The KENYA INSTITUTE for PUBLIC POLICY RESEARCH and ANALYSIS No. 15/2021-2022 Thinking Policy Together Constraints along the Cotton Textile and Apparel Value Chain in Kenya By Lawrence Kinuthia Njoroge and Wario Malicha Overview The cotton-textile and apparel industry is aims to achieve Kenya’s Vision 2030. Against recognized as one of the industries with potential the above policy direction, the government has to absorb skilled, semi-skilled, and non-skilled initiated the setting up of textile and apparel workers within its chain of production. In 1986, manufacturing industries, revival of ginneries, the cotton textile and apparel (CTA) industry was and revitalization of Rift Valley Textiles. Currently at its peak with 52 operational mills employing the industry engages 21,000 people indirectly 42,000 people and close to 200,000 households in formal employment, over 30,000 in informal engaged in cotton farming, making it second after setting and 40,000 households take part in the civil service industry in terms of employment cotton growing3. Nevertheless, the industry still ability1 2. However, the industry collapsed after has potential to generate income for the large 1984, with Global Economic Reforms of 1990s base of cotton growers through its significant Structural Adjustment Programmes (SAPs), linkages with other industries such as transport, trade liberalization policies, embezzlement, chemical producers, oil factories, design and and mismanagement at the Cotton Board of marketing. Therefore, it is important to enhance Kenya. In addition, the absence of an effective efforts towards exploiting its full potential. institutional arrangement to address constraints within the value chain presents a great risk to the This policy brief provides an analysis of the industry’s ability to contribute to the economy. In activities, constraints, skill gaps and employment addition, poor institutional arrangements further potential across various nodes of the CTA value impede the ability of Kenya’s CTA value chain to chain. The analysis is based on data from Kenya compete globally with other countries such as Integrated Household Budget Survey (KIHBS) China, or regionally with nations such as South 2005/06 and 2015/16; World Bank Enterprise Africa and Egypt posing a substantial growth survey 2018; Economic Survey and International threat to the industry. Trade Centre (ITC). In the last decade, there has been an intermittent Constraints to Growth of CTA Value revival and improved performance within the CTA Chain in Kenya industry owing to the regionalization of cotton farming and the development of the African From the value chain development, the key Growth and Opportunity Act, 2000. In addition, nodes of the CTA value chain were identified as: job creation and growth through development of cotton growing; ginning; milling and spinning; CTA industry is one of the key flagship projects manufacturing; and sale of outputs both in the prioritized under the “Big Four” agenda, which local and export market, various stakeholders, 1 Chemengich, M., Vaid-Wazir, V., Olweny, H. and Karuiki, F. (2013a), activities, and jobs created were also mapped Policy research on the Kenyan textile industry: Findings and in the chain development (Figure 1). Despite the recommendations”. African Cotton & Textile Industries Federation, http://agoa. info/images/documents/5264/ACTIF% 20Report% 20on% 20Policy% 20Research% 20on, 20. 3 Kenya Association of Manufacturer (2018), Manufacturing in Kenya 2 Ikiara, M. and Ndirangu, L. (2003), Developing a revival strategy for Under the ‘Big 4 Agenda: A sector deep-dive report. Retrieved Kenya’s cotton-textile industry: A value chain approach. Nairobi: from http://kam.co.ke/kam/wp-content/uploads/2018/10/KAM- Kenya Institute for Public Policy Research and Analysis. Manufacturing-Deep-Dive-Report-2018.pdf KIPPRA Policy Brief No. 15/2021-2022 1 Figure 1: The CTA value chain, actors, value adding functions, and jobs created CTA value Market Actors Value adding Occupations chain functions required • Farmers • Extension officers Associations • Research and • Drivers Cotton growing • Government Development • Researchers • Agro-chemical • Extension services • Farm-Level workers suppliers • Transportation • Inputs suppliers • Machinery suppliers • Procurement Ginning of Cotton • Private companies • Logistics officers seeds • Associations • Processing • Drivers • Government • Machine operators/servicers • Finance officers • Machine suppliers • Textile mills- • Supplier of inputs • Procurement officers spinning, weaving, • Sellers of • Processing & yarning machineries • Logistics • Drivers • Government • Machine operators • Storekeepers • Sector-Level workers • ICT sector • Designing and • Designers • Government Textile and Branding • Researchers • Consulting Garment • Training • Procurement officers • Firms Manufacturing • Logistics • Drivers • Insurance Firms • Research& • Machine operators • Financial institutions Development • Sale & Marketing • Government • Finance & accounting officers Export of Domestic • Exporters • Advertisers Garments Consumers • Marketing • National • Trade experts • Research & Retailers • Financial officers development • Insurance Firms • Logistics personnel • Advertising • ICT sector • Brand • Logistics • Government ambassadors • Retailers • ICT officers Source: Author’s conceptualization potential to create jobs, the sector is confronted agriculture practices that could offset costs, with various constraints that characterize the improve yields and build resilience5. To unlock nodes in the value chain. the full potential of the CTA industry, the cotton seed production process has to improve to a) Growing of cotton supply the required quality and quantity of seeds Farmers have cited that poor-quality seed, high demanded in the production process. input costs, weather, and low farmgate prices that prevent re-investment as key contributors Moreover, the youth who constitute the majority affecting cotton farming4. Additionally, lack of population are not involved in the growing of access to funds to improve farming has made cotton, further affecting the CTA value chain given farmers fail to meet the market demands for both the potential they have in improving productivity yield and quality, perpetuating low incomes and at the farm level. Likewise, the majority of the preventing investments in higher quality inputs. farmers have low education attainment (primary Besides, limited public capacity for extension school level education), which limits their ability services excludes farmers from climate-smart 4 Kenya Integrated Household Budget survey 2015/16. 5 Kenya Integrated Household Budget survey 2005/06. 2 KIPPRA Policy Brief No. 15/2021-2022 P o l i c y & I n s t i t u t i o n a l A r r a n g e m e n t s to improve farming due to lack of requisite skills prices compared to the locally manufactured and knowledge. products further constrains the growth of the local value chain10. The reverse of this trend is far b) Ginning from realization as Kenya’s efforts to phase out Poor quality production of cotton limits the mitumba importation in 2017 was not actualized. quality and quantity of cotton lint produced by ginneries. This translates to low quality domestic f) Export market fabric that is not fit for export, which inhibits the While Kenya enjoys access of the US market, the growth of the CTA industry. The low quality and extent to which it has been exploited is yet to be quantity of lint is also exacerbated by the use optimized by local manufacturers and exploiting of old and inefficient ginning equipment. Thus, other international markets. Kenya over-relies on unlocking of the CTA industry’s potential will the US market for textile apparel exports. Such only be achieved if the updated processing a market if diversified could earn the country technology is utilized and the correct quantity more foreign exchange. Given that the country’s and quality of seeds is supplied to local cotton potential in the CTA industry is unexploited to farmers. its full potential, it is thus possible to overcome the constraint at optimal operation that will yield c) Textile milling high quality and high quantity products for the Low productivity in textile milling is attributed export market11. to the use of outdated technology in the textile mills and low levels of skilled labour supply. It In addition, Kenya’s CTA industry export trade is therefore imperative to address the two issues performance results to a negative balance of as a means of unlocking the full potential of the payment thus denying the country net export CTA value chain for job creation and economic income compared to Bangladesh and Sri Lanka, progress. which enjoy a favourable balance of payment from the industry12. d) Manufacturing of textile and garments The challenges faced by manufacturers are: CTA Value Chain Labour Skills high cost of energy; competition from informal Requirement to Reach its establishments; access to finance; the increased Employment Potential cost acquiring business permits after devolution; the unfavourable fabric/apparel import export There was no existing skills gap13 in the CTA trade; importation costs of firm raw materials for industry but rather the existence of a skills production; unfavourable