AGOA and EPZ: Boosting Kenya’s Export-Oriented Industrial Sector
Category: Trade
By: Leo Kipkogei Kemboi,
Kenya’s export-oriented industrial sector has benefited greatly from the Export Processing Zones (EPZ) program and the African Growth and Opportunity Act (AGOA). This blog post examines data from Kenya’s National Bureau of Statistics to explain the rationale of the program and investigate employment, investment, and export trends in the EPZ sector, emphasizing the significance of these programs to Kenya’s economic growth.
The EPZ program offers attractive incentives to businesses to encourage investment, job creation, and export growth. AGOA has benefited Kenya’s textile and apparel industries in particular, boosting exports and economic development. The Export Processing Zones Authority (EPZA) is in charge of the Export Processing Zones (EPZ) program, which encourages industrial investment centred on exports within specific zones. The program offers a variety of appealing financial, physical, and procedural incentives as shown below.
- A 10-year corporate tax holiday, which exempts companies operating within EPZs from paying corporate taxes for ten years, is one of the most significant benefits. A 10-year withholding tax holiday is also available, providing withholding tax relief for the same period.[i]
- Investment deduction of 100 percent on new investments, which allows businesses to deduct the entire amount of their new investments from their taxable income.
- EPZ businesses are exempt from paying stamp duty on legal documents for the rest of their lives.
- EPZ businesses are also exempt from paying VAT and customs import duty on inputs, allowing them to reduce production costs.
- EPZ enterprises are governed by a single EPZA license, which simplifies licensing and reduces administrative burden. This streamlined approach allows for faster project approval and licensing, leading to more efficient business operations. EPZs enable customs documentation and inspection on-site by Customs personnel.
The African Growth and Opportunity Act (AGOA) is a US trade act that provides qualifying Sub-Saharan African countries with enhanced market access. It went into effect in May of 2000 and has since been extended until 2025. Countries must improve the rule of law, human rights, and labour standards to qualify. AGOA was initially implemented from 2000 to 2008, then extended until 2015, and then again until 2015. It includes provisions for sourcing apparel as well as duty-free benefits for approximately 6,500 tariff lines. AGOA seeks to promote economic development and exports, as well as improved governance and working conditions.
According to Onyango and Ikiara (2016), the textile and apparel sectors in Kenya benefit the most from AGOA, accounting for more than 94 percent of total exports under the program. Kenya is the second-largest exporter of textile and apparel products to the US among AGOA-eligible countries, accounting for 23.2 percent of the market. The sector is important in Kenya’s export-processing zones (EPZs), accounting for more than 90% of the country’s AGOA apparel exports and creating 85% of the zones’ jobs. While AGOA allows for the procurement of raw materials from other beneficiary countries, there is little vertical integration and regional trade in intermediate goods, resulting in more than 90% of textile exports relying on non-originating raw materials.[ii]
Growth of the AGOA EPZ Garment and Apparel
A review of data collected by the Kenya National Bureau of Statistics and presented in the Economic Survey 2023 reveals an important angle on employment, the nature of investment, and export growth. This data’s insights could be used to demonstrate the types of investments required to create a sufficient number of jobs. With a capital investment of Ksh 24.88 billion, the 36 firms were able to employ 66,260 people and generate exports worth Ksh 54.12 billion in 2022. The sector’s exports accounted for 7% of total exports in 2022, demonstrating its importance. Furthermore, monthly exports were Ksh 4.5 billion, or Ksh 150 million per day.
The EPZ garment/apparel sector under AGOA has seen steady growth in capital investment, with a 7.2% increase from 2018 to 2022. Export figures have fluctuated, but overall, there has been a positive trend, with a 10.8% increase in exports from 2018 to 2022. These indicators highlight the sector’s potential and competitiveness. The average number of employees per enterprise ranged from 1628 to 2062 between 2018 and 2022. Export value per employee peaked at Ksh 968,426 and then fell to Ksh 816,828. EPZ-created jobs accounted for at least 15% of all new formal-sector jobs created in Kenya in 2022. The average capital investment per employee ranged between Ksh 349,118 and Ksh 460,434. This demonstrates that the jobs created are of high value.
Conclusions and Recommendations
Eventually, Kenya’s AGOA EPZ garment and apparel sector has shown impressive growth and competitiveness. With a capital investment of Ksh 24.88 billion, the sector employed 66,260 people and generated exports worth Ksh 54.12 billion in 2022, accounting for 7% of total exports. Capital investment increased by 7.2 percent and exports increased by 10.8 percent from 2018 to 2022. These figures highlight the sector’s potential and the positive impact of the EPZ program and AGOA. Continued support and strategic measures can improve the sector’s sustainability and contribute to Kenya’s economic development.
As a policy recommendation, the targeted baseline FDI investment of $5 million, which employs approximately 2000 people, is unequivocal.
[i] Kenyalaw. “Export Processing Zones Act No. 12 of 1990 ,” 2012. http://kenyalaw.org/kl/fileadmin/pdfdownloads/Acts/ExportProcessingZonesAct_Cap517.pdf
[ii] Onyango, Christopher, and Moses Ikiara. “Reflections on Kenya’s Experience under AGOA: Opportunities and Challenges,” 2016. https://www.brookings.edu/wp-content/uploads/2016/06/0601_improving_agoa_onyango_ikiara.pdf.
