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February 2003

No let up in industrial unrest

Deremo Maiko

Kenya's version of the Mexican free-trade zones has at last imploded as long pent-up labour pressure translated into frenzied wildcat strikes. With a new government in town, the 12-year-old Export Processing Zones' (EPZs) workers for the very first time disrupted activity in the US $77 million turnover enclave, clearly to the discomfort of the new rulers.

An estimated 4,000 employees have been kicked out over the ferment, in a country where adult employment afflicts half the population. This is quite substantial, going by Export Processing Zones Authority (EPZA) figures; last year direct employment was tallied at 13,444, up from previous 6,487. However, an extra 18,000 are employed through subcontracting.

The concept of EPZ was mooted in 1990, largely to replicate the highly successful 27-year-old export zones in the Indian Ocean islands of Mauritius. Kenya’s parliament in the same year passed the Export Processing Act, which gave birth to the Export Processing Zones Authority, a state corporation. The first investment in the zones was in 1992 by Sameer Industrial Park, just outside Nairobi.

The unrest was expected. Under the old government, the establishment preferred to pamper investors as desperation grew over dismal job creation rate in other sectors, after the Bretton Woods institutions had blacklisted the economy over corruption and poor governance. Last year, even as the economy registered a 0.8 per cent real growth, the zones clocked a significant 64 per cent expansion in turnover.

By and large, the zones which had been reduced to lacklustre performance since 1994 when US struck Kenya off the list of preferred textile suppliers — over purported transshipment of textile goods from Asia — only came alive in early 2001; following accession of the country to the preferential African Growth and Opportunities Act (AGOA). The bipartisan AGOA Act allows, on qualifying, 36 sub-Saharan countries to export goods to the $100 billion US market duty-free. Hardly surprising then that the Kenyan EPZs are 41 per cent dominated by labour-intensive textile industry.

The recent strikes occurred against a background of suppressed worker representation. Trade unionism, though not banned, was given short shrift at the zones. In 1994, trade unionists complained that they were normally required to give a seven-day notice before they could enter the zones. Even then entry was at the discretion of the management.

Efforts to recruit in the EPZ were pointedly frustrated, resulting in poor working conditions and measly pay for the largely female labour force. Given that most of the domestic investors who took advantage of the privileged zones were well-connected businessmen, nothing came of the workers simmering grievances.

In fact, one of the firms affected by violent strikes — in some cases property worth millions was destroyed — Sameer Industrial Park, is owned by Mr Naushad Merali, a close business associate of former President Daniel arap Moi.

Fears are now being expressed of possible capital flight to other accredited countries like Madagascar; the argument being that Kenya's only comparative advantage is its cheap labour. An investor reportedly stopped equipment worth US $1 million at the Mombasa Port recently following the unrest.

An estimated 64 per cent of the investment is foreign. Another 23 per cent are joint ventures between locals and foreigners. Locals only own 13 per cent. The foreigners mainly come from Pakistan, India, and UK, with an insignificant minority from US.

The fact of the matter is that capital can exploit the AGOA arrangement from any of the countries that have acceded. The countries have up to 2008 to source garment and yarn domestically and thus do not do so from Kenya. Local textile industry has long been killed through dumping of second-hand and other textile products. Upheavals in the zones are bound to have disastrous effects. They could easily hamper development of forward and backward linkages as the government has already heavily invested in cotton research and other aspects textile production.

And according to Trade and Industry minister Dr Mukhisa Kituyi, the giant US supermarket chain Wal-Mart has already cancelled orders worth US $12 million. But even more worrying longer-term effect is the possible impact on continued accreditation for the country to AGOA. The Act clearly states that human rights observance in the countries allowed the privilege is paramount. Exposure of lack of the same could cost Kenya the preferential treatment. No country though has thus far been threatened with discontinuation.

According to the investors, the low payment of salaries is mainly informed by competition. Kenyan wages are reported to be comparatively higher than those of Asia, especially China. Still, with the kind of privileges the companies have over other Kenyan firms, analysts belief EPZ companies

should be able to pay better if the government machinery was not treating them with kid gloves.

The advantages include a ten-year corporate tax break which most of the 39 firms (24 in 2000) are still enjoying. In the same duration, they are exempt from withholding tax and stamp duty. The capital investment is 100 per cent tax deductible, a privilege that can be extended to 20 years. But a more fundamental exemption is from the much-evaded Value Added Tax (VAT). This is levied at between 15 per cent and 18 per cent.

Though the causes of the unrest are fairly well known, others like the Federation of Kenya Employers (FKE) see a hidden hand in the whole drama. They accuse non-governmental organisations of inciting the workers. It is clear though that the expression of frustration has been given a boost by the victory of the National Rainbow Coalition (NARC) in the December 2002 general elections.

"The government and Central Organisation of Trade Unions (COTU) are in concurrence that the wildcat strikes are neither approved nor acceptable to COTU and its affiliated trade unions," said Dr Kituyi. He has, however, opined that EPZs should not apply the same labour laws as other companies.

While much of the attention has been focussed on low pay, a more serious issue has been that of sexual harassment. Most of the workers in the heavily textile EPZ sector are female due to the very nature of the work. Workers have also complained that they are not provided with medical cover on top of not being allowed sick off. They charge their employers have even failed to remit statutory dues including to the National Social Security Fund (NSSF) and National Health Insurance Fund (NHIF).

But EPZ firms have so far remained mum over these as well as other accusations. As a matter of practice, all the firms have tended to be aloof to the public they operate in their midst. Apart from textile firm Alltex, associated with Investment Promotion Services and the Sameer Group, which is the local franchise holder of Bridgestone-Firestone, others religiously shun publicity.

It is clear though that with the genie having emerged from the bottle and the probable impact of the strikes on AGOA pact, they may have to spruce up their tattered image.

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