From Farm to Fashion by Adam Smith International

FROM FARM TO FASHION Sequencing reform to catalyse investment, industrialisation and SME development in the Kenyan cotton, textiles and apparel value chain Event & Discussion Summary, 14th August 2018

#KenyaEnVogue

CONTENTS Executive Summary

Introduction 5

Welcome Remarks & Overview of the Apparel & Textiles Sector 6

Keynote Speech

Panel Discussion & Q&A

Event Snapshots

1. EXECUTIVE SUMMARY Adam Smith International (ASI), in partnership with the Ministry of Industry, Trade and Cooperatives (MoITC) and the African Cotton and Textile Industries Federation (ACTIF), invited apparel and textiles sector stakeholders from government, industry and development partners to assess the status of implementation of initiatives in the sector and discuss their alignment to the current Government policy of the Big 4 Action Plan.

STATUS OF IMPLEMENTATION OF INITIATIVES BY GOVERNMENT A number of initiatives are being implemented by the government to boost cotton production and manufacturing in the sector. Under the Buy Kenya Build Kenya initiative, which aims to increase consumption of locally manufactured products, all the textiles for the security and uniformed forces will be procured locally in this financial year. As the single largest consumer, this will be a key step by the government in supporting the growth of the manufacturing sector. The revitalisation of Rivatex is anticipated to increase the consumption of cotton from 10 bales a day to 70 bales a day due to increased capacity. The modernisation of the facility will also enable Kenya to produce internationally accredited fabric. In addition, the government is tackling illicit trade and counterfeits.

The aim was to propose specific and practical actions that can be taken across the cotton, textile and apparel value chain to attract investment and promote manufacturing in Kenya, and address how to more effectively incorporate SMEs into the value chain. The talk continued the discussion from the previous event held in March 2017, that explored how Kenya can become more competitive in the global apparel and textiles market.

Revitalisation of cotton production in Kenya is expected to create 680,000 direct jobs at the cotton farming level, 210 jobs at ginning level, 6,000 jobs at integrated mills and 25,000 at garments manufacture levels. KALRO is supervising trials for Bt cotton at 9 sites in the country and it is anticipated that it will be rolled out in the farming communities in the next season, subject to approvals. The government has also mapped out 200,000 ha of land across more than 20 counties for cotton production. This is expected to produce 50,000 MT of cotton over a period of 5 years.

OVERVIEW OF THE APPAREL AND TEXTILES SECTOR The increasing consumption of all fibres in India and China will change the dynamics in the apparel and textiles supply chain over the next 15 years and this presents an opportunity for Africa. As India and China will look for domestic or regional suppliers to cater for their own demand, the global supply chain will shift from Asia, mainly to Africa. China is also moving from manufacturing lower rack cost to middle and high rack cost apparel and technical textiles.

The government is also aiming to increase export-led manufacturing, including building exports to the American market under AGOA as well as to the European market. Kenya wants to develop exports in high value, niche products and the government is looking for investors that operate in the high value segments and are also global players.

Understanding why and how buyers focus their buying will be important to take advantage of this opportunity. The key factors that Chief Purchasing Officers consider when sourcing apparel and textiles include; cost, speed to market, quality and supply chain development. Kenya needs to implement backward integration from production to value addition in textiles to manufacturing to cater for the interests of the buyers.

The government aims at training and deploying 50,000 youth into the sector over the next 5 years. Working in collaboration with industry, the State Department of Vocational and Technical Training is implementing the East Africa Skills for Transformation and Regional Integration Project (EASTRIP), which is providing USD 10.8 million to develop skills for the textiles sector.

Labour, energy, finance, availability and proximity to raw/intermediate materials; existence of a free trade agreement; and efficient infrastructure are all key factors that impact the textiles and apparel sector to varying degrees along the value chain and need to be addressed to successfully attract investment in the sector.

The Ministry of Education is also supporting SMEs through work-integrated learning, where TVET trainers work in small scale enterprises to learn and understand their needs, in addition to training in their institutions. The ministry has also equipped the workshops in training institutions with new, state of the art equipment and is considering opening them to small scale businesses to do their work and part of their revenues go to the TVET institution.

Africa produces 1.2 million metric tonnes of cotton and consumes less than 300,000 tonnes. Adding value to the cotton we produce would not only produce 10 million jobs, but increase value by over USD 1.5 billion. However, we will need to overcome the challenges in cotton production including inadequate quality certified cotton seed, low productivity, high cost of inputs and inadequate investment in modern technology.

