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August 26, 2016

Industrial parks spreading across East Africa, with eye on economic growth

This article was written by Kenyan journalist Allan Olingo Ogunah with a reporting grant provided by the China-Africa Reporting Project, and was first published in The East African.

It is around midday when I meet Idris Luwasa outside the cotton godown where he works as a records officer.

He is yet to receive any cotton lint from farmers for the day. But he tells me this is not new. Farmers no longer deliver the commodity as regularly as they used to.

“There are days I go without logging any deliveries,” said Luwasa. “Sometimes that goes on for three straight days.”

Launched in late 2014 as part of an industrial park, the godown where Luwasa works is the only one of its kind in Kiyegeya district of eastern Tanzania. But since its launch, it has attracted little interest from investors, and now serves as a collection centre for ginneries.

Tanzania and China signed the deal to construct a modern agricultural industrial park in March 2013 in Kiyegeya, at a cost of $65 million. Under the deal, Dahung Group from Jiangsu, China was to handle the construction. Chinese investors expressed interest in setting up shop in the park, where the lint would be turned into textiles that would then be exported.

The first phase was completed by 2014 and was to host a cotton processing factory, a textile factory, a packing factory and an agricultural demonstration school.

However, these projects have failed to take off, thereby delaying the second phase of the park, which was set for completion mid this year.

“The low production of cotton affected the supply end of the project while a failure to allocate warehouses to crop marketing boards has been the project’s main undoing. We have also seen a slack in marketing the facility to investors,” said Mr Luwasa. “The procedure for processing incentives is also lengthy.”

Raw materials

However, the investment manager at the Export Processing Zones Authority, Grace Lemuse, said that the Ministry of Agriculture was addressing the challenge of raw materials.

“These kinds of investments are designated areas for specifically targeted economic activities supported by special economic zone arrangements We expected this region to have the capacity to feed the park but we have experienced some challenges, which however, are being addressed,” said Ms Lemuse.

Tanzania has eight such industrial parks spread across the country. But while the country grapples with underperformance at these industrial parks, last month, Ethiopia unveiled one of the world’s largest — the $250 million Hawassa Industrial Park.

It was designed and constructed by the China Communications Construction Company in under a year. The park will house 15 textile and garment firms from China, India, America, Sri Lanka, and six Ethiopian companies. The park has 35 factory sheds and 19 buildings to house these firms.

“The buildings are expected to host factories, exhibition halls, food courts and living quarters for the workers,” said Kalkidan Betre, one of the project engineers. “This covers 100 hectares and the second phase, whose construction will begin this year will be twice as large.”

China’s ambassador to Ethiopia La Yifan said the Hawassa Industrial Park “is a good model not only for the rest of Ethiopian industrial parks but also for other African countries. We need to see complete products leaving the continent instead of raw materials; this park is meant to address that,” said Mr Yifan.

Ethiopia industrial zones

Ethiopia has four industrial parks, leading the region in adopting the Chinese Industrial model. These are the Bole Lemi Industrial Zone owned by the Ethiopian government, the Eastern Industrial Zone, the Lebu Industrial Zone operated by the Huajian Group and the Modjo Industrial Zone operated by George Shoe. These parks service the country’s leather industry, with the new Hawassa Park expected to serve its budding textiles sectors.

Last week, Kenya’s industrialisation minister Adan Mohammed said that they will now start to put into operation the Special Economic Zones Act following the publication of the SEZ regulations.

“The regulations now give us the legal and regulatory framework to guide in the development, operation and management of the SEZ in the country,” said Mr Mohamed.

“We will now move to establish these zones which will be a critical driver in attracting investments in manufacturing, trade, logistics and services."

Last week, Kenya announced that it had received 10 applications from investors interested in setting up factories and tanneries at the proposed 500-hectares Leather Industrial Park at Kinanie in Machakos County, eastern Kenya. Through this facility, the country hopes to increase its earnings from leather exports from the current annual figure of $40 million.

Dr Julius Korir, the Principal Secretary at the Ministry of Industrialisation said that they were currently being processed before those shortlisted are allocated parcels of land for construction of factories at the multi-billion-shilling park.

“We will give players in this sub-sector priority to set up shop at the facility, which is currently being managed by the Export Promotion Zones Authority,” said Dr Korir.

Attracting investors

The $100 million industrial park has already attracted interest from several Chinese construction firms. There is also interest from some Chinese firms with current operations in Ethiopia, who plan to set up shop there. The leather park is sub-divided into 200 plots, which will house tanneries and leather shops.

Kenya is also gearing up for the construction of another industrial park at the port of Mombasa aimed at easing the clearance of goods bound for the neighbouring countries.

Construction of phase one of the ambitious $300 million Mombasa Port Area Development Project, popularly known as the Dongo Kundu, has begun, and is being handled by the China Civil Engineering Construction Cooperation, with an expected completion date of 2018.

Initial designs approved by the Kenya Port Authority show that the construction of the industrial city is tied to this project, with the country banking on the proven Free Development Zone concept to attract foreign and domestic investors.

“The industrial park is expected to sit on close to 500 acres of land and will host wholesale and retail trading, breaking bulk, re-packaging logistics, warehousing and handling and storage of goods. This is expected to offer faster clearance of transit goods to neighbouring countries,” a source at KPA said.

Kenya’s dream of having its first ever textile city, however, seems to have got off to a false start, with nothing happening for a whole year. Last year, the country announced that it will be putting up a textile city in order to meet the needs of a number of global garment marketing firms.

China economic zones

China created Special Economic Zones (SEZs) in the early 1980s, to attract foreign investments. The SEZs enjoy special tax incentives, more independence in international trade actions while economic activities are driven directly by market forces.

Indeed, SEZs have helped to increase GDP in China by up to 10 per cent, studies show. However, they are still a work in progress as the government seeks to develop them into Free Trade Zones — a duty-free area where items can be stored, displayed, assembled, or processed for re-export or entry into the general market.

China’s experience shows that location (including good transport and logistics), resources, market, human resources and capital are key for successful SEZs.

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