Inside Dongo Kundu’s plan to create regional industrial hub


Workers put final touches on the first phase of Dongo Kundu bypass in May. The road is now being used. FILE PHOTO | NMG

The Dongo Kundu Special Economic Zones Authority (SEZ) is set to start in July, kicking off a chain of events that are expected to make Mombasa a regional logistics and manufacturing hub.

The centre will comprise an export-processing zone (EPZ), industrial parks, free trade zones, as well as other auxiliary services such as tourism, meeting, conferencing and exhibitions. It will also have zoned residential areas for workers.

“Phase one consisting the industrial park - one of the projects whose detailed designs have been completed—will include, the port, the free trade zone, power supply, as well as water reservoir,” said Kiyonori Matsushima the Special Economic Zone Development Advisor at JiCA.

“Already a port access road inside the zone and SEZA administration block are under construction. The latter is set for completion within the year.”

The construction of the first phase will be done under JiCA loan scheme structured as a Sh6billion grant and a Sh50billion concessional loan payable within 30 years with a grace period of 12 years, and an interest of between 0.01 percent for consultants and 0.1 percent for civil works.

The zone, aimed at attracting a more significant share of foreign direct investment (FDI) and exports, as well as jobs, is being developed under the Ministry of Industrialisation and is expected to be fully operational by 2026, according to Mr Matsushima.

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To complement the upcoming SEZ is a network of transport corridor flows including road, maritime, rail and air, with the nearly completed four key trade infrastructures with its proximity to the standard gauge railway, the Moi International Airport, and the upcoming Mombasa Southern Bypass or Dongo Kundu bypass cutting right through the SEZ, as Kenya directs a significant investment at port infrastructure development with its sight fixed on maintaining its competitiveness in maritime port operations and global shipping in the region.

Kenya faces competition from the central corridor from Dar Es Salaam, Tanzania through Serengeti to DRC Congo.

The project at the Mombasa port doorstep is intended to enhance export volumes from Kenya, as part of its export promotion programmes.

The zone is one of the components of the Mombasa Port Development Project (MPDP) — a succession of projects aimed at expanding the capacity of the port and enhancing logistics along the Northern Economic Corridor leading to Eastern Africa’s hinterland countries served by the Port of Mombasa.

The countries include Uganda, Rwanda, Burundi, the Democratic Republic of Congo (DRC), South Sudan, Somalia and southern Ethiopia, as well as northern Tanzania.

Establishment of SEZs is already gaining increasing attention as a hub for investors with reduced red tape for entry and favourable tax regime.

As per the revised draft SEZ regulations (2019), companies operating in the zone will be exempted from VAT; reduced corporate tax from 30 percent to 10 percent for the first 10 years and 15 percent for the next 10 years; exemption from taxes and duties payable under the Customs and Excise Act (2014), the Income Tax Act (1974), the EAC Customs Management Act (2004), and stamp duty; and exemption from county-level advertisement and license fees.

In addition to an improved regulatory and administrative regime, a special customs regime, and an attractive fiscal regime, the zone will profit from four key trade infrastructures with its strategic proximity to the expanded Port of Mombasa with a New Container Terminal (CT-2), standard gauge railway, the Moi International Airport, and the upcoming Mombasa Southern Bypass cutting right through the Dongo Kundu SEZ, linking it to all the transport nodes and then to the local and regional economies.

The combined elements are expected to enhance Kenya’s position as a regional logistical and transshipment hub, with an eye beyond the East African countries that have always relied on the port.

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“The Dongo Kundu SEZ has the potential to completely change the economic dynamics of the region because it is connecting the Indian Ocean with Africa. And there will be much more trade activity and investment, which will really revitalise the economic activity in this region and create jobs for the region and beyond,” said Japanese Ambassador to Kenya Ken Okaniwa.

“With a location for regional pan-African operations—an area dedicated to the Africa Continental Free Trade Area (AfCFTA)—we anticipate that the port will provide growing access to regional markets, and a catalyst for local private sector development.”

The SEZ authority has said it will help SMEs establish direct exporting and subcontracting linkages with firms in the zone.

Similarly, across the SEZ the second container terminal at the Port of Mombasa is being completed. The SGR has been linked to the port for timely cargo evacuation and the port harbour channel widened to accommodate larger vessels.

With funding from the Japanese and Kenyan governments at a ratio of 95:5, the New Container Terminal (CT-2) is being developed with a loan amounting to Sh58.8 billion (Phase I—Sh26.7billion and Phase 2—Sh32.1billion), and for the 28km Dongo Kundu road a Sh40 billion loan.

“Already, with the ongoing port (CT-2) expansion project, Kenya is well on its way to more than doubling its container handling capacity,” explained Dr Stephen Mogere, Japan International Cooperation Agency (JICA’s) Infrastructure and Evaluation advisor.

“Dongo Kundu bypass is a very important road project because it will help improve the cargo evacuation system around the port.”

Dr Mogere who was speaking last week during a media tour of the port development projects said these projects were “ a forward-thinking project.

He said the port of Mombasa had exceeded its design capacity, yet was expected to handle growing imports and exports.