct Develop Kenya’s brand development and factory-level energy audits to see image as a hub for green encourage training audits how much energy (and money) textile and apparel could be saved through equipment production upgrading Encourage multi-skilling Develop a sector-wide promotion Sponsor trade shows for factory-floor workers program to encourage firms targeted at the textile and and mentorship & coaching to upgrade technology and apparel sector to generate programs for mid-level equipment through concessionary business to business (B2B) management financing, and support them in connections Institutionalize drafting business plans to do so support for the textile and apparel Improve the efficiency of Promote green certifications Sponsor tours for Kenyan sector through a the training levy among firms to provide credibility firms to see buyers and dedicated institute to international buyers producers Impose term limits on Discontinue the energy subsidy Leverage public sector expatriate work permits or condition it to energy audits procurement and equipment upgrading in participating firms Foster local partnership between firms and research institutions, potentially through a center of excellence v Kenya Apparel and Textile Industry S EC T I O N ONE Report Objectives, Methodology and Structure T his section sets the overall objectives of this report, describes the methodology utilized, and gives a preview of the report’s structure. 1.2 Methodology and Structure The World Bank Group, with the support of Global Development Solutions (GDS), undertook a review of existing policy documents and value chain 1.1 Objectives analyses, conducted field interviews with more This report was requested by the Ministry of than 50 private and public stakeholders, held Industrialization and Enterprise Development three large stakeholder meetings, and analyzed (MOIED). It aims to analyze the competitiveness of publicly available data. Importantly, the report the textile and apparel sectors in Kenya, to assess was structured to provide the client, the MOIED, policy options,and recommend critical interventions with quick, actionable recommendations. The to stimulate sector growth. work focused more on the apparel segment of the value chain, emphasized quick wins over long-term The specific objectives of this study are as follows: structural changes (such as growing the Kenyan i. Create a profile of the current state of cotton sector), and biased the analysis towards Kenya’s textile and apparel sectors, including issues which the MOIED could impact directly. comparative and competitive advantages, as well as constraints; The report is structured as follows: Chapter 2 describes global and regional market trends ii. Propose strategic market segments in which in textile and apparel. Chapter 3 reviews the Kenya can best compete; evolution, growth, and performance of the apparel iii. Conduct specific analysis in order to: sector in Kenya and then analyzes the sector in a. Increase demand in domestic and terms of markets, products, and stakeholders. international markets; Chapter 4 focuses on Kenya’s performance in terms b. Reduce energy costs; of relevant macro indicators and highlights the c. Assess the supply and demand of relevant critical constraints faced by apparel manufacturers skills; and exporters in Kenya. Chapter 5 concludes with d. Help sector stakeholders improve their recommendations. Where possible, chapters end production process, upgrade technology, with a summary of key points and conclusions. and repair machinery; and iv. Recommend interventions for the textile and apparel sectors. Diagnosis, Strategy and Action Plan 1 2 Kenya Apparel and Textile Industry S EC T I O N T WO Context: Global and Regional Market Trends in Textile and Apparel T his section provides an overview of global production trends in the apparel sector and highlights Kenya’s performance in the U.S market. the provision of components such as the yarns and fabrics manufactured by textile companies; production networks made up of apparel factories, including their domestic and overseas 2.1 Global Market Trends subcontractors; the export channels established by Globally, the relationship between consumers and trade intermediaries; and marketing networks at manufacturers is changing in the apparel market. the retail level. Traditionally, consumers are restricted in their buying choices as products reach them only after Fast fashion being filtered by retailers, whose purchases are first With improvements in logistics and information filtered by the wholesalers they purchase from, who flows, retailers are increasingly bypassing in turn purchase from manufacturers. The diagram wholesalers to procure apparel directly from of a traditional value chain in Figure 1 illustrates the manufacturers. This trend opens up a range of multiple layers between manufacturers, retailers, possibilities for the future as manufacturers can and consumers. The apparel commodity chain is market not only to wholesalers and retailers, but organized around five main segments: raw material also directly to consumers. supply, including natural and synthetic fibers; Figure 1: Sample of global textile and apparel value chain and networks TEXTILE COMPANIES APPAREL MANUFACTURERS RETAIL OUTLETS North America All Retail Outlets US Garment Factories Department Stores (designing, cutting, sewing, buttonholing, ironing) Fabric Brand-Named Natural Cotton, Wool, Yarn Apprel Specialty Stores (Spinning) (weaving, Companies Fibers Silk etc. knitting, Domestic and finishing) Mexican/Carribean Basin Subcontractors Mass Merchandise Chains Asia Overcut Synthetic Synthetic Asian Garmet Buying Discount Chains Oil, Natural Gas Petrochemicals Fibers Fibers Contractors Offices Domestic and All Retail Off-Price, Factory Overseas Trading Companies Outlets Outlet, Mail Order, Subcontractors Others RAW MATERIAL COMPONENT PRODUCTION EXPORT MARKETING NETWORKS NETWORKS NETWORKS NETWORKS NETWORKS Source: Outsourcing and Changing Patterns of International Competition in the Apparel Commodity Chain, UNIDO 2001. Diagnosis, Strategy and Action Plan 3 II. Context: Global and Regional Market Trends in Textile and Apparel Figure 2: Changing trends in the relationship between consumers and manufacturers PAST PRESENT FUTURE Consumer Consumer Consumer Retailer Retailer Retailer Wholesaler Wholesaler Wholesaler Manufacturer Manufacturer Manufacturer Source: Apparel Market Outlook 2013: Global & US. Dam Huy Binh. These changes have made the ability to respond Small batch to consumer desires more important than ever, Another by product of the reduction in production and underscored even more the need to add value costs and the improvements in logistics is that through design, innovation, and branding. As a by buyers are increasingly requiring smaller order product of these trends, retailers, wholesalers, runs—often of premium products—that many and manufacturers are managing the apparel large scale producers are not configured to supply. supply chain more closely to eliminate waste and Smaller batch runs cover a range of products, improve overall efficiencies, to capitalize on trade from the small, quick turnaround runs required preferences such as duty-free arrangements, to by the pinnacle of fast fashion buyers (like Zara) leverage technology for both production and sales, to new niches such as crowd-sourced designs (like and to ensure compliance with environmental and Threadless). Customized production, which focuses social standards. more on product quality, and individualized, personalized products is becoming a new frontier.8 These trends also mean that growth is moving Nike, for instance, lets customers choose the color toward a fully integrated farm-to-fashion production patterns on their shoes.9 system, under which buyers and brand leaders are able to control quality along the entire value chain. Green production Close management from farm-to-fashion—what Globally, consumers are increasingly demanding is termed “hyper supply chain management” in ‘green products’—products produced in energy the industry—results in a faster order-to-delivery efficient facilities. Among the premium and supply chain structure that can be much more niche market segment, green manufacturing is responsive to “fast fashion” trends. Companies considered to be the fastest growing. Apparel like Inditex (Zara), headquartered in Spain with companies are already focusing on energy and a design team of 300 people, can get a new item emission reduction efforts in company-owned of clothing designed and into its more than 6,340 offices, stores, distribution warehouses, and stores in as little as two weeks. To compete in this vehicles. Now the focus is shifting to suppliers, type of market, buyers and brand leaders must have as buyers increasingly purchase from emission- close control over the entire value chain. This style 8 “The rise of the Maker Movement, and of the Maker, speak of the growing of close management also responds to a growing appeal for smaller batch manufacturing. The companies that are best able to meet that market demand for individualized, personalized products consumer demand for traceability of the products are going to be the ones who will thrive in this kind of an environment.” The Manufacturer, (2013), “Market Demand will Shape the Factory of the they buy. Future.” http://www.themanufacturer.com/articles/market-demand-will- shape-the-factory-of-the-future/. 9 “…vertically integrated system for mass customization…that allows people to custom design, order, and manufacture all sorts of unique garments – on demand, in batches as small as one.” FastCoLabs, (2014),“Inside the Fashion Incubator that’s Hacking Global Manufacturing.” http://www.fastcolabs.com/3036555/inside-the-fashion-incubator- thats-hacking-global-manufacturing 4 Kenya Apparel and Textile Industry II. Context: Global and Regional Market Trends in Textile and Apparel reducing and energy-efficient production facilities. China has already reduced sales to the US in specific Among the brands leading this trend are Adidas, categories (see Figure 3a), leaving a demand gap Gap, H&M, Levi’s, Nike, People Tree, Stella which is being filled by other market players in McCartney, Target, and Timberland. Asia and Africa. Kenya is taking advantage of the decreasing Chinese market share in women’s and Green manufacturing can be defined as both the girls’ clothing for instance, especially cotton clothing manufacturing of green products using renewable products (see Figure 3b). energy systems and clean technology equipment and the greening of manufacturing—reducing Despite this global shift toward new markets, the pollution and waste by minimizing resource use, US is still the largest apparel market, valued at recycling and reusing waste, and reducing emissions. US$83 billion in 2013, and its apparel imports have Not only does green production command a price increased at a compound annual growth rate (CAGR) premium (as much as two to four times that of of 5.8 percent between 2009 and 2013 (see Figure conventional products), it is also less sensitive to 4). Of this market, Kenya captured 0.38 percent in short seasonal production cycles which generally 2013, while China captured 100 times more at 38 force factories to focus primarily on low-margin, percent (see Figure 5). high-volume production. Figure 4: US global apparel imports (US$ m) China to supply its domestic market 100,000 Another notable trend is that shifts in market 90,000 growth may result in shifts in production: China 80,000 may supply more to its local market and less the 70,000 global market, and given rising wages, may diversify 60,000 away from exporting and/or making certain product 50,000 US$ million categories. Predicted annual growth rates until 2020 40,000 reflect this; overall sales growth is suggested to be 4 30,000 percent per year, with sales in Japan, EU, and US at 20,000 2 percent growth per year, and sales in Brazil, China, 10,000 and India at 8 percent growth per year. 0 2009 2010 2011 2012 2013 Source: UN Comtrade, 2014. Figure 3: Kenya’s performance compared to competitors in cotton apparel exports US imports of other/misc. cotton apparel from select countries (US$) US imports of other/misc. cotton apparel from select African countries (US$) 700,000,000 10,000,000 600,000,000 8,000,000 500,000,000 400,000,000 6,000,000 300,000,000 4,000,000 200,000,000 2,000,000 100,000,000 - - 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Bangladesh China Egypt Ethiopia Egypt Ethiopia Kenya Lesotho India Kenya Lesotho Madagascar Madagascar Mauritius Morocco Tanzania Mauritius Morocco Tanzania Tunisia Tunisia Uganda Uganda Vietnam Source: Office of Textiles and Apparel, International Trade Administration, US Department of Commerce, 2014. Diagnosis, Strategy and Action Plan 5 II. Context: Global and Regional Market Trends in Textile and Apparel Figure 5: US apparel imports market share (2013) pushing a number of EPZ companies (particularly factories operating in Kenya as a subsidiary of a larger apparel company outside Kenya) to move away from purchasing their own materials All others to primarily doing simple cut-and-make (CM) contract labor where buyers supply a design and all China Vietnam materials. This practice is leading to value attrition, further lowering the revenue generating potential Indonesia for Kenyan firms and postponing needed efforts to source locally available material to help reduce Uganda India Bangladesh the cost and time of apparel production. Figure 6 Ethiopia Tanzania Madagascar Tunisia Lesotho Mauritius Kenya Egypt illustrates these market shifts. Source: Office of Textiles and Apparel, International Trade Administration, US Department of Commerce, 2014. 2.3 Chapter Summary Given the size of the US market and the importance • Globally, there is a changing relationship of the African Growth Opportunity Act (AGOA) for between consumers and manufacturers driven Kenya—where Kenyan apparel has access to the US by improvements in logistics and information market quota and duty-free—, this report is biased flows. towards the US market. • The ability to respond to fast-changing consumer needs, dubbed “fast-fashion”, has 2.2 Regional Market Trends pushed faster order-to-delivery supply chain As key competitors in Asia move towards farm-to- structures and closer supervision of supply fashion models—keeping all value-added activities chains. from cotton production to fashion design within • In line with lower production costs and better a given geography—, countries such as Ethiopia logistics, smaller runs are becoming more and Uganda are trying to follow suit. While the common as retailers increasingly tailor their latter have expanded their efforts to increase the products to narrower customer segments. availability of locally produced fabrics, similar • Farm-to-fashion is increasingly prized and efforts at integration in Kenya have thus far competitor countries, including regional not yielded positive results. Kenyan companies competitors, are moving towards that. continue to rely on high cost imported material, Figure 6: Production trends in the apparel sector Current Production trend in Asia and Africa (incl. Ethiopia and Uganda) • Labor (low-semi- • Labor (low-semi-skill) • Labor (low-semi-skill) • Labor (low-semi- Original Farm-to- specialized skill) CM • Electricity FOB • Electricity specialized skill) • Electricity • Imported fabric supplied • Imported-local fabric Design • Electricity Fashion • Imported-local fabric by buyer • Imported local fabric • Local yarn/tread Current Production Trend in Kenya's Garment Sector Majority of training activities in Kenya’s training institutions focused on design/fashion Source: Global Development Solutions, LLC. 6 Kenya Apparel and Textile Industry II. Context: Global and Regional Market Trends in Textile and Apparel • Consumers, retailers, and wholesalers are global market less, and may diversify away more attune to environmental and social from exporting and/or making certain product standards. Increasingly, consumers are categories. demanding ‘green products’—products • Despite the global shift toward new markets, produced in energy efficient facilities. the US is still the largest apparel market, • Shifts in market growth, coupled with