Manufacturing Poverty: Review article

* This is a review based on the publication Manufacture of Poverty, produced by the Kenya Human Rights Commission (http://www.khrc.or.ke/viewdocument.asp?ID=46)

As you enter Kenya’s Export Processing Zones (EPZs) you enter a no-man’s land: a tax free zone where over 90% of the finished products are directly exported. Every day tens of thousands of Kenyan workers, over 70% of whom are women, clock in and out. Even more queue up on the off-chance of being given work.

The EPZs were established to attract foreign investment, create jobs and diversify exports. However many argue that this goal has been pursued to the detriment of Kenyan workers, as investments have not translated into real improvements for workers and communities. To the contrary there is substantial evidence that basic human rights are being abused and that low wages and long hours are contributing to a continuous and increasing cycle of poverty.

Based on these observations and reports from workers, a number of organisations joined together under the lead of Kenya Human Rights Commission (KHRC). They carried out research into the sector and worked to build up a picture of labour conditions and their subsequent effects. They identified some of the long term social consequences and concluded that the industry is in actual fact ‘Manufacturing Poverty’ – hence the title of the campaign and report that was launched in February 2004. The overall objectives of the study were to: analyse changes in national labour laws; assess the affect of purchasing practices; and capture the experiences of workers.

Export Processing Zones – what are they?

EPZs are characterised by industrial parks controlled either by a customs administration or an EPZ authority. Imports are duty and tax free and all processed products are directly exported. The trend was started by the creation of the Shannon Free Zone in Ireland, a zone that now boosts over 100 international manufacturing companies. It was the success of this first zone that encouraged many countries to create their own EPZs in the hope that the incentives would encourage industrial development.

Kenya first experimented with the concept in the early 80s and established the EPZ programme in 1990 following the enactment of the EPZ Act. Under this Act, companies are offered financial incentives including a 10 year corporation tax holiday, subsidised credit and exemption from import tariffs. In addition they are guaranteed simple company and legal procedures and a reliable infrastructure.

In return the Kenyan government hoped that the programmes would generate jobs, transfer technology and diversify the range of exported products.

The programme did not really take off until the United States introduced the African Growth and Opportunity (AGOA) Act in May 2000, followed by AGOA II in 2002. The Act allows greater access for imports into the US, than is available to any country without a Free Trade Agreement with the US.

In 2003 there were 37 gazetted zones in Kenya and 69,000 operational export-oriented enterprises, employing over 35,000 Kenyans. Of the 54 enterprises surveyed by Kenya Human Rights Commission only 26% had any degree of Kenyan ownership and this ranged from 4% to 100% ownership.

Certain industries dominate in the EPZs namely those that are labour intensive, but that produce relatively low value products such as garments. In 2002 59% of the EPZs were in the garment industry and 79% of exports were to the US.

In 2003 the total turnover was 15,801 million Kenyan Schillings (KSh), a 5 fold increase from 1999. The exports valued 13,273 million KSh and the total domestic expenditure was 5,085 million KSh.

The reality

The sector has recorded profits and been labelled as one of the fasted growth areas in Kenya. But what is the reality for the workers?

At the beginning of 2003 workers went on strike in the EPZs in Nairobi and Athi River. With a new government in place they were optimistic that conditions would improve if their concerns were pushed forward. Amongst other issues they demonstrated against subsistence wages, sexual harassment, summary dismissals and poor health and safety standards. At the time even freedom of association was limited and the unions not recognised. The Minister of Trade described the strike as a ‘barbaric act of hooliganism’ and with no legal backing, the Central Organisation of Trade Unions (COTU) distanced itself from the strike.

Without a definite forum to address their industrial disputes many workers were dismissed for taking part in the strike. Conditions remained unchanged and new workers employed. After some time many of the initial workers were reinstated although those who had joined a union were not considered. One worker described his experience: ‘I was selected by the workers to represent them, a thing that was not appreciated by the management. I knew a lot so I was restricted from associating with fellow workmates….all leaders were put on one line… and we were told not to talk to one another’. After the strikes when he reapplied, his application was rejected and he has also been denied outstanding pay.

Following the strike the government called for freedom of association but by the beginning of 2004 only eight companies had accepted trade unions in the EPZs.

Working hours and remuneration

Average monthly wages in EPZs range from 3800 Ksh for basic tasks including sewing and tailoring tasks, to about 6000 Ksh for jobs such as quality control. At a minimum of 120 Ksh per day, this ensures that the majority of Kenyan workers, will continue, along with more than half the worlds population, to struggle to survive on less than 2$ a day. This does not even take into consideration the poverty threshold for a family and many of the workers have insufficient to provide for the basic food, housing, and medical needs of their immediate families.

