Ensure Dongo Kundu economic zone works

President Uhuru Kenyatta unveils a plaque during the official ground breaking ceremony of the Dongo Kundu Special Economic Zone at Dongo Kundu in Mombasa County in October, 2019. [Maarufu Mohamed, Standard]

We can finally see a light at the end of the tunnel for the long-awaited special economic zone with the launch of Dongo Kundu bypass. If well implemented, this will change the economic landscape for the Coast, and Kenya in general.

The economic transformation of China from a poverty-stricken country to an economic superpower within a few decades started with the setting up of special economic zones. The impact of the Jebel Ali economic zone in Dubai contributes over 35 per cent of Dubai’s GDP, far in excess of all the glitzy fancy hotels and the airlines.

However, let us not be overly optimistic without some reality checks. A number of economic zones have failed, like the Sri Lankan port of Hambantota that was eventually taken over by China.

As Dongo Kundu is being developed (and for heaven's sake let us change the name!), we must not forget the lessons of Lamu where the berths are ready and the supporting infrastructure is not, leaving a multi-billion-shilling port stranded. We took so long debating the Lamu port that our potential partners Ethiopia made peace with Eritrea, and so has South Sudan. The port of Salalah in Oman lost 10 years because the government had no proper business plan to market it.

First, who owns Dongo Kundu? Is it the Ministry of Industrialisation or Transport? If this issue is not resolved, the project will get caught in turf wars. Please appoint a single authority and an empowered chairman to drive this project, otherwise it will take forever like Lapsset did, and we lost opportunities.

Second, the government needs to create a serious marketing effort. Large companies need two to three years to plan their investment. Do not underestimate the coming threat of Rwanda. Rwanda may be a small state surrounded by large states, but so is Dubai. Rwanda is positioning itself as the next Dubai of Africa and don’t be surprised to see millions of containers flying through Mombasa Port on their way to the free port of Kigali soon. The emergence of Air Rwanda as a serious airline indicates that it is copying the Emirates model.

Third, we need to define and clarify what sort of special economic zone we want. At present, the easiest market to target is the Chinese where labour-intensive companies are leaving China looking for cheaper labour abroad. This may seem attractive at present because we have plenty of cheap labour. However, let us not limit ourselves. Let us also target high-value industries. When Dubai launched its Internet City, many people laughed. Soon, all the major Internet companies were lured to Dubai.

Fourth, training for the people who will work there is critical. Today Kenya has few trained industrial welders, plumbers and electricians. It would be a disaster if these companies were to bring their own workers, while our youth are jobless. The government should pay these trainees monthly wages to get them motivated. This money would support thousands of local families, restore family pride and increase liquidity in the local economy. There is a historical precedent for such state largesse. During the Great Depression of 1929 to 1933, the US government paid salaries to men digging trenches. The same was applied in Germany post-World War II. It is not charity; it is economic incentive.

Tax authority

Fifth, Dongo Kundu occupies 3,800 acres. If we assume 40 per cent will be infrastructure, then 2,300 acres will be available for development. Why not allocate 100-acre parcels to individual special economic zones? Encourage the free market to compete. This will also give an opportunity for Kenyans to participate in this project.

Sixth, there still are some serious legal and regulatory issues that need to be sorted out. We need to harmonise local laws and customs regulations with our regional partners. We need to think out of the box and consider setting up a separate and independent tax authority to manage Dongo Kundu and other special economic zones.

Seventh, an unexpected by-product of the special economic zones has been the establishment of free zone companies that provide services. These services could be simple offshore companies to legal and financial services firms. These companies create thousands of jobs and lucrative licensing fees. This creates an opportunity for Kenya to be at the forefront of offshore international business in East and Central Africa.

The president of Rwanda has opened his special economic zone in partnership with Jebel Ali, Dubai. Ethiopia has opened its 10th special economic zone. What are waiting for?

Mr Shahbal is chairman of Gulf Group of Companies. [email protected]