valued at US$83 billion in 2013. Given the size increasing wages in manufacturing behemoths, of the US market and the importance of the may result in shifts in production. China may AGOA for Kenya, this report is biased towards supply its local market more and supply the the US market. Diagnosis, Strategy and Action Plan 7 8 Kenya Apparel and Textile Industry S E C T I O N THR E E The Kenyan Context T his chapter begins with a review of the structure and cost base of the textile and apparel sector, and continues with a description of the evolution, 3.2 Structure of the Apparel Sector Thousands of apparel companies operate in Kenya. Approximately 170 are medium and large, growth, and performance of apparel exports. while upwards of 74,000 are small and micro The chapter concludes with a summary of sector companies.12 Twenty-one companies operate in stakeholders and their role in the textile and apparel the EPZ, employing an average of 1,800 people per value chain. company.13 3.1 Structure of the Textile Sector While the cost structure of apparel companies Kenya has 52 textile mills, of which only 15 are varies significantly by firm size, for the larger currently operational and they operate at less than companies, the high cost of imported material 45 percent of total capacity.10 The existing mills (which is a fixed cost due to the absence of export- operate using outdated technology and suffer from quality fabric in Kenya) contributes to the majority low levels of skilled labor and low productivity.11 of the manufacturing cost (approximately 64 percent). Overheads also account for a significant The cost of electricity is a major cost driver for textile portion of costs, at 21 percent. The only aspects of mills, as are the high maintenance and overhead production where cost and quality can be managed costs due to old equipment. A further cost driver is to improve competitiveness are labor, electricity, the need to either use high-cost imported material and overheads. Figure 8 shows the composition or low-quality local fiber which requires additional of costs in terms of producing a standard t-shirt processing. in Kenya. Figure 7: Composition of a cotton fabric in Kenya Figure 8: Composition of standard t-shirt in Kenya Composition of a Standard T-Shirt in Kenya Composition of a Cotton Labor: ≈ 8% Fabric in Kenya Electricity: ≈ 5% Labor: ≈12% Material: ≈ 64% Electricity: ≈25% Maintenance: ≈ 2% Material: ≈24% OH: ≈ 21% Maintenance: ≈6% OH: ≈33% Source: Global Development Solutions, 2014. Source: Global Development Solutions, 2014. Supporting Indian Trade and Investment for Africa, “Textile and Clothing 12 Value Chain Road Map: First Stakeholder’s Consultation,” May 2015, p.35. KNBS, (2015), Impact of AGOA, Kenya Economic Survey, as reported 13 ACTIF, (2013), “Policy Research on the Kenyan Textile Industry.” 10 by EPZA. Approximately 81.2 percent of EPZ employment is in apparel KAM, November 2013. 11 companies. Diagnosis, Strategy and Action Plan 9 III. The Kenyan Context 3.3 Evolution, Growth, and Performance of More recently, and partially spurred by Apparel Exports in Kenya assurances of AGOA renewal, Kenya has seen a return of investment and growth, with some Kenya has long had a domestic textile and apparel firms scaling up their operations and new firms sector, but major growth in foreign investment and arriving into the Export Processing Zones (EPZ). exports only arrived with the adoption of AGOA in Indeed, provisional KNBS numbers suggest Kenya’s 2000. Kenya was the first AGOA-eligible country to apparel exports within the EPZ under AGOA grew fulfill the additional requirements for the apparel at a 17 percent CAGR between 2010 and 2014 to provision in January 2001, and could thus gain reach US$332 million.14 Over the same period, access to the US market, quota and duty-free with investment grew at a 21 percent CAGR while single transformation rules of origin (allowing employment grew at a 12 percent CAGR to reach Kenyan manufacturers to import fabric from outside 37,758 people.15 In the last year alone, exports, the region). This, along with the quotas that existed employment, and investment grew by 24 percent, on Chinese and other Asian exporters as part of 14.7 percent, and 10.3 percent, respectively. The the Multi-fiber Arrangement (MFA), made Kenya fact that exports have been growing faster than an attractive location for producing mass market employment suggests labor productivity in the clothing for the US market. EPZ apparel companies may have improved. The increased number of employees per company may Between 2000 and 2004, Kenya’s apparel exports— partially explain this. virtually all going to the United States—increased slowly, from US$8.6 million to US$17 million. With These trends can be seen in Figure 10 and in its the end of the MFA in 2004,apparel exports rose corresponding data table. steeply, hitting a high of US$283 million in 2008. However, uncertainties over the continuation of Figure 10: Selected performance indicators for EPZ apparel AGOA’s relaxed rules of origin combined with under AGOA, 2010-2014 the global financial crisis led Kenyan apparel, like 35,000 40,000 the rest of the African apparel sector, to suffer. 35,000 30,000 While exports never collapsed, they dropped and 30,000 25,000 stagnated through the second half of the decade. Employment 25,000 KSh million Figure 9 shows this evolution. 20,000 20,000 Figure 9: Kenya’s global apparel exports 15,000 15,000 10,000 300,000,000 10,000 5,000 5,000 250,000,000 - 0 2010 2011 2012 2013 2014 200,000,000 Exports (KSh millions) Capital Investment (KSh millions) Employment 150,000,000 Source: UN Comtrade. 100,000,000 50,000,000 14 KNBS reports that the total 2014 apparel exports were KSh 28,948 million, while the KNBS Economic Survey, published in March 2015, 0 shows exports under AGOA in the EPZ were KSh 30,119 million. This 1998 2000 2002 2004 2006 2008 2010 2012 2014 discrepancy does not make sense, and this report has chosen to go with the latter number. Source: UN Comtrade. 15 Kenya National Bureau of Statistics, (2015),“Economic Survey.” 10 Kenya Apparel and Textile Industry III. The Kenyan Context 2010 2011 2012 2013 2014 CAGR Number of enterprises 16 18 22 22 21 7% Avg. no. of employees per company 1,507 1,398 1,286 1,497 1,798 Employment 24,114 25,169 28,298 32,932 37,758 12% % change 4% 12% 16% 15% Exports (KSh millions) 16,190 20,948 22,308 24,246 30,119 17% % change 29% 6% 9% 24% Capital Investment (KSh millions) 6,959 6,858 10,732 13,465 14,856 21% % change -1% 56% 25% 10% Source: KNBS Economic Survey, 2015, from Export Processing Zones Authority. *2014 numbers are provisional. Approximately 70 percent of Kenyan apparel shorts, knit shirts, and blouses. Figure 12 firms have a US-dominant market orientation, illustrates the respective shares of each apparel meaning that at least 80 percent of their output product to the United States. is sold to US markets as indicated in Figure 11.16 Since the majority of Kenyan apparel firms have a A more detailed comparison of Kenya’s export US-dominant market orientation, exports to the performance against selected countries in US serve as a proxy for overall trends in Kenyan specific export products can be found in Annex 1: apparel exports. Performance of Kenya’s Apparel Sector as Compared to Competitors. Product wise, six of Kenya’s top ten exports are cotton products, while four are man-made fiber Regionally, Kenya has enjoyed a strong position products. Almost half of Kenya’s apparel exports under AGOA—the country’s share of total SSA to the US are comprised of women’s and girls’ textile and apparel exports to the US increased (W/G) cotton trousers, slacks, and shorts, and from 16 percent in 2004 to 37 percent in 2014.17 W/G man-made fiber (MMF) slacks, breeches, Figure 11: Kenyan apparel exports to top 5 partners Figure 12: Kenyan apparel exports to the US (2006-2013) (in US$ ‘000 2013) 250 T-shirts, singlets and Women's blouses & shirts, other vests, knitted or Men's suits, jackets, crocheted, 12,434 knitted or crocheted, trousers, etc. & shorts, 9,117 knit/croch, 12,732 200 Women's slips, panties, pyjamas, Women's suits, bathrobes, etc, knitted/ jackets, dresses, crocheted, 13,833 skirts etc. & shorts, US$ million 150 73,949 Men's shirts, knitted or 100 crocheted, 19,970 50 Jerseys, pullovers, cardigans, etc, knitted or crocheted, 27,561 Men's suits, jackets, - trousers etc. & shorts, 38,565 2006 2007 2008 2009 2010 Women's suits, dresses, skirt etc. &short, knit/croch, USA Tanzania Uganda Dem. Rep. Congo [Former] Sudan 28,206 Source: UN Comtrade, 2015. Source: UN Contrade, 2013. McCormick & Kamau, 2013, “Breaking In and Staying In,” University of 16 Nairobi. 17 OTEXA, US Department of Commerce, 2015. Diagnosis, Strategy and Action Plan 11 III. The Kenyan Context The renewal of AGOA until 2025 is likely to Dyeing and finishing: There are no standalone accentuate current growth trends. This renewal dyeing and finishing plants and services; this part is expected to be a game-changer: it provides of the production value chain is deeply integrated both investors and companies in the EPZs with with textile mills. a significant window to capitalize on the existing market opportunity, the confidence to invest Design and sewing: This segment consists of non in innovation, and the scope to differentiate EPZ firms (small/micro as well as medium and themselves from regional competitors, even with large apparel companies) and firms inside the a higher comparative cost structure. EPZs, which are divided into foreign investment firms, accessory producers, and local micro 3.4 Sector Stakeholders and Value Chain firms located in the Export Business Accelerator (EBA). These firms work at 100 percent capacity Figure 13 provides a rich picture of the textile utilization, and around 93 percent of their fabric and apparel value chain in Kenya and maps out supply is imported from China, Hong Kong, the private and public sector stakeholders and Taiwan, India, and Pakistan, as are the trims, their relationships. Reading the figure from left machinery, and spare parts utilized in apparel to right: production. There are significantly more apparel companies than textile manufacturers—170 Inputs: Major inputs include cotton fiber (both medium and large companies, 74,576 small local and from Uganda/Tanzania); man-made and micro companies, 22 foreign firms, and 9 fiber; dyes; utilities such as water, electricity and accessory producers. fuel; machinery; and skilled labor. Markets: A hundred percent of EPZ output gets Yarn spinning: The yarn spinning companies have exported, mostly to the U.S. Around 15 companies a capacity of 140,000 spindles in total, with only outside the EPZ export globally. The rest supply 40-50 percent currently being utilized. There the local market with products for local hotels, are few stand-alone yarn spinning mills which conference materials, home décor, and tourism. produce cotton yarns, blended yarn, as well as The local market is also supplied by finished polyester, acrylic and sewing threads. Yarn output products from the second hand (mitumba) market is sold in Kenya and exported to Uganda, Rwanda, and from smuggled goods. Exported apparel Tanzania, and Nigeria. Only 15 of the 52 yarn mills are retailed through mass merchandise chains, are operational. factory outlets, and mall orders, which then filter to department stores or specialty boutiques. Weaving and knitting: There are some semi- integrated mills, which cover the entire Cross-cutting support services: The sector production value chain from spinning to knitting, is under the auspices of the Ministry of dyeing, and finishing. Two semi-integrated mills Industrialization and Enterprise Development are oriented to knitting and four to weaving. which sets its strategic direction. There are many Stand-alone knitting and weaving companies apex associations such as the Kenya National import yarns from India, Indonesia, China, and Chamber of Commerce and Industry (KNCCI) and Taiwan but also utilize 80-90 percent of domestic Kenya Association of Manufacturers (KAM), as yarns. The 15 mills that are in the weaving, well as industry specific associations such as the knitting, and finishing business see a capacity Cotton Growers Association, and Association of utilization of 40-50 percent. Fashion Designers, Handloom Weavers Marketing 12 Kenya Apparel and Textile Industry III. The Kenyan Context Figure 13: The textile and apparel value chain in Kenya Diagnosis, Strategy and Action Plan 13 III. The Kenyan Context Cooperative, etc. Crucially, there is no single • AGOA was set to expire at the end of 2015, association that represents the apparel and and this may have spurred companies to grow textile sector as a whole vis-à-vis the government to take advantage of its last few years. AGOA and each other. Training support comes from was renewed in June 2015 for another 10 courses at various universities as well as training years. This is expected to be a game-changer centers at the Technology Development Center, as it provides both investors and companies the Textile Training Institute, the Kenya Industrial with a significant window of time to capture Research and Development Institute (KIRDI) etc. market opportunities duty and quota-free. Training providers and the training needs of the • Kenya is in a strong position to capitalize on industry will be described in more depth in the AGOA: the country already captures more following chapter.18 than a third of all apparel exports from Sub- Saharan Africa to the US. In addition, 70 3.5 Chapter Summary percent of Kenyan apparel firms have a US- • Kenya has 52 textile mills, of which only 15 dominant market orientation. are currently operational and operate at less • Of Kenya’s top ten apparel exports, six are than 45 percent of total capacity. Electricity cotton products and four are man-made and the high-cost of imported fibers are the fiber products. Almost half of Kenya’s apparel major cost drivers of these firms. Despite exports to the US are in women and girls’ the dominance of cotton products in Kenya’s cotton trousers, slacks, and shorts, and man- exports, cotton is imported to meet Kenya’s made fiber slacks, breeches, shorts, knit shirts, quantity and quality demands. and blouses. • The apparel sector in Kenya has a three- • The Kenyan textile and apparel value chain tiered structure: in the EPZ, there are 21 large consists of input providers, yarn spinning companies, and outside the EPZ there are 170 companies, semi and wholly integrated medium and large companies and more than weaving/knitting/dyeing/finishing mills and 70,000 micro and small ones. Raw materials plants, and design and sewing firms. The and overheads are the main cost drivers of sector is under the auspices of the MOIED these firms. and is supported by broad private sector • Kenya has long had a domestic textile and associations and training institutes. Crucially, apparel sector, but major growth in foreign no single association exists to represent the investment and exports only arrived with the apparel and textile sector as a whole vis-à-vis adoption of AGOA in 2000. Apparel exports the government and each other. grew in spurts from US$8.6 million in 2000 to upwards of US$332 million in 2014. • A growth spurt over the last four years (2010- 2014) saw AGOA exports, employment, and investment in the EPZ grow by 17 percent, 12 percent, and 21 percent per year, respectively. Today, 37,758 people work in EPZ apparel factories. Supporting Indian Trade and Investment for Africa, “Textile and Clothing 18 Value Chain Road Map: First Stakeholder’s Consultation,” May 2015, p.35. 