The construction of the Dongo Kundu Special Economic Zones (SEZ) is set to start soon after Kenya picked Japan-based Toa Corporation to do the work, which is expected to be completed by 2026.
The construction is set to kick off several other related activities within the region that will make Mombasa a regional logistics and manufacturing hub, a move that is expected to open thousands of jobs at the site during the construction works and once the SEZ becomes fully operational. The resettlement programme for the affected persons to pave the way for the construction is at the final stage, according to Captain William Ruto, Kenya Ports Authority (KPA) Managing Director.
Dongo Kundu SEZ will lie on approximately 3,000 acres of land located adjacent to the Mombasa Port in Likoni Sub-County of Mombasa County. The zone is strategically located in a high-potential area for development, with several high-end logistics infrastructure projects and facilities already completed. It is near the Mombasa Port, Mombasa Southern Bypass, Standard Gauge Railway (SGR), and Moi International Airport. Kenya National Highway Authority (KeNHA) has already started a test run for the second phase of the Dongo Kundu bypass, which connects the SEZ to the mainland and is almost ready for public use.
Dongo Kundu has been subdivided to accommodate a freeport area, road network, water distribution center, enterprise area, industrial parks, and free trade zone. The Free Port, which will be connected to the sea through a road network, will have several berths for general cargo, vehicles, and bulk grain handling facilities. Other support services, such as tourism, meetings, conferencing, and exhibition areas, will be available. It will also have a zoned residential area for workers.
The construction of the first phase will be done under the Japan International Corporation Agency (JICA) through a Sh6 billion grant and a Sh50 billion concessional loan payable within 30 years with a grace period of 12 years. The zone is one of the components of the Mombasa Port Development Project (MPDP), which seeks to expand the capacity of the port and enhance logistics along the Northern Economic Corridor leading to Eastern Africa’s hinterland countries served by the Port of Mombasa: Uganda, Rwanda, Burundi, the Democratic Republic of Congo (DRC), South Sudan, Somalia, and southern Ethiopia, as well as northern Tanzania.
Captain Ruto sees the project as a huge game-changer for Mombasa and the coastal region’s economic fortunes due to the many jobs it will create.
“There will be a lot of economic activities and value-added activities that will take place within the zone. As a duty-free area with other tax-friendly measures, we expect immense enthusiasm from the investors who have already started expressing great interest in our progress,” Ruto said.
Some of the fiscal incentives of SEZs include a lower corporate income tax of 10% for the first 10 years, 15% for the next 10 years, and 30% thereafter; preferentially rated withholding tax of 5% on payments made to non-resident persons; 5% on interest paid by any SEZ entity to non-resident persons and zero-rating for VAT for the supply of goods and services provided to an SEZ enterprise; exemption from stamp duty on documents signed relating to SEZ business activities and import declaration fees on goods imported into these; and deduction of 100% of capital expenses from the taxable income of SEZ entities.
The UN World Food Programme is among those top agencies and companies that are eying to set base at Dongo Kundu SEZ. The WFP Regional Bureau for Eastern Africa oversees and provides support for lifesaving and life-changing operations in nine country offices, namely Kenya, Burundi, Sudan, South Sudan, Ethiopia, Uganda, Rwanda, Djibouti, and Somalia.
Revital Healthcare (EPZ) Ltd., which started on August 31, 2008, at Jomvu Miritini, has also expressed interest in having a presence in Dongo Kundu. With a lack of medical device manufacturing companies across Africa, Revital became the first East and Central African company to manufacture medical devices such as auto-disabled syringes and reuse-preventing syringes, which began the rise of African medical device manufacturing.
The establishment of SEZs is already gaining increasing attention as a hub for many other investors due to a reduction in red tape and a favorable tax regime. According to Captain Ruto, the SEZ zone will transform several business models. For instance, with vehicle assembly units at SEZ, the cost of acquiring cars by Kenyans will go down significantly due to the removal of freight costs as a cost component and the flexibility in applying the 8-year-old import rule imposed by the Kenya Bureau of Standards (KEBS).
“Vehicle dealers will have an opportunity to bring in parts for local assembly. This will create a lot of jobs for our people and lower the costs of acquiring units,” Ruto said. The textile and apparel industry, through the US African Growth and Opportunity Act (AGOA), will get a huge boost once the SEZ is fully functional. Kenya’s textile and apparel sector has recorded big growth, leading to monthly exports to the tune of Sh 4.5 billion, or Sh150 million per day, in the last year, according to a study done by the London-based Institute of Economic Affairs (IEA).
The sector also experienced steady growth in capital investment, with a 7.2 percent increase from 2018 to 2022, in which 36 firms with a capital investment of Sh24.88 billion employed 66,260 people and generated exports worth Sh54.12 billion. Since most of the materials for making garments are imported, it will be easier to make clothes at SEZ for re-export.
Agricultural products such as coffee, which we export in raw form, can have value added at the SEZ before export. Also, oil dealers, who extract several products from crude oil, can ship the consignment and make several products at SEZ for local and regional markets.
“This will translate into more ships calling at the port, which will be a huge boost for KPA’s revenue and also create more local jobs,” Ruto said.
“The Dongo Kundu SEZ has the potential to completely change the economic dynamics of the region because it connects the Indian Ocean with Africa. And there will be much more trade activity and investment, which will revitalize the economic activities in this region and create jobs for the region and beyond,” said Japanese Ambassador to Kenya Ken Okaniwa in a past interview. With a location for regional pan-African operations—an area dedicated to the Africa Continental Free Trade Area (AfCFTA)—people anticipate that the port will provide growing access to regional markets and a catalyst for local private sector development, Okaniwa added.
The SEZ authority has indicated that it will help SMEs establish direct exporting and subcontracting linkages with firms in the zone.
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