TRALAC - Trade Law Centre

Kenya earns $543m in 2013 from export processing zones

Wednesday, 05 February 2014

Source: Global Times (China)

Kenya's Export Processing Zones (EPZ) earned the East African country $543 million in the last financial year, a government official said on Tuesday.

Export Processing Zone Authority (EPZA) CEO Cyrille Nabutola told Xinhua in Nairobi that the zones contributed 10 percent of all exports.

"The bulk of the exports consisted of textile and apparels and U. S. was the major destination," Nabutola said during the pre- budget hearings for the 2014/2015 financial year.

"In fact, Kenya has now overtaken Lesotho to emerge as the largest textile exporter to the US under the Africa Growth and Opportunity Act (AGOA) preferential trade agreement," he added.

The current AGOA preferential trade agreement expires in 2015 and most sub-Saharan countries are eligible. He noted that the EPZ's now account for 3.2 percent of Kenya's GDP and employ at least 37,000 workers.

He said approximately 50 percent of all enterprises in the zones are fully owned by foreigners. The rest are locally owned or joint ventures with foreigners.

The CEO said that three large factories are set to be commissioned in next two months and will greatly increase Kenya's international trade.

According to the authority, tax holidays are an important part of attracting investments.

"Internationally the length of tax holidays varies from eight to 15 years but Kenya offers ten years for investors in the EPZ's, " he said 

He noted that these incentives give investors time to recoup their capital expenditures. The EPZ's are part of a government program to promotion and diversify the country exports.

"Currently, the vast majority of exports consists of raw agricultural products but the country is developing plans to ensure that they processed before they are sold abroad," he said.

The EPZ's were introduced in Kenya over two decades ago in order to overcome the high cost of doing business in the country.

He noted that infrastructure challenges such as the high cost of electricity have rendered the operating business environment expensive. The CEO said that Kenya is a currently a net importer of oil.

"So the unstable international oil prices normally introduce external shocks into the economy and in the process make the country uncompetitive," he said.

Nabutola added that insecurity incidents such as terrorism also tend to scare away investors and tourists.

The government is currently in the process of converting the EPZ's into special economic zones that will offer a wider range of businesses activities. Presently, businesses operating under the EPZA regime have to abide by strict regulations. 

"However, when the transformation is complete, it will allow primary activities with a more flexible market orientation on domestic sales," he said.

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