Policy makers need to rethink view on special economic zones

What you need to know:

  • Powerful interests did not want the special economic zone at Dongo Kundu to proceed in the way it was originally conceived, namely, a publicly sponsored economic cluster and zone implemented as part of the country’s industrial policy.
  • Many of our economists still toe the Bretton Woods line that special economic zones spawn discriminatory investment regimes where the so-called selected winners are showered with privileges and tax exemptions.
  • Our policy makers must address their doubts about the viability of special economic zones. We must accept that these zones have delivered wonders to the South East Asian countries and that they are our best bet at industrialising.

I regard the phrase “development partner” as a meaningless cliché, especially when used to describe our relations with the industrialised countries of the North. Indeed, these rich nations only make friends with us when they are pursuing their own interests.

Yet I maintain that Japan is a true friend of Kenya. Following the signing of the deal between President Uhuru Kenyatta and Prime Minister Shinzo Abe, our grand plan to build a special economic zone on 3,000 acres in Dongo Kundu in Mombasa is now back on track.

Powerful interests did not want the special economic zone at Dongo Kundu to proceed in the way it was originally conceived, namely, a publicly sponsored economic cluster and zone implemented as part of the country’s industrial policy.

Away from the public limelight, an influential Chinese company has been lobbying the government to give it the Dongo Kundu land to build a privately-sponsored special economic zone — complete with a privately-owned port dedicated to the proposed special economic zone.

Although the wisdom of allowing a private party to own such a large facility had started raising security concerns, such was the influence of the Chinese group that a memorandum of understanding had already been initialled — only waiting to be signed.

The Dongo Kundu project will need political support from the very top to see the light of day. We must not forget that despite the fact that special economic zones are recognised in Vision 2030 initiative as one of the vehicles to deliver industrial development, there are still many economists and policy makers in the government who do not believe in the philosophy of selected industrial winners, which is what defines the idea of special economic zones.

Many of our economists still toe the Bretton Woods line that special economic zones spawn discriminatory investment regimes where the so-called selected winners are showered with privileges and tax exemptions.

Industrial policy, in terms of deliberately targeting and selecting a specific part of the manufacturing sector and giving it specific concessions to grow, has not been our strong point. As far back as 2005, the Japanese helped us to develop a policy document, A Manufacturing Strategy for Industrial Development in Kenya. That document was put on the shelf for many years without even being launched.

Despite, the fact that a special Economic Zones Bill was drafted way back in 2009, it was only tabled in Parliament last year. Why? Because the Bretton Woods school economists and policy makers in the government opposed the range and number of incentives that were in the Bill, including 10-year tax holidays and expedited work permit regulations.

What our people still fail to appreciate is that special economic zones only succeed where there are no arguments about the range of incentives and privileges and where policy is underpinned by a robust industrial policy. One of the reasons the export processing zone (EPZ) model did not have spectacular success is because we did not do what successful special economic zones in Asia did.

Instead of locating the signature EPZ in Mombasa, we took it to Athi River. The trend elsewhere is that most EPZs will be located at the coast to allow manufacturing firms to minimise transportation costs.

In China, the special economic zones provide liberal facilities, including dormitories for workers, laboratories for certification facilities, and subsidised water and electricity services.

What is my point? It is that signing a deal with the Japanese to help build a special economic zone in Dongo Kundu is not enough.

Our policy makers must address their doubts about the viability of special economic zones. We must accept that these zones have delivered wonders to the South East Asian countries and that they are our best bet at industrialising.

What I like most about the Japanese is the fact that the projects they support and fund are only selected after studies and detailed master plans. They have just completed a master plan for Mombasa City, complete with plans for mass transit systems. Last year, they delivered a new container terminal under a long port development project that has a second phase.

Of course, most of these projects end up being built by Japanese contractors. But unlike the Chinese, the Japanese will allow everybody to compete for those contracts.

Last year, we saw Japanese firms fighting it out with locals for the contract to run the second container terminal under a concession. I see the Japanese dominating activity in Mombasa even as the Chinese concentrate on Lamu Corridor projects.