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Rejuvenating Local Manufacturing in the Context of Secondhand Economy

There has been an emotive debate to limit growth and eventual elimination of secondhand goods in Kenya. The recent attempt to ban the importation of secondhand imported minibuses, midibuses, and large buses was immediately protested by the United Kingdom owing to the Economic Partnership Agreement (EPA) it has with Kenya. Previous attempts in Kenya to ban secondhand clothing and footwear have met with stiff opposition from a segment of the public. Kenya attempted to ban secondhand electronics but this was met with similar opposition. The East African Community (EAC) attempted but was unable to ban imports of secondhand clothes in 2016 and 2015. The dominance of secondhand economy can limit the capacity to grow local industries and promote the Buy Kenya Build Kenya initiative. This blog examines the current state with secondhand imports, in understanding the necessary interventions that are needed to improve the competitiveness of locally manufactured products.

Textile and Footwear

Kenya imported 183,830 tons of secondhand clothing in 2021, a 20% increase from 121,778 tons in 2020. In a 5-year period, 2017-2021, secondhand clothing imports averaged 160,638 tons per year[i]. The import volume in 2020 was the lowest in a 5-year period due to the outbreak of the COVID-19 pandemic. Secondhand clothing and footwear contribute about Ksh 12 billion in tax revenue in form of import duty and employ approximately 2 million people[ii].

Kenya has 52 textile mills that convert fibre into yarn, but only 15 are operational. Due to low labour productivity and low technology, operating textile mills use only 45% of their capacity. The textile industry is also facing increased business costs such as high electricity costs, which are eroding their market competitiveness. Apparel companies have a sizable industry presence in Kenya with approximately 170 large and medium apparel firms and over 74,000 small and micro firms. Seventy percent (70%) of Kenyan apparel companies sell approximately 80% of their products to US markets. The Export Processing Zones host 21 apparel companies that manufacture apparel primarily for export under the African Growth Opportunity Act (AGOA).  

Cotton growing in Kenya is done by small-scale farmers on small pieces of land averaging one (1) ha per farmer, and in most cases intercropped with other food crops. There are about 40,000 small-scale cotton farmers, down from 200,000 in the mid-1980s when the textile and apparel industry was at its peak.  The estimated annual consumption of cotton by the textile mills is estimated at 8,000MT (41,200 bales), and the ideal demand to meet national requirements is 26,000MT (140,000 bales). These statistics show that the high potential of the textile industry is curtailed by undersupply of cotton raw materials. The major reasons for the undersupply of cotton are the constraints faced by cotton farmers, including the decline in seed cotton production, low quality of cotton seeds leading to declining yields, and relatively high costs of production due to low productivity.

Production (Lint Cotton, MT)5,2005,3004,0002,0001,0001,100
Seed cotton production (MT)15,72615,80011,8505,3213,0153,389
Yield (Kgs/ha)650550570400170350

Source: Fibre Directorate, AFA

In addition to farmer constraints, low cotton production can also be attributed to other factors, such as the increased popularity of polyester, which is more durable and less expensive to produce than cotton, and the importation of cheap secondhand clothing, which have flooded Kenyan markets.

Wool is another important input to the textile and apparel industry. However, the market is not well-organized. For instance, the Kenya sheep industry has received less attention in terms of research and development, with prominence being given to the rest of the livestock. The potential for wool production to make yarn for the local textile industry and for export has not been fully exploited.

Increased volumes of imported secondhand clothes in the 1990s corresponded to the closure of most clothing and textile firms such as Kisumu Cotton Mills (KICOMI). The continued increase of cheap imported clothing and textiles led to reduced effective demand for local textile products and made secondhand clothing and textiles the preference of the majority population.

