State of U.S. economic interchange with Kenya

So where do things stand economically between the United States and Kenya at the start of the Administration’s “new policy” for Sub-Saharan Africa?

Faded Aid

From the East African’s coverage of the Gration resignation, Envoy’s exit underlines new US strategy in Africa:

Over the past five years, the US clout in the local economic scene has been declining as Kenya continues to look east, specifically to China, India and Japan for aid. Whereas the US continues to be a major source of development aid, disbursing an estimated $3 billion between 2008 and 2011, China, India and Japan have emerged as new sources of infrastructure funding.

China is currently carrying out improvements of roads in Nairobi, while Japan is actively supporting the country’s energy sector.

America’s support has largely focused on health and military funding, with the US government set to give Kenya $14 million in military help this year.

In trade, whereas imports from the US have stagnated at Ksh45 billion ($535 million) since 2007, Kenya’s imports from China and India have more than tripled, rising from Ksh46 billion ($547 million) and Ksh56 billion ($667 million) to Ksh144 billion ($1.7 billion) and Ksh148 billion ($1.8 billion) respectively.

Kenyans had been hoping that General Gration, who spent his childhood in Democratic Republic of the Congo and Kenya, and spoke fluent Kiswahili, would take US-Kenya relations to a new level given his knowledge of Kenya, its people, its language, and its culture.  .  .  .

Assistant Secretary of State Carson testified on June 28 before the Senate Foreign Relations Committee on “Economic Statecraft” emphasizing the importance of the renewal of the Third Country Fabric provisions under AGOA, and the harm caused by uncertainty:

. . . As you know, many African countries are not taking full advantage of the benefits of AGOA. However, some AGOA beneficiary countries take good advantage of the provisions for fabric and apparel product lines. The third country fabric provision component of AGOA was designed to provide an opportunity for AGOA-qualified countries to be more competitive in labor intensive textile processes such as sewing, stitching, and cutting fabric.

It was widely recognized that most African countries were not able to compete in the more capital intensive process of producing fabric from raw cotton. African manufacturers have successfully used the AGOA third country fabric provision to create jobs, not just in the manufacturing countries but have used this provision to create cross-border pan-African supply chains. These supply chains also encourage regional integration – one of our key goals for the continent. Fabric and apparel exports are the second largest AGOA export after extractive industry products. However, these imports still account for less than two percent of U.S. imports.

I’d like to say a few words about what is likely to happen if third country fabric is not renewed. In our globally linked world, American buyers place orders six to nine to twelve months ahead. 95 percent of AGOA apparel and textile exports enter under the third country provision. And the AGOA third country fabric provision is the only way that African textile and apparel companies can remain competitive with larger producers such as China, Vietnam, and Bangladesh.

Without our help, jobs will continue to disappear in some of Africa’s most vulnerable economies, affecting primarily women and the families they support. Eighty-five percent of these imports come from just four countries: Lesotho, Kenya, Mauritius, and Swaziland.I know that diplomats from these countries have come to see you to emphasize the disproportionate effect that lack of renewal of this provision will have on their economies.

The effects of the loss of orders are troubling. At the AGOA Forum, the Swazi Minister for Trade told AGOA delegates that the loss of the provision will “shut the country down”. The textile and apparel sector is the largest formal sector employer with over 15,000 jobs and employment is already 41 percent in this small, landlocked country. Loss of just one of these jobs means that ten people lose their livelihood, since Swazi officials calculate that each textile job directly supports ten people. Lack of orders have already led to plants closures in Namibia, robbing people of their legitimate livelihoods and governments of much needed tax revenues. The Mauritians report that their orders are down 30 percent since January due to the uncertainty whether this provision will be renewed in a timely fashion.

The Trade and Politics Blog indicates that passage of the new bi-partisan legislation to extend the third country fabric provision is finally expected by the end of July before the Congressional Augut recess.  I hope this get squared away as soon as possible.

See “Africa Bureau announces vision to revitalize AGOA” and comment by Dr. Richard Mutule Kilonzo, Chief Executive, Kenya Export Processing Zones Authority:

The potential impact of a delayed renewal of the third country fabric provision of AGOA is grave. Third country fabric is the most successful components of the AGOA legislation and can be credited with over 100,000 direct jobs in Sub-Saharan Africa. Apparel orders are drying up due to the uncertainty surrounding the provision. In Kenya alone, over 40,000 factory workers could very likely lose their jobs if third country fabric is not renewed in a timely manner. The apparel industry in SSA rely on the third country fabric provision; without it there is a very real possibility that the investors in the apparel factories will pack up and move production to some other part of the world as happened in Madagascar following its loss of AGOA eligibility in 2009. This would cause enormous economic strife in countries that are strong partners of the United States. On September 30, 2012, the third country fabric AGOA provision will expire. With barely six months to go, further delay threatens the lives of 1 Million people, mostly women who work in the apparel sector. We estimate that each factory worker supports ten additional people. If third country fabric is not renewed soon, these jobs will disappear and Africa’s poverty rate will sour by over 55%.

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