In order to support the fashion sector to produce affordable apparel for the mass market, the government is planning to link designers to common manufacturing facilities that can offer mass production. Local fashion designers were also advised to link with EPZ companies to produce the volumes required for the local market. However these companies can only sell 20% of their products domestically.

technology and equipment. The government should also provide tax breaks on technology investments by SMEs that will help to create more value. This includes equipment such as digital printers and specialised machinery. Stakeholders also called for the government to consider reducing the 25% duty on fabric as this is an input that is sold to designers and the tailoring fraternity and local manufacturers cannot currently meet domestic demand for textiles. The EAC Common External Tariff is currently undergoing a review and stakeholders were invited to provide their views on the duty on fabric.

The Principal Secretary encouraged the participants to engage with the government and present practical proposals on how to address their complaints. A textiles sector desk has been set up at the ministry that deals with apparel and textiles industry issues including production, productivity, costs, competitiveness, advocacy and policy.

Due to inadequate local supply, EPZ companies exporting under AGOA have to import fabric, trims, accessories and packaging materials worth USD 270 million from China, India and other countries. This presents an opportunity for local investors, in particular SMEs, to develop and supply some of the inputs for apparel manufacturing and therefore help to address the supply chain issues.

STAKEHOLDERSâ&#x20AC;&#x2122; PROPOSALS ON ATTRACTING INVESTMENT AND PROMOTING MANUFACTURING AND SMES IN THE COTTON, TEXTILES AND APPAREL SECTOR Industry stakeholders provided their recommendations on what needs to be done to promote manufacturing in Kenya. Addressing the cost of production was considered a key factor, in particular the cost of electricity. Implementing the Buy Kenya Build Kenya provision on local sourcing of textiles for the uniformed services can spur investment in the sector as companies will have a confirmed market for their products. They can diversify, invest in modern machinery and therefore reduce their costs of production and are able to compete. The development of a database of manufacturing companies in Kenya was also proposed in order for potential buyers to know what is being produced locally.

Innovation in natural fibre production to improve productivity and attractiveness was proposed. Genetic modification technology is being used to innovate in cotton production through the development of Bt cotton. Bt cotton addresses the issue of productivity in Kenyan cotton production by reducing pest and disease effect, which result in losses of up to 50%. There are breeding programmes that are geared towards other aspects for example, India has developed coloured cotton, which is on the market and this can be explored in Kenya. In addition, there are ongoing research programmes on other natural fibres for example KALRO is researching on silk, with the aim of getting mixes of fibres, including silk and cotton, into the market.

Designers find it difficult to get financing for the fashion and apparel sector and they do not have the capital to roll out mass-market lines. The cheaper the product, the more capital is needed therefore designers will need to work with manufacturers for mass production. Establishing links between SMEs and technical experts, such as expatriates working in the EPZs, can also allow small businesses to tap into their expertise and advise on set up, operations and use of

Intellectual property and innovation is important and Kenyan brands should be protected. Many local producers do not protect themselves then complain when they see copies. A comprehensive review of Kenyaâ&#x20AC;&#x2122;s intellectual property laws was proposed to keep in line with developments in technology and trade liberalisation.

2. INTRODUCTION Adam Smith International has been holding Development Talks since 2014 and they have become an established, invitation-only forum that brings together senior decision-makers across Government, the private sector and development community. In August 2018, Adam Smith International in partnership with the Ministry of Industry, Trade and Cooperatives and the African Cotton and Textile Industries Federation (ACTIF) invited apparel and textiles sector stakeholders from government, industry and development partners to assess the status of implementation of initiatives in the sector, discuss their alignment to the current Government policy of the Big 4 Action Plan and the apparel and textiles industry’s contribution. The aim was to propose specific and practical actions that can be taken across the cotton, textile and apparel value chain to attract investment and promote manufacturing in Kenya, in line with the Big 4 Action Plan, and address how to more effectively incorporate SMEs into the value chain. The talk continued the discussion from the previous event held in March 2017 that explored how Kenya can become more competitive in the global apparel and textiles market. The keynote speaker was Ms. Betty Maina, Principal Secretary State Department for Industrialization, Ministry of Industry, Trade and Cooperatives. The panellists included: Mr Dominic Ngugi – Spinning Manager, Thika Cloth Mills Ltd Dr. Charles Waturu – Director, Horticulture Research Institute, Kenya Agricultural and Livestock Research Organisation (KALRO) Ms. Akinyi Odongo – Creative Director, Akinyi Odongo Kenya Mr. Fanuel Kidenda – Chief Executive Officer, Export Processing Zones Authority (EPZA) Kenya Mr Nelson Gitau – Assistant Director, TVET and National Coordinator, East Africa Skills for Transformation and Regional Integration Project (EASTRIP), State Department of Vocational and Technical Training (TVET), Ministry of Education The Moderator was Patrick Obath, Managing Consultant, Eduardo and Associates; Associate Director, Adam Smith International. This report provides a summary of the key messages that emerged from the discussions.