Apart from that, the looming secondhand economy has not spared the leather industry. Kenya’s leather industry began to evolve as early as 1939, with Bata Kenya spearheading the footwear industry. However, the awakening of the leather industry did not last long as it was cut short by market liberalization, which resulted in stiff competition from imported products from well-established foreign companies. The value of Kenya leather, hides, and skins exports has been declining over the last five years. For instance, the value of leather exported from Kenya in 2017, 2018, and 2019 was US$ 49.72 million, US$ 44.29 million, and US$ 30.40 million, respectively. Leather product exports totaled US$ 20.17 million in 2020 and US$ 18.49 million in 2021. The potential of the leather industry is quite monumental; however, it is faced with intense competition from imported secondhand shoes (mitumba) and leather products. The other constraints the industry faces include low quality hides and skins, and limited capacity to produce finished leather products.

Motor Industry

Kenya wants to develop its automotive sector through local manufacturing and assembly of automobiles. Despite the government valiant efforts to encourage local assembly and manufacturing of motor vehicles, the volume of imported used vehicles is growing. The percentage of registered used vehicles has steadily increased over time, rising from 81% in 2011 to 88% in 2019, with the number of used vehicles registered rising from 51,300 in 2011 to 96,770 in 2019. In the same period, the country saw an average of 6.5% increase in new vehicle registrations[iii].

This notwithstanding, efforts to encourage local assembly of motor vehicles are bearing fruits, with locally assembled motor vehicles increasing from 7,725 units in 2020 to 9,989 motor vehicles in 2021[iv]. Historically, Kenya had a good foundation for the automotive industry since the 1960s when the first car (Beetle) was assembled by Volkswagen. Other milestones occurred in 1976 when the first Kenyan car was assembled by Kenya Vehicle Manufacturers and subsequently in 1977 when Associated Motors assembled its first car. In the 1980s, Kenya marked a major milestone by building its first car, the Nyayo Car. However, the project never materialized into full commercialized production. In 2009, Mobius Motors was established in Kenya. The company designs and manufactures vehicles specifically for rough terrains. Currently, Mobius Motors is the only manufacturing firm that produces cars as fully manufactured units in Kenya.

Currently, motor vehicle assemblers, motor vehicle body builders, and auto parts manufacturers are all operating below their capacity because of low demand for locally assembled motor vehicles (new motor vehicles). Motor vehicle assemblers have the capacity to assemble about 46,000 units annually and directly employ about 1,500 people. However, only 20% of the installed capacity is utilized[v]. Similarly, component manufacturers who produce parts and components used during motor vehicle assembly and those sold as spare parts in the secondary market are operating below their capacity at 36% of the total installed capacity[vi]. The assemblers and component manufacturers are facing stiff competition from imported fully built units vehicles, which shrinks their markets thereby leading to low utilization of their capacities.

The National Automotive Policy 2022 aims to gradually eliminate the importation of secondhand motor vehicles. The elimination of used vehicles ensures that government incentives to local manufacturers and assemblers are effective. In the auto industry, previous incentives have not guaranteed the success of local assembly plants. Currently, local assemblers enjoy exemption from 20% excise duty on locally assembled vehicles, exemption from 25% import duty on completely knocked down kits and a reduced corporate tax rate at 15% during the first five years of operations. It is worth noting that new vehicles have lower carbon emissions than older used vehicles that fail environmental tests on greenhouse gas emissions. Because of the high demand for affordable used cars in the developing countries, the export of polluting, outdated vehicles from developed countries has increased, making the transportation sector responsible for energy-related greenhouse gas emissions. Africa is the least contributor of green-house gas emissions; however, this is likely to change as used vehicles continue to be imported into Africa.

ICT products

The ICT industry in Kenya has been growing at a fast rate with the removal of tax levies on computers; the promotion of e-learning in institutions of higher learning; and mainstreaming of ICT into government operations in Kenya has created a huge demand for computers and related accessories. This has led to importation of both new and used ICT products into Kenya.  Kenya imports most of its ICT products from Britain, the USA, China, and Malaysia. However, there are few Kenyan startups that manufacture ICT products. These include Toto Sci, which manufactures chargers and Universal Serial Bus (USB) cables, and the Nairobi Industrial and Technological Park (NITP) which makes the Taifa Laptops brand.

