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Kenya entices investors with cheap energy

NEWS
By Moses Michira | February 3rd 2016

NAIROBI: Kenya has offered to halve the price of energy to prospective investors in the proposed Naivasha Industrial Park. Industrialisation Cabinet Secretary Adan Mohamed has said lower energy costs are among the incentives lined up, as the State readies to gain from the manufacturing contraction in China.

“Power within the industrial park should be half of the market rates,” Mohamed said yesterday, while projecting China could lose more than 100 million jobs in its manufacturing sector in five years. Manufacturers in Kenya pay Sh11 per unit of electricity, more than double the rates in Ethiopia and Egypt, owing to subsidies, in a situation that erodes the country’s competitive edge.

It is estimated that the incentives could bring the country at par with the regional rivals. Naivasha is home to several geothermal energy plants – a factor that informed the decision to establish the industrial park in the first place. Access to reliable and cheap energy is among the biggest factors that investors in heavy manufacturing consider in choosing where to place their money.

Kenya has until now failed to attract meaningful investments in manufacturing partly because energy was too expensive, and often unreliable. But rapid exploration of alternative energy sources including wind and geothermal, to supplement hydro power, has raised availability of electricity and hopefully, the country’s profile as an investment destination.

It is the increased energy base that has buoyed the State in its plans to benefit from the troubles in China. Already, statistics coming out the World’s second largest economy paint of an unrelenting slowdown since 2012. Factory activity was slowest for the 11th straight month in January, China confirmed this week. “Obviously, we do not expect that all those jobs will come to Africa but we should get some of them,” Mohamed said.

Tax-free access

Kenya has already announced extension of the Standard Gauge Railway project to Naivasha, in a move that would effectively ease the transportation of finished products from the anticipated factories to the rest of the country and to the sea ports, for export. Electronics assembly is among the largest segments in manufacturing, earning China the accolade of the World’s factory.

Kenya Investment Authority Managing Director Moses Ikiara said that about 10 prospective investors had shown interest in taking up space at the planned industrial park. “We have big investors who are coming into Kenya through the authority, showing strong interest in the industrial park,” Ikiara said, without revealing their identities.

Kenya and other African countries have a big market in the US after the congress extended an inter-continental treaty last year allowing for quota-free and tax-free access in 2015. But limited industrialisation has meant that Kenya could hardly benefit from the legislation called African Growth Opportunity Initiative Act (Agoa) because it produces less than five of the 6,000 commodities covered under the deal.

At present, most exports to the US are clothing and related products which are manufactured in the Export Processing Zones.

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