3. WELCOME REMARKS AND OVERVIEW OF THE APPAREL AND TEXTILES SECTOR

3.1 WELCOME REMARKS BY WILLIAM BENTHALL, AFRICA DIRECTOR, ADAM SMITH INTERNATIONAL It is our privilege to be hosting this event for the second year running with the Ministry of Industry, Trade and Cooperatives and the African Cotton and Textile Industries Federation (ACTIF). I’m particularly grateful to Principal Secretary Ms Betty Maina for giving the Key Note speech today. Also to Belinda Edmonds and ACTIF. Many of the participants here today are ACTIF members.

William Benthall, Africa Director, ASI

Kenya – unlike other countries in which Adam Smith International works – has in many ways proven itself in the international apparel sector. Kenya has apparel factories that employ thousands of people each, exporting millions of garments every month, to some of the world’s top fashion brands and retailers. Over the coming 5 years, Kenya is looking to take advantage of duty and tariff free access to the USA under AGOA, to grow apparel exports to USD 1 billion to USA alone. This is real tangible progress that’s happened through a coordinated effort between government and the private sector. But amid this progress and promise, there are still many challenges: The competitiveness of Kenyan exports is highly dependent on AGOA, and the cost advantage it provides Electricity is still expensive and unreliable, over 2x the cost in Ethiopia Despite the investment in SGR, businesses still find it cheaper to move containers by truck than rail And there’s still a big question around whether small and medium sized businesses are benefiting from value chain improvements Last year, in partnership with the Ministry and ACTIF, Adam Smith International invited government, industry and development partners to discuss how Kenya can become more competitive in this global market. It was a vibrant discussion with plenty of recommendations, for example: Provide incentives to local manufacturers to level the playing field with EPZ companies which are allowed to sell up to 20% of their produce in the domestic market, VAT and duty free. Engage with the ‘mitumba’ industry to leverage its distribution channels to provide access for Kenyan made apparel. Brand Kenyan cotton differently by providing traceable and sustainable cotton or organic cotton. Use Kenyan runners, who are the best in the world, as brand ambassadors for Kenyan-made apparel. Develop an integrated approach, which looks to transform the entire cotton/textile/apparel value chain and attract investors from farm to fashion. And there were achievements and commitments noted by the then Principal Secretary: The launch of Buy Kenya Build Kenya to increase consumption of locally manufactured products A capital injection in the textile manufacturer Rivatex, increasing capacity and demand for locally sourced cotton with guaranteed prices for ginners and farmers Cotton irrigation schemes and a protocol on seed certification Policy reforms improving Kenya’s Doing Business ranking Our session today is a great opportunity to check-in on these recommendations and commitments

We will hear from the industry on where they are seeing improvements and what is still challenging We will hear from the Principal Secretary on the status of these and other initiatives We will hear the views of small and medium sized businesses Finally, we want to identify specific and practical actions that can be implemented by government, industry and development partners and we’d encourage as much discussion as possible among the panel and the floor.

3.2 REMARKS BY BELINDA EDMONDS, EXECUTIVE DIRECTOR, AFRICAN COTTON AND TEXTILE INDUSTRIES FEDERATION (ACTIF) Thank you to the Ministry, specifically the Principal Secretary, Ms Betty Maina. And thank you to Adam Smith International for including ACTIF in this interesting and worthwhile discussion that happens annually. ACTIF is delighted to partner with Adam Smith International, industry and all member organisations that support us in Kenya.