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AGOA and EPZ: Boosting Kenya’s Export-Oriented Industrial Sector
| Post date: Thu, Jul 27, 2023 |
| Category: Trade |
| By: Leo Kipkogei Kemboi, |
Kenya’s export-oriented industrial sector has benefited greatly from the Export Processing Zones (EPZ) program and the African Growth and Opportunity Act (AGOA). This blog post examines data from Kenya’s National Bureau of Statistics to explain the rationale of the program and investigate employment, investment, and export trends in the EPZ sector, emphasizing the significance of these programs to Kenya’s economic growth.
The EPZ program offers attractive incentives to businesses to encourage investment, job creation, and export growth. AGOA has benefited Kenya’s textile and apparel industries in particular, boosting exports and economic development. The Export Processing Zones Authority (EPZA) is in charge of the Export Processing Zones (EPZ) program, which encourages industrial investment centred on exports within specific zones. The program offers a variety of appealing financial, physical, and procedural incentives as shown below.
- A 10-year corporate tax holiday, which exempts companies operating within EPZs from paying corporate taxes for ten years, is one of the most significant benefits. A 10-year withholding tax holiday is also available, providing withholding tax relief for the same period.[i]
- Investment deduction of 100 percent on new investments, which allows businesses to deduct the entire amount of their new investments from their taxable income.
- EPZ businesses are exempt from paying stamp duty on legal documents for the rest of their lives.
- EPZ businesses are also exempt from paying VAT and customs import duty on inputs, allowing them to reduce production costs.
- EPZ enterprises are governed by a single EPZA license, which simplifies licensing and reduces administrative burden. This streamlined approach allows for faster project approval and licensing, leading to more efficient business operations. EPZs enable customs documentation and inspection on-site by Customs personnel.
The African Growth and Opportunity Act (AGOA) is a US trade act that provides qualifying Sub-Saharan African countries with enhanced market access. It went into effect in May of 2000 and has since been extended until 2025. Countries must improve the rule of law, human rights, and labour standards to qualify. AGOA was initially implemented from 2000 to 2008, then extended until 2015, and then again until 2015. It includes provisions for sourcing apparel as well as duty-free benefits for approximately 6,500 tariff lines. AGOA seeks to promote economic development and exports, as well as improved governance and working conditions.
According to Onyango and Ikiara (2016), the textile and apparel sectors in Kenya benefit the most from AGOA, accounting for more than 94 percent of total exports under the program. Kenya is the second-largest exporter of textile and apparel products to the US among AGOA-eligible countries, accounting for 23.2 percent of the market. The sector is important in Kenya’s export-processing zones (EPZs), accounting for more than 90% of the country’s AGOA apparel exports and creating 85% of the zones’ jobs. While AGOA allows for the procurement of raw materials from other beneficiary countries, there is little vertical integration and regional trade in intermediate goods, resulting in more than 90% of textile exports relying on non-originating raw materials.[ii]
Growth of the AGOA EPZ Garment and Apparel
A review of data collected by the Kenya National Bureau of Statistics and presented in the Economic Survey 2023 reveals an important angle on employment, the nature of investment, and export growth. This data’s insights could be used to demonstrate the types of investments required to create a sufficient number of jobs. With a capital investment of Ksh 24.88 billion, the 36 firms were able to employ 66,260 people and generate exports worth Ksh 54.12 billion in 2022. The sector’s exports accounted for 7% of total exports in 2022, demonstrating its importance. Furthermore, monthly exports were Ksh 4.5 billion, or Ksh 150 million per day.
The EPZ garment/apparel sector under AGOA has seen steady growth in capital investment, with a 7.2% increase from 2018 to 2022. Export figures have fluctuated, but overall, there has been a positive trend, with a 10.8% increase in exports from 2018 to 2022. These indicators highlight the sector’s potential and competitiveness. The average number of employees per enterprise ranged from 1628 to 2062 between 2018 and 2022. Export value per employee peaked at Ksh 968,426 and then fell to Ksh 816,828. EPZ-created jobs accounted for at least 15% of all new formal-sector jobs created in Kenya in 2022. The average capital investment per employee ranged between Ksh 349,118 and Ksh 460,434. This demonstrates that the jobs created are of high value.
Conclusions and Recommendations
Eventually, Kenya’s AGOA EPZ garment and apparel sector has shown impressive growth and competitiveness. With a capital investment of Ksh 24.88 billion, the sector employed 66,260 people and generated exports worth Ksh 54.12 billion in 2022, accounting for 7% of total exports. Capital investment increased by 7.2 percent and exports increased by 10.8 percent from 2018 to 2022. These figures highlight the sector’s potential and the positive impact of the EPZ program and AGOA. Continued support and strategic measures can improve the sector’s sustainability and contribute to Kenya’s economic development.
As a policy recommendation, the targeted baseline FDI investment of $5 million, which employs approximately 2000 people, is unequivocal.
[i] Kenyalaw. “Export Processing Zones Act No. 12 of 1990 ,” 2012. http://kenyalaw.org/kl/fileadmin/pdfdownloads/Acts/ExportProcessingZonesAct_Cap517.pdf
[ii] Onyango, Christopher, and Moses Ikiara. “Reflections on Kenya’s Experience under AGOA: Opportunities and Challenges,” 2016. https://www.brookings.edu/wp-content/uploads/2016/06/0601_improving_agoa_onyango_ikiara.pdf.
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