In order to supplement their income workers often rely on being paid overtime. However many reported that despite the fact that they were frequently forced to work overtime they often do not get paid for it. Some said that their log-out cards are punched while they remain in the factory and others explained how overtime is not paid if it is used to meet targets. This violates Kenyan law which stipulates a 45 hour working week and overtime payment at 1.5 times normal wages.

The unpredictability of hours and the fact that many workers are only employed on a casual basis is one of the main problems that the workers cited. They have little job security and are often requested to come to the factory every morning to check whether there is work. This places a high socio-economic strain on families and communities.

Health and Safety

Many factories in the EPZs have their own clinics where staff are sent to be treated for minor illnesses. In many cases it materialised that these clinics are run by untrained staff and are not able to meet demand. For example at Athi River there is only one clinic serving 13 factories. Most workers are not given sick leave and they have to buy medicines prescribed by the factory clinics. Workers also reported that even when injured at work many factories deduct hospital transport costs from their salaries. There were many reports of poor sanitary conditions in the factories and a lack of protective equipment or training for handling chemicals and machinery.

Before the 2003 strikes many women complained that factory clinics carried out compulsory pregnancy tests and then laid off all who were found to be pregnant. As most factories do not provide any form of statutory maternity leave in women take the absolute minimum time off but still have no security that they will get their jobs back. No factories have any form of child care provision adding to the burden placed on women with children.

Sexual harassment

While over 70% of the workforce in EPZs are women the management is still male dominated and at the most senior levels dominated by non-Kenyans. Many women reported cases of sexual harassment. Most felt that they had no choice but to agree to the demands of their male supervisors, as those that refused suffered verbal abuse and humiliation. Many claimed that on refusal they were moved to more difficult tasks for no extra pay or were forced to work through breaks.

What protection do these workers have?

One factor contributing to the mis-treatment of workers is that they are afforded very little protection under the main legal instruments. AGOA demands the protection of workers’ rights but does so without the mechanisms for effective enforcement. The EPZ Act refers to workers in relation to their numbers and stipulates that EPZs must keep records on the number and ranking of employees. It is however silent on the rights of workers.

In addition certain Kenyan laws have been exempted from application in the EPZs. For example there was a ministerial exemption regarding the Factories Act therefore avoiding the possibility of a factory inspection. This was only reversed in May 2003 but at the time of writing it was unclear as to whether inspectors have been allowed into the EPZs.

Recently there have been further changes in the law that add to the insecurity faced by workers. Of particular concern is the introduction of retrenchment. This allows employees to be laid off with at the discretion of their employer with no minimum financial compensation and no union involvement.

Factory and Purchasing Practices

Another contributing factor stems from the pressure put on factories to meet tight deadlines and respond to inconsistent ordering practices. In many cases it is impossible for factories to predict the amount of work they will have which has led to a culture of subcontracting and reliance on casual labour. The risks are continuously passed down the supply chain and the consequences borne by the factories and ultimately the workers.

Penalties for late completion are high. Frequently factories are required to ship the late goods at their own expense and future orders are often cancelled. Such penalties impact on profit margins and encourage factories to cut labour costs. Short lead times are met through night shifts, overtime and hiring more casual workers. Due to the unpredictability of demand casual workers are forced to come to the factory every day to check whether there is work - often resulting in a wasted visit.

Manufacturing Goods or Manufacturing Poverty?

The Kenyan government has gone to great lengths to create a conducive and enabling environment for investors, often using low labour prices as a selling point. Understandably perhaps there is a fear that Kenya will lose out to neighbouring markets if it does not offer competitive conditions. For example 14% of the exports under AGOA are from the Kenyan EPZs compared with 36% from Lesotho. But what is the long term impact for Kenya?

The civil society campaign does not aim to paralyse the industry or jeopardise foreign investment. However it seeks to ask whether the industry is profitable from a social as well as an economic perspective. The economics including the transfer of skills, the sustainability of the industry and the percentage profits that are re-invested in Kenya requires further study. On the social side however it is clear that the EPZ model falls far short of the mark. The evidence shows that the conditions for workers are exceptionally poor: instead of leading the way and institutionalising good working conditions, the EPZ companies aim for the bare minimum and often fail to attain that. In the process human rights abuses are institutionalised and there is no consideration for the knock on effects. Wages are insufficient to allow workers to move out of the cycle of poverty and long unpredictable working hours allow little scope for workers to contribute to the development of their communities.

Responsibility lies with various sectors. It is up to consumers and shareholders to demand ethical working conditions and for parent companies to ensure that international standards are met at all stages of the supply chain. This includes implementing realistic deadlines so that subsidiary companies are not forced to cut corners and contract out. The Kenyan government must ensure that national and international standards are met and that trans-national agreements benefit both the investor and the local economy. Finally it is essential that workers and civil society organisations monitor the situation and inform themselves of their rights and duties. Only in this way can changes be implemented that break the cycle of poverty.

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