transport, customs, surplus across all the education categories. and trade regulations; lack of research and The most skill surplus (3,041,059) is within development; outdated technology; lack of the category of the unemployed youth who skilled manpower; crime, theft, and disorder; have primary level of education as the highest taxation; corruption; political instability; labour education attainment followed by those with no regulations; and administration of justice6 7 8. education at 1,618,652. Those with secondary As a result, policy reforms in the concerned education were 1,375,615 in surplus. The least sectors of government are necessary to unlock surplus was among those with college education the full potential of the CTA industry. while none of those with university education were reported to be working in the CTA industry. e) Domestic market This could be explained by the fact that for the New clothes are imported in disguise as mitumba9 and get into the market without 10 Export Processing Zones Authority - EPZA (2005), Kenya Apparel and Textile Industry Retrieved from file:///Users/user/Downloads/kenya-s- paying the required taxes. This in turn makes apparel-amp-textile-industry.pdf. 11 Feed the Future (2018), Enhancing investment attractiveness in it hard for the local textile producers to find a Kenya’s cotton sector. Washington: Feed the Future. domestic market for their products. Likewise, the 12 East Africa Trade Investment Hub (2018), Overview of the cotton, textile and apparel sectors in East Africa region (Kenya, Uganda, Tan- continued importation of mitumba from the mid zania, Ethiopia, Madagascar and Mauritius) and benchmarking with 1980s into the local market, which retail at low Sri Lanka and Bangladesh. Nairobi: East Africa Trade Investment Hub.13 Skills gap computation is achieved by comparing the stock of skills in 6 The World Bank Enterprise Survey 2018. the wider target population of the unemployed youth to those required 7 ITC data 2018. by the sector proxied by the distribution of employment in the sector 8 Konisha, Y., Mogollon, M.P., Adamali, A., Ramakrshnan, K. and Barma, by skill level. Education attainment is used as the proxy to determine M. (2015), Kenya Apparel and Textile Industry, Diagnosis, Strategy and the skill requirement of the sector as it easier to determine from Action Plans. available data. See Bhorat, H., Asmal, Z., Hill, R.D. and Rooney, C. 9 Mitumba is a term used to refer to second hand clothes in Kenya. (2020), Employment creation potential, labour skills requirements, and skill gaps for young people: A methodological framework. KIPPRA Policy Brief No. 15/2021-2022 3 Table 1: Estimating the industrial skills gap for the CTA industry No Primary Secondary College University Education Education Education Education Education Skill Supply 1,646,159 3,101,625 1,408,104 238,676 81,010 Skill Requirement 27,507 60,566 32,489 24,413 - Fibre Preparers 682 - - - - Weavers, Knitters and Related works 3,464 2,844 913 936 - Tailors, Dressmakers and Related Workers 18,733 55,010 31,290 21,676 - Textile Preparing, Spinning and Winding Machine Operators - 651 286 - - Weaving, Knitting and Sewing Machine Operators 3,276 2,061 - 363 - Textile Bleaching, Dyeing and Cleaning Machine Operators 1,352 - - 1,438 - Skill Gap 1,618,652 3,041,059 1,375,615 214,263 81,010 Skill availability ratio 59.85 51.21 43.34 9.78 0 Source: KHIBS 2015/2016 identified occupations in the data set, none required university education (Table 1). Table 2: Occupational skills gap for the unemployed youth by years of schooling Moreover, the skill availability ratio14 across all Occupation Skill Skill Skill the first three categories of education was more supply requirement Gap than 10 indicating that the unemployed youths Fibre Preparers 0 14 -14 can be attracted to the CTA industry. Those Weavers, Knitters and 0 14 -14 with college education can also be attracted to Related Works the industry, however, not in comparison with Tailors, Dressmakers 8 14 -6 the aforementioned education categories. In and Related Workers addition, those with university education are not Textile Preparing, 8 14 -6 likely to be attracted to the identified industry’s Spinning and Winding of the CTA industry as shown in Table 1. Machine Operators Weaving, Knitting 0 14 -14 There was no occupational skills gap15 for and Sewing Machine textile bleaching, dyeing and cleaning machine Operators operators. Occupational skills gap was more Textile Bleaching, 14 14 0 among fiber preparers; weavers, knitters and Dyeing and Cleaning related works; and weaving, knitting and sewing Machine Operators machine operators’ occupations. Besides, Source: KHIBS 2015/2016 relative occupational skills gaps were also identified among tailors, dressmakers and Kenya has nine (9) universities and 27 Private related workers and among textile preparing, Middle Level Colleges (PMLC) and technical spinning and winding machine operators’ training colleges that offer skills and training on occupations. textile-related courses16. These institutions do not offer enough training with regard to operation 14 This ratio measures the skills that exist in the unemployed youth population against the skills required in the sector for each of the of textile machines leading to the prevalence skills categories. It is a measure of the extent to which the required of skills gaps in this area. This can be linked skill exists in the target population. See Bhorat, H., Asmal, Z., Hill, R.D. and Rooney, C. (2020), Employment creation potential, labour to inadequate facilities and textile equipment skills requirements, and skill gaps for young people: A methodological available within the institutions. framework. 15 For the occupational skills gap, mapping was based on the Kenya National Occupations Classification Standard (KNOCS) of year 2000. In this case, the occupational skills gap was calculated as the Policy Recommendations difference between skills requirement for a given occupation based on KNOCS and the national modal education level, as measured by i) Farm level-cotton production years of schooling of the unemployed youth. See Bhorat, H., Asmal, Z., Hill, R.D. and Rooney, C. (2020), Employment creation potential, For the cotton industry to roll back to its historical labour skills requirements, and skills gaps for young people: A methodological framework. times of prosperity and employing more people, 16 Nguku, E. (2012), Analysis of textile and clothing training institutions in the East-Southern Africa. Nairobi: ICIPE. 4 KIPPRA Policy Brief No. 15/2021-2022 it is recommended that the Ministry of Agriculture, a technology upgrading fund through the Livestock, Fisheries and Irrigation strategizes on Ministry of Industry, Trade and Co-operatives enhancing greater cotton output whether under in collaboration with the Ministry of Agriculture, rain-fed condition or irrigation cotton farming. Livestock, Fisheries and Irrigation to enhance This can be achieved through researching and financing of technology upgrade among textile providing improved cotton seeds to farmers for and apparel manufacturing firms. To start with, increased yields, providing access to affordable after establishing the Technology Upgrading finance to farmers and providing extension Fund, the Government can provide capital services to the farmers. to firms to upgrade their existing technology, with an agreed repayment period, say ten- The Ministry of Agriculture, Livestock, Fisheries year repayment period inclusive of two years and Irrigation can further pursue innovative of moratorium. This will give textile firms an ways of attracting the youth and other educated ample time to potentially increased capacity and Kenyans in cotton farming to increase production improve energy costings. Such kind of policy for domestic and export use. This will enable arrangement has been recognized to be effective the local ginneries to revive and operate at full in economies such as India and has potential to capacity and the local textile mills. The increase spur textile and apparel industry growth. in production will also ensure that importation of cotton lint is reduced from the current 93% The Ministry of Education to contribute through importation rate. research and development customized technology for the local firms. This will further ii) Institutional and policy frameworks create a possibility of exporting the technology A comprehensive national policy framework is to the international market in the future. required to guide the development of the CTA industry along the entire value chain. A resolute Apart from experiencing losses due to power effort championed by the Ministry of Agriculture, outages, textile and apparel firms also complain Livestock, Fisheries and Irrigation may consider of high energy tariffs locally. There is need a policy approach that focuses on addressing to improve the local energy infrastructure to the constraints that span across the vertical ensure continued power supply to firms without and horizontal continuum of the CTA value fluctuations. This will ensure that firms will chain. These constraints entail the challenges no longer suffer losses attributable to power related to farm gate price of cotton outputs, outages. improving the quality of cotton fibers