Origin Africa Magazine 2nd Edition

Trade Opinion
Export Processing Zones positively impacting the
Kenyan economy but political climate worry investors
By Joseph Kosure
Kenya introduced Export
Processing Zones (EPZs)
program during the
implementation of Structural
Adjustment Program (SAPs) in the
early 1990s.The country at the
time needed investment promotion
incentives that would attract Foreign
Direct Investments (FDI). The policy
objective was to create employment,
generate foreign exchange, expose
local workforce to foreign technology
and skills as well as create backward
linkage with the domestic economy.
The EPZs in Kenya are regulated
by the Export Processing Zones
Authority (EPZA) created by an Act of
Parliament to promote and facilitate
export-oriented investments and to
develop an enabling environment
for such investments. The Act
provides for a number of fiscal and
procedural incentives. The fiscal
incentives include ten–year corporate
tax holiday and 25% tax rate for 10
years thereafter with exception to
commercial enterprises; perpetual
duty and VAT exemption on raw
materials, construction materials,
machinery and other business inputs
with exception of motor vehicles and
certain fuels; stamp duty exemption;
and 100% investment deduction on
capital expenditure within 20 years of
operation.
The procedural incentives include
rapid project approval through one
stop-shop model essentially under
one licence; no minimum investment
level and un-restricted investment
by foreigners; access to off shore
borrowing; operation of foreign
currency accounts without exchange
control; autonomous control of
investment proceeds; exemption from
Statistics Act. The other incentives
include fast-tracked issuance of work
permits for senior expatriate staff;
on-site customs documentation and
inspection without charges on import
declaration. Investors are offered onestop
shop service by the EPZA for
facilitation and after care.
In 2014, Kenya had a total of
86 EPZ firms (including pure zone
developers) operating in 52 zones
spread across the country. The
firms operating in the zones were
in different sectors comprising
manufacturing (87.8%), service (4.0%)
Dr. Joseph Kosure
and commercial (8.2%). In 2014, the
sub-sectors were agro-processing
(26.74%), garments (24.42%),
services (15.12%), and garments
support services (5.81%). Beverages/
spirits, pharmaceuticals and medical
supplies, commercial craft, and relief
supplies contributed 3.49% each.
Food processing, electricals, minerals,
and plastics each contributed 2.33%.
Chemicals, dartboard, printing
and other contributed 1.16% each
according to data from EPZA. This
indicates presence of technology
transfer activities which is one of the
major objectives of the EPZ program
in Kenya. The composition of the subsectors
also demystifies the notion
that EPZs in the developing countries
are mainly for textiles and apparel
industry. The presence of diverse
sectors in the program shows that
the EPZs are not only a domain of
textiles as many sceptics have always
alluded.
Since their introduction in Kenya in
the 1990s, EPZs, have continued to
play an important role in the economy,
creating jobs for Kenyans, bringing
in much needed foreign exchange
and supporting other sectors of the
economy through backward linkages.
According to figures from EPZA,
employment (local and expatriates)
increased by 15.6% from 40,433
28 JUNE / JULY 2016