SMEs line up for Konza tech city space with focus on tax perks and global deals

Three years ago, Kenya launched a Sh595.8 billion project to build a technology city, a game-changer for economic growth dubbed the African Silicon Savannah.

The Konza Techno City project sparked an investment frenzy, but it slowly waned following delay in enactment of a Bill enabling the government to sign contracts with developers.

But now small and medium-sized enterprises (SMEs) have lined up to take space at the Konza city as they seek to benefit from tax incentives, tap knowledge from multinational firms and higher learning institutions that will be housed in the 5,000-acre site.

Craft Silicon, Kooba through East Africa Capital Partners (EACP), JamboPay, NaiLab and TechnoBrain are among the firms that have expressed interest for space at Konza.

Craft Silicon is seeking 10-acre of land where it plans to invest Sh1.5 billion.

Venture capital fund, EACP, intends to build a Sh1 billion data centre — Kooba — and is seeking 2.5 acres. While JamboPay plans to invest Sh450 million.

The tech city will be part of special economic zones set to replace the export processing zones and in the first five years, it is expected to create more than 17,000 jobs.

EACP chief executive Richard Bell said the classification of Konza as a special economic zone, its location near the national power grid and the geographical location are some of the reasons why the company is interested in Konza city.

“We plan to invest Sh1 billion. Konza is situated near the national power grid which means we will have quality provision of electricity that is a key requirement in data centre operation,” Mr Bell told the Business Daily.

Kamal Budhabhatti, Craft Silicon founder and chief executive, said setting up at Konza would enable his firm and other SMEs to benefit from the proposed tax exemption. Craft Silicon plans to relocate its headquarters from Nairobi’s Waiyaki Way.

“We have applied to get about 10 acres of land right at the border, where we will set up a development and research centre. We have budgeted about Sh1.5 billion over a period of three years in terms of the infrastructure,” said Mr Budhabhatti.

“We want to set up a great technology working environment, with all possible facilities including a helipad.”

Craft Silicon is a trailblazer in Internet banking software, providing solutions for core banking, microfinance and electronic and mobile payments in almost 40 countries in four continents.

It is also one of the largest software providers in Africa. More than 80 per cent of software exported from Kenya comes from Craft Silicon.

JamboPay, an innovative electronic payments services provider based in Kenya with operations in Uganda and Tanzania, is also looking to tap the talent pool at the Konza city.

“We see Konza as a big opportunity for technology companies like ourselves...We intend to set up a research and development centre and an electronic academy,” said JamboPay chief executive Danson Muchemi.

JamboPay processes payments for more than 2,500 merchants including State agencies, hospitals, insurers, pay-TV companies and retailers.
The expression of interest closed on January 30 and the evaluations are being done, setting the stage for investment flows.

Phase 1A of Konza city will see 60 acres of land carved out of the larger 5,000 acres set aside for the development of tech hub.

Winning firms will be given a lease on the piece of land divided in portions of between 0.5 acres and 2.5 acres — depending on the type of investment — where they will build approved structures as per the Konza city master plan.

After allocation of the land, the companies are expected to construct the structures and start their operations within five years.

Tax exemption

The government has proposed a raft of incentives through Konza Technopolis Development Authority Bill 2014, which stipulates that investors in Konza technopolis be exempted from paying taxes for 10 years, if it is passed into law.

The businesses will also pay a lower tax rate of 15 per cent after the 10 years and dividends paid to shareholders will also be exempted from withholding tax — which is five per cent and 10 per cent for locals and foreigners respectively.

Expatriates working in the city will not pay income tax on their pay while foreign firms will be exempted from a rule which demands that they reserve 20 per cent of their shareholding to local investors, according to the Bill.

Konza Technopolis Development Authority (KoTDA) chief executive John Tanui said the planned technology city, located 50 kilometres from the Jomo Kenyatta International Airport on the Nairobi-Mombasa highway, would take a similar approach to Shenzhen ICT City in China, with the aim of nurturing technology SMEs to become multinationals.

READ: Top Korean university in talks to set up campus at Konza technology city

Shenzhen is the most important information technology hub in China, housing makers of computers, telecoms, microelectronics, audio and video products.

The city is home to several hi-tech key enterprises such as Huawei that focuses on the production of programme-controlled exchange and transmission equipment, Zhongxin Communication and Great Wall Computer.

A group of renowned multinationals such as IBM, Microsoft, Oracle, HP and Zensar, among others, have also set up research and development centres in Shenzhen.

The Konza city has also attracted NaiLab — a Kenyan ICT startup incubator — that said it intends to get a space at the Konza.

Founder Sam Gichuru said although the firm will still retain its Ngong Road facility in Nairobi, space in Konza will offer a conducive environment for software developers.

Mr Tanui said the techno city will prop up Kenya’s knowledge-based industries while providing world-class infrastructure, education and research facilities that create technology enabled business innovations.

“The city will have a vibrant mix of businesses, workers, residents, science and technology and urban amenities,” he said.

The authority intends to tap institutions of higher learning to drive innovation and reposition Konza as the premier information technology hub in Africa.

KoTDA aims to have at least three universities in phase one of development of the park, two secondary schools and eight public and/or private schools.

Apart from the local universities, KoTDA is also in talks with the renowned Korean Advanced Institute of Science and Technology to set up in the tech city.

The institute undertakes sophisticated research and development initiatives by collecting science and technology information globally and providing the information to companies and research institutions.

The Energy ministry intends to develop a National Energy Laboratory to carry out research and development of technologies for energy and petroleum sector.

Agencies in the ministry of ICT are in the process of setting up a Research and Innovation Centre at Konza city.

Kenya anticipates that growth in innovation will lead to an increase in patenting and boost production of skilled workforce for various industries.

The technopolis project, expected to cost of Sh595.8 billion upon completion in 2030, is being implemented as a public-private partnership, in which the government will play a minimal role of developing public infrastructure and regulatory guidelines.

The government will fund construction of a waste water plant, roads, security access and KoTDA offices to a tune of an estimated Sh52.2 billion.

Another Sh43.2 billion meant to finance ICT network, electricity and water distribution will be sourced from the private sector through private-public partnerships. The remaining Sh500.4 billion will come from direct private investments. \

In phase one, the government will spend Sh4.8 billion on road construction, Sh2.7 billion on electricity services and Sh0.98 billion to put up the Konza pavilion — a building that will house government departments.

The government will spend another Sh621 million on building a data centre.

The State agency has set the amount of capital required to invest in Konza to between Sh250 million and Sh2.6 billion for various projects earmarked for phase one.

Building of roads and an electricity network have already started at the site. The authority has also sunk several boreholes and signed a deal with Nol-Turesh Loitoktok Water and Sanitation Company to supply the techno city.