Kigali Special Economic Zone impacts Rwanda’s industrial growth

From the industrial skyline, smoke lazily and quietly billows and spirals over the undulating slopes of Masoro Hill, floating against the weakening spectrum of intermarrying sunset golden colours, giving an industrial character to the scene. The unspooling roads speak of work, the giant generators of manufacturing and trade.

Caption: Hon. Francois Kanimba, MINEACOM Minister


BY THOMAS KAGERA

From the industrial skyline, smoke lazily and quietly billows and spirals over the undulating slopes of Masoro Hill, floating against the weakening spectrum of intermarrying sunset golden colours, giving an industrial character to the scene. The unspooling roads speak of work, the giant generators of manufacturing and trade. A collection of spontaneously erected shanty shelters 10 years ago, the place is now awash with state-of-the-art factories, an epitome of Rwanda’s recent economic growth. 

It is here, about 10km east of Kigali, that more than 60 manufacturing small scale plants are cluster-anchored, forming the Kigali Special Economic Zone (KSEZ).

Kigali Special Economic Zone (KSEZ) is located in Masoro-Munini, and Kagarama-Musave at the outskirts of Kigali city, just a few kilometers from the Kigali International Airport along the Central Transport Corridor.

A Special Economic Zone, is a geographically specified and physically secured area administered by a single body, offering certain incentives including more liberal and simplified economic regulations for businesses to physically locate and operate within it. Special Economic Zones are generally implemented to meet fiscal, social, and infrastructure policy rationales. The most important fiscal goal of an SEZ is to facilitate economic growth through the use of reduced tariffs and more efficient customs controls.

SEZs provide the opportunity to cluster-anchor tenants with suppliers and other service providers, thereby creating jobs in skilled sectors and encouraging knowledge transfer.

The Kigali Special Economic Zone occupies 276 ha of land, donated by the government, as a subsidy, after compensating the sitting tenants. Prime Economic Zones (PEZ) thereafter carried out the market assessment, drew the master plan, did the physical planning, engineering studies, designs for infrastructures, demarcated the plots and developed the infrastructure including; the access and internal tarmac roads which are solidly strong to support heavy trucks. PEZ also provided water, electricity, Fiber-optic and each plot is connected to sewage treatment plant (STP).

The plots are sold to investors at a subsidized rate with incentives, including installments with a down payment of 30%, and a grace period of two years given after which they either fully pay the balance of 70% or pay in installments for five years with an interest rate of 10% this was in phase I.  For phase II, down payment is 30, grace period is one year and interest rate is 15%. 

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Caption: Special Economic Zone

The KSEZ has been designated and developed to accommodate different types of industries including; heavy and light manufacturing industries, large scale users industrial plants, industries requiring excellent national/international communication network, industries requiring close links with other firms (those firms which produce component parts for the same product or those involved in the separate stages of the same industrial process), wholesalers, chemical, pharmacy and plastics, warehousing, tourism and service industry and telecommunications among other services.

Rwanda has strategic access to four countries and catchment area of a consumer market of nearly 50 million people reachable by road, barely four hours away from Kigali in all directions. This market has a purchasing power of US$1-2 billion in basic fast-moving goods (FMCG) and another US$1.5 billion in consumer durables.

To maximize the benefits from this market, the GoR established the SEZ to enhance the country’s competitiveness as a commercial/logistics hub, taking advantage of her natural strategic location through the promotion of export oriented industrial activities as well as re-exports, manufacturing and services.

The genesis

The idea of establishing Special Economic Zones in Rwanda took shape in 2006 but the actual implementation took off in 2008. The Special Economic Zones Program is designed to address domestic private sector constraints such as industrial and commercial land, cost of energy, transport linkages, market access and reduced bureaucracy and availability of skills.
The Rwanda SEZ has been designed and developed to match the international standards and accelerate the economic development of the country.

In 2010 the SEZ regulatory framework that culminated into the SEZ policy was developed and the SEZ Law enacted in 2011. The law spells out all the requirements for the SEZs to exist, the structures and the roles of key players.

