One of Kenya’s ambitious projects under Vision 2030 was the establishment of Special Economic Zones (SEZs). Through this special vehicle, trade, identified as a critical factor for achieving the Big Four Agenda, would be realised, ultimately contributing to the overarching goal of the national blueprint: “to create a globally competitive and prosperous nation with a high quality of life by 2030.”

SEZs are designated geographical areas where governments implement business-friendly trade laws and provide the necessary infrastructure to foster economic growth. These zones offer favourable economic regulations, such as tax incentives, compared to other regions within the same country.

The SEZ concept has been successful in countries like India and China, where such regimes have been successful. SEZs were introduced to replace Export Processing Zones (EPZs), which failed to meet expectations.

There are currently 28 gazetted SEZs in the country designed to attract foreign and domestic direct investments. Some of these include the Two Rivers International Financial Centre, Tatu City and Northlands (Kiambu), Konza Technopolis, East Africa Free Zone (Mombasa)  and  Naivasha SEZ.

 The Business Laws (Amendments) Bill 

These zones have benefited from a friendly and relatively stable regulatory framework over the years. However, these incentives are undergoing amendments under the proposed Business Laws (Amendments) Bill.

Limitation of  benefits 

One of the significant proposals is the limitation of tax benefits and incentives by amending Section 35 of the Special Economic Zones Act, 2015, to provide that incentives and tax benefits enjoyed by investors shall be for a period of 10 years from the date of receiving an SEZ licence. While the current regime provides timelines for some incentives, such as payments to non-residents being exempted from withholding tax for 10 years, there is no general limit.  

Businesses often rely on long-term fiscal stability to plan investments, especially in capital-intensive industries. If effected, investors would need to plan projects with a 10-year timeline to enjoy the benefits of operating in an SEZ. A 10-year cap on incentives may discourage foreign investors from planning projects that require extended timelines to break even or turn profitable.  

A countermeasure would be to phase out the incentives rather than enforcing a hard stop after 10 years. For instance, some tax exemptions could be removed every five years. Exceptions could also be made for extending benefits to investors who meet specific development milestones, such as job creation, or for priority sectors such as manufacturing.  

Minimum acreage and investment amount

There is also the proposal for minimum acreage and investment amounts for a special economic zone. This would amend Section 4(2) of the Special Economic Zones Act to allow the determination of the minimum land size and investment amount needed for an area to be declared an SEZ. The Cabinet Secretary for Trade, with the advice of the Special Economic Zone Authority, would provide these thresholds. The current framework does not provide for this.  

While this would provide regulatory clarity and boost investor confidence, it could also create a barrier to entry for small investors with limited capital should the limits be hefty.  

Remote workers and the BPO sector

The proposal to recognise remote workers and Business Process Outsourcing (BPO) and technology-enabled service (ITES) arrangements as employees and employers, respectively, under the Act is a positive step. It would clarify employer-employee relationships in the special economic zones and enable the recognition of actors in less traditional settings.  

Considering that Vision 2030’s flagship project, Konza Technopolis, has already achieved $800 million in investor commitments, while Tatu City has attracted a total investment of $1.5 billion, SEZs are proving to be stimulants of industrialization, employment creation, and, ultimately, economic growth. Therefore, the proposed amendments to the enabling Act should be carefully considered to avoid curtailing the promising progress that the sector is experiencing.