Kenya's Experience with Special Economic Zones: Legal and Policy Imperatives
| DOI | 10.3366/ajicl.2020.0309 |
| Pages | 171-194 |
| Published date | 01 May 2020 |
| Date | 01 May 2020 |
A few years ago, Kenya adopted a Special Economic Zones (SEZs)
To facilitate the SEZ policy objectives, the government enacted a law, the Special Economic Zones Act 2015, to provide the legal and institutional framework for the establishment and operation of SEZs in the country.
The current SEZ scheme is not the first incentive regime the government of Kenya has adopted for the purpose of promoting industrial production and exports; it is only the latest in a string of schemes with which the country has experimented in the last five decades. Since the 1970s, successive Kenyan governments have introduced a Manufacturers’ Export Compensation scheme,
The earlier schemes mentioned above did not generate significant economic impact as had been hoped. The current SEZs experiment is partly a response to the disappointing record of most, if not all, of those failed earlier schemes. So, would this new SEZ scheme succeed when the earlier schemes failed? The Kenyan government had initially sought to emulate the Chinese SEZ model of establishing large-sized zones with a broad scope of activities including EPZs, where it could easily centralise infrastructure development as well as the institutional body that would facilitate the zones’ operational freedom.
This article examines Kenya's experience with SEZ and related industrial policies. It assesses the legal and institutional framework supporting the coexistence of the EPZs and SEZ projects. As the SEZ scheme is currently in its third phase of implementation, the article will assess how it has fared so far, as well as analyse the potential challenges it is likely to face in the future. It will then offer some comparison to the Indian scheme, where the merger of EPZs into the SEZ scheme helped revitalise the countries’ manufacturing sector, and offer some thoughts on how Kenya can restructure its EPZs into its SEZ agenda so as to enhance its potential for success.
To achieve its object, the rest of this article is divided into six parts. Part II discusses the nature and meaning of SEZ and related schemes. Part III outlines the origin, policy and historical evolution of schemes designed to upscale industrial production and promote exports in Kenya. The policy and law has evolved over many decades and therefore, the historical background proffers insights on the thinking that has informed particular legal and policy choices. Part IV analyses Kenya's pre-vision 2030 export promotion schemes, highlighting some of the regulatory challenges that led to the adoption of SEZs. The section further explores the salient features of Kenya's vision 2030 SEZ scheme as articulated in the SEZ Act. Part V offers a critique of Kenya's SEZ policy, highlighting its implementation flaws in separating it from its EPZ scheme, and offers some comparison to other international SEZ projects, in particular India's scheme, which was able to merge its EPZs into its SEZ policy. Part VI concludes the article.
Though widely used, the term SEZ is yet to find a succinct definition upon which there is international consensus. As will be discussed below, the term has been used in reference to a number of closely related concepts, such as Export Processing Zones (EPZs), Free Trade Zones (FTZs), economic processing zones, industrial parks, free ports and foreign trade zones.
demarcated geographic areas contained within a country's national boundaries where the rules of business are different from those that prevail in the national territory. These differential rules principally deal with investment conditions, international trade and customs, taxation, and the regulatory environment; whereby the zone is given a business environment that is intended to be more liberal from a policy perspective and more effective from an administrative perspective than that of the national territory.
designated geographical area where business enabling policies, integrated land uses and sector-appropriate on-site and off-site infrastructure and utilities shall be provided, or which has the potential to be developed, whether on a public, private or public-private partnership basis, where any goods introduced and specified services provided are regarded, in so far as import duties and taxes are concerned, as being outside the customs territory.
a physically or legally bounded economic space contained within a domestic territory with a differential regulatory regime that distinguishes it (the bounded economic space) from the prevalent domestic economy.
A prominent feature of SEZs is that they afford the economic activities within the space, and those who engage in the activities as the owners or managers (exporters and investors), incentives (primarily tax) and regulatory latitude that are not extended to other businesses in the wider domestic economy. Generally, SEZ economic policies are geared towards attracting Foreign Direct Investment (FDI). Businesses established in SEZs may be in a position to produce goods and services at a globally competitive price, giving them an advantage on international markets, and in world commerce. When done well, FDI may bring a slew of benefits for the host countries. These include the transfer of superior technology, sophisticated management skills, employment creation, capital and increased foreign exchange earnings.
As vehicles for promoting trade and investments, SEZs have a long pedigree. The driver for their historical establishment was to facilitate entrepôt trade, by way of allowing transhipment, warehousing, storage and re-export of goods without formalities on international trade routes.
SEZs have evolved into a concept that subsumes several varied zones. Different countries have used different names for enclaves with different features within their borders as appropriate to their particular priorities, political-economy and socio-economic objectives. These include ‘foreign trade zone’ in India, ‘industrial free zone’ and ‘export free zone’ in Ireland, ‘duty free export processing zone’ and ‘free export zone’ in the Republic of Korea, ‘export processing zone’ in the Philippines, Singapore and Pakistan, and ‘investment promotion zone’ in Sri Lanka.
Kenya's current SEZ scheme is essentially a continuation of development strategies that successive governments have adopted in the past in an attempt to transform the country from a centrally planned economy reliant on an import substitution policy, to a market economy that thrives on outward-oriented growth. Some of the key policies that have defined the country's post-independence economic agenda are discussed next.
At independence in 1963, the Kenyan government identified economic growth as a vehicle for achieving, among others, economic independence, social and individual liberty and development.
The newly independent government initially followed the colonial...
To continue reading
Request your trial