Kenya has differed with the other East African partner states over the status and management of the export processing zone (EPZ) firms in the region.

At the recent EAC Sectoral Council of Ministers’ meeting, Kenya proposed that domestic market access thresholds for EPZ firms raised from the current 20 per cent to 100 per cent of annual production, subject to payment of all taxes, duties and levies as per the Common External Tariff rate, plus a surcharge.

But Burundi, Rwanda, Uganda and Tanzania are opposed to the Kenyan proposal, saying that the EPZs should serve the export drive as provided for in the Customs Union Protocol.

“The EAC Customs Union Protocol separates the EPZs and the special economic zones schemes,” they said. Therefore, enterprises targeting the EAC domestic market should operate under special economic zones (SEZ), with appropriate incentives.

The firms operating in EPZs benefit from tax incentives on imports and domestic taxes and provision of utilities, unlike similar firms operating outside these zones, hence allowing them to sell in the EAC domestic market would give them undue advantage over the others, said the four countries.

The proposal by Kenya follows findings of a report by the EAC Secretariat that EPZ firms are relocating from East Africa after losing market access.

The study, titled “Assessment of the performance of the EPZ firms in EAC since the coming into force of the EAC Customs Union” indicates that at least 26 EPZ firms in Kenya had withdrawn their investments and others were considering doing the same.

In terms of financial implications, for the 2010-2012 period, the study indicated that Kenya stood to lose $449 million worth of investments, $112 million worth of sales to the EAC markets, $164 million in terms of domestic expenditure (cost of sourcing of raw materials and services) and 14,330 jobs.

The EAC Customs Union Protocol Article 25(3) provides that the sale of goods in the Customs Union by an EPZ company shall be subject to authorization by a competent authority and such sale shall be limited to 20 per cent of the annual production of a company.

Apart from textiles and pharmaceuticals, EPZ firms in the region have shown interest in fruit, honey, food and leather processing.

However, business analysts say the East African countries need to establish the special economic zones since they are valuable for the integration of regional value chains.

Source: The East African

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