14 Kenya Apparel and Textile Industry SEC TIO N FOUR Constraints to Competitiveness T his section describes critical constraints faced by textile and apparel manufacturers in Kenya. They include a difficult business environment empirical analysis is complemented with the responses of a small sample of private sector representatives from textile and apparel companies characterized by poor infrastructure, limited access that were surveyed over the course of this research. to finance, and complex regulations for non-EPZ companies in particular. Secondly, Kenya suffers 4.1 Business Environment from poor labor productivity, particularly given the high labor costs, coupled with training systems Kenya’s business environment is not one in which it is easy to operate. It is characterized by high that are not fit for purpose. Thirdly, manufacturers electricity prices, limited access to finance, poor use equipment and technology that is outdated, roads, challenging logistics, and for non-EPZ inefficient with regards to energy consumption, companies, complex regulations. and costly to replace. A fourth constraint is the insufficient supply of quality raw materials that Electricity prices in 2014 were particularly high, lengthens time to market,and the fifth constraint over 20 cents per KwH, and even though prices pertains to the difficult access to domestic have come down significantly in 2015, they are markets given the prevalence of second-hand still higher than those in other apparel and textile clothing and until very recently, uncertain access producing countries such as China (at seven cents to international markets—given ambiguity leading per kWh), or Ethiopia (at six cents per kWh). up to AGOA’s renewal. Electricity in 2014 accounted for 25 percent and 5 percent of the costs of textile mills and apparel The aforementioned constraints have two important manufacturers, respectively, putting Kenyan firms implications. First, they result in products with on a fundamentally unequal footing to firms in high costs and a long time to market, limiting the other countries. market segments in which Kenya can compete to the high-volume, low-margin segments. In addition, Access to finance is challenging for Kenyan firms due they prompt foreign investors who are looking to to the high prevailing interest rates—ranging from diversity their production into Africa to think twice 15 to 21 percent depending on creditworthiness— about Kenya. and the short time horizons available for loans- -usually less than seven years. According to the Kenya Association of Manufacturers, complex Indeed, discussions with potential investors indicate regulations and lack of rigorous legal enforcements that within three years, many producers/investors also affect textile and apparel firms, particularly the currently operating in China will need to diversify non-EPZ ones.19 their investments into countries with cheaper labor and other input costs. Given that the economic Roads and logistics in Kenya are difficult for export fundamentals of Ethiopia, Uganda, and to some businesses which rely heavily on imported inputs. For degree Tanzania, are potentially more attractive for the apparel and textile sector, they fundamentally investors and buyers than those of Kenya, it means constrain time to market, and thus, the market the window of opportunity for Kenya to attract segments in which firms can compete. The next few investors to help accelerate growth and local value paragraphs describe the operational costs, number addition is likely to be no more than three years. of required documents, length of time for import and export, and logistics performance among Kenya Therefore, for the government and the private and comparator countries. sector, addressing the constraints detailed herein is of primary importance. In the following sections, KAM, November, 2013. 19 Diagnosis, Strategy and Action Plan 15 IV. Constraints to Competitiveness Figure 14: Comparison of import/export costs among Kenya has the highest import-export cost among competitors (US$/Container) its Asian and African competitors bar Ethiopia. In Comparative Import-Export Cost addition, its road transport costs are four times the Vietnam globally competitive rate (KSh 4/Kg/km vs. KSh 1/ India kg/Km).20 Although Kenya requires a high number Bangladesh of import-export documents, average import/export time is relatively competitive compared with African China countries, but generally not with Asian countries. South Africa In terms of logistics, Kenya’s overall Logistics Lesotho Performance Index is above Ethiopia and Bangladesh Ethiopia but much below China and South Africa. The country Kenya is ranked 74th globally, and performs worst in the customs and logistics competence indicators. - 1,000 2,000 3,000 Cost to import (US$/container) Cost to export (US$/container) Source: Doing Business Annual Report, 2014. Importantly, for EPZ companies, trade logistics are not viewed as a major impediment to increasing demand, but are a major issue for non-EPZ manufacturers (Figure 18). Figure 15: Comparison of the number of documents Figure 16: Comparison of import and export times required for import and export among competitors among competitors Comparative Import-Export Document Requirements Comparative Import-Export Time Vietnam Vietnam India India Bangladesh Bangladesh China China South Africa South Africa Lesotho Lesotho Ethiopia Ethiopia Kenya Kenya - 5 10 15 - 10 20 30 40 50 Documents to import (no.) Documents to export (no.) Time to import (days) Time to export (days) Source: Doing Business Annual Report, 2014. Source: Doing Business Annual Report, 2014. Figure 18: Extent to which trade logistics limit the Figure 17: Logistics performance index expansion of market opportunities LPI 5 Poor road condition 4 Timeliness Customs 3 High cost/inefficient 2 inland transport 1 Tracking & tracing Infrastructure Slow/low quality customs Non-issue Logistics competence International shipments Kenya 2014 South Africa 2014 China 2014 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 Bangladesh 2014 Ethiopia 2014 Trade Logistics Source: Doing Business Annual Report, 2014. Source: Doing Business Annual Report, 2014. ACTIF, (2013), “Policy Research on the Kenyan Textile Industry.” 20 16 Kenya Apparel and Textile Industry IV. Constraints to Competitiveness 4.2 Human Capital to a new production run with an efficiency rate of approximately 80 percent. In Bangladesh, change- Kenya’s labor productivity could be significantly over time is 2-4 hours, while in Kenya change-over improved. This subsection analyzes average labor can range from 2-4 days, and to get to optimal costs and productivity levels for Kenya, as well as production, up to two months. Long change-over average changeover times in the apparel sector. In time means that Kenyan manufacturers are unable addition, it assesses a sample of training suppliers to respond to orders for fast-fashion products. and their fit with industry needs. Low value added per worker can be partially Labor costs, quality, availability and productivity explained by meager investments in managerial Kenyan labor has the lowest value added per worker and technical skills, technology, and equipment. among select comparator countries, reflecting poor The latter is compounded by the lack of financial levels of productivity given current wage rates. incentives for line workers: Kenyan workers are Importantly, data for Ethiopia and Bangladesh given a flat wage rather than a piecemeal rate which is missing, and these countries are important would incentivize efficiency. reference points for investors in the textile and apparel sector. When asked about line workers, firms feel they are easy to find and readily available, but a third Labor prices in Kenya have increased precipitously of them require substantial training, while the over the past three years (as much as by 30 rest only need task specific training. Furthermore, percent), and manufacturers are unable to pass on firms (29 percent) perceive that specialized training this increased cost to the buyer, particularly for cut- for line workers is not available from local training and-make apparel. Among the countries where data institutions, or that when it is available, it is of poor is available (see Table 2), Kenya’s minimum wage is quality (57 percent). In particular, multi-skilling— higher than that in Lesotho, India, and Vietnam, and the ability to operate more than one type of lower than that in South Africa and China. Existing equipment—is lacking due to equipment-specific data for Ethiopia also suggests significant disparities training programs in Kenyan institutions. in labor costs: the average wage rate for a sewing operator in Kenya is approximately 3.7 times more Regarding workers for repair and maintenance, only than in Ethiopia (US$180/month and US$60/month, 17 percent of firms feel they are readily available. respectively), and generally 214 percent greater On the other end of the spectrum, 33 percent of than a global competitive wage benchmark. firms feel they are difficult to find. Overall, firms perceive that most repair and maintenance workers Poor productivity levels are also reflected in only need task-specific training, but that the training Kenya’s long change-over times. Change-over is the available is of poor quality or not specialized. amount of time required by a line worker to adjust Table 2: Comparison of wage statistics for selected countries South Kenya Lesotho Africa China India Vietnam Minimum wage for 19 year old (US$/month) 241.39 158.7 336.46 245.39 134.82 123.02 Ratio of minimum wage: Value added per worker 1.72 0.73 0.36 0.33 0.68 0.60 Value added per worker per month (US$) 140.34 217.39 934.61 743.60 198.26 205.03 50 hour work week allowed Yes Yes Yes Yes Yes Yes Max working days/week 6 6 6 6 6 6 Premium for night work (% of hourly pay) 0 0 0 39 0 30 Premium for working on rest days (% hourly pay) 0 100 100 100 0 0 Dismissal due to redundancy allowed by law Yes Yes Yes Yes Yes Yes Notice period for redundancy (weeks of salary) 4.3 4.3 4 4.3 4.3 0 Diagnosis, Strategy and Action Plan 17 IV. Constraints to Competitiveness Figure 19: Perceived availability of Labor Figure 20: Perceived labor training needs Repair/maintenance 33 50 17 Repair/maintenance 17 83 Line workers 43 57 Line workers 29 71 Floor supervisors 29 57 14 Floor supervisors 29 71 Management 71 14 14 Management 17 50 33 Administrative 86 14 Administrative 14 86 0 20 40 60 80 100 0 20 40 60 80 100 Percent Percent Difficult to find Possible to find locally Readily available Substantial training req Task specific training req No training needed Source: Global Development Solutions, LLC. Source: Global Development Solutions, LLC. Concerning floor supervisors, almost 60 percent of Figure 21: Perceived quality of local training institutions firms feel they are possible to find locally, but over 70 percent feel that floor supervisors need task- specific training. Only 14 percent of firms perceive Repair/maintenance 33 50 17 good quality training can be provided through local institutions, while the rest are evenly split Line workers 29 57 14 between “training available but of poor quality” Floor supervisors 43 43 14 and “specialized training not available.” Management 43 29 14 14 Firms overwhelming feel that administrative staff are possible to find locally, that most only need Administrative 57 14 29 task-specific training, and that the quality of basic 0 20 40 60 80 100 administrative skills training available through local Percent institutions is relatively good. Specialized training not available Available but poor quality Good quality training but expensive Good quality training through local institution Source: Global Development Solutions, LLC. Regarding managerial staff, firms were not so positive. More than two thirds of respondents and then request reimbursement, rebates are noted they were difficult to find (both locally and reportedly difficult to claim and reimbursements internationally), and when found, that upwards take too long. of 70 percent needed training. More difficult yet, firms thought that available training was of poor Training systems quality or not specialized. Given this sentiment, it Training needs audits are not performed by Kenyan is not surprising that many Kenyan manufacturers companies, and there is very limited interaction have to rely on foreigners to fill their managerial between training institutions and the textile and positions. The high salaries often demanded by apparel sector. There is no mechanism for training expatriates, compounded by the cost of securing institutions to anticipate private sector needs or for their work permits (US$2,400 in Kenya compared companies to identify key productivity gap areas. It to US$62 in Ethiopia), partially explain the high is little surprise, therefore, that the existing training overhead costs in both apparel (21 percent) and system is not fit fur purpose. textile (33 percent) firms. Interviews were conducted to develop a profile of Kenyan firms pay a Training Levy every month for the most active training institutions in the textile each of their employees. That fee is used to help the and apparel sectors, and to assess the types of National Industrial Training Authority train current training and equipment used by them. This was and potential industry workers. Although firms can done to determine whether there is sufficient choose to carry out training activities themselves capacity and capability to build the human resource 18 Kenya Apparel and Textile Industry IV. Constraints to Competitiveness Table 3: Background information on training institutions in the textile/Apparel sector in Kenya Technical Technology Name of University of Mascal School of University of Development organization Dedan Kimathi Design Kenya (TUK) Moi University Centre (TDC) Government and Source of funding Student fees Student fees Student fees Student fees student fees School leavers Form four Form 4 leavers, Form 4 leavers, Source of students form 4 leavers, leavers, Degree KCSE leavers Degree holders industry works KCSE holders Partnership with No No TDC Rivatex Ltd TUK/ EPZA private sector base required for the textile and apparel industries and low capacity levels of training staff. Secondary to expand production into new markets and challenges are low enrollment, and the mismatch product areas. The following training institutions between manufacturers’ needs and training were profiled: institutions’ focus on fashion and design (Table 4). • University of Dedan Kimathi; Kenyan training institutions generally suffer from • Mascal School of Design; the use of outdated equipment and/or inadequate • Technical University of Kenya; amounts of appropriate equipment (Table 5). At • Moi University; and Kimathi, although there is a wide range of training • Technology Development Center (TDC). equipment, it averages 15 years of age. The These institutions are largely funded through Technology Development Centre has wide range student fees, and some limited government of relatively new equipment, yet its single straight support in the case of the Technology Development sewing machine is 14 years old. Importantly, Center. Students are sourced directly from form Asian competitors tend to replace their training 4, the industry, among existing degree holders, equipment every 3-4 years. and from takers of the Kenya Certificate of Secondary Education (KCSE). While Moi University Certificate and diploma courses, including technical has a partnership with Rivatex, the Technology vocational education and training (TVET), tend to Development Center has a partnership with the emphasize fashion and design, which are of great Export Processing Zone Authority and the Technical interest among the younger population in Kenya, University of Kenya. (See Table 3) rather than focusing on basic skills associated with production technology and processes, equipment The key perceived challenges in the aforementioned maintenance, and multi-skilling where there is a institutions are insufficient funds for programs and great deal of demand for skilled workers. students, lack of modern equipment and material, Table 4: Key challenges facing training institutions in the textile and apparel sector Mascal Tech. Kimathi School of Univ. of Tech. Dev. Univ. Design Kenya Moi Univ. Center Insufficient funding for program and students X X X X X Lack of modern equipment/facilities/materials X X X X Limited capacity of training staff X X X Low enrollment X Lack of private sector opportunities in fashion industry X Source: Global Development Solutions, LLC. Diagnosis, Strategy and Action Plan 19 20 Table 5: Training equipment used by textile/apparel training institutions Technology Technical Development Kimathi Macsal University Moi University Centre Avg Avg Avg Avg Avg No. of age of No. of age of No. of age of No. of age of No. of age of Type of unit available unit