Firms freeze as cold season sets in at EPZ

With tax holidays and other incentives that would make local start-ups green with envy, you would think beneficiaries of one of the greatest policies ever cranked to boost foreign investment could be having it nice.

But Export Processing Zones, EPZ for short, have turned into death traps for small and medium size companies that, lured by the incentives, hoped to run and grow their businesses and eventually compete in the mainstream industry.

From this, the government projected to employ thousands of people and boost the country’s export base, especially with sweetheart trade agreements like Africa Growth Opportunity Act (AGOA) with the US and a multifibre agreement that had imposed quotas on cheap apparel producers like China and Sri Lanka until January 2005.

But soon companies realised that it took more than incentives to survive in the EPZs, as China and India started flooding the market with low-priced garment products, snatching key contracts in the US and Europe from Kenyan firms, whose goods are expensive due to high cost of labour and energy.

“Honestly,” says Mr Sudath Perera, the operations manager at Alltel, which exports high-end garments to the US from its base in the EPZ hub of Athi River, “I don’t think there is a company dealing in low-end textile that will survive.”

A trail of hopelessness

He says such firms were the most affected by the entry of low-cost producers, and their future hangs in the balance. One of them is Upan Wasana EPZ Ltd, located in Baba Ndogo in Nairobi, a one-hour drive from here, which closed shop and sent home more than 2,000 workers in January.

Outside the Alltel gate on this sunny Wednesday afternoon, Jane Munyao, one of those left jobless by Upan Wasana, is waiting with a handful of others laid off by EPZ firms for any job that comes by. Ms Munyao, a single mother of one in her mid twenties, says her former employer is embroiled in a legal tussle with a bank and she isn’t sure when it will reopen.

So like hundreds of jobseekers who can’t stand the hustle of the city, she moved to Athi River to engage in the daily ritual of scouting for jobs at the crack of dawn. Because the options are few, Ms Munyao finds herself looking for a job at other EPZ companies, perhaps unaware that what happened to her former employer is a thread that runs through apparel firms in Kenya’s once-bubbly export processing zones.

She is still hopeful, she says, that skills acquired at Baba Dogo would land her another appointment at Athi River, even though she doubts whether the job would last.

Beneath the veneer of normal operations at EPZs are firms struggling to stay afloat even as government bureaucrats trumpet the success of a strategy that was once touted as a major adjunct of Kenya’s industrialisation. A combination of factors have forced apparel firms to scale down operations, fold or relocate to other countries. And with the global financial meltdown beginning to bite causing a fall in exports, the future is unpredictable.

Never one to be faulted for lack of ideas, the State is proceeding with an even more grandiose version of EPZs as the country seeks middle-income economic status by 2030. But analysts say this could be a covert admission that the EPZ project has floundered.

Exit EPZ, enter SEZ

Recently, the Cabinet approved the setting up of so-called Special Economic Zones (SEZ), with a wider mandate under which the EPZ, too, will operate. A special economic zone is a geographical region that is specially demarcated and handed economic laws that are more liberal than the rest of the country to encourage investment. These may include free trade zones, export promotion zones, and others.

In January, the government advertised a tender to purchase 3,000 acres of land at Kitengela to set up the SEZ, which is expected to accommodate ICT, science and technology, industrial and small and medium enterprises, to anchor the implementation of projects in Vision 2030 economic blueprint. Despite the latest effort, players in the EPZ say the high cost of electricity and labour coupled with the volatile international market have made their businesses unpredictable, costly and uncompetitive.

So far, of 30 apparel firms that have entered the EPZ through the years, 12 have folded, while two others are tottering on the brink. “One is relying on sub-contracting while the other has orders from just one firm, putting them on shaky ground,” said a source familiar with the apparel firms at EPZ, but who did not want to be named because he is not allowed to talk to press.

In the wake of closures, the factories are leaving a trail of despair among former workers and the once-thriving industrial hub of Athi River. Some of the laid off workers cut a sorry sight and are to be found idling at the gates waiting for either payment or the rare call for a vacancy.

“I have been reporting here for the last two months to get my cash. I have worked for this company for the last six years, but all I get are assurances that I will be paid,” said Peter, 28, who was laid off at Rolex and only gave his first name for fear of annoying his former employer. Mr Jackson Omondi, who worked for the same company for three years, was here for his dues as well.