The East African Business Council is cautioning the bloc against allowing export processing zone investors to fully access the regional market, saying such a move would be against the Customs Union Protocol.
Kenya has asked the East African Community to remove restrictions on investors in the EPZs so that they can sell 100 per cent of their products in the regional market.
Currently, the EPZ producers are allowed to sell 20 per cent of their total annual production in the EAC, which Nairobi says has compelled some investors to withdraw their multimillion-dollar investments.
But business people are cautioning against this move.
Articles 25 and 29 of the EAC Customs Union Protocol provide that investors in EPZs get total duty relief on imported materials used directly in the production of goods for export outside the region.
The idea is to accelerate development, promote and facilitate export-oriented investments in the region, and produce competitive export goods to attract foreign direct investment.
The regime provides that the goods benefiting from export promotion schemes should primarily be for export and in case they are sold in the Customs territory, they should attract full duties under the EAC common external tariff (CET).
The sale of goods in the Customs territory should be authorised only by a competent authority and is limited to only 20 per cent of total annual production.
But Kenya’s recommendations to the Sectoral Council on Trade, Industry, Finance and Investment was to consider enhancing domestic market access thresholds for EPZ firms in the EAC from the current 20 per cent to 100 per cent of annual production. It said that such products would be subject to all taxes, duties and levies as per CET plus a surcharge.
Kenya said that due to the 20 per cent sales limit in the EAC market, between 2010 and 2012, 26 EPZ firms withdrew their investments from the country, adding that others are considering leaving.
Kenya 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) and 14,330 jobs.
But Burundi, Rwanda, Uganda and Tanzania said that the EPZs, by their nature, should serve the export drive as provided for in the Customs Union Protocol.
The protocol separates EPZ and Special Economic Zone (SEZ) schemes. Enterprises targeting the EAC market should operate under the SEZ scheme, with appropriate incentives, according to the protocol.
The four partner states further argued that the firms operating in EPZs have a package of benefits ranging from incentives on imports and domestic taxes to provision of utilities.
“Allowing them to sell in the EAC market would give them undue advantage over other firms outside the EPZs,” said the Sectoral Council on Trade, Industry, Finance and Investment report.
The director-general of Tanzania’s Export Processing Zones Authority (EPZA), Dr Adelhelm Meru, said that Kenya, which introduced the EPZ scheme in 1992, is benefitting more than the other EAC members.
In 2009 Kenya, through its EPZ companies, exported goods to the US worth $207.9 million under the Africa Growth and Opportunity Act (Agoa), whereas Tanzania, which was just consolidating its EPZ scheme that year, exported goods worth just $1.86 million. Uganda and Rwanda, which had no EPZs, exported goods worth below $1 million.
“In 2013, Kenya exported goods worth $336.53 million and, due to the influence of the EPZs, Tanzania was able to raise its Agoa exports to $10.36 million,” Dr Meru said.
But the latest report by the Organisation for Economic Co-operation and Development (OECD) says that Tanzania’s EPZs, which were set up to stimulate economic growth and create employment, are now the largest loss makers.
The report, titled Investment Review of Tanzania, says that the country has lost $710 million in revenues from tax exemptions given to EPZs between 2002 and 2012.
“From an employment perspective, the number of jobs created by the EPZA are 15,100... which is extremely low relative to government investment and exemptions for these zones,” the report says.
But Dr Meru said that in the seven years he has been at the help at the EPZA, 98 companies have been registered, injecting $1.02 billion in investment and creating more than 27,000 direct jobs and 10,000 indirect jobs.
“This is a considerable achievement by any standards. All these are signals of EPZ/SEZ successes and a good omen for export-led economic growth,” he said, adding one must note that successes of EPZs and SEZs are normally measured over time.
Source: The East African
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