unit unit unit unit unit unit unit unit unit Large and small sewing equipment 1 15 23 5 20 5 Kenya Apparel and Textile Industry Drafting Tables 4 15 1 2 High speed over locking sewing machine 1 15 2 5 6 6 High speed straight sewing machine 1 15 18 3 18 6 High speed zigzag stitching machine 1 15 2 2 Singer classic ultra automatic sewing machine 1 15 5 2 Twin needle post bed drop feed lock stitcher with reverse stitching machine 1 15 Single needle cylinder bed unison lock machine 1 15 Manual single straight sewing machine 1 15 High speed round knive cutting machine 1 15 single skiving machine 1 15 Industrial steam iron 1 15 Electrical iron 1 5 Computers 10 1 spinning plant machinery(Rivatex factory) various 7.5 weaving plant machinery(Rivatex factory) various 7.5 fabric processing machinery(Rivatex factory) various 7.5 Tailoring machinery various 7.5 Source: Global Development Solutions, LLC. IV. Constraints to Competitiveness IV. Constraints to Competitiveness Table 6: Topics and skills training categories (Number of trainers) Univ. of Mascal Dedan School of Tech. Univ. Moi Tech. Dev. Kimathi Design of Kenya Univ. Center Sewing tools and equipment 1 1 Limited number of Spinning 1 training activities reflecting current Weaving 1 production trend in Kenya Textile fibres 1 1 1 1 Textile exploration 1 Pattern drafting 1 1 1 1 High concentration Fashion design 1 1 1 2 of training activities in fashion/design Fashion marketing 1 1 rather than Design development 2 1 physical production of textiles and Apparel making 1 1 1 1 garments Clothing construction 1 1 Industrial engineering 1 Source: Global Development Solutions, LLC. Because of this mismatch (Table 6), the production to be competitively priced, but noted that spare skills which are key to the sector are not supplied, parts were no longer available for old, outdated and the graduates of training institutions are not equipment. Order-to-delivery time for spare parts readily employed. Fashion design is still a very niche in the textile sector ranged from 30-60 days. occupation in Kenya, particularly given that globally, apparel retail companies prefer to do their own Among apparel manufactures, most conform to a fashion design in-house and send these designs to regular maintenance schedule. Respondents feel manufacturers to be produced. spare parts are not available locally and have to be imported from countries where the quality For further reference, Annex 2 details major is considered good. While imported spares are training courses, certificates, and diplomas offered readily available, order-to-delivery time ranges by selected training institutions. from 15-90 days (Figure 22) due to cumbersome customs clearance. 4.3 Equipment and Technology Figure 22: Average number of days between order and Equipment and technology are an integral part of delivery of spare parts (Apparel) the productivity of the textile and apparel sector. A small sample of firms was surveyed regarding 15-30 equipment maintenance, spare parts, and equipment upgrading. Responses highlight the old 30-45 age of equipment, the urgent need to upgrade it to Number of days improve productivity, and the difficulties firms face in carrying out the needed upgrades. 45-60 Equipment maintenance and spare parts 60-90 Among textile manufacturers surveyed, half of 0 10 20 30 40 50 them regularly scheduled equipment maintenance Percent while the other half performed maintenance on an Spare Part Order-to-Delivery ad hoc basis. Respondents considered spare parts Source: Global Development Solutions, 2014. Diagnosis, Strategy and Action Plan 21 IV. Constraints to Competitiveness Both textile and apparel manufacturers found tariff equipment. Order-to-delivery time for equipment rates on spares to be excessively high, particularly is generally between 90-120 days. because customs typically charges tariff rates for finished rather than intermediate goods (25 percent A firm’s decision to upgrade equipment can be tariff rate instead of the 10 percent tariff rate influenced by a variety of factors. Textile and category). Since the surveys were conducted for apparel manufacturers view access to soft loans this report, the tariff on spare parts has thankfully and government partial credit guarantees as the decreased to 0 percent. most important factors influencing this decision, while they view partnerships with local applied Equipment upgrading research institutions as the least important factor. Textile firms reported that information regarding Technology extension schemes, which have been replacement equipment is generally available. The proven internationally to be effective mechanisms primary sources of information used by textile for technology upgrading, are perceived as average firms to make equipment purchasing decisions are in terms of influencing factors. the Internet and sales and marketing agents. Firms are not looking for state of the art technology and Replacement of old equipment would benefit firms equipment, and tend to look instead for equipment in two ways: firms, it would offer potential capacity and technology from one or two models prior, since improvement based on installed capacity ranging these prices are often heavily discounted. Price is a from 100-1,567 percent. Second, it would result in large factor in the decision to buy, as financing for potential energy savings between 4-26 percent, and large equipment is expensive and difficult to access. potential cost savings ranging from 10-50 percent This is reflected in the fact that some Kenyan millers per annum. Importantly, for these improvements in continue to operate equipment that is more than 38 capacity to happen, equipment upgrading needs to years old. For smaller, minor replacements, finance take place hand-in-hand with skills training. was not found to be a problem. Order-to-delivery time for minor replacements was 45-60 days, while Most textile and apparel companies operating in major pieces of equipment took 90-120 days. Kenya have not conducted thorough energy audits; given the old age of equipment, this constitutes Apparel firms reported that information regarding a missed opportunity. Preliminary assessments replacement equipment is easily accessible. The indicated the largest energy and cost savings would primary source of information used by apparel firms be from converting old heavy fuel oil (HFO) boilers to make equipment purchasing decisions is personal to an efficient biomass system. The payback period contacts, followed by the Internet. Two thirds of for the various possible energy investments ranges firms feel equipment financing is expensive and from two months for fixing compressor leaks to 47 difficult to access, which discourages upgrading of months for switching to light weight spindles. Figure 23: Perceived importance of various factors in the decision to upgrade equipment Apparel Textile Soft loan facility 67 17 17 Soft loan facility 100 Government partial credit Government partial credit 100 guarantee 67 17 17 guarantee Technology extension scheme 17 33 50 Technology extension scheme 50 50 Duty exemption on machinery Duty exemption on machinery and spare parts 17 17 33 17 17 and spare parts 50 50 Partnership with local applied 20 20 60 Partnership with local applied 50 research institutions research institutions 50 0 20 40 60 80 100 0 20 40 60 80 100 Percent Percent Most important Important Average Less important Least important Source: Global Development Solutions, LLC. 22 Kenya Apparel and Textile Industry IV. Constraints to Competitiveness Table 7: Capacity improvements associated with market segments in which they can compete, or textile equipment upgrading “faster” local fabric that is expensive and of varying Capacity improvements levels of quality. (est. with 38 year old equipment) Warper Machine Ezd 100% Textile firms were asked to rank the relative importance of several factors in ensuring affordable Sizing Machine –Sucker Lc3 400% and sufficient supply of quality raw materials and Folding machine 150% inputs for processing. Firms prioritized the ability Packing machine 167% to make bulk purchases of raw material and inputs and the establishment of a price stabilization Carding machine 300% fund to counter-act cotton price volatility. As least Drawframes 380% important, they viewed policy changes such as Speed frame 355% allowing the use of genetically modified cotton seeds or offering incentives to increase irrigation Ring frames 1,567% schemes. These solutions were viewed as being too Twister 100% long-term to revitalize the textile sector. Source: Global Development Solutions, LLC. Textile firms are also concerned about the lack of 4.4 Raw Materials for Processing customs enforcement and capability of the Kenya Bureau of Standards (KBS) to regulate the inflow of The Kenyan textile industry faces an inadequate inferior products. For example, they encountered supply of locally produced cotton, and that which spools of thread imported from China labeled 5,000 is available is of poor quality: 93 percent of cotton yards which only contained 4,500 yards of thread. is imported to meet Kenya’s quantity and quality demands.21 This means the majority of export- If more local fabric were available—at an acceptable quality fabric manufactured in Kenya is made from price and quality—, apparel manufacturers would imported fibers due to the poor quality and high purchase it.22 Today, many apparel buyers designate trash content in local lint. The implication is that the or provide manufacturers with imported fabrics for textile sector in Kenya has to choose between the quality assurance purposes. Buyers typically secure high-cost of imported material and the low-quality a competitive bulk purchase price for fabric from of local fiber which requires additional processing. This is important to apparel manufacturers because Figure 25: Average time elapsed between order and delivery of imported fabric they have to choose between the long order-to- delivery times for imported fabric which limits the <15 days Figure 24: Relative importance of various factors related to access and supply of quality raw materials 15 -30 days Bulk purchase raw material 50 50 and inputs 30 -45 days Introduce price stabilization fund 50 50 45 -60 days Reduce cost of farm inputs 50 50 Improving capacity/capability 50 50 60 -90 days of local ginneries Incentives to increase use of 50 50 irrigation schemes 0 5 10 15 20 25 30 35 Percent Allow use of genetically modified seeds 100 Source: Global Development Solutions, LLC. 0 20 40 60 80 100 Kenya currently produces less than 12 million m2 of woven fabric per 22 Percent year, against a market demand of approximately 171 million m2. Taking Most important Very important Important into consideration that textile mills are operating at about 45 percent Average Less important Least important capacity, even if all textile factories currently operating in Kenya were to operate at 100 percent capacity, this would produce 26.7 million m2 of Source: Global Development Solutions, LLC. fabric, which is only 15.6 percent of the total local market demand. In this regard, even with upgraded equipment and technology, fabric demand by local apparel companies is sufficiently large that there is no threat of Kenya Association of Manufacturers (KAM), November 2013. 21 excess capacity in the foreseeable future. Diagnosis, Strategy and Action Plan 23 IV. Constraints to Competitiveness India, Hong Kong, China, Bangladesh, Pakistan, or When asked what measures they thought would Taiwan. While Kenyan apparel manufacturers feel help expand market opportunities (Figure 26), that the quality of imported fabric is either above apparel and textile firms indicated that reducing average or very good, long order-to-delivery times non-tariff barriers for external markets would (Figure 25) restrict them from competing in the have the greatest impact. The introduction of higher margin, fast-fashion segment of the market. local procurement policies is not reported to be important for EPZ companies engaged in cut-and- Demand for locally produced fabrics (using imported make manufacturing (CM), but is an important threads) will be spurred by the extension of AGOA consideration for both EPZ and non-EPZ companies until 2025 and the decrease in electricity prices. If seeking to diversify their products and markets. incentives to upgrade equipment and technology Addressing the influx of second-hand clothing and are made available, textile firms could respond to counterfeit products is a major concern for non-EPZ that demand and apparel manufacturers would companies. For example, it is said that counterfeit have shorter order-to-delivery times for fabrics. products made in China and Turkey using Kenyan producers’ labels come into the market and are sold 4.5 Access to Domestic and International at 20-30 percent of the original product price. Markets Market access by apparel and textile firms is not In order to expand market opportunities, firms as easy as it might seem given AGOA. For non-EPZ reported customs regulations were restrictive— firms, access to the domestic market is difficult especially given the current low quality of service because the influx of second-hand clothing renders offered by customs officials—and government the market minuscule. Public agencies, which incentives were insufficient (Figure 27). could be very large customers, primarily import to fulfill their needs. International safari tourists Many Kenyan producers are seeking to diversify are a predictable customer base, but relatively few their export markets (43 percent) and product repeat visitors and declining tourist numbers means mix (29 percent) in order to increase their market a shrinking number of the same, standard products opportunities (Figure 28). They have difficulties continue to sell. High-end Kenyan fashion designers doing so because long order-to-delivery times, poor sell items to a niche local customer base and have labor skills, outdated equipment and high electricity ad hoc agreements with international buyers. prices restrict them to the high-volume, low-margin For EPZ firms, AGOA’s late renewal represented a market segment. To successfully diversify and major source of market uncertainty and could have increase market opportunities, those issues must postponed investment in marketing, technology, be addressed. and training, among others. Figure 26: Relative importance of various factors in Figure 27:Appraisal of government policies on the increasing domestic and foreign market opportunities expansion of market opportunities Reduce non-tariff barriers for Customs regulations 14 57 14 14 external markets restrictive Incentives sufficient Introduce local procurement 43 14 29 14 policies Export tariff restrictive Phase out imports of second 43 14 14 29 hand & sub-standard clothing Non-issue 0 20 40 60 80 100 0 10 20 30 40 50 Percent Percent Non-issue Most important Average Least important Government Policy Source: Global Development Solutions, LLC. Source: Global Development Solutions, LLC. 24 Kenya Apparel and Textile Industry IV. Constraints to Competitiveness Figure 28: Perceptions of market opportunities among Figure 29: Marketing sources for textile and apparel Kenyan textile and apparel producers companies in Kenya Personal contact Seeking opportunities to diversify product mix Done by parent company Direct through broker Seeking opportunities to Offshore mkting agent diversify export market Trade show Cold call Controlled by parent company Gov't sponsored marketing 0 10 20 30 40 50 60 0 15 30 45 Percent Percent Marketing Source: Global Development Solutions, LLC. Source: Global Development Solutions, LLC. With regard to marketing outreach as a strategy to 4.6 Chapter Summary expand opportunities (Figure 29), buyer or parent • This chapter highlights critical constraints faced companies handle marketing for EPZ companies by textile and apparel manufacturers in Kenya. that practice CM. Otherwise, the primary source These constraints explain why Kenyan products of marketing is through personal contacts, but are relatively expensive and take a long time to many apparel manufacturers lack access to both market, limiting the market segments in which market opportunities and sources of information Kenya can compete to the high-volume, low- on market opportunities. This lack of access is margin segments. reflected in the high percentage of direct sales reported in Figure 30.23 • Within three years, many producers/ investors currently operating in China will need to Figure 30: Party responsible for managing sales of textile diversify their investments into countries with and apparel products in Kenya cheaper labor and other input costs. Although the window of opportunity for Kenya to attract Direct & broker sales investors is now, some of the constraints facing the textile and apparel sector may prompt Direct sales investors to think twice about Kenya. • Kenya’s business environment is not one in Use broker to sell which it is easy to operate. It is characterized by high electricity prices, limited access to finance, poor roads, challenging logistics, and for non- Sold by parent company EPZ companies, complex regulations. 