Proposed SEZs capital demands to dim sector's rising star

Before the creation of Special Economic Zones (SEZs), Kenya’s industrialisation framework was anchored in the Export Processing Zones (EPZs) Act of 1990.

The pivot towards SEZs was informed by the realisation that EPZs were designed solely to stimulate foreign direct investment (FDI) in the labour- and capital-intensive manufacturing sector.

Under the old dispensation, companies were required to export at least 80 per cent of their output, effectively barring them from the domestic market and from service-oriented sectors such as IT, consulting, and logistics.

It is against this backdrop that the Special Economic Zones Act, 2015 came into force to align with Vision 2030, Kenya’s economic blueprint, marking a major philosophical shift in Kenya’s industrialisation strategy.

The new policy framework moved past physical manufacturing and introduced licences for commercial services, logistics, science and technology hubs, and tourism.

In an unprecedented move, firms operating in these zones were granted the leeway to sell up to 100 per cent of their goods locally, subject to the payment of standard import duties, thereby facilitating broader market integration.

The SEZ Act also saw the creation of a dedicated regulator, the Special Economic Zones Authority (SEZA), separate from the old EPZ Authority.

The Act has since undergone several legislative tightenings as the government contends with domestic revenue shortfalls and shifting global trade rules.

In 2024, for instance, it introduced the Business Laws (Amendment) Act, 2024, which fundamentally restructured fiscal benefits.

While companies previously enjoyed a lengthy, graduated tax framework (10 per cent corporate tax for 10 years, 15 per cent for the next years, and 30 per cent thereafter), the 2024 amendment compressed this, paving the way for a fixed 10-year window of tax incentives from the date of licensing in a bid to create rapid fiscal returns for the State.

Fast-forward to 2026, when the Special Economic Zones (Amendment) Act, 2026, was assented to in May.

The statutory amendment aimed at strengthening internal corporate reorganisations, allowing firms to restructure assets within the zones without attracting massive tax penalties.

But the government did not stop there, with the amendment acting as a harbinger of the Kenya Economic Zones Bill, 2026, which has elicited heated debate within the sector.

The proposed law represents the final stage of the sector’s policy framework evolution.

In effect, the Bill seeks to dissolve both the EPZ and SEZ Acts altogether, merging them into a single entity - the Kenya Economic Zones Authority (KEZA).

The Bill, published on July 2, 2026, as National Assembly Bill No 46 of 2026 and sponsored by Kikuyu MP Kimani Ichung’wa, would repeal the laws establishing the two existing authorities and transfer pending litigation to the proposed new entity.

It is currently before the National Assembly’s Departmental Committee on Trade, Investment and Cooperatives.

While seemingly an innocuous proposal, the move layers a heavy Sh5 billion entry ticket onto this newly consolidated framework.

This is one of the reasons sector players oppose the Bill in its current form, as the law moves away from the flexible, inclusive ecosystem envisioned by the 2015 Act.

The Sh5 billion minimum investment threshold for developers, operators and other entities seeking to enter the economic zones could have the unintended effect of excluding projects that generate employment opportunities or exports, with physical capital investments running into billions of shillings.

The government’s own State Department for Investment Promotion has made a case against the proposal and is instead pushing for a tiered threshold of one flat figure. The clause attests to the lack of foresight on the State’s part.

Our membership under the aegis of the Association of Special Economic Zones (ASEZs) has petitioned the National Assembly’s departmental committee, voicing our reservations about this proposal.

In our submission, we aver that the Act should set out the policy, criteria and enabling power, while the actual monetary thresholds should be prescribed in Regulations by the Cabinet Secretary, on the Authority’s recommendation and after stakeholder consultation.

Why does this matter? A fixed monetary threshold is inherently dynamic: sectoral economics, technology, inflation, investment models and regional development needs change over time.

If the figure is hard-coded in primary legislation, future adjustments may create legislative rigidity and, where the statutory architecture must be changed, require a further amendment to the Act.

That is not a practical way to regulate a fast-changing investment environment. Regulations are the appropriate instrument for numerical thresholds because they can be reviewed and differentiated more efficiently while remaining subject to statutory authority, public participation and administrative-law safeguards.

The Association's supplied investment analysis shows that 66.67 per cent of sampled developer/operator licence holders have invested below Sh1 billion and only 22.22 per cent exceed Sh5 billion.

Among sampled enterprises, 76.59 per cent are below Sh1 billion and only 2.12 per cent exceed Sh5 billion.

The same dataset also demonstrates that capital expenditure is not a reliable proxy for employment: one enterprise with approximately Sh6.839 billion investment employs 61 persons, while another with approximately Sh208.13 million employs 2,761 persons.

We urge the deletion of the fixed Sh5 billion amount from clause 36(6) and replacing it with an enabling provision requiring applicants to meet prescribed investment requirements.

Instead, we urge the departmental committee to use clause 36(7) to empower the Cabinet Secretary, on recommendation of the Authority, to prescribe and periodically review differentiated thresholds by licence category, sector, location, capital intensity and economic contribution.

The Association supports the objective of a modern Kenya Economic Zones framework capable of attracting investment, promoting exports, facilitating technology transfer, creating employment and supporting sustainable regional development.

These representations are directed at ensuring that the licensing framework is practical, proportionate, evidence-based and capable of responding to the diversity of investments found within economic zones.

We support ambitious investment standards, but a rigid Sh5 billion statutory threshold would not reflect the actual structure of Kenya's economic-zone ecosystem.

The supplied data shows that most sampled developers/operators and enterprises fall below that amount, and that employment and other economic benefits do not move in direct proportion to capital value.

The durable legislative solution is, therefore, to place the policy framework, safeguards and criteria in the Act while placing the actual monetary thresholds in regulations.

This preserves legal certainty and Parliamentary policy control, while giving the investment regime the flexibility required to remain competitive and responsive over time.

The writer is the Vice Chairman, Association of Special Economic Zones