2.1.2 Export Promotion
As early as the late 1970s, the government of Kenya attempted to promote export oriented manufacturing.
The policy incentives initiated to promote manufacturing exports included the development of industries
in a wider sub-regional and continental basis. This initiative was accompanied by export promotion
measures such as export compensation schemes. According to McCormick (1999), these early attempts to
promote export oriented manufacturing did not succeed for two reasons. First, prolonged protectionism
made it more profitable for firms to sell their products in the domestic market rather than in global
markets. Second, firms were discouraged from taking advantage of export promotion schemes by
bureaucratic delays, inefficiencies, and the corruption that surrounded them.
In the mid 1980s the government introduced the Manufacturing Under Bond (MUB) legislation and the
green channel system for administrative approvals in order to promote industries manufacturing for
export. Firms operating under MUB are exempted from VAT on imported plant machinery, equipment,
raw materials and other imported inputs. Firms are also allowed 100 percent investment allowance on
plant machinery, equipment and buildings. The first MUB firms were founded in 1988 and, as of 2001, 79
MUB firms had been approved by the Investment Promotion Centre. Of these 79 firms only 15 were
operating in mid-2002. The majority of MUB firms closed down after the withdrawal of the Kenya
garment quotas in the US market. There is, however, the hope that some firms will become viable with
the implementation of the Africa Growth Opportunity Act of 199?.
Export Processing Zones (EPZ) were initiated in the 1989-1993 Development Plan period. By 1994 there
were six gazetted EPZs. A government body known as Export Processing Zones Authority manages the
EPZs. There are 23 EPZs in the country. Of these, two are developed and managed by the private sector.
EPZ firms are involved in many activities of which garment making is the most important. Other
activities in the EPZs include dried flowers production and computer software development.
Investors in the EPZ are drawn from Denmark, the US, Taiwan, Belgium, South Africa, Pakistan,
Germany, China, India, the Netherlands, the UK, Sri Lanka and Hong Kong. The firms operate in
designated areas and produce exclusively for export. Firms in EPZs enjoy several benefits including tax
holidays, exemption from VAT and duties on machinery, and lower priced raw materials and intermediate
inputs.
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