0 10 20 30 40 50 60 • High labor costs, coupled with training systems Percent that are not fit for purpose, render Kenyan labor Use of Brokers productivity the lowest among comparator Source: Global Development Solutions, LLC. countries. The industry also faces a skills gap along the entire value chain, and a pervasive lack Given the benefits resulting from AGOA, most of practical knowledge of modern equipment, Kenyan producers view their products as highly tools, and production methods. Managerial competitive in the market. In the absence of AGOA, staff are difficult to find, rendering the use of however, the apparel sector is not likely to survive expatriates very common. regional and global competition. Independent apparel companies (not linked to a parent company) 23 that rely on direct sales tend to only have a few buyers through which apparelis sold. The limited number of buyers is not by choice, but reflects the lack of access to market information about opportunities to sell to other potential buyers. Diagnosis, Strategy and Action Plan 25 IV. Constraints to Competitiveness • Firms do not perform training needs audits, • The textile industry faces an inadequate supply which limits the information they have to of locally produced cotton, and that which is conduct targeted training. In addition, the available is of poor quality. Textile firms must Training Levy firms must pay every month is not choose between the high-cost of imported perceived to increase the quality and quantity of material and the low-quality of local fiber which skills in the market. requires additional processing. As a result, the • To substantially improve skills of repair majority of export-quality fabric manufactured and maintenance staff, shift workers, floor in Kenya is made from imported fibers. This is supervisors, and administrative workers, important to apparel manufacturers because training should be tailored for factory-specific they have to choose between long order-to- production needs. Multi-skilling in particular delivery times for imported fabric or “faster” should be promoted. local fabric that is expensive and of varying levels of quality. If more local fabric were available— • There is limited interaction between training at an acceptable price and quality—, apparel institutions and the textile and apparel sector. manufacturers would readily purchase it. Institutions suffer from insufficient funds for programs and students, lack of modern • Market access by apparel and textile firms is equipment and material, low capacity levels of not as easy as it might seem given AGOA. For training staff, low enrollment, and a mismatch non-EPZ firms, access to the domestic market between manufacturers’ needs and training is difficult because of the influx of second- institutions’ focus on fashion and design. hand clothing and the fact that most public agencies import to fulfill their needs. For • Equipment and technology are an integral part EPZ firms, AGOA’s late renewal represented of the productivity of the textile and apparel a major source of market uncertainty, and sector. Yet, outdated equipment is pervasive likely postponed investment in marketing, across the sector and firms face major difficulties technology, and training, among others. in carrying out the needed upgrades. 26 Kenya Apparel and Textile Industry S E C T I O N FI V E Strategy and Recommendations A table in Annex 3 summarizes the top constraints not taken advantage of the green opportunity, and and sub-constraints highlighted in this Chapter. Kenya is well-poised to act now in order to gain the G iven the current condition of the textile and apparel sectors and the constraints outlined previously, continuing to play in the first-mover benefit from this growing and lucrative market. high-volume, low-margin space created by AGOA, Small batch market with no improvements in macro or firm-level With the reduction in global costs of production and competitiveness, would not bode well for Kenya’s improvements in logistics and information flows, apparel sector. There is a need for a paradigm shift buyers are increasingly requiring smaller order that targets new product segments that match runs—often of premium products—than many the industry’s current cost structure and time-to- large scale producers are not configured to supply. market, and a need for an overall effort to markedly improve Kenya’s productivity, delivery times, and While small batch production may not be ideal for ability to attract new investment. companies in the EPZ that are organized to respond to orders with long production runs, small batch This chapter briefly outlines the proposed strategy markets offer opportunities for smaller, local firms for the textile and apparel sector and details the capable of responding to small batch sizes, but corresponding policy recommendations. on the higher end of the quality spectrum. For example, there are a number of SMEs currently 5.1 Target Market Segments operating in the Kenyan apparel sector in small Global green market batch production that are producing high quality products for the tourism sector. Such companies are Globally, consumers are increasingly demanding ideal candidates to exploit the growing small batch ‘green products’. Among the premium and market in the EU and in the US where premium niche market segment, green manufacturing is prices can be as much as three times the price of a considered to be the fastest growing. The green standard product. apparel consumer market is estimated at 15-24 percent of developed markets’ consumers, with an At a minimum, targeting this segment requires annual market size of US$2.7 billion in the United higher levels of quality, both in terms of materials States alone. and manufacturing, and improved access to markets—a concerted effort to find and sell to small This represents a significant opportunity for Kenya, batch buyers. a country whose competitiveness in the low- margin, high-volume space is weak. Shifting into the high-margin, low-volume green niche requires 5.2 Recommendations a two-pronged response: reconfiguring production To deliver on the strategies suggested in this report, to make it more energy efficient – generating recommendations focus on (1) developing access substantial cost-savings in the process – and then to new market opportunities where competition marketing towards green buyers in the United is based on factors other than cost alone, allowing States and EU. Kenyan firms can participate in Kenyan firms to compete despite their higher cost green production by improving energy efficiency at of doing business. The recommendations also the factory level and by switching from thermal fuel prioritize (2) new investment in equipment and inputs to biofuels such as bio-briquettes. technology to increase efficiency and reduce costs, but also to cater to growing consumer demands for Importantly, other countries in the region have environmentally sustainable production processes. Diagnosis, Strategy and Action Plan 27 V. Strategy and Recommendations Recommendations also suggest that Kenya focuses roads, logistics, and regulations). Also, given the on (3) building skills to address productivity issues, emphasis of this strategy on quick wins over long- at the managerial, technical, and factory floor level term structural changes(such as growing the —to compensate for its relatively higher wages—, Kenyan cotton sector), the recommendations do as well as to cater to higher quality requirements of not specifically address the insufficient supply of non-commodity market niches. Finally, developing quality raw materials for processing that textile- and supporting such interventions will require apparel firms face. institutions to play a leadership and convening role on issues specific to the textile-apparel sector, Annex 6 provides a detailed action plan to ensuring public and private sector collaboration, implement the recommendations in this chapter. and coordination among different private actors. Such an institution does not exist today. An (4) Institutional Support institution can be created such that it provides a The textile and apparel sectors are considered voice for the sector internally, plays a leadership pivotal sectors for the growth of the Kenyan role in developing strategic initiatives to build the economy; yet unlike competing producer countries, textile-apparel sector, and ensures that Kenya’s Kenya does not have a specialized local institution sector dynamically changes in line with the ever dedicated to developing, supporting, and marketing shifting textile-apparel global market. the sectors. The African Cotton & Textile Industries Federation (ACTIF) is based in Nairobi, but it Recommendations regarding the business covers all of Africa and its resources are already environment—electricity, roads, access to finance, stretched with requests on a daily basis. A sector logistics, and complex regulations—are not board for textile and apparel already exists within included because action and investments in these KAM, but as an institution, KAM must lobby for all areas are already underway(particularly in power, manufacturing and not just for textile and apparel. Table 8:Textile and apparel recommendations Institutional Skills to address Investment in equipment and Access to Support productivity technology new markets Encourage firms to conduct factory Shift to on-site skills level energy audits to see how Develop Kenya’s brand image development and much energy (and money) could as a hub for green textile and encourage training audits be saved through equipment apparel production upgrading Develop sector-wide promotion Encourage multi-skilling program to encourage firms to Sponsor trade shows targeted for factory-floor workers upgrade technology and equipment at the textile and apparel Institutionalize and mentorship & coaching through concessionary financing, sector to generate B2B support for programs for mid-level and support them in drafting connections the textile management business plans to do so and apparel Promote green certifications sector through Improve the efficiency of Sponsor tours for Kenyan firms among firms, to provide credibility a dedicated the Training Levy to see buyers and producers to international buyers institute Discontinue the energy subsidy Impose term limits on or condition it to energy audits Leverage public sector expatriate work permits and equipment upgrading in procurement participating firms Foster local partnership between firms and research institutions, potentially through a center of excellence Source: Global Development Solutions, LLC. 28 Kenya Apparel and Textile Industry V. Strategy and Recommendations Also, a few major companies have chosen not be to keep up with changing demands of the market is KAM members. equally important. It is recommended that the MOIED promote the In Kenya, a traditional approach to training through creation of a private institution—the Institute local training institutions has failed to keep up with for Textile and Apparel Development (ITAD)—to the pace of change required to remain competitive specifically support these two sectors. Such an in the textile and apparel sectors. In this regard, institution would help ensure sustainable support in order for the proposed strategy to elevate the to the sector and would also help create a platform competitive position of Kenya’s textile and apparel to engage major buyers and investors in the sectors, a more nimble and dynamic delivery development and growth of the sector in Kenya. mechanism is required to respond to market Importantly, the ITAD would help drive the skills changes. While basic skills training can continue to be performed by existing training institutions, the Figure 31: Institutionalizing support to the types of skills and knowledge required to support textile/apparel sector rapid sustainable growth, particularly in niche Country Branding PR-Marketing markets, needs to be fostered. In order to do this, Investor/buyer awareness raising the focus of skills development will need to shift away from formal, institutionalized training to on- site skills development where managerial, product, International investors and task-specific training can be realized. Sector Support and partnerships Access to Program International Board information on Incl. investors international /buyers market and On-site training is optimal for the apparel and textile technology trends sector because it allows for more targeted and Product and relevant training. It allows the training to focus on market targeting/ specific items that are causing issues, and enables diversification Institutionalize program activities to ensure ITGD the company and its employees to discuss real and sustainbility current challenges faced on the factory floor. On the Source: Global Development Solutions, LLC. job training is also convenient since it can fit around the location and working schedule of the staff. agenda in the textile-apparel sector to improve labor productivity. For factory-floor workers, Kenya’s textile-apparel Setting up an Institute for Textile and Apparel firms should be encouraged to implement training Development will require stakeholders to develop audits to help them identify specific training a draft framework for the organizational mandate needs. If possible, a voluntary training audit and structure of the ITAD. Going beyond just the scheme should be introduced as a part of the ITAD Kenyan manufacturers, it would be best practice to program to help managers of textile and apparel invite foreign manufacturers to become sponsors companies identify and develop in-house training and have key sector leaders from around the world programs. Multi-skilling should be encouraged over sit on the board. Examples of similar sector-specific equipment-specific training, and employees should support organizations and programs for the textile be tested and certified at the end of the training. and apparel sector can be found in Annex 4. The latter serves both to ensure mastery of specific competencies and as an incentive to the employee. Skills to Address Productivity Continuous and rapid design and material change For mid-level management, the proposed ITAD have becomes common characteristics of the global should develop partnerships among buyers and textile and apparel industry. As such, the ability to key investors and leading textile and apparel manage human resources, and update and upgrade training institutions from around the world to the skill base of the labor force has become a defining develop internships and mentoring programs for feature of successful and competitive textile and current and future Kenyan managers. This will help apparel sectors. While technology and equipment enable a smooth transition between foreign and upgrading is important for the implementation of local management. the proposed strategy, the ability of the labor force Diagnosis, Strategy and Action Plan 29 V. Strategy and Recommendations Table 9: Examples and benefits of various types of training levy schemes Scheme Countries in use Benefit delivery Bahrain, Brazil, Morocco, Revenue used to build up national training systems Revenue-raising scheme Turkey to provide pre-employment and in-service training courses Levy-disbursement schemes Cote d’ Ivoire, France, Firms reduce or eliminate levy obligations by Payroll tax exemption