Belinda Edmonds,

The developments over the last year are encouraging and I am Executive Director, ACTIF delighted to see that apparel exports from Kenya have once again increased in the last quarter, according to the latest AGOA figures. Kenya is maintaining its lead but there are some countries catching up with it. National sectoral interventions are critical in developing your industries. However it is important to remember that national developments must be framed by international developments, trends and environments. The cotton and textile industry is operating in an environment of unprecedented change. Everything that we knew is up in the air. Cotton and textile production is an old industry that has driven industrialisation across the world through the ages. But it too faces a lot of changes. We have political winds of change, nationalism and protectionism growing in areas where we never expected it. We need to navigate those and develop our industries within that framework that takes into account the challenges but also optimises the opportunities. There is also a wave of change in how we produce textiles these days. Technology is playing a huge part in the end consumer demand and how we manufacture our apparel. I would urge all in industry and in particular the authorities, to take into account these new technological requirements as we build our industries. We can’t build parks or industrial areas or industries that are based on how we produced 5 or 10 years ago or generations back. If we don’t have the technology, we will not be competitive in the world and ultimately we won’t be competitive in our domestic and regional markets. It is our great pleasure to host in partnership with the Ministry and with their support, the International Textile Manufacturers Federation annual conference in 3 weeks’ time. It has been many years since ITMF has been in Africa and certainly never in East Africa. We look forward to welcoming you to that where we’ll explore all the latest technologies, trends, challenges, concerns, and opportunities from around the world. We will also leverage the attendance by all the international visitors by hosting our Origin Africa event in Nairobi again.

3.3 OVERVIEW OF THE APPAREL AND TEXTILES SECTOR BY RAJEEV ARORA, ADVISER, MINISTRY OF INDUSTRY, TRADE AND COOPERATIVES* AN OPPORTUNITY FOR AFRICA Increasing consumption of all fibres in India and China will change the dynamics in the apparel and textiles supply chain in the coming Rajeev Arora, years. By 2030, consumption in China will increase to over 30 kgs per person, from 15 kgs in 2016; in India, it will increase to Adviser, MoITC over 15 kgs per person, from 5.5 kgs. The US and EU consumption is currently between 25 to 38 kgs per person and this will increase to 40 kgs per person in the US and over 30 kgs in the EU. Consumption in Africa is 2.5 kgs per person, including 1.5 kg of second hand clothing. Africa may reach 5 kgs per person in 2030, but second hand clothing will still have an impact.

The growing domestic demand in India and China will impact on the total value chain, which will increase from the existing USD 750 billion to USD 1.5 trillion over the next 15 years. As India and China will look for domestic or regional suppliers to cater for their own demand, the global supply chain will shift from Asia, mainly to Africa. The rising costs of manufacturing in China will also impact the global cotton, textiles and apparel value chain. China is moving from manufacturing lower rack cost to middle and high rack cost apparel and technical textiles. We will need to understand why and how the buyers focus their buying. The key factors that Chief Purchasing Officers consider when sourcing apparel and textiles include; cost, speed to market, quality and supply chain development. How can Kenya implement backward integration from production to value addition in textiles to manufacturing to cater for the interests of the buyers? Free trade and preference programmes are important for buyers to leverage their buying. Under AGOA, the US allows duty free access to a limited number of countries on liberal rules of origin including double transformation, where a country can import the fabric, cut and make the apparel and export. Generally, a country has to make its own fabric or buy from a region stipulated in the rules of origin but for AGOA, double transformation is allowed. Labour, energy, finance, availability and proximity to raw/intermediate materials; existence of a free trade agreement; and efficient infrastructure are all key factors that impact the textiles and apparel sector to varying degrees along the value chain and need to be addressed to successfully attract investment in the sector.

VALUE ADDITION IN COTTON PRODUCTION Africa produces 1.2 million metric tonnes of cotton, which is 6% of total production, and consumes less than 300,000 tonnes. Africa is an exporter of cotton lint and is not using the lint to add value. Adding value to the cotton we produce would not only produce 10 million jobs, but also increase value by over USD 1.5 billion. However, we will need to overcome the challenges in cotton production including; inadequate quality certified cotton seed in Eastern and Central Region; high cost of inputs for management of pests and diseases; over dependence on rain fed cotton; low productivity due to lack of extension services and good agriculture practices in Eastern and Central Africa; lack of certified products for inputs including fertilisers, insecticide and pesticides; contamination which costs 20% of the value of the cotton. In addition, inadequate investment in modern technology both at ginning and spinning levels; inefficient marketing channels, lack of bargaining power and transparency in price and market information; flooding of the market with cheap imports including textiles and second hand clothing; and inadequate risk management (environmental and price volatility) and lack of suitable insurance and loan products are also challenges that need to be addressed. The trends show that growth in consumption of natural fibre is shrinking by 0.5% - 1% annually. Man-made fibre comprises 73% of the total consumption and natural fibre is 27%.

