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Kenya Wants to Revive Its Cotton Industry, But It Won’t be Easy

Kenya is a country at the crossroads of its own past, present and future.

Once a leading producer of seed cotton, the East African republic found its market dominance throttled in the ‘90s after a “structural adjustment program” from the International Monetary Fund, championing free enterprise, opened the spigot of cheap imports. Local farmers couldn’t keep up.

In its heyday, Kenya produced 200,000 bales of cotton lint annually. Today it’s down to merely a tenth of that, making it a “net importer” of the fiber, according to Rajeev Arora, former textiles advisor for Kenya’s Ministry of Industry, Trade and Cooperatives. The country’s textile mills, once more than 50 strong, have whittled to six, each operating at roughly 40 percent of full capacity.

“The cost of import was far cheaper than local production, and that’s one of the reasons why most of the textile mills over the years either reduce production or close down,” Arora said. “Unfortunately, 95 percent of the materials sourced in Kenya today are imported from China, India and Taiwan.”

The change in fortune notwithstanding, Kenya didn’t lose its edge. Leveraging imported lint and textiles have still proven lucrative for the country, which has a gross domestic product of $74.94 billion and is the fifth largest economy in Sub-Saharan Africa.

In fact, for the past several years, Kenya has been the continent’s No. 1 supplier of textiles and apparel to the United States, its third largest export destination, under the duty-free trade deal known as the African Growth and Opportunity Act (AGOA). In 2016, this amounted to $339.3 million in clothing and textiles, or 86 percent of the nation’s America-bound exports that year, according to data from its trade ministry.

“Textiles are a big sector,” Finn Holm-Olsen, a Maryland-based consultant who previously ran the AGOA program with the USAID East Africa Trade and Investment Hub in Nairobi. “It employs about 50,000 people, so it’s important to the economy of Kenya. And it’s very well developed.”

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Now that AGOA, which was originally set to expire in 2008, has been extended to 2025, Kenya is looking to hone its competitiveness by reviving its long-dormant cotton industry and boosting U.S. trade volumes. Once an artifact of a latter time, cotton is a key constituent of what Uhuru Kenyatta, the Kenyan president, calls his “big four” action plan to bring food security, affordable housing, manufacturing and affordable healthcare for all.

The government plans to create 400,000 jobs for farmers by expanding acreage from the present 40,000 to half a million over the next four years, Arora said.

As a “quick mechanism to revive production,” Kenya is turning to Bt cotton, a strain genetically modified by agrochemical giant Monsanto to resist damage from bollworms, the crop’s most ruinous adversary. Field trials have been conducted in different parts of the country and farmers will place seed in the ground as early as this month.

Environmentalists, however, are vehemently opposed to the move, not least because the country’s 2012 ban on genetically modified crops technically is still in effect until they can be guaranteed to pose no risk to human health.

“The GMO proponents are promoting Bt cotton as a crop for fiber and textiles only,” Anne Maina, national coordinator for the Kenya Biodiversity Coalition, wrote in an op-ed in January. “However, as it has been done in other countries, only 40 percent of the Bt cotton will be for textile production; the larger 60 percent will be extracted as cottonseed oil, cotton seed cake and straw for animal feeds. From this, we can see a greater percentage of the Bt cotton ending up in the food chain—for human consumption.”

Renee Olende, senior manager at Greenpeace Africa, noted the expense of Bt seed, which can cost several magnitudes more than conventional, non-proprietary varieties and has been linked with the suicides of indebted farmers in India. “Bt cotton failed in Burkina Faso and South Africa throwing farmers into greater poverty,” she told Daily Nation, a Kenyan newspaper. “We call upon the government to reconsider its position.”

But Arora argues that Bt cotton, with its bumper yields even in arid or semi-arid regions, is precisely what Kenya needs to scale up its production in short order.

“Even keeping the same area of farming, the yield which is on average 250 kilograms of cotton per acre could easily double to 500 or 550, and that gives a better income to the farmer,” he said. “The price differential today of organic and conventional cotton is only about 20 to 25 percent, but the loss in the yield and the loss in production is more than 35 to 40 percent.”

Kenya has other challenges beyond its choice of cotton, however. Its high cost of energy is a particular sticking point, perhaps even more so than its expensive labor, which, as McKinsey points out, is on average double that of Ethiopia’s. “Certainly labor and energy costs are much lower in Ethiopia,” Holm-Olsen said. “So you’ve got competition right next door basically.”

Indeed the numbers present a stark picture. Electricity in Ethiopia, per the World Bank, starts at 4 cents per kilowatt-hour; in Kenya, the baseline is 16 cents. The government is exploring ways of providing relief, for instance by cutting nighttime electricity tariffs by 50 percent or extending some other kind of incentive scheme.

Another tack is to build manufacturing facilities close to the suppliers of power, such as Olkaria, which commandeers sweeping geothermal fields. “If we can set up an industrial park, maybe the cost of power supply could go as low as 7 cents,” Arora said. “But those are long-term policies.”

Shorter term are the Kenyatta administration’s efforts to pull ailing textile facilities from the brink of collapse. Rivatex East Africa, a vertically integrated factory operating under the auspices of Moi University, for instance, received in 2016 a government infusion of some $30 million to revamp outdated machinery, retrain its workforce and raise production from 1 metric ton of cotton lint (the equivalent of 6,000 meters) to more than 12 metric tons (around 40,000 meters of finished product) a day.

“Buy Kenya, Build Kenya” is another initiative that provides local textile suppliers with preferential treatment, especially with government tenders. “I don’t think [local mills] have the capacity to develop quality, competitive price production for export,” Arora said. “But what they can do is bring in at least a supply chain for domestic demand and government supply.”

Keeping more of the supply chain within the country could have favorable implications for brands that are currently sourcing in Kenya, including Asos, Calvin Klein, H&M and VF Corp., which owns The North Face and Timberland. Imported fabrics can take up to 40 days to make their way from customs to a garment factory, according to McKinsey.

“Obviously it would benefit garment companies because you’ll have potentially cost savings and the ability to get faster speed to market, particularly to the U.S.,” said Finn-Olsen.

But building up the two lagging arms of the textile supply chain—that is, cotton and textile production—versus going all in on apparel manufacturing, which is “very, very strong,” could be a zero-sum game if managed imprudently or without a great deal of forethought.

All of which to say that the nation is at a crucial inflection point. “Does Kenya really want to build up all three parts of the value chain? Or does it want to focus on just one or two?” Finn-Olsen asked. “I think this is what it’s really grappling with.”