scheme Korea amount of training provided or purchased Kenya, Malaysia, Nigeria, Firms paid grants based on cost incurred for Training cost reimbursement scheme Singapore designated training South Africa, Hungary, Grants paid to firms conditional on criteria met once Levy-grant scheme Tanzania, UK a systematic training approach is adopted Source: Training Levies: Rationale and Evidence from Evaluation, Amit Dar, Sudharshan Canagarajah, Paud Murphy, December 2003. Concurrently, the MOIED should negotiate with the Improve the efficiency of the Training Levy Department of Immigration Services to reduce the cost and time required to issue work permits for the The MOIED should consider working closely with identified skills categories. For example, they could the Directorate of Industrial Training and the allow work permits to be issued within 30 days of National Industrial Training Authority (NITA) to request if the qualified individual is on the list of improve efficiency of the training levy, particularly skill needs. If work permits are not issued within to redefine conditions for approval and timing of 30 days, then the permit would automatically be rebates.24 Reimbursements are reported to take a validated effective immediately and without charge. long time, making companies reticent to train. To ensure Kenyans are eventually at the helm, term Once the conditions for approval and timing of limits on the recruitment of expatriate staff should rebates are redefined, a range of specific training be introduced on the condition that a sufficient needs that could be covered by the training levy skill base can be developed using the training levy should be identified, as should the specific coverage within the time frame provided for the work permit. of the training levy. The table below shows different models of training levies employed by various Once the ITAD is established, the responsibility for countries and their benefits. identifying new skills and continuously updating the authorized, expatriate recruitment base should fall Impose term limits on expatriate work permits under ITAD. For mid-level and upper management, the range of specific skills not available in the Kenyan labor Foster local partnership between firms and market should be identified, and evidence should research institutions, potentially through a center be provided regarding the absence of this skill base of excellence in Kenya. Once the former has been identified, the Partnerships between local applied research government should ensure the list of expatriate institutions and textile-apparel companies have labor required matches that which is listed under been successful for the development of the industry the training levy scheme. In addition, companies in a number of countries. The lack of interest that contract expatriate labor should be required and appetite for such partnerships in Kenya was to utilize the training levy to mentor local staff with understandable given uncertainties regarding the the expatriate hires for the entire duration of the future of the sector. As the sector strengthens— work permit. particularly with the renewal of AGOA— partnerships with applied research institutions will Under the Industrial Training Act, all employers are required to register 24 become increasingly more important to maintain a with the Department of Industrial Training and to pay the industrial competitive edge at the production, management, training levy, currently at the rate of Sh50 per employee a month. 30 Kenya Apparel and Textile Industry V. Strategy and Recommendations and product levels. This can be encouraged either energy consumption to monitor cost and energy through competitive and open grant funding or savings. As per the SUNREF program, the MOIED through an investment in a center of excellence. should then encourage firms to seek free business The latter is currently being discussed with possible plan assistance and develop a standard business funding from UNIDO and with a tentative location plan package to support those firms which apply of the Athi River EPZ. for concessionary financing. Finally, a sector- wide promotion program should be developed to As an example, the American Textile Partnership increase firms’ knowledge about energy efficiency (AMETEX) was formed as an alliance between and the different ways it can benefit their factories research institutions and the private sector to and sales. develop high speed, automated cutting and sewing systems and sensors to increase productivity, reduce Part of the rationale behind the green manufacturing worker health risk, and improve quality control. strategy is that it is a win-win strategy. Equipment upgrading to ensure energy efficiency is logical on Investment in Equipment and Technology both a cost basis and on a sales basis. To provide Equipment in textile and apparel firms is outdated buyers with assurance that ‘greening’ has in fact and consumes a significant amount of electricity. happened, Kenyan firms should seek to attain Investments in equipment and technology are certifications that provide credibility of their efforts. urgently needed to increase efficiency and reduce There are a multitude of organizations that offer costs, and also to cater to growing consumer green certifications for buildings, manufacturing demands for environmentally sustainable operations, and business management, such as production processes. Such investments— Leadership in Energy & Environmental Design particularly those related to energy efficiency—are (LEED), Green Business Bureau, Green Business privy to a range of concessionary development and Certification, Institute for Green Business commercial financing. The recommendations herein Certification, and Green Plus Certification. lay out a path the MOIED, KAM, and others can follow to help the industry upgrade its equipment Ideally, the ITAD or the Ministry initiates dialogue and technology. with potential buyers to see which type of certification would have the most impact on Through a partnership between the MOIED and attracting consumers in the green market segment. KAM, as part of KAM’s SUNREF project (Sustainable If possible, the certification process itself could then Use of Natural Resources and Energy Financing), be included as a part of the business plan firms use significant greening opportunities exist for to apply for concessionary financing, such that manufacturers. SUNREF covers 70 percent of the the time and resources required for certification cost of a factory audit, which recommends changes can be covered by the cost of the loan. The latter specifying potential energy and cost savings. Free would help ensure that beneficiaries complete the business plan assistance is then provided to assist certification process as a part of their equipment with applications for concessionary loans, which and technology upgrading. carry interest rates of around 5 percent offered by specific banks engaged by SUNREF. In conjunction Importantly, as this report was being developed, with the greening of production, the program the MOIED decided to provide textile and apparel facilitates matchmaking with potential buyers. companies with a subsidy on the cost of their electricity through a program dubbed “Electricity Given the conditions of the SUNREF program, as Cost Reduction Facility”. The purported objective a first-step in the green / technology upgrading of the subsidy was to cushion companies from very direction, the MOIED should encourage firms high electricity prices and to stimulate employment. to conduct factory-level energy audits to see The majority of companies receiving the subsidy how much energy (and money) they could save were located inside the EPZ. The total amount, by upgrading. As this is being done, the MOIED specific criteria, targets, and exit strategy for the should create a baseline database of the industry’s electricity subsidy were not made public. Diagnosis, Strategy and Action Plan 31 V. Strategy and Recommendations The World Bank believes the subsidy did not Coupled with changes made on the factory floor meet its purported objectives and agrees with the and efforts to seek ‘green’ certification to ensure government’s decision to discontinue it. Since the external credibility, Kenya should begin leveraging majority of the companies which benefitted from its current image as an ICT hub to rebrand itself the subsidy manufacture apparel, electricity was as a Hub for Innovation and Green Production. not a major cost for them. As such, the subsidy was First steps in this direction are the development unlikely to have a direct impact on employment. of a media package that targets consumers in Also, since the price of electricity came down the US and the EU, and when the ground work substantially in 2015, the impact of the subsidy was has been laid, extending an invitation to major felt even less. While the subsidy was ongoing, the buyers and producers to showcase innovation and World Bank had suggested it at least be conditioned green production schemes. As appropriate, the to an immediate energy audit in participating firms branding campaign could include key corporate and to subsequent equipment upgrading through social responsibility (CSR) and health, safety, and the mechanisms described previously. The latter environment (HSE) messages which are popular would have reduced the public cost of the subsidy with American and European consumers. and enabled to the Ministry to show concrete results from it. Thus, discontinuing the subsidy is a Annex 5 highlights key characteristics for developing better policy choice. a hub for innovation and green production. Access to Markets Leverage public sector procurement Increased access to international and domestic For non-EPZ companies, the market for uniforms markets is a fundamental need for the textile- worn by the Kenyan military, police, and other apparel sector. With the renewal of AGOA, targeting public service agencies represents an important international buyers will be increasingly important opportunity to expand local sales and employment. as they will be looking to source production from According to domestic-oriented apparel producers, Africa. In this regard, sponsoring trade shows and few government agencies currently purchase tours for Kenyan firms to see buyers and producers uniforms from Kenyan manufacturers. In this regard, will enable firms to generate much needed B2B it is recommended that the MOIED move towards connections. The proposed Institute (ITAD) can play the implementation of the Buy Kenya, Build Kenya an integral role in this. Beyond AGOA, developing program,25 to ensure public service uniforms are Kenya’s image as Africa’s Hub for Innovation and purchased from local manufacturers. Green Production will help position Kenya to cater to the green and small batch markets. Finally, To help avoid price fixing, local suppliers should be leveraging public sector procurement will help required to supply uniforms priced within 20 percent firms increase the quality of their products and of the price of currently imported uniforms of equal their capacity to cater to demanding clients. quality. In addition, the ITAD should work with public agencies to develop design and functional Regarding the second-hand market, the World specifications for the uniforms, such that they Bank believes its benefits in terms of employment are transparent to all interested local companies. generation and lower cost of living for all Kenyans Feedback loops should be incorporated into the outweigh its costs in terms of a smaller domestic contracts awarded such that the manufacturers market for apparel producers. receive feedback on their products, and products that do not meet specifications are returned for Develop brand image as hub for innovation and reworking. Finally, a sunset clause is recommended green production where import restrictions are lifted after five years, after which public service agencies have the option Kenya needs to develop a unique country and brand of importing all uniforms. image which removes the time element from the competitive equation, and introduces products The Ministry of Industrialization and Enterprise Development is in the 25 which regional competitors are unable to produce process of finalizing the Buy Kenya, Build Kenya policy, which is seen as a way of creating markets for local products and services. The policy aims or which they lack the strategic vision and capability to reduce government and private expenditure on imported products to develop. and services and reduce the unemployment rate by supporting the local economy to grow. 32 Kenya Apparel and Textile Industry V. Strategy and Recommendations 5.3 Risks and Benefits On the benefit side, the recommendations aim to improve overall competitiveness in the textile and All strategies entail risks and benefits. The benefits apparel sector and move a portion of the industry of pursuing the green and small batch markets towards new niche product segments. Following are clear: increased sales, larger profit margins, these recommendations will help all producers and and a more sustainable source of competitive not just those gearing up for the green and small advantage—one that is not based on costs and batch markets. At the heart of the recommendations where the time element is less important. The risks is a push to increase competitiveness, regardless of are primarily two: first, that the green and small the market segment. batch markets may not be responsive, may not be ready to buy from Kenya, or may not be convinced On the risk side, a few of the recommendations are about the value proposition Kenya offers. Second, very specific to green production and small batch, that the time invested in pursuing the green and such as the brand image campaign to market Kenya small batch segments has an opportunity cost: as a hub for innovation and green production. In the time could have instead been spent growing that case, if the proposed market segments do not existing market segments to take advantage of an materialize as expected, efforts spent advertising AGOA renewal. These are choices each firm must Kenya as a hub will be largely lost. The brand image weigh and considerations the government must campaign may result in more name recognition keep in mind as it goes forward. and a greater awareness of Kenya as an apparel manufacturer—which is useful—but without any significant premiums paid for its green and small batch producers. Diagnosis, Strategy and Action Plan 33 34 Kenya Apparel and Textile Industry ANNEXES Annexes Annex 1: Performance of Kenya’s apparel sector as compared to competitors Kenya exports the following apparel products to the US:26 • Cotton playsuits, sun-suits, etc. • Men's & boys' not-knit man-made fiber shirts • Babies' apparel/clothing accessories, cotton • Women's & girls' not-knit man-made fiber shirts/blouses • Other men's & boys' coats, cotton • Manmade fiber skirts • Women's & girls' cotton coats • Men's & boys' man-made fiber trousers/breeches/shorts • Cotton dresses • Women's & girls' MF slacks/breeches/shorts • Men's & boys' knit shirts, cotton • Man-made fiber bras/other body support apparel • Women's & girls' knit shirts/blouses, cotton • Man-made fiber underwear • Men's & boys' cotton shirts, not knit • Other man-made fiber apparel • Women's & girls' cotton shirts/blouses, not knit • Women's & girls' silk coats • Cotton skirts • Silk dresses • Cotton sweaters • Women's & girls' silk not-knit shirts/blouses • Men's & boys' cotton trousers/breeches/shorts • Silk skirts • Women's & girls' cotton trousers/slacks/shorts • Men's & boys' silk trousers/breeches • Cotton dressing gowns, robes, etc. • Women's & girls' silk trousers/breeches • Cotton underwear • Silk nightwear/pajamas • Other cotton apparel • Other silk apparel • Women's & girls' wool coats • Women's & girls' coats, silk/veg blends • Wool knit shirts/blouses • Dresses, silk/veg blends • Other wool apparel • Skirts, silk/veg blends • Other men's & boys' man-made fiber coats • Sweaters, other non-cotton veg fibers • Women's & girls' man-made fiber coats • Trousers/breeches/shorts, silk/veg blends • Manmade fiber dresses • Other silk/non-cotton veg apparel • Men's & boys' man-made fiber knit shirts The