Taxpayers lose 0.5 billion as EPZA is hit by another scandal

Trade Cabinet Secretary Peter Munya
The Export Processing Zones Authority (EPZA) has been hit by yet another loss after investments worth Sh500 million were swept away by floods.

Kenanie Leather Park in Athi River, which broke ground two years ago amid huge fanfare, is the latest in a string of government projects to be hit by losses.

Taxpayers might have lost billions after new investments in the leather park including walls, road grading and sewerage lines were swept away by a deluge early this year.

Land question

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A source at the Export Processing Zones Authority (EPZA), who did not want their name revealed, told Saturday Standard that the 500-acre free trade area sits on swampy ground.   

These developments have since attracted the attention of the government, with the Cabinet Secretary for Industry, Trade and Co-operatives Peter Munya calling for an audit of the project to ascertain the loss. The Sh10 billion project was expected to create thousands of jobs when completed.  

“Who carried out the assessment of the suitability of the land? Since I am told the entire project has been swept by the rains apparently because the land is a swamp,” said Munya in an internal memo addressed to PS Betty Maina.

He also wants to know how much money had been spent so far. But our source told us that approximately Sh500 million had been spent by the time it went down the drain.

Munya said the Government had put aside money for the leather park, tendered and construction work commenced.

“You are also in receipt of a report from the Leather Council raising serious concerns on the way the work was undertaken by the EPZA and their non-investment,” added Munya.

These issues were raised by the Kenya Leather Development Council (KLDC) in a report. KLDC is a State Corporation that looks into the interests of the leather sector.

The CS instructed the Principal Secretary to carry out an internal audit of the project to find out the accuracy of the issues raised by the Leather Council.

These revelations come fast in the heels of yet another scandal that hit the EPZA. The  Public Procurement Regulatory Authority is investigating the authority over a tender fraud of about Sh1.3 billion it paid several firms for work not done. 

Water meant for the firm was also being sold to outsiders at the expense of manufactures. “This was due to illegal connections,” said the source.

Kenanie Leather Park is the first government-led industrial development zone since 1992, when the EPZs were set up. It is aimed at encouraging value addition and innovation towards unlocking potential of the leather sector. 

Kenanie is also expected to revolutionalise the leather value chain, creating a new market for skins and hides usually processed into blue leather and exported as raw materials. The park will also enjoy tax incentives and other amenities such as land, water and electricity.

Companies setting shop at the park will enjoy a 10-year corporate and withholding tax holiday on remittances to non-residents, stamp duty exemption, import duty waiver and VAT exemption on raw materials, machinery and other business inputs.

There will also be a 100 per cent investment deduction over 20 years for buildings and imported machinery.

Shoes from the park will also be sold locally without payment of duty and VAT.

50,000 jobs

The park has reserved space for 15 tanneries, while leather products manufacturers have been allocated about 200 plots within the enclosed area. The front section is reserved for stalls selling finished leather products such as belts, shoes, bags and phone covers. 

The CS also wants the PS to clarify the total amount of money that the project was supposed to cost.

In the Budget Policy Statement 2018, Treasury is banking on EPZs to help attain President Uhuru Kenyatta’s dream of creating jobs through manufacturing.

In the statement, Treasury said the vast untapped potential Kenya has in the leather industry, with the aim of creating 50,000 new jobs, making 20 million shoes and increasing export revenue by Sh50 billion by 2022.

“To support the growth of the leather industry in the country, the government will ensure that all hides and skins are fully processed locally, train personnel and set up 5,000 cottage industries,” reads part of the statement.

The Government will also prioritise completion of Machakos Leather Park, identify three more parks, and support expansion of existing tanneries through incentives and access to finance.

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Export Processing Zones AuthorityEPZAKenanie Leather Park in Athi RiverTrade Cabinet Secretary Peter Munya