to make it globally competitive, shielding the garment The Ministry of Energy can consider developing manufacturing industry from mitumba imports, a pro-industry power policy that will reduce high energy cost and incentives to facelift cotton power tariffs and remove some energy levies, related extensions. Addressing these constraints thus enabling productivity among CTA firms. would make the industry attractive to investors In addition, this may also incentivize foreign and youths, thus increasing the potential of the investors to relocate their firms into the country, industry’s employability. thus spurring development and the creation of additional employment. Subsidies can also be Further, it is important to strengthen and an instrument of revitalizing the industry by, for synchronize CTA agencies particularly, cotton instance, offering a 3% power subsidy to firms farmers at county levels and the national with export earnings of Ksh 300 million to Ksh level, thus the need to establish an apex 500 million and 5% for companies with earnings body (Reporting to the Ministry of Agriculture, surpassing Ksh 500 million. Livestock, Fisheries and Irrigation) that will act as a focal point for CTA stakeholders to heighten Majority of the firms are not involved in research horizontal, vertical, backward and forward and development, coupled with the challenge linkages for industrial growth. of an inadequately educated labour force. It is recommended that firms set aside funds for iii) Textile and apparel manufacturing research and development activities to improve The productivity of the CTA industry is impeded productivity. Moreover, this will also enable the by the use of outdated technology from the firms to capacity build their employees with ginning stage to garment manufacturing requisite skills. stage. There is therefore a need to establish KIPPRA Policy Brief No. 15/2021-2022 5 Majority of the firms were affected by the favours coupled with the amendment of those prevailing tax rates. It is recommended that that require restructuring in consultation with all the tax rate on firm inputs and the value added the affected stakeholders. tax on finished products be reviewed by the State Department for Finance. This may There is a surplus of skills supply from the be done by zero rating firm inputs and firm unemployed youth with notable occupational products to increase competitiveness in the skills gap. It is recommended that the Ministry market. This will encourage productivity and of Education in collaboration with other price competitiveness in both the local and stakeholders, spear head occupational capacity international market in the long run. development among unemployed youth. The Ministry to ensure that the training offered in The firms highlighted that the administration of institutions of higher learning and vocational justice; crime, theft, and disorder; corruption; training centres is current and the technology and political instability hindered their operations. employed in the training. Moreover, the training To improve their productivity, it is prudent that the should aim at offering high level multiple Ministry of Interior and Coordination of National skills pegged on production technology and Government; Ethics and Anti-Corruption equipment. There is therefore a need to link Commission; the Judiciary; and the legislature training and capacity development in academic at all levels to combine efforts to address these institutions with industry needs, which not only challenges. The existing laws and regulations caters for current requirements, but future needs. should be implemented to the latter with no 6 KIPPRA Policy Brief No. 15/2021-2022 KIPPRA Policy Brief No. 15/2021-2022 7 ABOUT THIS POLICY BRIEF This policy brief is based on a KIPPRA Discussion Paper No.229 of 2020 on “Assessing the Cotton, Textile and Apparel Sector Employment Potential in Kenya”. By Lawrence Kinuthia Njoroge and Wario Malicha About KIPPRA Policy Briefs For More Information Contact: KIPPRA Policy Briefs are aimed at a wide dissemination of the Institute’s policy research findings. The findings are Kenya Institute for Public Policy Research and Analysis expected to stimulate discussion and also build capacity Bishops Road, Bishops Garden Towers in the public policy making process in Kenya. P.O. Box 56445-00200, NairobiTel: 2719933/4, Cell: 0736712724, 0724256078 KIPPRA acknowledges generous support from the Email:admin@kippra.or.ke various partners who have continued to support the Website: http://www.kippra.org Institute’s activities over the years. Twitter: @kippra.kenya 8 KIPPRA Policy Brief No. 15/2021-2022