following charts illustrate Kenya’s export performance as compared to selected competitors in the top four apparel exports. Women’s Shirts of Knit Man-made Fiber (MMF): Kenyan exports of women’s shirts made of MMF have increased dramatically in the past five years, growing at a CAGR of 40 percent between 2009 and 2013. Although Kenya has pulled into the lead among its African competitors such as Egypt and Lesotho, its market share in the US (the primary destination of clothing exports) is still dwarfed by China and Vietnam. Moreover, while Chinese exports did not exhibit a large increase between 2012 and 2013 (only 1 percent), the country cannot be deemed as having pulled out of the women’s and girls’ MMF knit shirts market in such a way that leaves a sizeable gap for Kenya to exploit in the near future. Office of Textiles and Apparel, International Trade Administration, US Department of Commerce, 2014 26 http://www.otexa.ita.doc.gov/scripts/tqads2.exe/catpage 36 Kenya Apparel and Textile Industry Annexes Figure 32: US imports of women’s and girls’ man-made fiber knit shirts US imports of women's and girls' manmade fiber knit US imports of women's and girls' manmade fiber knit shirts shirts from select countries (US$) from select African countries (US$) 1,400,000,000 50,000,000 1,200,000,000 40,000,000 1,000,000,000 800,000,000 30,000,000 600,000,000 20,000,000 400,000,000 10,000,000 200,000,000 - - 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Bangladesh China Egypt Ethiopia Egypt Ethiopia Kenya Lesotho India Kenya Lesotho Madagascar Madagascar Mauritius Morocco Tanzania Mauritius Morocco Tanzania Tunisia Tunisia Uganda Uganda Vietnam Source: OTEXA, US Department of Commerce, 2014. Men’s Shirts made from MMF: The value of Kenyan exports of men’s MMF knit shirts knit has increased at a 40 percent CAGR between 2009 and 2013. Among African competitors, Egypt and Lesotho continue to outperform Kenya with similar or greater rates of increase over the same time period. China and Vietnam have vastly larger market shares, with more dramatic rates of increase in dollar value in the past five years. Figure 33: US imports of men’s and boys’ man-made fiber knit shirts US imports of men's and boys' manmade fiber knit shirts US imports of men's and boys' manmade fiber knit shirts from select countries (US$) from select African countries (US$) 450,000,000 80,000,000 400,000,000 70,000,000 350,000,000 60,000,000 300,000,000 50,000,000 250,000,000 200,000,000 40,000,000 150,000,000 30,000,000 100,000,000 20,000,000 50,000,000 10,000,000 - - 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Bangladesh China Egypt Ethiopia Egypt Ethiopia Kenya Lesotho India Kenya Lesotho Madagascar Madagascar Mauritius Morocco Tanzania Mauritius Morocco Tanzania Tunisia Tunisia Uganda Uganda Vietnam Source: OTEXA, US Department of Commerce, 2014. Men’s Cotton Shirts: Although the export value of men’s cotton knit shirts from Kenya has fluctuated in the past five years, the 2013 export value has doubled since 2009. Currently on an upward trend compared to 2012, Kenya is poised to overtake regional competitors as Egypt’s export value continues to decrease, with similar downward trends in exports from Lesotho, Madagascar, and Mauritius. Despite this promising regional outlook, exports from Asian competitors continue to dominate the market with no sign of decreasing or levelling off. Diagnosis, Strategy and Action Plan 37 Annexes Figure 34: US imports of men’s and boys’ cotton knit shirts US imports of men's and boys' cotton knit shirts from US imports of men's and boys' cotton knit shirts from select countries (US$) select African countries (US$) 1,400,000,000 100,000,000 1,200,000,000 1,000,000,000 80,000,000 800,000,000 600,000,000 60,000,000 400,000,000 40,000,000 200,000,000 - 20,000,000 2009 2010 2011 2012 2013 - Bangladesh China Egypt Ethiopia 2009 2010 2011 2012 2013 India Kenya Lesotho Madagascar Egypt Ethiopia Kenya Lesotho Mauritius Morocco Tanzania Tunisia Madagascar Mauritius Morocco Tanzania Uganda Vietnam Tunisia Uganda Source: OTEXA, US Department of Commerce, 2014. Babies’ Cotton Apparel: Following a sharp decrease in the value of babies’ cotton apparel from former regional leader Egypt, Kenya has emerged as the leading exporter among its African competitors. Although Asian competitors achieve significantly larger export values and market share as compared to Kenya, their exports show relatively flat growth, with China’s exports decreasing since 2011. This trend indicates that there is room in the market for Kenya to increase exports in babies’ cotton garments. Figure 35: US imports of babies’ cotton apparel and accessories US imports of babies' cotton garments and accessories US imports of babies' cotton garments and accessories from from select countries (US$) select African countries (US$) 1,600,000,000 25,000,000 1,400,000,000 1,200,000,000 20,000,000 1,000,000,000 15,000,000 800,000,000 600,000,000 10,000,000 400,000,000 200,000,000 5,000,000 - 2009 2010 2011 2012 2013 - Bangladesh China Egypt Ethiopia 2009 2010 2011 2012 2013 India Kenya Lesotho Madagascar Egypt Ethiopia Kenya Lesotho Mauritius Morocco Tanzania Tunisia Madagascar Mauritius Morocco Tanzania Uganda Vietnam Tunisia Uganda Source: OTEXA, US Department of Commerce, 2014. 38 Kenya Apparel and Textile Industry Annexes Annex 2: Training courses, certificates, and diplomas offered by selected training institutions in Kenya Table 10: Details of relevant training courses offered by institutions in Kenya No. of Avg. Cost/ students/ enrollment Duration course Financial Institution course (%) (years) (KSh) aid (Y/N) Kimathi University Diploma in Fashion Design and Interior Decoration 8 40 2 137,537 Yes Certificate in Fashion Design and Interior Decoration 6 40 1 65,894 Yes Short courses (new) Apparel Making and Fitting 0.5 39,000 Fashion Illustration 0.17 7,500 Fashion Accessory Making &Jewellery 0.17 20,000 Fabric Decoration 0.08 10,000 Soft furnishing 0.33 26,000 Interior Decoration 0.25 20,000 Events Decoration Mascal School of Design – Business and Technology Education Council (BTEC) BTEC Higher National Diploma 30 6 3 85,000 No BTEC National Diploma 8 12 1 90,000 No Technical University of Kenya Certificate in Tech. Fashion Design 9 1 57,600 Diploma in Tech. Fashion Design 23 3 72,000 Moi University Bachelor of Engineering in industrial & Textile 150 5 40,000 Engineering Masters of Science in Textile Eng. 3 1 200,000 Master of Science in Industrial Eng. 9 1 200,000 Technology Development Center (TDC) Dip Dress making 10 3 43,500 Short courses (New) Machine training for operators 18 0.08 5,500 Dress making certificate 2 2 57,600 Source: Global Development Solutions, LLC. Diagnosis, Strategy and Action Plan 39 Annexes Annex 3: Summary of constraints faced by the Kenyan textile-apparel sector Table 11: Constraints faced by the Kenyan textile and apparel sector Main constraints Specific sub-constraints Difficult business • Kenya’s business environment is characterized by high electricity prices, limited access environment to finance, poor roads, challenging logistics, and for non-EPZ companies, complex regulations. • In 2014, electricity accounted for 25 percent and 5 percent of the costs of Kenyan textile mills and apparel manufacturers, respectively, putting Kenyan firms on a fundamentally unequal footing to firms in other countries. • Access to finance is challenging for Kenyan firms due to the high prevailing interest rates and the short time horizons available for loans. • Poor roads and logistics in Kenya impact export businesses which rely heavily on imported inputs. Kenya’s road transport costs are four times the globally competitive rate, and they fundamentally constrain time to market and limit the market segments in which firms can compete. Low labor productivity • Labor prices in Kenya have increased over the past three years and these costs have not and a mismatch in the been matched by improved productivity and quality. supply and demand for • Kenyan labor has among the lowest value added per worker among select comparator relevant labor skills countries, reflecting poor levels of productivity given current wage rates. • Firms do not perform training needs audits, which limits the information they have to conduct targeted training. In addition, the Training Levy firms must pay every month is not perceived to increase the quality and quantity of skills in the market. • Low firm productivity is partially due to limited availability of qualified staff, especially for managerial positions. • Training institutions suffer from insufficient funds for programs and students, lack of modern equipment and material, and low capacity levels of training staff. Secondary challenges are low enrollment, and the mismatch between manufacturers’ needs and training, largely due to the limited interaction between training institutions and the textile and apparel sector. • The lack of equipment-specific training programs in Kenya hinders multi-skilling of labor. Difficulties in • Outdated equipment is pervasive across the sector and firms face major difficulties in maintaining and carrying out the needed upgrades. upgrading technology • Equipment financing in Kenya is expensive and difficult to access. and equipment • Most textile and apparel companies have not conducted thorough energy audits; given the old age of equipment, this constitutes a missed opportunity. Insufficient supply of • Kenya suffers from an inadequate supply of locally produced cotton, and that which is quality raw materials; available is of poor quality. coupled with high input • Textile firms have to choose between the high-cost of imported material and the low- costs quality of local fiber which requires additional processing. • Apparel manufacturers have to choose between long order-to-delivery times for imported fabric or “faster” local fabric that is expensive and of varying levels of quality. • There is concern in the industry regarding the lack of customs enforcement and capability of the Kenya Bureau of Standards (KBS) to regulate the inflow of inferior products. Challenges in increasing • For non-EPZ firms, access to the domestic market is difficult because of the influx of demand in and second-hand clothing and because most public agencies, which could be very large accessing domestic customers, primarily import to fulfill their needs. and international • Firms feel that customs regulations are too restrictive and that Government incentives to markets expand market opportunities are insufficient. • For EPZ firms, AGOA’s late renewal represented a major source of market uncertainty. 40 Kenya Apparel and Textile Industry Annexes Annex 4: Examples of sector-specific support programs Table 12: Examples of policy-based, incentive programs to support the textile and apparel sectors Policy-Based Incentives Country Support Program Budget Tax Financial Operational Fiscal Institutional India Technology Up-gradation US$1.8 billion X X X Fund Scheme (TUFS) (2012 – 2017) Bangladesh Technology and Enterprise US$13 million X X Upgrading Program South Africa Manufacturing Project specific Investment Program (MIP), Clothing and Textiles Competitiveness Improvement Program X X X X (CTCIP), Production Incentive Program (PIP), Export Marketing and Investment Assistance Scheme (EMIA) Ethiopia Agriculture Led US$200 – X X X X X Industrialization Program US$500 million Textile Industry US$7.9 million X X Development Institute (2014/2015) (TIDI) Source: Global Development Solutions, LLC (GDS). 1. Technology Up-gradation Fund Scheme (TUFS): Example of Incentives and Benefits (India) Objectives: • Access to capital for modernization of the textile industry; • Technology upgrade; • Investments in common infrastructure or facilities by industry associations, trusts, or cooperative societies; • Voluntary retirement scheme (VRS) for restructuring manpower of existing units. Repayment Period: • Seven years, including two years of moratorium/implementation. Eligibility Criteria: • Existing unit with or without expansion and new units; • Existing unit can modernize and/or expand with state-of-the art technology; • New units must set up entire facility only with appropriate, eligible technology; • Unit can undertake one or more activities in an integrated manner; • Textile/jute units with 100 percent foreign equity qualify. Diagnosis, Strategy and Action Plan 41 Annexes Table 13: Incentive and benefits package under TUFS Incentive Benefit 1 Interest rate reimbursement 5% 2 Exchange rate fluctuation coverage <5% 3 Margin money subsidy 15% -20% 4 Capital subsidy 10% - 25% 5 Investment and working capital <50% of cost (incl. land, factory, pre-operation expense, margin money for working capital, and equipment) 2. Textiles Industry Development Institute (TIDI – Ethiopia) Table 13: Incentive and benefits package under TUFS Vision By 2024 we aspire to be a world-class Institute that enables the Ethiopian textile industry to be competitive in the global market. Mission Enabling the Ethiopian textile industry to be competent in the global market by providing sustained investment promotion, consultancy, training study and research, laboratory and marketing support and services. Objective To facilitate the development and transfer of textile and apparel industries’ technologies and enable the industries to become competitive and beget rapid development Values 5. Customers are our means of existence 1. Problem solving 6. Team work for effectiveness 2. Continuous learning 7. Attention for the environment 3. Quality and fast service 8. Striving for technology transfer 4. Priority for human resource 9. Effectiveness with limited resource Main Duties and Responsibilities of the Institute 1. Formulate policies, strategies and programs that assist in the facilitation of the development of textile and apparel industries and implement the same upon approval; 2. Collect, analyze, organize and transfer to the sector’s data center and disseminate to users, as may be appropriate, data necessary for the development of textile and apparel industries; 3. Prepare and disseminate project profiles that may be helpful in expanding investment in the textile and apparel industries; conduct feasibility studies for those investors desiring to engage in the sector; follow up project implementation and provide remedies concerning problems encountered during implementation; 4. Advise investors desiring to engage in the textile and apparel industries sector on the selection of technology, negotiation, construction, erection and commissioning; 5. Prepare and conduct practical trainings on technology, technical mattes, marketing and management and other tailor made trainings, that assist the development and competitiveness of the textile and apparel industries sector; and issue certificates to trainees; 6. Conduct studies and researches to promote the development of textile and apparel industries; 7. Provide support and consultancy services concerning production process, production planning and quality control; 8. Cooperate with government and private institutions with similar objectives, locally and abroad, and encourage similar co-operations between private institutions; 9. Undertake benchmarking studies that facilitate the development and competitiveness of the textile and apparel industries and assist those conducting similar activity in the sector; 10. Deliver testing services to textile and apparel industries products; 11. Extend support in the creation of input and output linkage; 12. Conduct market study for textile and apparel industries products; 13. Identify technologies that can be developed and undertake product development activities; 14. Cooperate with universities on product development and human resource development, conduct joint research and assist in the strengthening of local research capacity in the sector; and 15. Deliver its services to users at one stop shop. 42 Kenya Apparel and Textile Industry Table 14: Other examples of incentives offered by competing countries Investment Concessional export Annexes Country incentives Fiscal incentives finance Infrastructure Textile Vision/policy Other non-fiscal benefits Bangladesh No special 5% rebate rate Back-to-back letter of Availability of Textile sector High productivity; investment on