Nearly 200 firms operating in export processing zones (EPZs) are struggling to create new jobs as demand for textiles falls amid a shortage of space, official statistics show.
Data by the State Department for Investments Promotion indicate that new jobs created in the low-tax zones rose at a paltry 2.58 percent to 4,142 in the year ended June, from 4,038 a year earlier.
The employment opportunities created missed the government's target of 10,000 by 58.6 percent. Only 12 new companies were set up in the tax-friendly EPZs, bringing the total number of enterprises to 177. The government had projected the investments to rise to 184, meaning the target for new firms was 19.
The Investments Promotion department blames the shortfall in jobs on “unexpected disruption in the EPZ apparel industry”, while “shortage of industrial sheds especially within Athi River Zone” discouraged investors from setting up.
This came in a period the firms in the EPZs, most of which have ventured into the apparel and textile business, continued to struggle with dwindling sales on the back of slowing orders, largely from the US under the Africa Growth and Opportunity Act (Agoa), the two-and- half- decade old quota and duty-free regime.
Apparel firms, particulary in the US, have reported high inventory levels following over-buying in the wake of the Covid-19 outbreak, when demand for single-use medical textiles sky-rocketed.
The containment of the deadly pandemic left most of global textile factories with excess material capacity. As a result, export earnings for EPZ firms in Kenya slowed to 3.5 percent growth to Sh115.71 billion, down from double-digit growth in previous two years.
“The target [of Sh118 billion] was not achieved due to scaling down on orders by the garment enterprises for global reasons,” the Investments Promotion department says.
Firms in the EPZs get attractive fiscal, physical and procedural incentives, including a 10-year corporate and withholding tax holiday, as well as a 100 percent investment deduction on new investments.
The firms are also granted perpetual exemption from payment of stamp duty on legal instruments and payment of value-added tax and customs import duty on inputs.
The Exports Promotion Zones Authority (EPZA) also offers incentives to small and medium-sized exporters.
