VZCZCXYZ0000
PP RUEHWEB

DE RUEHNR #3582 2281254
ZNR UUUUU ZZH
P 161254Z AUG 06
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC PRIORITY 3725
INFO RUEHXR/RWANDA COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/USDA WASHDC

UNCLAS NAIROBI 003582 
 
SIPDIS 
 
DEPT FOR AF/EPS Hastings 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: EINV ETRD KTEX AGOA ECON KE
SUBJECT: AGOA: REQUEST FOR INFORMATION ON TEXTILE AND APPAREL 
PRODUCTION CAPABILITIES AND THIRD-COUNTRY FABRIC PROVISIONS 
 
REF: STATE 131825 
 
¶1. Summary: Kenya's AGOA garment exports to the U.S. fell 8.7% in 
the first six months of 2006 to $121.4 million, but still 
represented 73% of Kenya's total exports to the U.S.  Non-garment 
AGOA products pineapple, roses and nuts represent only 2.1% of AGOA 
imports.  Kenya's cotton and textile industry collapsed in the 
1990s.  Kenyan textile mills cannot produce the quality or quantity 
of fabric required by the AGOA garment factories, nor can other 
potential African suppliers.  GOK and private sector sources agree 
that Kenya needs more time to attract the investment and develop 
domestic fabric production and that Kenya's garment production and 
exports will completely collapse without an extension of the waiver 
of AGOA third-country fabric provisions.  End summary. 
 
Textile production facilities 
----------------------------- 
 
¶2.  All fabric and most accessories for Kenya's AGOA export garments 
are currently imported, primarily from Asia.  In the 1970s and '80s, 
the country had 24 ginneries, 52 textile firms and 110 large-scale 
garment manufacturers and spinners.  Kenya's cotton growing and 
textile industry collapsed in the 1990s due to production 
inefficiency, problems in GOK support programs, and trade 
liberalization.  Kenyan textile mills cannot produce the quality or 
quantity of fabric required by the AGOA garment factories, nor do 
other African countries.  Kenya has the capacity to produce over 
380,000 bales of cotton per year.  Annual Kenyan cotton production 
has declined to 20,000 bales or 3,700 tons, while demand from the 
textile industry ranges between 22,200 to 25,950 tons. 
 
Apparel production facilities 
----------------------------- 
 
¶3. AGOA garment exports are produced in factories located in Export 
Processing Zones (EPZ) mostly around Nairobi and Mombasa.  As of 
December 2004, the garment sector employed 34,614 workers in 30 
factories with an investment of US$144 million (Ksh8.6 billion). 
The number of sewing machines is not yet available.  The garment 
producers rely entirely on imported Asian fabric and accessories for 
AGOA products.  70% of Kenya's AGOA garment exports fall under HTS 
categories 6203 and 6204.  Leading products are five-pocket jeans, 
men's cotton shirts, polyester nightwear, women's knit tops, chino 
pants, knit bottoms, fleece jackets, children's clothes, lingerie 
and sportswear. 
 
GOK and Private Sector Views 
----------------------------- 
 
GOK and private sector sources agree that Kenya's garment production 
and exports will completely collapse without an extension of the 
waiver of AGOA third-country fabric provisions.  Absent full AGOA 
duty free access, the high cost of doing business and producing 
would make Kenya uncompetitive for garment production and export. 
There is renewed Kenyan interest in cotton and fabric production due 
to the opportunity presented by AGOA.  AGOA apparel exports to the 
U.S. increased from US$44 million in 2000 to US$272 million in 2005, 
making Kenya the second-largest exporter of clothing to the U.S. 
from Sub-Saharan Africa after Swaziland.  However, officials from 
the Kenya Association of Manufacturers and the Export Processing 
Zone Authority explained that competition from Asia, problems in 
Kenya's investment climate, and the uncertainty of extensions of the 
waiver of AGOA third-country fabric provisions had made it more 
difficult than expected to attract the necessary investment capital. 
 
 
Comment 
-------- 
 
The GOK recognizes the need to improve infrastructure, security and 
governance, and to cut the cost of electricity, corruption and red 
tape to make Kenya more competitive and attractive to investment, 
but progress is frustratingly slow.  Trade Minister Kituyi has 
publicly called for extension of the waiver.  The extension would 
have to be sufficiently long to effectively support efforts to 
attract investment in cotton and textile production. 
 
Ranneberger