(Nairobi) – Kenya’s Export Promotion Zones (EPZ) missed its export earnings target for the year ending June 2024 due to weak global demand, particularly from the clothing sector, according to the State Department for Investment Promotion.
In the year ending June 2024, firms operating within the EPZs earned KSh 115.71 billion from exports, primarily to the United States, falling short of the KSh 118 billion target. Despite this shortfall, the earnings showed a modest growth of 3.5% compared to the previous year’s KSh 111.80 billion.
The underperformance in meeting the target was attributed to a reduction in orders by garment enterprises, which has been linked to global challenges in the textile industry. Since 2022, the global textile sector has faced low demand, exacerbated by overcapacity in factories. The COVID-19 pandemic initially led to a surge in demand, particularly for medical textiles, as countries raced to manage the crisis. However, as the pandemic was brought under control, the demand for single-use medical textiles declined, leaving many manufacturers with excess inventory.
Most of the firms operating in Kenya’s EPZs are involved in textiles and apparel production, and the majority of their exports are to the U.S. under the African Growth and Opportunity Act (Agoa), a trade agreement that provides duty-free access to the U.S. market. However, this agreement is set to expire in September 2025, raising concerns for the future of the sector.
At the end of June 2024, there were 177 companies in the EPZs, falling short of the goal of 184 companies. Despite this, the number of businesses in the zones did grow, with 12 new firms entering. However, challenges such as a shortage of industrial sheds, particularly in the Athi River zone, hindered the entry of more investors. The Export Promotion Zones Authority (EPZA) has previously indicated that many investors prefer ready-built spaces, which are in short supply.
Although the number of firms increased, the new entrants helped inject KSh 15.82 billion in investments into Kenya’s EPZs, surpassing the government’s investment target of KSh 12 billion. However, the sector struggled with employment generation. The EPZ firms created 4,142 new jobs in the year under review, missing the 10,000-job target by 58.6%. This decline is a sharp contrast to the peak in job creation during the year ending June 2021, when global demand surged, and the sector created 18,544 jobs.
Firms in the EPZs benefit from various incentives, including a 10-year tax holiday, exemptions from VAT and customs import duties on inputs, and 100% investment deductions on new investments. These incentives are designed to attract foreign investment and stimulate job creation. Additionally, small and medium enterprises (SMEs) in sectors such as horticulture and textiles are given special treatment, including rent-free periods and purpose-built infrastructure.
The Agoa agreement, which offers duty-free access to over 6,000 products, remains a significant benefit for Kenyan exporters, particularly in textiles and macadamia nuts. Despite its advantages, Kenya’s use of the Agoa programme has been relatively limited, with the country ranking fifth in utilization rates among sub-Saharan African countries in 2021.