Tariff Tussles–those bales of used clothes and the Kenyan economy

Sometimes an unheralded item in Nairobi’s business press tells a larger story of policy, politics and economics in Kenya.  Until the 1990s import of used clothing was banned in Kenya.  With liberalization, it was allowed, along with other cloth imports.  Domestic manufacturing has been hurt, thus the Kenya Associations of Manufacturers supports a new tariff increase, but a whole sub-economy itself has grown up around the import and subsequent distribution of the bundles of used clothing:

“Dealers in used clothes brace for hard times as taxman raises duty”

Which way dealers in second-hand clothes? This is the question thousands of traders in used clothes are grappling with as the increased cost of doing business hits home.

After doing booming business for many years, the sector now faces some of its worst challenge which threaten its survival.
The traders should brace for hard times following a decision by the Kenya Revenue Authority (KRA) to raise import duty on used clothes.

The taxman has nearly doubled the duty to Sh2.1 million per container from the previous Sh1.3 million.

The new charges have pushed the cost of each bale to about Sh22,000.
Continued delays at Mombasa port have not helped the situation either as shippers are set to raise charges to factor in extra costs incurred over the clogging.

The shippers want to increase charges on each container by at least Sh70,000, bringing the total cost to Sh495,000.

The trend will force importers to increase the price of clothes to factor in the new charges.

Such a move is likely to be risky for businesses, especially coming at a time when consumers are battling eroded disposable incomes.
Inflation, which is hovering near 20 per cent on the back of high food and fuel prices, has left consumers with little to spend on goods outside essentials such as food.

This means that any rise in prices of clothes could turn off potential buyers, denying traders much needed income. “Already, the number of buyers has decreased over the past six months,” said Solomon Kagwe who sells clothes at Sunbeam, one of the most popular outlets for second-hand clothes in Nairobi’s Central Business District.

.  .  .  .

The trade has led to the setting up of huge markets in the country’s big towns that deal exclusively with used clothes, such as Nairobi’s Gikomba.

Retailers source second-hand clothes from such markets and sell them through stalls and shops across the country. Government statistics show that the second-hand clothes business employs more than 200,000 people countrywide and generates billions of shillings annually for the economy.

“The new tax is going to kill the entire industry.

The way out is to renegotiate with KRA and shippers to bring down the costs,” said Abdi Mohammed who sells second hand clothes at a stall along Moi Avenue in Nairobi. “The government can’t just watch as a whole industry is wiped out,” said Mr Mohammed.

The second-hand clothes sub-sector has not gone down well with investors in the textile industry.

Relocation of factories

The investors together with cotton farmers blame the used clothes sector for leading to closure and relocation of factories leading to job losses over the years.

“Efforts must be put in place to ensure that all second-hand clothes and new garments coming into the country are properly levied in order to reduce unfair competition,” said Kenya Association of Manufacturers CEO Betty Maina.

She said that 41 textile making firms had closed shop in the last three years partly due to an influx of cheap second-hand clothes.

 

One thought on “Tariff Tussles–those bales of used clothes and the Kenyan economy

  1. Tough times for a common man in Kenya, recently fuel cost went up thus taking everything up e.g electricity bills went up (Kenya uses diesel generators to generate electricity during dry seasons), sugar 2 Kgs was more that 400 Kenya shillings, matatu (vans and buses transport) fares went up. Prices of Mitumba (used clothes) going up, this will bring down a common man. The little he keep aside to buy new “used closthes” in december every year will no longer be a reality, why? 1. Mitumba prices gone up 2. He does not have enough savings has he uses the little money HE had to buy Kerosin (also gone up by 30 sh Kenya Gov reducing it by 18 sh later), had to buy sugar, pay school fees for his kids etc. Gid knows when the common man will be able to afford all these.

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