CASE STUDY: SRI LANKA Sri Lanka started developing their apparel and textiles industry in the late 1970s. They were not garment producers and had not developed apparel manufacturing; they did not grow cotton and did not have any textiles mills at the time. They were doing what Kenya is doing now - importing fabrics, manufacturing and exporting.

In 2016, Sri Lankaâ&#x20AC;&#x2122;s apparel exports were valued at USD 4.6 billion. Their exports have been stable for the last 10 years, ranging between USD 4 - 5 billion. Government incentives to develop Sri Lanka as a destination for manufacturing and outsourcing include; tax free privileges under EPZ; training support including training for middle level management; and stipend for 2 - 3 months for workers in factory training. The minimum wage is USD 150 and that for trained workers is USD 180. The banking sector has also supported manufacturing in Sri Lanka with up to 80% financing on letters of credit. One does not have to put up a guarantee to get paid. In addition, the rates are internationally competitive at 6%. The banks also provide long-term loans for 10 - 15 years at 4.5% - 5% on hard currency, for investment and capital expenditure. Productivity level for outerwear in Sri Lanka is 60% - 65%, for underwear it is 75% - 80%. In Kenya, productivity level for outerwear is 40% - 50% and for underwear it is 60%. In Sri Lanka, power costs 14 cents per kWh, comparable to Kenya, which is at 17 - 18 cents per kWh. Despite relatively high costs of energy, Sri Lanka still manages exports of USD 5 billion dollars.

4. KEYNOTE SPEECH MS BETTY MAINA, PRINCIPAL SECRETARY, STATE DEPARTMENT FOR INDUSTRIALISATION, MINISTRY OF INDUSTRY, TRADE AND COOPERATIVES1 1. Appreciation to Adam Smith International and the various sector representatives for making time for the conversation which is critical to development of the Cotton, Textile and Apparel Sector in Kenya. 2. The value chain is taking up a radical shift from China and India who have been the global giants in the sector, with manufacturing and Betty Maina, sourcing trends shifting. Kenya has thus positioned itself as a Principal Secretary manufacturing hub for Textiles and Apparel with access to regional and international markets. The Big Four Agenda outlines the sectorâ&#x20AC;&#x2122;s pivotal role in economic development, job creation and sustainable growth. We recognise that Kenyaâ&#x20AC;&#x2122;s development has to be rapid and focused to maximise the opportunities available through market access internationally. 3. The government therefore has the following ongoing initiatives in support of the sector:

3.1 COTTON PRODUCTION: Revitalisation of cotton production in Kenya, which is expected to create 680,000 direct jobs at the cotton farming level, 210 jobs at ginning level, 6000 jobs at integrated mills and 25,000 at garments manufactures levels State Department of Industry and State Department of Agriculture has mapped out 200,000 hectares of land across more than 20 counties for cotton production, both irrigated and rain-fed production, for a period of 5 years. We expect to produce 50,000 MT of cotton or 500,000 bales of lint. The government is looking into the use of Bt Cotton as a facilitator for competitive yields. National Performance Trials for Bt Cotton are ongoing and we are hoping to also commercialise the Bt Cotton in 2019, once we get approval from the relevant agencies, which gives better yields compared to the conventional seeds that we have been growing.

3.2 TEXTILE MANUFACTURING: The government has made investments in developing the value chain through backward integration into the sector through the modernisation of Rivatex, the oldest textile mill in Kenya. The investment has been focused on modernisation of the facility including an Effluent Treatment Plant that would enable Kenya to produce internationally accredited fabric. Further, the government is working with textile manufacturers to develop a sourcing linkage under the Buy Kenya Build Kenya initiative for the disciplined forces. The government is the sole largest consumer and therefore a key step towards supporting the growth of the manufacturing sector.

3.3 APPAREL MANUFACTURING: The government is cognisant of the fact that the growth in the apparel sector will require both a growth in the domestic and export led manufacturing. The focus has been on applying various measures to ensure sustainability within the sector. The government is currently reviewing proposed policy measures including: o

Providing skilled workforce for the sector. The government, in partnership with various stakeholders, aims at training and deploying 50,000 youth into the sector over the next 5 years. These initiatives are currently ongoing through our technical institutions including National Industrial Training Authority, NITA, and Kenya Industrial Training Institute, KITI.

