East Africa is overflowing with potential — from agriculture, to mining, tourism and energy, investment opportunities abound.

With the aim of harnessing this potential to promote economic growth and development in the region, the five partner states of the East African Community have agreed to co-operate in the areas of investment and industrial development as outlined in the EAC Treaty, further eliminating doubts about the possibility of full integration.

This co-operation seeks to among other things, rationalise investments and the full use of established industries in order to promote efficiency in production, as well as harmonise and rationalise investment incentives, with a view to promoting the Community as a single investment area.

With a population of more than 130 million, East Africa boasts one of the largest single-bloc regional markets in Africa. This market is made even bigger by a series of mutually beneficial partnerships with regional blocs such as the Common Market for Eastern and Southern Africa (Comesa) and the Southern African Development Community (SADC), boasting a combined population of well over 400 million people.

This is music to the ears of any prospective investor, as is the news of the availability of a young, skilled and enterprising labour force — factors that have continued to attract more investors to the region.

On the other hand, EAC partners have implemented or are finalising their preferred type of zone schemes.

Kenya’s Export Processing Zones (EPZ) programme was implemented in 1990 in pursuit of the national economic development agenda. Over the years, the programme has been reasonably successful, making its share of contribution to the country’s economy especially through job creation, attraction of new investments and value addition in terms of local resource utilisation (domestic expenditure).

In 2013, the number of gazetted zones rose to 50 from 47 in 2012. Exports and total sales value increased by 11.2 per cent and 13.6 per cent to stand at Ksh44.4 billion ($482.2 million) and Ksh50.2 billion ($545.2 million) respectively.

Sales to the domestic market also exhibited an upward trend from Ksh3.3 million ($0.035 million) in 2012 to Ksh4.6 million ($0.049 million) in 2013. Direct local employment expanded by 12.6 per cent to 39,961 persons in 2013 from 35,501 persons the previous year, mainly as a result of some EPZ firms expanding their operations.

Before the coming into force of the EAC Customs Union Protocol, Kenya’s EPZ firms had market access of up to 100 per cent to the other partner states.

Article 25 (3) of the EAC Customs Union Protocol provides for limitation of sale of goods and services from promotion schemes into the EAC Single Customs Territory, with market access limited to 20 per cent of production.

Unfortunately, Kenya’s EPZ programme, the oldest in the region, stands to lose the benefits of investment as well as jobs mainly in the manufacturing sector as some investors withdraw their multimillion-dollar investments and others shun the scheme.

EPZ firms exit

According to a study carried out in 2013, more than 15 EPZ companies withdrew their investments from Kenya between 2010 and 2012, leading to a loss of about Ksh40 billion ($434.4 million) in investments.

In fact, the country through the EPZ programme stands to lose $449 million’s worth of investments, $112 million’s worth of sales in the EAC markets, $164 million in terms of domestic expenditure (cost of sourcing of raw materials and services) as well as more than 15,000 jobs.

Kenya has recommended that the Community considers enhancing domestic market access thresholds for EPZ firms in the EAC — a maximum limit of 49 per cent sales of EPZs annual production to the EAC Customs Territory subject to payment of all taxes, levies as per Common External Tariff (CET) rates plus a surcharge while pegging a minimum of 51 per cent sale outside the EAC Customs Territory is desirable as it will ensure that EPZs in the EAC serve the export drive as provided in the Protocol for the Establishment of East African Customs Union as well as attract investments in the EPZ programme from investors targeting EAC as their market. Subsequently there will be employment creation for the youth within the EAC.

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