Key challenges

Challenges faced by Kenyan exporters to the US fall into three main categories:
1. Trade policy related
2. US trade specific challenges
3. Economy-wide challenges.

These are briefly reviewed below.

Trade policy challenges

Little about the future of AGOA is certain. It may expire in 2015 or it may be further extended. However, one thing is certain about AGOA: it will one day be ended. It is only a question of when.

Therefore, Kenya must do what it can to develop a US market-focused export sector that competes globally based on firm and country-level competitive advantages and not trade regime-based advantages. This means that though Kenyan firms will be differently affected depending on the route which AGOA negotiations take, what Kenya does from this point on will not be substantially different.

However, the impact of AGOA’s end will differ depending on the different expiry dates: the sooner AGOA expires, the fewer Kenyan firms will survive the transition to the post-AGOA economy. Therefore, rigorous action should be taken to ensure the extension of AGOA. This begins with extension of the third party fabric provision and extends to AGOA in general.

US trade specific challenges

All export businesses face challenges. In the context of AGOA and exporting to the US, some are general and faced by many businesses in Kenya while others are more specific to trading with the US.

US-specific challenges include:
1.How to build the competitiveness of the textile and apparel industry so that Kenyan firms can compete in the eventuality of a level trading environment
2.How to manage transportation to a distant market
3.How to manage entry into comparatively new markets.

Competing in a non-AGOA distorted international textile and apparel market

AGOA distorted the international textile and apparel market to give African firms a special advantage over their competitors. This opened up space in the market for Kenyan firms. However, the choice of product was driven more by the cost of quotas – which were traded in international markets – than by a specific advantage that Kenya had in that product.

With quotas playing such a pivotal role in shaping the textile and apparel sector, it is difficult to gauge to what degree this sector can compete in its existing mix of product lines against other global producers.

Kenya must compare its cost structures to its closest competitors, and assess whether it can remain competitive in the absence of the duty advantages that it currently enjoys. Where it is not competitive, it must decide how it can reduce costs so that it is, or whether it can migrate into different products where it can create a competitive advantage. Failing both, it will need to develop a plan for exiting the market altogether.

Economy-wide challenges

All private firms in Kenya face challenges in doing business, whether they export to the US or not. Addressing many of these are the responsibility of a variety of public institutions, and have deeper economic implications than only Kenya’s trade with the US.

However, unless some of these fundamental business environment challenges are addressed, Kenya’s exporters to the US will always be doing business with one hand tied behind their back. Therefore, some larger business challenges have to be highlighted and pressure brought to bear to have them addressed.

In understanding the scale of the challenges faced, it is useful to put them in context of other countries and what their businesses face. This gives perspective and shows what improvements should be pursued by public and private action. Mauritius serves as useful comparator country because they are an AGOA beneficiary, have demonstrated success in private sector-led economic growth and are also active in the textile and apparel sector.