Logistics. The introduction of the SGR, which is currently doing 5 trains per day, has drastically reduced the cost of logistics. The government is working on regulating the efficiency and reliability that has farreaching implications on the cost.

Talking notes by Betty C. Maina, Principal Secretary, State Department for Industrialization during Adam Smith International Textile Sector th Development Talk at Villa Rosa Kempinski, Nairobi on 14 August, 2018 at 7.30 am

3.4 The Fashion Sector We recognise that Africa is the future of fashion incorporating local identity, individuality, authenticity and sustainability in design; we have an opportunity to develop and influence a niche and luxury market. The fashion sub-sector transcends clothing to include home decor and artisanal crafts, among others. We plan to develop Common Manufacturing Facilities that will greatly impact the level of quality productions and quantities to meet market demands. I hope to see commercialisation of African fashion filling not only international spaces, but also domestic and regional markets. 4. I look forward to fruitful deliberations highlighting opportunities for collaboration, growth and sustainable development for the sector. I take this opportunity to thank you for your continued cooperation and support.

#KenyaEnVogue

5. PANEL DISCUSSION AND Q&A

The panel discussion and Q & A produced the following recommendations from the panellists and participants, and includes some of the actions already being undertaken by stakeholders. These are organised according to the key themes that emerged.

COORDINATED IMPLEMENTATION OF NATIONAL POLICY The Kenya Industrial Transformation Programme is the prevailing policy framework that aims to catalyse the textiles and apparel value chain in the country. The textiles and leather sectors have benefitted from great in-depth analysis and now there is need for a structured and coordinated effort to expand local production and build greater presence of Kenyan brands. The Principal Secretary proposed establishment of a working team, including designers and manufacturers, to discuss what can be done.

BUY KENYA BUILD KENYA Under the Buy Kenya Build Kenya initiative, which is strongly supported by the President, all the textiles for the security and uniformed forces will be procured locally in this financial year. In addition, government agencies must buy 40% locally produced goods. This government initiative to encourage local procurement will be a transparent process and a penalty will be imposed on procuring entities for not buying Kenyan. All procurement will be on a public portal, which local industry players can access to submit tenders and see the winners. The Principal Secretary advised participants to inform the ministry should they face any challenges in implementation. Local industries are the guardians of the policy and stakeholders were encouraged to whistle blow on players who are not complying. One tool available to government to increase local demand is restricting access to imports of second hand clothes and imposing higher tariffs on imported garments. However these must be replaced by products that are similar in price and quality to give consumers the choice that they require. The local fashion industry is incapable of responding to the demand i.e. providing affordable, quality apparel for local consumption. There is need to work together with the fashion sector to create greater demand for Kenyan products, including making Kenyan apparel fashionable and attractive to young people. The government was urged to continue allowing EPZs to sell into the local market as the products are made in Kenya therefore support local manufacturing. This is better than mitumba. Manufacturers were encouraged to engage and determine what the demand is and develop the products at the required quality and price. The estimated domestic demand is more than KES 200 billion and we do not have a supply chain for this.

TACKLING ILLICIT TRADE AND COUNTERFEITS Illicit trade is receiving a lot of attention from the government. Importers have to demonstrate that the goods they are importing meet standards and intellectual property requirements. Traders are now complying and not shipping goods until they can verify their standards and intellectual property status. This will help to make local industry more competitive.

REVITALISATION OF RIVATEX 12

The revitalisation of Rivatex is anticipated to increase the consumption of cotton from 10 bales a day to 70 bales a day due to increased capacity. Although this demand will be partially satisfied through imports of cotton lint as the current local supply is inadequate, it signals to the farmers that there is a market for their cotton. The Kenyan government negotiated with the Government of India for a line of credit from the Indian Exim Bank. This line of credit is available for capital upgrading and players in the industry can benefit through IDB Capital, a development finance institution operating under the Ministry of Industry, Trade and Cooperatives. Other textile mills were encouraged to invest in their own revitalisation to produce the fabric that the market requires.

INCREASING APPAREL EXPORTS In addition to increasing production of apparel and textiles for local consumption, the government is also aiming to increase production for export, including building exports to the American market under AGOA as well as to the European market. Kenya also wants to develop exports in high value, niche products. This is partly due to the costs of production in the country as it is difficult to compete with low labour cost countries such as Ethiopia. The ministry and KenInvest are looking for investors that operate in the high value segments and are also global players.