Even though the importation of old products is discouraged, there is a considerable chunk of old or refurbished products that are imported. Some of the old products come as donations from NGOs to schools and some government institutions. The general population finds it difficult to differentiate between new and used ICT products. Used ICT products imported into the country include refurbished laptops, refurbished desktops, and refurbished mobile phones which are nearing the end of their useful life. This has potentially led to the generation of large volumes of Waste Electrical and Electronic Equipment (WEEE). The UN Environmental Programme (UNEP) estimates that e-waste generated annually in Kenya stands at 11,400 tons from refrigerators, 2,800 tons from TVs, 2,500 tons from personal computers, 500 tons from printers, and 150 tons from mobile phones. Kenya developed a National E-waste Strategy 2019 to provide clarity, guidance, and strategies on how to handle and manage e-waste by the government and producers of electrical and electronic products through Extended Producer Responsibility (EPR). Africa today produces a very negligible amount of e-waste as compared to the rest of the continents. However, with the increased trade in refurbished and old ICT equipment and products, low technology, and limited recycling capacity, e-waste is bound to increase in the region.

RegionE-waste generated (mt/kg per capita)E-waste documented to be collected and property cycled
World53.6mt/7.3kg per capita17.4%/9.3mt
Africa2.9mt/2.5kg per capita0.9%/0.03mt
Europe12.0mt/16.2kg per capita42.5%/5.1mt
Oceania0.7mt/16.1kg per capita8.8%/0.06mt
Asia24.9mt/5.6kg per capita11.7%/2.9mt
Americas13.1mt/13.3kg per capita9.4%/1.2mt

Source: Forti (2020)

Going Forward

Policy interventions are needed to improve local manufacturing across all industries. This includes interventions addressing low-cost raw material pricing and high-quality inputs, which result in the production of low-cost, high-quality local products. Further, specific interventions are needed to sustain availability, affordability and reliability of electricity, which is critical to boost the competitiveness of local industries.

There is need for regulators in the ICT sector to ensure that there is a cure for the current information asymmetry on ICT products, which leads consumers to believe they are purchasing new products when, in fact, they are purchasing refurbished products. There is need to develop and enforce regulations to ensure that sellers do not refer to any refurbished ICT product as a new product. Consumers can also be encouraged to avoid throwing unusable ICT products, instead selling them back to recycling companies to reduce e-waste and their environmental impact

Furthermore, to support local textile and clothing industries, cotton-growing counties could incorporate cotton development programmes into their County Integrated Development Plans (CIDPs) to ensure that cotton farming is well-resourced. To ensure quality cotton seed, it is necessary to improve cotton seed research and development by ensuring that the Kenya Agricultural Livestock and Research Organization is adequately funded for this purpose. The government could put in place mechanisms that promote the use of livestock byproducts, such as support for hides and skin management, to help the leather industry grow.

[i] Kenya National Bureau of Statistics (2022), Economic Survey.

[ii] Institute of Economic Affairs (2021), The state of the secondhand clothes and footwear trade in Kenya.

[iii] Kenya Association of Manufacturers (2020). Automotive Sector Profile.

[iv] Kenya National Bureau of Statistics (2022). Leading Economic Indicators September 2022

[v] Kenya Association of Manufacturers (2020). Automotive Sector Profile.

[vi] Sessional Paper No. 1 of 2022 on National Automotive Policy

vii. Forti V., Baldé C., Kuehr R., Bel, G. (2020). The Global E-waste Monitor: Quantities, flows and the circular economy potential. United Nations University (UNU)/United  Nations Institute for Training and Research (UNITAR) – co-hosted SCYCLE Programme, International Telecommunication Union (ITU) & International Solid Waste Association  (ISWA), Bonn/Geneva/Rotterdam.

Authors: Dr Rose Ngugi, Executive Director, KIPPRA

Dr John Karanja, Senior Policy Analyst, KIPPRA

Elvis Kiptoo, Young Professional

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