2. NAIROBI, Kenya: By Ronald Njoroge Feb. 2 (Xinhua) — Currently, Kenya’s economy is import based but this is set to change as its eyes are on increasing exports, which could turn the East Africa largest economy into the region’s trade hub. According to the Kenya National Bureau of Statistics, the country’s trade deficit stood at 6.9 billion U.S. dollars for the first nine months of 2011.
A new government policy is set to improve the business climate as well as reduce transaction costs in the country and could position the country as the major trade hub for East and Central Africa. The country is proposing to change the Export Processing Zones (EPZ) into Special Economic Zones (SEZ).
One of the proposed schemes under the SEZ will be a free port and free trade zone. The free port is set to serve the neighboring countries that are currently relying on Dubai for imports, which is over 3,500 km from Kenya. The free port will be located at the proposed Lamu port. This region includes Uganda, Tanzania, Rwanda, Burundi, DR Congo, South Sudan and Ethiopia whose population is just under 300 million people. One of Kenya’s key advantages is that it is located in a region where a majority of countries are emerging from long periods of civil strike and therefore have small industrial bases.
This means that these nations will need to import large quantities of manufactured goods which could either be made in Kenya or imported into Kenya for transshipment to the rest of the region. Export Processing Zones Authority Spokesman Jonathan Chifallu told Xinhua that the intended change to SEZ will encourage manufacture of a wider range of products and services which will be destined to markets in the region.
“Kenya could take advantage of this by establishing itself as a source of goods at competitive prices,” Chifallu told Xinhua in an interview on Thursday. “The intended transformation of EPZ to SEZ will also offer a wider range of activities including aquaculture and forestry products and help diversify the country’s exports from unprocessed agricultural products,” he added.
The government also hopes to sweeten the incentives that are offered at the country’s EPZs which include a 10-year tax holiday and thereafter a flat 25 percent tax for the next 10 years. “We are proposing that the next budget lowers corporate tax to 15 percent in order to enhance Kenya’s export strategies,” Chifallu said in Nairobi on Thursday.
The EPZA spokesman added that other proposals on the table include the exemption of payment of withholding taxes on dividends and other payments to Kenyan residents in order to encourage more Kenyans to invest in the EPZs in order to manufacture products to be exported into the region. Chifallu said that the SEZ could boost the country’s exports by 359 million dollars to 479 million dollars within one year of establishment. In 2010 EPZs alone exported goods worth 287 million dollars out of total estimated country exports of 5.98 billion dollars. Kenya is also at the heart of booming region.
According to the World Bank most of the East and Central Africa is set to grow by 5. 3 and 5.6 percent in 2012 and 2013 respectively, one of the highest rates in the world against global growth of 2.5 and 3.1 percent for the same period. The Bank’s Lead Economist in Kenya, Wolfgang Fengler said that Kenya economy is currently growing on one engine, domestic consumption, which is being fueled by imports.
“If the country develops a competitive business climate through use of government incentives it could emerge as the trade hub for the region,” Fengler said. “It already leads in the exports of manufactured goods in the region,” he said. Fengler said that a key requirement of trade hub is low cost of doing business. The government is also proposing to allow duty free imports of transport and utility vehicles by export oriented companies in order to lower the cost of transport and logistics for companies that source raw material from hundreds of suppliers who are scattered all over the country.
“This will give companies located in Kenya a competitive edge and allow them to sell to the region,” he added. According to the Kenya Port Authority, currently only one percent of traffic at the port of the Mombasa consists of transshipment. Institute of Economic Affairs CEO Kwame Owino said that the port’s low transshipment volume is due to the high transactions cost involved when using the facility.
“When Kenya establishes a free port it will greatly enhance the country as a trade hub for the East and Central Africa as it will reduce the distance that most of the region’s traders have to travel in search of affordable products,” Owino said on Wednesday. He added that the non fiscal and fiscal concessions to be provided by the SEZ will create a business environment that is investor friendly with lesser bureaucratic requirements than are currently present. “Since Kenya is already a gateway for the East Africa, it is well positioned to transform into the region’s trade hub,” he said. (Xinhua)
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