CREATING AWARENESS ON BT COTTON KALRO was requested to work with ginners and farmers to create awareness on Bt cotton and reduce uncertainties around its cost and whether it will work. The government should also ensure that any changes do not disrupt the current supply chains that are working for manufacturers. There is a fear of Bt cotton and genetically modified products in Kenya and this demonisation of technology is preventing us from realising the gains. India has modernised its textile industry because of Bt cotton. KALRO is supervising trials for Bt cotton at 9 sites in the country, with oversight by NEMA, and following approval by the National Biosafety Authority. It is anticipated that it will be rolled out in the farming communities in the next season, subject to approvals. The Principal Secretary encouraged the participants to engage with the government by presenting workable proposals on how to address their challenges. There’s a textiles sector desk set up at the ministry that deals with apparel and textiles industry issues including production, productivity, costs, competitiveness, advocacy, and policy. It is important for the private sector to drive this process as government can only support through funding, capacity building and policy.

The demand for local apparel already exists. Designers should not be trying to force people to wear something they don’t want to wear, they should provide what the market wants. Design the clothes that people want to wear and they will buy it if it is the style, the quality and at the price point that they want.

PROVIDE INCENTIVES TO KENYAN MANUFACTURERS REDUCE COST OF PRODUCTION In order for manufacturing to be more cost effective, addressing the cost of inputs is key. There is need for incentives to lower the costs of production, for example electricity, which is 16 – 18 cents per kWh. High production costs make it difficult to price the products competitively for the fashion industry to purchase locally. There should also be special schemes in place such as electricity and tax incentives, for companies operating lower down in the value chain including ginning companies. In addition, manufacturers would like to invest in technology but they need funding to do this.

PROVIDE MARKETS FOR LOCAL PRODUCTS Having a confirmed market, whether local - such as through the government’s Buy Kenya Build Kenya initiative, or regional, is important for domestic manufacturing. The government can support by ensuring there is a market for local products. For example, implementing the provision on local sourcing of textiles for the uniformed services will have a ripple effect on the industry. If a company gets large orders, it then has a market for its products, it can diversify, modernise its machinery and therefore reduce its costs of production, and is able to compete. Designers were encouraged to engage with textile manufacturers as sourcing locally produced fabric can lead to more competitively priced apparel.

DEVELOP A DATABASE OF THE MANUFACTURING COMPANIES There is need for a database of the various manufacturing companies that we have in Kenya for potential buyers and importers to know what is being produced locally. For example, the fashion industry and garment manufacturers need to understand the source and the capacity of textile manufacturing that is available within Kenya.

PROVIDE INCENTIVES AND SUPPORT TO SMES DEVELOP COMMON MANUFACTURING FACILITIES FOR DESIGNERS/SMES Many Kenyans say locally made apparel is expensive. Kenyan designers cannot compete with mitumba or with the EPZA companies that are selling part of their produce domestically. Local designers do not have the capacity for mass production yet they would like to sell both high-end items as well as have diffusion lines for the mass market. In order to provide more affordable apparel for the mass market, there is need to link designers to manufacturing facilities that can offer mass production. The biggest problem facing fashion designers in Kenya is undercapitalisation. It is difficult to get financing for the fashion and apparel sector and designers do not have the capital to roll out mass-market lines. The cheaper the product, the more capital is needed. As they cannot get loans from banks and often donâ&#x20AC;&#x2122;t have the capacity to manage big loans, designers need to work with manufacturers. In Colombia, there was a deliberate government policy to turn around the apparel industry in 2005. At the time, it was 60% international brands on the high street. With the support of the government, designers worked with manufacturers to set up local apparel brands; develop distribution networks for them; and secure prime retail space. The country has now transformed to nearly 80% Colombian brands on the high street.

REDUCTION OF DUTY ON FABRICS Domestic demand for textiles cannot currently be met by local manufacturers who have their own markets including uniforms. There needs to be adequate supply to cater for other segments of the market, hence the importation of fabrics. The government should therefore consider reducing the duty of 25% on fabric, as this is an input that is sold to designers and the tailoring fraternity. The Principal Secretary advised that the duty of 25% on imported fabric was imposed to encourage local production of textiles. Changing it will require an amendment to the EAC Common External Tariff which is currently undergoing a review and stakeholders were invited to provide their views on treating fabric as an input for the final product.

ESTABLISH LINKS BETWEEN SMES AND TECHNICAL EXPERTS The government can support local businesses by creating links between the SMEs and technical experts, such as expatriates working in the EPZs. Small businesses can tap into their expertise and have them advise on the set up and operations, and use of technology and equipment.