At the regulatory level, the Special Economic Zones Authority of Rwanda (SEZAR) has been established to regulate, coordinate, administer, and provide strategic planning and monitoring for Special Economic Zones in Rwanda in accordance with the Zones Law and Regulations. This Authority is based at the Rwanda Development Board.

Looking at the implementation, Kigali Special Economic Zone has been set up through the merger of former Kigali Free Trade Zone and the original Kigali Industrial Park projects.

Why SEZs

The SEZ policy objectives is to ensure successful SEZs that contribute significantly to the development goals of Rwanda (whilst utilizing public resources in the most effective way): increase foreign and domestic private sector investment, export growth and diversification, development of industry/ non agriculture sectors and creation of off farm employment and income.
In encouraging private investments, local and foreign are highly targeted in the SEZs; creating an ample and attractive business environment. This way, creating employment especially for the youth has been and will be made possible as the implementation of the programme continues to take root and shape. Phase II (178 ha) has 97% of infrastructures completed and already has 77.5% of plots booked. 

The SEZ has also enabled the establishment of world class infrastructure. All the investors are required to abide by the standards of the infrastructure in the country which once in place become a national asset.
The availability of commodities for local consumption has as well been realized and the creation of competition translates into affordable prices for products and services.

When the Kigali SEZ was started, the first project to be considered was the Agriculture Park, which was launched by H.E, President Paul Kagame in August 2013 in the first phase of the Kigali Special Economic zone. The Kigali Agriculture Park was established to support the provision of efficient and cost effective handling solutions for grain, seeds and fertilizers in the country, mechanization centre and fish processing plant.

For the SEZAR to live up to their promise to the various SEZ users (Investors), Developers and Operators, it enters into service level agreements with all Government Institutions such as the Rwanda Revenue Authority, Rwanda Environment Management Authority, Energy and Water corporations, the Ministry of Finance and Economic Planning, the Emigration and Emigration Department, Rwanda Housing Authority among others. These service level agreements also enable some of these institutions to provide relevant staff to beef up the SEZ one stop shop.

Status

Once the policy and regulatory framework was in place, the Kigali Special Economic Zone (KSEZ) was earmarked, investors started buying the plots from thence and construction ensued. So far, it is the only SEZ in Rwanda, but plans are underway to have more across the country.

For a business to benefit from the SEZ incentives, it has to be credible and bound to contribute to accelerated economic development with no negative effects on the economy.

The Kigali SEZ has been developed in two phases. The first phase is built on 98 hectares of land, of which construction was completed in 2013. All plots are fully booked by 61 investors, with all infrastructure developed—roads, water, electricity, communication networks among others, at  100% and  32 industries and 15 warehouses are operational.  Some industries are also relocating from the former Gikondo Industrial Park to the Kigali Special Economic Zone. Seven companies have been relocated and construction of the remaining 5 big industries  is expected to be completed by end June 2017.
Phase 2 (178 ha) is still under construction; infrastructure development started June 2014 and is currently 97% complete. Four (4) companies are already operational.

The relocation plan is part of efforts to help existing industries fit into the national industrial policy aimed at creating a conducive environment for industrial development.

Special Economic Zones in the EAC Context

Currently the EAC Partner States are at different stages of developing and implementing various Special Economic Zone (SEZ) schemes including Export Processing Zones (EPZs), Free Trade Zones, Free Zones, Industrial Parks and Freeport Zones. While EPZs and Freeport Zones are stipulated in detail in the EAC Customs Laws, other Economic Zone schemes are merely mentioned in the Protocol.

To ensure that Partner States embrace the evolution of economic zones in a structured and harmonized manner, the EAC Council directed that an EAC SEZ Policy be formulated by Partner States to form the basis of establishment of SEZs program in the EAC.

Such a policy will enhance regional cooperation by encouraging synergies, expanding market access and establishing necessary linkages required for sustainable development. In this respect, the EAC SEZ Policy will play a critical role particularly in developing a diversified and sustainable regional economy through development of intra-regional trade and integration of regional value chains.

Furthermore, this Policy will help EAC raise investment levels in various economic zones schemes, build new backward and forward linkages across the region, upgrade technological capacity and promote a more competitive integration into the world economy that can ensure sustainable development.

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