High power cost eats into EPZ firms' profit

Cumulatively, firms operating in different EPZs across the country, Mr Gacheru said in a presentation, paid Sh947 million for power last year, compared to Sh772 million in 2017. [Courtesy]
High operating costs last year significantly eroded the earnings of firms operating in the Economic Processing Zones (EPZs), a State agency has said.

Among the items that registered a major spike for the companies, according to the EPZ Authority Chairman Paul Gacheru, included power costs, which rose 22.7 per cent mainly on the back of a prolonged dry spell.

This resulted in high reliance on the costly thermal electricity generators.

Cumulatively, firms operating in different EPZs across the country, Mr Gacheru said in a presentation, paid Sh947 million for power last year, compared to Sh772 million in 2017.

Other costs that went up included water (17.3 per cent) while salaries paid to their Kenyan employees increased 16.5 per cent.

Local labour was one of the major spending areas where the firms paid Sh11.7 billion to 57,743 employees, up from Sh10 billion in 2017.

According to the EPZ Authority, there are 72 zones spread across 19 countries, with plans in place to increase these to cover the 47 counties.

“Efforts are being made through various promotional activities to ensure presence of EPZ zones in all counties in the country,” said Mr Gacheru during a meeting with the Dutch Flower Group in Nairobi on Tuesday.

The zones are key source of export products for Kenya, with agro processing and garment industry accounting for the biggest chunk of products manufactured at EPZs.

Last year, the companies sold a combined Sh77.3 billion of products, more than 93 per cent of which were exports.

According to the authority, the EPZs' contribution to the total manufacturing sector employment accounted for 18.56 per cent in 2018 from 18.07 per cent posted in the year 2017.

EPZs' exports as a total of Kenya's exports stood at 11.81 per cent last year from 10.22 per cent in the year 2017.

Contribution to Gross Domestic Product (GDP) at market price of the economy, on the other hand, increased from 0.83 per cent in 2017 to 0.87 per cent last year.

"EPZs' contribution to the national economy has been rising steadily over the years. This contribution became more significant with the coming into effect of AGOA (African Growth and Opportunity Act), in the year 2000,” said Mr Gacheru.

Firms operating in the EPZs usually enjoy generous tax holidays, availability of ready land and factory buildings within secure zones with requisite services and access to export markets under preferential trade arrangements.

These include AGOA for the US market and the Economic Partnership Agreement (EPA) for the European market.

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EPZ AuthorityEconomic Processing ZonesLocal labourDutch Flower GroupEconomic Partnership AgreementEuropean market