PROVIDE TAX BREAKS ON TECHNOLOGY INVESTMENTS The government should provide tax breaks on technology investments by SMEs that will help to create more value. This includes equipment such as digital printers and specialised machinery.

TAKE ADVANTAGE OF THE EXPORT PROCESSING ZONES AUTHORITY The EPZA attracts both local and foreign companies for export oriented investment. There is a push to allow duty free and VAT free sales into the domestic market to develop domestic consumption and deal with used clothing imports by providing a local alternative. EPZ companies are not competing with local companies for the domestic market as their products do not usually overlap with locally made apparel, for example jeans and intimate wear are not locally produced. Local fashion designers were advised to link with EPZ companies to produce the volumes required for the local market. However these companies can only sell 20% of their products domestically. If their market is largely local, this creates a conflict with EPZAâ&#x20AC;&#x2122;s mandate resulting in policy complications. There are other programmes that the government can use to support producers who are targeting the domestic market. Government can also explore and design other incentive schemes for manufacturing for local supply. EPZ companies exporting under AGOA have to import fabric, trims, accessories and packaging materials worth USD 270 million from China, India and other countries, due to inadequate local supply. This presents an opportunity for local investors to develop and supply some of the inputs for apparel manufacturing and therefore help to address the supply chain issues. Investors do not all have to produce garments for export, some can focus on producing the inputs for garment manufacturing.

ENSURE SKILLS MEET INDUSTRY DEMAND The mandate of the Ministry of Education, specifically the Department of Technical and Vocational Training, is to produce competency skills. In order to ensure that graduates from TVET institutions are meeting industry demand and requirements, the government developed two policy documents. The first was the TVET Act of 2013 which created the Technical and Vocational Education and Training Authority (TVETA); Curriculum Development, Assessment and Certification Council (CEDACC); and TVET Funding Board. TVETA looks at the quality of technical education; CEDACC develops training programmes in collaboration with industry â&#x20AC;&#x201C; a sector skills advisory committee from industry works closely with the government to develop the curriculum; and the TVET Funding Board provides funding for TVET institutions. The second created the Kenya National Qualifications Authority, which recognises prior learning. It was realised that some workers may not have had formal training for their trade but they have developed competences through their work or on the job learning, which need to be recognised. KNQA develops an evaluation method to assess competency and provides certificates to the workers who can then upgrade their training further. The upcoming World Bank-funded East Africa Skills for Transformation and Regional Integration Project (EASTRIP) is providing USD 10.8 million to develop skills for the textiles sector, working in collaboration with industry. Kisumu National Polytechnic is going to be upgraded to become a centre of excellence in textiles training. The Ministry of Education is also trying to support SMEs through work-integrated learning, where TVET trainers, in addition to training in their institutions, also work in small-scale enterprises to learn and understand their needs. Furthermore, the ministry has equipped the workshops in training institutions with new, state of the art equipment and is considering opening these up to small scale businesses to do their work, and part of their revenues go to the TVET institution, in addition to being used for training.

INNOVATE IN NATURAL FIBRE PRODUCTION Genetic modification technology is being used to innovate in cotton production. Through development of Bt cotton, the government is addressing the issue of productivity in Kenyan cotton production by reducing pest and disease effect. These have been the main problem in cotton production resulting in losses of up to 50%. There are breeding programmes that are geared towards other aspects. For example, India has developed coloured cotton, which is on the market. This is an area we can explore in Kenya. Bt cotton has been a game changer for small-scale farmers in India. It reduces the cost of production and once farmers make money from cotton production, they will be able to supply the raw material for textile manufacturing. Kenya does not have to grow cotton to be able to export apparel but doing so facilitates speed to market through backward integration, creates jobs in manufacturing and creates wealth for the cotton farmers. In addition, there are ongoing research programmes on other natural fibres. KALRO has a whole institute that is focused on researching on silk, with the aim of getting mixes of fibres, including silk and cotton, into the market.

PROTECT KENYAN BRANDS Intellectual property and innovation is important. Many local producers do not protect themselves then complain when they see copies from China. Most of Kenya’s intellectual property laws were last revised in 2001/2002 and it is time for a policy review, both generic and sector specific, given the developments in technology and trade liberalisation. This includes patents, utility model, industrial design, copyright, and trademarks or branding. Ghana has a specific textile design law to help protect its intellectual property.

“The key issues that will make a difference to Kenya are training, supply chain development and market access.”