Kenya plans tax breaks to lure textile firms

By Duncan Miriri Time of article published Feb 19, 2014

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Nairobi - Kenya was setting up three special economic zones that would offer tax breaks to lure global textile firms and help it seize a share of the West’s textile market now dominated by Asian rivals, Industry Minister Adan Mohamed said this week.

The country has a diversified economy and is popular with tourists, but exports are dominated by farm commodities with volatile prices and low returns, leading to a gaping current account deficit.

If it succeeds in drawing textile investors, it would be following nations like Mauritius, which already has a thriving textile industry. Kenya’s neighbour Ethiopia has also started drawing in textile firms.

Kenya was setting aside land for the special zones near its ports and would offer incentives such as land for lease and tax breaks that included duty-free imports and waivers on VAT, Mohamed said in an interview.

“We want manufacturing capability for the international market. We want to attract businesses that today have a choice between setting up in [Myanmar], Vietnam, China or South Africa.”

The government had identified 2 000km2 of land near the main port, Mombasa, which would be the first special zone, he said. A second would be created at the planned port of Lamu, and a third established in Kisumu, in the west near Lake Victoria, he said.

Mohamed said a law to create the zones was expected to pass through parliament by the end of June.

But the minister, a former Barclays Kenya chief executive who was brought into President Uhuru Kenyatta’s first cabinet as one his technocrat ministers, said the biggest challenge was implementing plans with the slow bureaucracy.

“The concept is good but implementation is going to be hard.” He said it would take two to three years to identify the land, draw up the master plans and market the zones to potential investors.

Once running, the zones would allow companies to cut down on red tape. Businesses have long complained about bureaucratic hurdles and said the high cost of commercial credit was a deterrent to industry. Commercial interest rates usually top 15 percent.

Kenya may also find itself battling regional rivals like Ethiopia, one of sub-Saharan Africa’s fastest-growing economies, which is also setting up new industrial zones and has attracted interest from global fashion retailers such as Hennes & Mauritz.

But the minister said there was enough opportunity for all, putting the combined US and European textiles market at $300 billion (R3 trillion) a year.

“There is no competition. The market is huge. We just need to be efficient. The big prize is out there,” he said, citing data that shows Africa supplies less than 1 percent of the US demand for textiles and apparel annually.

Building up industry was vital for Kenya to plug a persistently wide current account deficit, projected to stand at 8.4 percent of gross domestic product by June, he said.

The zones were designed to create 10 million jobs in the next 30 years, Mohamed said. They could also attract other industries, such as car assembly plants, to feed the growing African consumer market.

Kenya is the main trade gateway to east Africa.

“Africa is becoming the future market for many companies worldwide. The middle class is growing. Where is the manufacturing capability today? In China. In Japan. We need to be able to provide some of that capacity,” he said. – Reuters

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