net value addition credit arrangement natural development plan; Duty-free export to the incentive if local yarn is used; for working capital gas; International institutional European Union, Tax holiday for funding Constant cooperation through the Canada and Norway; backward areas investment in Bangladesh Institute of Highly trainable work ports Fashion and Textiles force and the National Institute of Technical Textile Research and Design China No special Export tax rebate of No special funds as Special economic Sectoral targets set in Big home market; investment 16%; interest rate is low zone(s) and general five-year plans Own textile machinery incentive Tax holiday in special infrastructure is industry, low machine economic zone(s) to first and spare part costs; foreign enterprises class Low (but increasing) wages, no Unionization; Low freight rates; Efficient dry and wet ports Egypt No special 6% incentive None No special Textile vision for QIZ program allows investment on free-on-board provision 2010-2015 preferential market incentive value of exports access to the United States India 5% interest Duty drawback on 4.5% interest Special economic Textile Policy 2000 Big home market; rebate under export; subsidy on pre- and zone(s) and special sectoral targets set in Own textile machinery Technology 10-year tax holiday; post-shipment credit textile parks set five-year plans industry, low spare part Up-gradation Lower energy cost up by and machinery costs; Fund Scheme tariffs in certain states Government to Relatively low wages and capital promote cluster subsidy development Diagnosis, Strategy and Action Plan 43 44 Investment Concessional export Country incentives Fiscal incentives finance Infrastructure Textile Vision/policy Other non-fiscal benefits Pakistan Long-term Research and Export refinance Natural gas supply Dedicated Ministry of Strong tradition of finance development support scheme at 7.5% per annum to Textiles textile production; facility on processed fabrics on textile industry at and Low wages for export and apparel (3-6%) export of fabrics, competitive rates; Textile Commissioner’s Favorable exchange oriented removed in “made-ups” and Captive power Office rate units at 2008; apparel plants concessional No duty on export generate power interest rates companies for at 50% lower cost Kenya Apparel and Textile Industry for up to 10 accessories and raw than years materials from national grid Turkey None Low corporate tax at None Power at a None Proximity to the European 20 %; concessional Union market; Workers’ social rate of USc 4 below Duty-free export to the charges are prevailing tariff in European Union subsidized by 25%; priority areas Lower energy cost tariffs in backward areas Source: Feasibility study for a cotton spinning mill in 11 sub-Saharan African countries, UNIDO, Gherzi, 2011 Annexes Annexes Annex 5: Key characteristics for developing a hub for innovation and green production Table 15: Key Characteristics for Developing a Hub for Innovation and Green Production Key characteristics for developing a hub for innovation and green production Continuous energy audit Use of energy efficient equipment Use of biomass Use of efficient lighting, heating, and insulation materials Production environment Best raw material for fabric and trims, and packaging with lowest environmental impact Minimum water and energy input and usage Minimum pollution and GHG emissions during manufacturing Use of renewable resources Manage manufacturing process and controls from fabric-to-garment Manufacturing process Tight control over wastewater, discharge, pollutants and energy use Third party monitoring of environmental and social compliance Minimize GHG emissions and environmental impact Transportation Optimize transport routes and use of rail, truck and air, and consolidated shipment Utilities Clean and stable source of electricity at competitive prices High internet connectivity Internet Stable and cost competitive internet connection Source: Global Development Solution, LLC (GDS). Diagnosis, Strategy and Action Plan 45 Annexes Annex 6: Detailed action plan for the recommendations 1. Institutional support Recommendation: Create a dedicated private institution—the Institute for Textile and Apparel Development (ITAD)—to support the sector. The institute should act as the voice of the sector, play a strategic leadership role, and ensure responsiveness to ever-changing global market trends. Goal Steps recommended Institutionalize support • Develop draft framework, organizational structure, role, and mandate of the proposed for the textile and ITAD. Special attention should be given to ensure that the ITAD becomes the central focal apparel sector through a point for developing and promoting the Green Production Hub (see below). dedicated institute • Based on the organization’s mandate, develop a draft budget required for the ITAD to support the textile-apparel sectors. • Once these drafts are completed, sponsor a workshop to bring together all of the stakeholders in the textile-apparel sector to present and validate the proposed organizational structure, role and mandate. • Based on inputs from the workshop, finalize the organizational structure, role, mandate and budget. Present the final version to MOIED for consideration. • Upon authorization by MOIED, invite foreign manufacturers and buyers to become sponsors of the ITAD, and invite key sector leaders from around the world to sit on the board of the ITAD to help guide the development and promotion of the Green Production Hub. 46 Kenya Apparel and Textile Industry Annexes 2. Skills to address productivity Recommendation: Build skills to address productivity issues, at the managerial, technical, and factory floor level. At the same time, recognize the need to import skills where these are not available, but impose term limits on expatriate work permits. Draw upon institutions to play a leadership and convening role on issues specific to the textile-apparel sector, to ensure public and private sector collaboration and coordination. Goal Steps recommended Shift to on-site skills • Engage private sector to encourage on-the-job training for textile-apparel workers. development and Provide evidence from best practice to show firms that this kind of more targeted and encourage training audits relevant training benefits the firms. • Develop a training audit to identify stakeholder training needs. • Introduce a voluntary training audit scheme. Encourage multi-skilling • Develop a mentorship program in partnership between the ITAD, buyers, key investors, for factory-floor workers and leading textile-apparel training institutions. and mentorship & coaching programs for mid-level management Improve the efficiency of • Coordinate with NITA and improve the efficiency of the training levy by defining specific the Training Levy training to be covered by the training levy. • Prepare recommendations to this effect. Impose term limits on • Identify specific skills not available through the Kenyan labor market, by contracting out a expatriate work permits skills gap assessment. From this assessment, create a list of skills that require expatriate recruitment. • Set up in-house mentoring for companies that hire expatriates. • Coordinate with the Department of Immigration Services to reduce cost and time required for issuance of work permit. Agree to automatic work permit approvals for processes taking longer than 30 days. • Transfers expatriate skills needs database to the ITAD once it is operational. • Introduce term limits on recruitment of expatriate on condition of sufficient skill base development. Foster local partnership • Conduct further study to explore the following two options: (1) competitive and open between firms and grant funding, and (2) setting up a center of excellence. research institutions Diagnosis, Strategy and Action Plan 47 Annexes 3. Investment in equipment and technology Recommendation: Undertake new investments in equipment and technology to increase efficiency and reduce costs. These investments will have the added benefit of meeting growing consumer demand for environmentally- sustainable production processes. Goal Steps recommended Encourage firms to • Partner with existing SUNREF program (under KAM) to create a mechanism dedicated to conduct factory level the textile-apparel sector, through which firms are made aware of the benefits arising from energy audits to see energy audits – namely, that the cost savings generated from subsequent investments will how much energy (and far outweigh the cost of the audit itself. money) could be saved • Make KAM members aware that energy audits are offered at a heavily subsidized rate through equipment through the SUNREF program. upgrading • Host workshops with KAM/SUNREF to achieve these objectives, for both KAM members and non-members. • Engage firms individually to cater to their specific needs. Develop sector-wide • Identify and negotiate access to concessionary financing through programs such as promotion program SUNREF. SUNREF is supported by AFD-funding and offers concessionary financing (around to encourage firms to 5 percent) for qualifying investments. upgrade technology • Work with firms to prepare business plans that will qualify for this concessionary financing. and equipment through SUNREF provides free business plan preparation. concessionary financing, • Develop standard business plan package to support stakeholders that apply for and support them in concessionary financing drafting business plans • Train banks on the specifics of textile-apparel investments, educating them on the to do so business case, government support for the sector, and alter bank historic perceptions about the risk level of the sector. • Use successful pilots as case studies to develop and implement sector-wide promotion program to encourage equipment and technology upgrading. Promote green • Research what counts as green according to major international buyers. Currently there is certifications among no standard definition. Therefore, analyze a sampling of major buyers to determine what firms, to provide could be a standard green definition for Kenyan producers. credibility to • Work with the Kenya Bureau of Standards to make this definition official by offering green international buyers certifications to textile-apparel companies meeting this standard. • Market this certification to international buyers and convince them to adopt companies that achieve it. Discontinue the energy • Coordinate with the Ministry of Energy to ensure the change in composition of energy subsidy (recommended) sources for electricity generation to renewables. or condition it to energy • Negotiate load redistribution to ensure continuous access to electricity to EPZ companies. audits and equipment • Create baseline data on energy usage using data from energy audits. upgrading in participating • Collect energy usage data and benchmark with baseline data. firms • Conduct sensitivity analysis to determine subsidy rate adjustment. • Consider two options based on the analysis: (1) discontinue the energy subsidy altogether (recommended), or (2) condition it to firms that adopt green production and apply for the green certification. 48 Kenya Apparel and Textile Industry Annexes 4. Access to markets Recommendation: Develop access to new market opportunities where competition is based on factors other than cost alone, allowing Kenyan firms to compete despite their higher cost of doing business. Goal Steps recommended Develop Kenya’s brand • Introduce government policy to transform Kenya into Africa’s Hub for green production. image as a hub for green • Prepare a draft policy statement and steps to be undertaken by both the public and textile and apparel private sectors to implement the policy. production • Engage a marketing and media agency to develop a media package to promote policy targeting green consumer bases in the US and Europe. • Invite major buyers and producers to Kenya to tour selected firms to showcase the innovation and green production schemes. Sponsor trade shows • Invite key buyers to present green market opportunities and requirements for Kenyan targeted at the textile firms. and apparel sector • Facilitate linkages to green market opportunities. to generate B2B connections Sponsor tours for Kenyan • Facilitate market access for small- and medium-sized Kenyan producers to premium small firms to see buyers and batch markets through tours to the United States and Europe. producers Diagnosis, Strategy and Action Plan 49 References · Binh, Dam Huy. 2013. “Apparel Market Outlook 2013: Global & US.” http://www.slideshare.net/damhuybinh/global- us-apparel-market-outlook-2013-opportunities-for-vietnam-sea-exporters · Canagarajah, Sudharshan, Amit Dar, and Paud Murphy. 2013. “Training Levies: Rationale and Evidence from Evaluation.” http://siteresources.worldbank.org/INTLM/Resources/TrainingLevies.pdf · Chemengich, Margaret, Varun Vaid, HesbonOlweny, and Fred G. Karuiki. 2013. “Policy Research on the Kenyan Textile Industry: Findings and Recommendations.” African Cotton and Textile Industries Federation (ACTIF). http://www. cottonafrica.com/documents/ACTIF%20Report%20on%20Policy%20Research%20on%20the%20Kenyan%20 Textile%20Industry_Margaret%20Chemengich_2013.pdf · Comtrade (United Nations Commodity Trade Statistics Database). United Nations, New York, NY. http://comtrade.un.org · Deloitte University Press. 2015. “The future of manufacturing: making things in a changing world,” March 31. · FastCoLabs. 2014. “Inside the fashion incubator that’s hacking global manufacturing,” October 2. http://www. fastcolabs.com/3036555/inside-the-fashion-incubator-thats-hacking-global-manufacturing · Financial Times. 2014. “Fashion: A better Business Model.” June 18. · Freund, Caroline, and Nadia Rocha. 2010. “What constrains Africa’s exports?” Policy Research Working Paper 5184, World Bank, Washington DC. · Global Industry Analysts, Inc. 2011. “Green Marketing: A Global Strategic Business Report.” http://www.prweb.com/ releases/green_marketing/environment_protection/prweb8301232.htm · International Energy Agency. 2013. “Developing Countries subsidize fossil fuel use, artificially lower prices.” http:// instituteforenergyresearch.org/analysis/ · Kamau, Paul, and Dorothy McCormick. 2013. “Breaking In and Staying In: African Apparel Producers and Global Markets.” University of Nairobi, Institute of Development Studies. http://www1.wider.unu.edu/L2Cconf/sites/default/files/ McCormick.pdf · Kenya National Bureau of Statistics. 2014. “Economic Survey 2014.” http://www.knbs.or.ke/index.php?option=com_ phocadownload&view=category&id=16&Itemid=508 · Lifestyles of Health and Sustainability Online.2010. “The LOHAS Marketplace: US$209 Billion Strong (And Growing).” http://www.lohas.com/lohas-marketplace · Massolution and Thomson Reuters Eikon. 2014. Numbeo (database). http://www.numbeo.com/common/ · Office of Textiles and Apparel (OTEXA), International Trade Administration, US Department of Commerce. 2014. “Trade Data: US Imports and Exports of Textiles and Apparel.” http://otexa.trade.gov/msrpoint.htm#CG · Sardar, Shaheen. 2012. “Zara: The Largest Spanish Clothing Company Owned by Inditex.” SCM Lab. Department of Industrial and Management Engineering, Hanyang University, South Korea. · The Manufacturer. 2013. “Market Demand will shape the factory of the future,” November 20. http://www.themanufacturer.com/articles/market-demand-will-shape-the-factory-of-the-future/. · UNIDO (United Nations Industrial Development Organization) and Gherzi.2011. Feasibility Study for a Cotton Spinning Mill in 11 Sub-Saharan African Countries. Vienna. http://www.unido.org/fileadmin/user_media/News/2011/11-83186_Ebook.pdf · World Bank. 2014. “Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises.” Washington, DC: World Bank. https://openknowledge.worldbank.org/bitstream/handle/10986/16204/19984.pdf?sequence=1 · Zintro. 2011. “Zintro experts’ discussion on the fashion industry manufacturing,” September 22. https://blog.zintro.com/2011/09/22/zintro-experts-discuss-the-fashion-industry-manufacturing/ Diagnosis, Strategy and Action Plan 51 Trade and Competitiveness Delta Center, Menengai Road, Upper Hill P. O. Box 30577 – 00100 Nairobi, Kenya T +254 20 293 7706 W www.wbginvestmentclimate.org